Financial Statement Analysis of Samsung plc

This report analyzes the financial statement of Samsung plc, focusing on profitability, efficiency, liquidity, and gearing ratios. It provides insights into the company's performance and strategies for improvement. The report also compares Samsung with its competitor, Apple.

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Financial Accounting

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
EXECUTIVE SUMMARY.............................................................................................................1
MAIN BODY..................................................................................................................................1
Company Background.................................................................................................................1
Profitability Ratios.......................................................................................................................1
Liquidity Ratios...........................................................................................................................5
Efficiency Ratios.........................................................................................................................6
Gearing Ratios.............................................................................................................................8
SUMMARY.....................................................................................................................................9
REFERENCES..............................................................................................................................10

EXECUTIVE SUMMARY
Financial statement analysis refers to process of analysing financial statement of the
company for decision making. There are several users of financial statements of the enterprise
that are internal and external. This is used by internal users for analysing the internal
performance of the enterprise. They identify whether the company has achieved the required
level of outputs as budgeted. This also helps the management to frame strategies to improve
performance and control procedures to maintain sustainability of the business. It is used by
external users for assessing the health and performance of company during the given time period.
Present report is based on the Samsung plc that is listed over stock exchange over worldwide.
Report has analysed the profitability, efficiency, liquidity and gearing ratio.
MAIN BODY
Company Background
Samsung is a South Korean company which is one of the largest producers of the
electronic devices in the world. Company specialises in production of the wide variety industry
and consumer electronics, inclusive of appliances, semi conductors, digital media, memory chips
and the integrated system. It is the most recognised name in the technology and the produces the
5th of total exports of South Korea. It is a private conglomerate company founded in 1938 that is
serving worldwide. It was having net assets of 265 billion, with revenue of 208.5 million and net
income of 37.1 million. Company is serving the whole world with its products that is enabling
the company to achieve the growth in the industry. Company is having a very strong financial
position with an efficient performance over the year. It will be achieving sustainable growth in
the industry with its continuous inventions and innovations in the technology.
Profitability Ratios
Profitability ratios have higher values relative to the competitor ratio or the relative to
same ratio from the previous year that indicates whether the company is doing well or not. Ratios
are useful in comparing the performance between years. Profitability ratios are commonly used
metrics for analysing the performance of the company during the given financial period.
Profitability of the company is analysed in different methods relating to different factors such as
over the capital employed, equity and revenues (Goncharov, Mahlich and Yurtoglu, 2018).
Different ratios used under the profitability ratios are as follows
Profitability ratio
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SAMSUNG APPLE
2019 2018 2019 2018
Employed
Capital
(Total Assets -
Current
Liabilities) 247784 231904 232798 249796
Net profit 18652 38049 55256 59531
Return on
capital
employed
Net operating
profit/Employed
Capital 7.53% 16.41% 23.74% 23.83%
Net Income 18652 38049 55256 59531
Shareholder's
Equity 225559 212579 90488 107147
Return on
Equity
Net Income /
Shareholder's
Equity 8.27% 17.90% 61.06% 55.56%
Return on Capital Employed
It is a financial ratio used for measuring the profitability of company and efficiency of
using the capital. It measures how efficiently company is managing its resources for generating
profits from the employed capital. Capital employed refers to the amount of capital that is
generating profits for the company. ROCE of company is 7.53% in 2019 that was 16.41% in
2018. It could be analysed that return of the company has shown downward movement of the
return. The return of the company has declined considerably from the last year. This was not due
to the decline in profit level or performance differences. The returns have lowered due to the
investment of new funds and capital in company. The new capital has been employed for the
expansion projects and new research and developments programmes. The returns of the company
shows that it is efficiently managing its available resources to generate profits over the same. On
the other Apple is having a constant ROCE of 23.83% over the two years.
A company that is not able to manage the resources may face issues related to the long
term sustainability of the business. Returns show the efficiency of the management strategies that
are implemented in the business for the management of resources and for generating profits. The
ratio provides that it is essential for the business to have adequate returns over their capital
employed (Ali, Kravet and Li, 2016). Company can improve the returns over its capital
employed by writing off the assets that are not productive and are of no use to the company. This
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will help in improving the return over capital employed of the company. ROCE is an important
ratio that is used by analysts and investors for assessing the capability of company of using the
resources in the best manner for generating profits over the business.
