Financial Analysis Management

This project report analyzes the financial performance of Samsung and Apple, two leading companies in the telecommunication sector. It utilizes vertical, horizontal, and ratio analyses to evaluate their financial position, profitability, solvency, and liquidity. The report also examines their corporate social responsibility initiatives and concludes with a SWOT analysis of both companies. Desklib provides past papers and solved assignments for students.

Financial Analysis
Management & Enterprise

Table of Contents
INTRODUCTION...........................................................................................................................1
1. Overview of Samsung and Apple...........................................................................................1
TASK ..............................................................................................................................................2
2. Analyses..................................................................................................................................2
2.1 Vertical analyses...................................................................................................................2
2.2 Horizontal analyses...............................................................................................................3
2.3 Ratio analyses........................................................................................................................3
3. Conclusion...............................................................................................................................9
4. Corporate social responsibility................................................................................................9
5. Appendix...............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial analyses management is the process of evaluating a company's financial
statements in order to ascertain their true financial position in the market. This analyses is
performed with the aim of detect whether the specific company is stable, consistently growing,
solvent or not. This evaluation can be done by various tools such as ratio analyses, horizontal
analyses and vertical analyses. In this project report two competitive companies of
telecommunication sector are chosen, which are Apple and Samsung.
1. Overview of Samsung and Apple
Samsung electronics is engaged in telecommunication sector which was established in
1969 and since then, this organisation is showing considerably growing rate. Current, this
company is managing 220 subsidiaries and generating average annual revenue of 220 trillion.
This company is engaged in manufacturing products like printers, monitors, smartphones,
televisions, refrigerators, air conditioners, tablets and many more. The main objective of
Samsung electronics is to produce innovative products which can improve the standard of living
of their consumers. Samsung is considered as the world's largest manufacturers of television and
smartphones since 2011. Headquarters of Samsung is in South Korea and it operates in numerous
countries and have access across the globe. This company is the major vendor of tablet,
especially tablets which are Android powered. Vision statement of Samsung electronics is
“Inspire the world, create the future”, by which they have to achieve their aim of manufacturing
most innovative units of electronics.
Apple Inc. is an American multinational technology company which has its headquarters
in California and was established in 1976. This company designs, develops and sells electronics
and computer software. This company has a wide range of products including iPhone, iPad, iPod,
Mac book and many more. Apple is also engaged in providing various services such as
networking solutions. Examples of services provided by this company are iTunes, Apple music,
Mac app etc. Apple was founded by Steve Jobs and incorporated as Apple Computers, Inc.
Apple has captured major market share in the field of smartphones by introducing various
innovative and modern units of smartphones. Total revenue earned by this company is on
average 229 Billion per year along with high level brand loyalty. Marketing strategies of Apple
Inc., focuses of sophistication so that they can attract upper class segment of the market.
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TASK
2. Analyses
In this project product, various analyses such as vertical, horizontal and ratio analyses are
conducted in order to evaluate financial position of both the companies. Vertical and horizontal
analyses is done to ascertain growth of the company by measuring performance in percentage.
Ratio analyses is done to determine various aspects such as profitability, solvency and liquidity
ability of the organisation.
2.1 Vertical analyses
Vertical analyses of Apple
2014 2015 2016 2017
Revenue 100.00% 100.00% 100.00% 100.00%
Gross profit 38.60% 40.10% 39.10% 38.46%
Research and development expenses 3.30% 3.50% 4.70% 5.05%
Earnings before interest and taxes 33.80% 36.20% 34.00% 26.76%
Vertical analyses of Samsung
2014 2015 2016 2017
Revenue 100.00% 100.00% 100.00% 100.00%
Gross profit 37.70% 38.46% 40.41% 45.98%
Research and development expenses 6.97% 6.83% 6.99% 6.80%
Earnings before interest and taxes 12.13% 13.16% 14.48% 22.36%
Comparison of both the companies
According to the vertical analyses, Apple company has much more profit earning ability
than Samsung. Samsung shows increasing trend when it comes to profitability, but Apple shows
irregular trend in its profitability. Latest results of both these companies reflect that Apple earns
