What are technology companies? When we think about the technology sector, this is very much a recent phenomena.

Google was only formed in 1998, YouTube in 2005, yet by 20 22, 4 of the world's five biggest companies by market capitalization are tech companies, namely Apple, Microsoft, alphabet, which is Google's parents and Amazon.

But this is also a high risk sector characterized by rapid growth, consolidation, acquisitions, and failures.

New businesses come and go in the face of new competition, new technology, changing trends, and changing customer preferences.

Former giants like Compact and Palm of Long Gone, the search engine. Alta Vista, once valued a 3.2 billion in 1999, was gone by 2013.

The main or common feature of many technology companies is that they don't sell physical products except for the PC hardware and the phones on which some of the software runs.

Most of the companies sell software or a service or content to be used and consumed often online for many companies in the sector. There's also a high degree of overlap between technology and media.

Old media companies, such as The New York Times and the Daily Mail offer their content online.

Under now, two of the biggest players in the online news sector, technology companies such as Apple with their music and Spotify have used the internet to transform the music world.

Amazon used their expertise in technology and their scale to compete in the film, music, and book sectors.

Media and technology companies are a highly diverse or heterogeneous group.

That means there's a wide variety of products and strategies.

There are B2B and B2C businesses, companies that charge premium prices, and then companies that give their product away for free, or perhaps they have a premium approach, which entices customers to sign up to a free service and then shift them to a premium offering.

Some companies make one-off sales while others use a subscription model.

Software. As a service, s A A S is growing rapidly.

This variety impacts the shape of company's financial statements and their prospects, which in turn affects their valuations.

We need a deep understanding of these aspects if we are to analyze this business successfully.

This variety of products and services and the range of approaches to the market makes it difficult to compare the financial statements of different technology businesses. Profit margins may be very different, or the shape of the balance sheet may not be consistent, that which means that one cannot Apply multiples from one company to another.

We need to consider some of the approaches that technology businesses take to their accounting and how this impacts their financial statements.