Return on Equity
Return on equity is measure of the financial performance of the enterprise. This measures
the return generated by the company over its equity investments. ROE is an ratio relevant for the
investors of the company both existing and that are planning to invest. It could be seen that
profits have declined of the company from the last year. There are several internal and external
factors that have declined the returns of company from the recent few years. ROE of the
company has shown down ward movement from last year. ROE of company was 17.90 in 2018
that has declined to 8.27% in 2019. There has been significant level of decline in the return on
equity in comparison with the previous years. Main cause of downward movement is due to
decline in the profit levels from the last year and the increase in shareholder’s equity. Profits
have not grown with the same proportion in which the equity has grown of the firm. On the other
Apple is giving high returns over its equity along with maximising their wealth. ROE of apple
has increased from 55.56% to 61.06 % in 2019.
Samsung is the most recognised brand in the world that has showing declining trend and
this can affect the reputation of the enterprise in the market. It will be affecting the market
position of the company having negative impact over the share prices of the business. Investors
are interested in the returns over their investments (Rahman, Ibrahim and Ahmad, 2017).
Company is required to reframe its business strategies for getting the required rate of return over
the equity for satisfying the investors with adequate returns. When the company shows decline in
the returns and also their wealth in not maximising it may cause the investors to make shift of
their investments withdrawing their funds. This may cause liquidity issues in the firm affecting
the overall position of business.
SAMSUNG APPLE
2019 2018 2019 2018
Cost of Sales 126335 113598 161782 163756
Sales 197690 209163 260174 265595
Gross Margin
Total Sales –
COGS/Total
Sales 36.09% 45.69% 37.82% 38.34%
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Net profit 18652 38049 55256 59531
Sales 197690 209163 260174 265595
Net profit
ratio
Operating
Income/ Net
Sales 9.43% 18.19% 21.24% 22.41%
Gross Profit Margin
Gross profit margin is a profitability ratio that is used by both internal and external
stakeholders of the enterprise for assessing the performance of the enterprise. Gross margin
analyses the ability of company in generating returns from its business operations before
carrying out its other operating costs of running the business. it is measured by subtracting the
cost of goods sold from the revenues earned from the sales of products and services. It ensures
whether company is available with sufficient margins of the profits. Company earned gross profit
margin of 36.09% in 2019 which was 45.69% in 2018. Gross profit margins of 30% - 35% are
considered adequate as per the standards. Margin of company is below the standard ratios. Apple
is having constant margin ratio of 38% approx during the two years with decrease in its cost of
sales.
The margin shows that the Samsung may have strong and effective management
practices though which it is efficiently and effectively managing its business. The strategies
adopted are not giving the company the returns required. At the same time, the superior quality
products could not be denied which the company is providing to its customers. This is the reason
behind the lower profit margins from the past years. Company is facing tough competition
around the world, there are number of new entrants in the industry every year that affects the
sales and position of company . For maintaining its position in the market company is required to
make compromise in its profit margins. (Dickinson, Wangerin and Wild, 2016).This would have
affected the company more than any other factor harming its reputation and trust gained in the
market.
Net Profit Margin
It is one of the most important profitability ratio used by the users of financial statements
for assessing the profitability of the business during the given time period. This shows the
amount of profits that are earned by the company after covering all the business expenses. It
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shows whether the company was profitable or not in the given period. The profit margins of
Samsung as declined to almost half from the previous year. Net profit ratio was 18.19 in 2018
that dropped down to 9.43%. it is a significant decline in the profit margins. Apple is having net
profit margins with stable rate in both the years of 21.41%.
Liquidity Ratios
Liquidity ratios are the ratios that are used by the analysts and experts for analysing the
short term debt obligations and the ability of company to meet its obligations with the available
current assets (Perobelli, Famá and Sacramento, 2016). It is essential to analyse the liquidity
position of the enterprise before the investments are made in the same. A company must have a
strong liquidity position to meet its obligations from the available assets.
Liquidity ratio
SAMSUNG APPLE
2019 2018 2019 2018
Current assets 155634 149895 162819 131339
Current
liability 54727 59274 105718 115929
Inventory 22966 24869 4106 3956
Quick Assets 132668 125026 158713 127383
Current ratio
Current
assets / current
liabilities 2.84 2.53 1.54 1.13
Quick Ratio
(Current
Assets -
Inventory) /
Current
Liabilities 2.42 2.11 1.50 1.10
Current Ratio
Current ratio is the metric used for assessing the liquidity position of the company with
the available assets. This shows that the business is required to have enough liquid assets for
meeting its short term obligations. Current ratio of the company should be around the industry
average of 2:1. This requires the company to maintain its working capital cash cycle in a manner
that company is left with required cash for carrying out its daily operations smoothly without any
interruptions or break. Samsung is having current ratio of 2.84 in 2019 where Apple is having
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current ratio of 1.54. This shows that Samsung is stronger in terms in liquidity position in
comparison with the Apple.
