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Facebook Is in the Crosshairs of the Latest Data Scandal

April 5, 2018  By

Facebook, the platform we all know and love is in the news for being skimmed for information relating back to a data firm. People take for granted that their information is safe and secure, when in reality it may be easier to obtain then you thought. The stock has taken a tumble and Mark Zuckerberg is scheduled to testify on the issue. Shareholders should be little surprised that this occurred given the amount of information littered throughout the Facebook website.

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Reviewed by Vlad Skutelnik

Now, does that mean this is acceptable, absolutely not. Facebook and others have a responsibility to keep information safe, no matter what it is. Advertisers want the information Facebook has and in reality, the amount of info the company has is scary. However, the reason they have this information is because we allow them too.

How important is Facebook's Liquidity

Facebook financial leverage refers to using borrowed capital as a funding source to finance Facebook ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Facebook financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Facebook's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Facebook's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Facebook's total debt and its cash.

How is Facebook allocating its cash?

To perform a cash flow analysis of Facebook, investors first need to understand how to read the cash flow statement. A cash flow statement shows the amount of cash Facebook is receiving and how much cash it distributes out in a given period. The Facebook cash flow statement breaks down these inflows and outflows into different buckets, including operating activities, investing activities, and financing activities.

Breaking down Facebook Further

Shareholders need to be aware of the magnitude this could have been. Luckily the information that was skimmed is not world stopping, but it could be a scare that will lead to adjustments. The leader of this organization needs to be aware that if users feel they are not being treated right and exploited for sellable information, it will quickly crumble the giant.  

Under Armour was also in the same boat recently with the mobile app, My Fitness Pal being compromised, exposing passwords, names, and other sensitive information.  

Going forward, investors and potential investors need to keep an eye on quarterly reports. This is where the company will publically address the issue in detail for investors. You can get a tone for how the company feels and compare that against their actions. From there, you can begin to closely examine the financials and ensure the company is still sound.  

Be aware also of other large data breaches and understand how others are reacting. Facebook has many layers about them and something such as this could jeopardize the whole company. Trust is something that is difficult to earn back in the business world. The stock has taken a huge hit and this could either be value for investors, or a sign of what is to come.

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Editorial Staff

Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States. View Profile
This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Nathan Young do not own shares of Facebook. Please refer to our Terms of Use for any information regarding our disclosure principles.

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