Strong position reflects that Samsung is having current assets for meeting the short term
obligations of around 2.84 times. Strong liquidity position is essential for company however too
high liquidity position also reflects that the funds are blocked in the company (Cordeiro
Perobelli, Famá and Claudio Sacramento, 2016). Company can strengthen its liquidity position
by investing its funds in the short term investments for earning short term returns that could be
withdrawn as and when required in the production or other business activities. Stakeholders such
as suppliers and investors are concerned about the liquidity position of company. This is
essential as suppliers want to know whether the firm will be able to make payments for the
supplies made to it for production purposes. They may not provide the firms with further
supplies if it is not having sufficient liquidity for making repayments.
Quick asset ratio
This is the ratio that is used by the experts for assessing the real liquidity position of the
enterprise. The ratio measures liquidity of company without considering the inventory. It is not
considered liquid asset by most of the experts as this cannot be sold in the market on immediate
basis. Due to this most of the experts measure liquidity without using inventory in the same.
Quick ratio of Samsung is 2.42 that was 2.11 in 2018. It has shown a upward movement in the
ratio making the liquidity position of Samsung more stronger. On the other Apple is having
quick ratio of 1.5 in current year and 1.10 in previous year. This is lower than the Samsung. This
shows that Samsung is having stronger liquidity position in comparison to its competitor Apple
(Sayari and Omri, 2017). It could improve its liquidity position by taking long term loans instead
of short term loan to meet its working capital requirements or to meet its short term obligations.
Efficiency Ratios
The ratio is mainly used for analysing the ability of company in managing its assets and
liabilities during the given year internally. Ratios calculate the turnover of assets, receivables and
the payable days that shows how efficiently managements in utilising its resources (Lara, Osma
and Penalva, 2016). It measures the performance of company using current assets and in other
words the amount of sales that it is able to generate using the resources.
Efficiency Ratios
SAMSUNG APPLE
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2019 2018 2019 2018
Trade
Payables 7480 7276 46236 55888
Trade
Receivables 30143 29059 22926 23186
Net Assets 225559 212579 90488 107147
Cost of Sales 126335 113598 161782 163756
Sales 197690 209163 260174 265595
Asset
turnover
ratio
Sales / Net
assets 0.88 0.98 2.88 2.48
Accounts
Payable Days
Sales /
Inventory
*365 13.81 12.70 64.86 76.81
Account
receivable
days
Sales /
Accounts
Receivable *
365 55.65 50.71 32.16 31.86
Asset Turnover Ratio
This is the ratio used by the enterprise to measure how efficiently company is utilising its
assets for producing the revenues. Higher the ratio more efficient the company in managing its
resources and generating returns over their assets. Asset turnover of Samsung is 0.88 which was
0.98 in 2018. The turnover is below 1 which means the company is not bale to generate sales
even up to the level of its net assets. This shows that the company is facing critical situation in
managing its assets to generate return over them. On the other Apple is having turnover of 2.88
in 2019 showing a upward move in the business. This shows that the management of Apple is
highly efficient in utilising its resources for the benefits of the company. It is generating sales
more than two times of the available assets. Samsung is not having the effective management
which may affect the business (Chircop and et.al., 2016). Lowering returns can affect the
business operations and profit levels. Managers are required to adopt new promotional strategies
that could help the company in generating higher sales for the firm. A company should be able to
generate sales at least 2 times of the available assets. Company may require disposing the assets
if it is not able to generate the required rate of sales on the assets.
Accounts Receivable Days
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It is the time or days up-to which customer invoice outstanding before they are collected.
Calculations indicate that company requires the typical invoices to cover the collection period.
The accounts receivable days should be lower than the payable days. The receivable days is
55.61 days in 2019 which was 55 days. The receivables days of the company are higher than that
of the Apple that is having collection period of 31 days. The company show this is essential for
the business to have adequate collection period for collecting the receivables. Samsung is having
high receivable days which show that it is giving higher credits to its customers for promoting
the sales of products (Mutiara, Zakaria and Anggraini, 2018). This is also one of the strategies
used by organisation to promote their sales in the market. When the customers are given higher
credit period the sales of the products rise from the previous sales. As the company is suffering
from lowering growth it is essential for them to provide the credit days for attracting new
customers for increasing the sales and maintaining required level of sales. Samsung is facing
tough competition from the other brands where on Apple has established its brand image due to
which, revenues are not affected by the entrants of new firms in the industry.
Accounts Payable Days
This reflects the time taken by the company to repay is outstanding bills payable. Every
organisation are required to have payable period higher than the receivables days so that they can
manage the cash cycle efficiently. Samsung is having the accounts payable days to 14 days in
2019 and 13 days in 2018. It could be seen that the payable days are less than the receivables.
Due to this reason it could be seen that the company payables lower than the receivables (Geyer
and et.al., 2016). On the other Apple is having payable days of 65 days which were 76 days last
year. Analysing the receivables and payable days of the Apple it is found that company is having
very effective cash cycle as compared with the other companies. This could be analysed from the
above data that the cash cycle of Samsung is not efficient and strong. It is having payable days
shorter than the receivables days that required the company to utilise is funds for the payments of
payables before the money is collected from the customers. This causes the company to break its
internal funds for payment. This is affecting the operations of the business and it may face cash
deficient in the future due to higher cash requirements for meeting its working capital
requirements.
Gearing Ratios
Debt
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SAMSUNG APPLE
2019 2018 2019 2018
Debt 76951 78599 91807 93735
Equity 225559 212579 90488 107147
Debt equity
ratio Debt/ Equity 34.12% 36.97% 101.46% 87.48%
Debt Equity Ratio
Gearing ratio is used to measure the solvency of the company. This is used for assessing
the financial risks associated with the business. Samsung is having debt equity ratio of 34.12%
with drop of around 2% from last year. Apple is having debt to equity ratio of around 1005
which means company is equivalent amount of debt in the company. Samsung is having lower
financial risk as compared with the Apple (Sandström, 2016). Samsung may raise further funds
by way of equity without increasing the financial risks where it will be not beneficial for Apple
to raise further funds by debt capital.
SUMMARY
Financial statements evaluate the position of the company to assess the ability of
company in achieving growth in future. Analysis of Financial statements is essential for the users
of financial statements of company The above analysis shows that the profitability of Samsung is
declining every year for which it is required to show serious concerns. In terms of liquidity it is
having string liquidity position as compared with Apple and is required to maintain the liquidity
position. Samsun in terms of efficiency is required to reframe its policies regarding the
receivables and payables days for having effective cash cycle. Gearing ratio of the enterprise is
strong as compared with the other competitor. Company may use debt for raising further funds
for the enterprise in case of other business projects.
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REFERENCES
Books and Journals
Goncharov, I., Mahlich, J. and Yurtoglu, B.B., 2018. Accounting Profitability and the Political
Process: The Case of R&D Accounting in the Pharmaceutical Industry. Available at SSRN
2531467.
Ali, A., Kravet, T.D. and Li, B., 2016. Accounting profitability and takeover
likelihood. Available at SSRN 2538902.
Rahman, M.H.U., Ibrahim, M.Y. and Ahmad, A.C., 2017. Accounting Profitability and Firm
Market Valuation: A Panel Data Analysis. Global Business and Management Research:
An International Journal.96(1S).pp.679-689.
Dickinson, V., Wangerin, D.D. and Wild, J.J., 2016. Accounting rules and post-acquisition
profitability in business combinations. Accounting Horizons.30(4). pp.427-447.
Perobelli, F.F.C., Famá, R. and Sacramento, L.C., 2016. Return and liquidity relationships on
market and accounting levels in Brazil. Revista Contabilidade & Finanças.27(71). pp.259-
272.
Cordeiro Perobelli, F.F., Famá, R. and Claudio Sacramento, L., 2016. Return and Liquidity
Relationships on Market and Accounting Levels in Brazil. Revista Contabilidade &
Finanças-USP.27(71).
Sayari, S. and Omri, A., 2017. Earnings management, accruals and stock liquidity. The Journal
of Finance.5(1). pp.17-28.
Lara, J.M.G., Osma, B.G. and Penalva, F., 2016. Accounting conservatism and firm investment
efficiency. Journal of Accounting and Economics.61(1). pp.221-238.
Geyer, K.M. and et.al., 2016. Microbial carbon use efficiency: accounting for population,
community, and ecosystem-scale controls over the fate of metabolized organic
matter. Biogeochemistry. 127(2-3). pp.173-188.
Chircop, J and et.al., 2016. Accounting comparability and corporate innovative efficiency. The
Accounting Review.
Sandström, A., 2016. Handbook of solvency for actuaries and risk managers: theory and
practice. CRC Press.
Mutiara, Y.T., Zakaria, A. and Anggraini, R., 2018. The influence of company size, company
profit, solvency and CPA firm size on audit report lag. Journal of Economics Finance and
Accounting.5(1).pp.1-10.
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