26.76% of profit against its sales revenue and Samsung earns 22.36% of profit against its sales
revenue. Gross profit earning power is relatively same of both the companies, that is 45.98% of
Samsung and 38.46% of Apple but due to several costs involvement such as research and
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development expenses, operating expenses, selling expenses etc. Samsung is earning low
income.
Conclusion
From the above analyses, it can be concluded that, Apple is earning more income than
Samsung, but Samsung is having increasing trend which can result into high earning ability in
few years. The main cause of low profitability of Samsung is high expenditure involvement than
Apple. There is a reasonable difference in the earnings of both the companies but little or no
difference in gross profit earnings, this deficit is caused due to inefficient management of
Samsung and less sophistication in the marketing strategies which results into attracting only few
segments of the market.
2.2 Horizontal analyses
Horizontal analyses of Apple
2014 2015 2016 2017
Revenue 7.00% 27.90% 7.70% 6.30%
Gross profit 9.70% 32.70% 10.00% 4.65%
Earnings before interest and taxes 8.40% 36.70% 13.20% 2.19%
Horizontal Analyses of Samsung
2014 2015 2016 2017
Revenue 1.80% 2.69% 0.60% 15.00%
Gross profit 1.00% 0.20% 9.00% 6.00%
Earnings before interest and taxes 6.89 5.25% 9.66% 45.00%
Comparison of both the companies
According to the above horizontal analyses of Apple and Samsung, it has been observed
that Apple is considerably earning more profit than Samsung expect for the year 2017 where
Samsung has earned profit of 45% against sales revenue and Apple has earned income of 2.19%
against their sales revenue, the main cause of this scenario is the innovative technologies which
are introduced by Samsung in the year of 2017. From the horizontal analyses, it has been clear
that Apple has a strong position in market and earning more profit than Samsung. Both the
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companies are developing in their own pace by developing new strategies which helps them
being a market leader so that they can capture major share of the market.
Conclusion
From the above analyses, it can be concluded that Apple has strong position in the market
and is earning more income than Samsung except for the year 2017 where Samsung captured
major share of market by launching its new products which were cost efficient and consumer
friendly. Year 2016 was challenging for both the companies due to which they both had low
productivity in terms of sales revenue as well as in terms of profitability.
2.3 Ratio analyses
Ratio analysis of Apple:
Ratio analyses is the tool of evaluating a company's financial position, so that a true and
fair position of an organisation can be ascertained (Chapman, 2011). Here, to analyse financial
situation of Apple, few ratios such as solvency, profitability and liquidity ratios are calculated
which are mentioned below:
Margins % of Sales 2014-09 2015-09 2016-09 2017-09
Revenue 100 100 100 100
COGS 61.41 59.94 60.92 61.53
Gross Margin 38.59 40.06 39.08 38.47
SG&A 6.56 6.13 6.58 6.66
R&D 3.3 3.45 4.66 5.05
Other — — — —
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Operating Margin 28.72 30.48 27.84 26.76
Net Int Inc & Other 0.54 0.55 0.63 1.2
EBT Margin 29.26 31.03 28.46 27.96
Liquidity/Financial Health 2014-09 2015-09 2016-09 2017-09 Latest Qtr
Current Ratio 1.08 1.11 1.35 1.28 1.45
Debt/Equity 0.26 0.45 0.59 0.73 0.8
Profitability ratios – These ratios are the financial tools which helps an organisation to
determine the profitability against their expenses. From the above ratio analyses of Apple
company it has been observed that this company has earned highest gross profit in the year of
2015 as 40.06 and lowest in the year of 2017 as 38.47. Similar to gross profit, operating profit
ratio of Apple is reflecting decreasing trend, highest in the year of 2015 as 30.48 and lowest in
the year of 2017 as 26.76.
Solvency ratios – These ratios reflect debt paying ability of an organisation. According
to the above ratios of Apple, it has been observed that Apple is consistently growing their ability
of debt payment. Latest debt equity of this organisation is 0.80 which is way higher than the
ratios of last four years. EBT margin ratio of Apple was highest as 31.03 in the year of 2015 and
lowest as 27.06 in the year 2017.
Liquidity ratios – Liquidity ratios shows current debt payment ability of an organisation.
Here, for Apple company, current ratio is calculated. The ideal current ratio is considered to be
2:1 but here highest current ratio of this company is 1.45:1 and lowest to be as 1.08:1 in the year
2014.
Ratio analysis of Samsung:
Ratio analyses of Samsung is performed to better understand their financial position in
the market. Here, few ratios are calculated which includes Solvency ratios (Debt-Equity ratios,
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Financial ratios etc.), Liquidity ratios (current ratio, quick ratio) and Profitability ratios (gross
profit margin, operating profit margin) (Elbashir, 2011).
Margins % of Sales 2014-12 2015-12 2016-12 2017-12
Revenue 100 100 100 100
COGS 62.21 61.54 59.58 53.97
Gross Margin 37.79 38.46 40.42 46.03
SG&A 11.53 11.38 11.32 9.98
R&D 6.98 6.83 6.99 6.83
Other 7.15 7.09 7.62 6.83
Operating Margin 12.14 13.16 14.49 22.39
Net Int Inc & Other 1.38 -0.23 0.73 1.06
EBT Margin 13.52 12.94 15.21 23.46
Liquidity/Financial Health 2014-12 2015-12 2016-12 2017-12
Current Ratio 2.21 2.47 2.59 2.19
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Quick Ratio 1.73 1.98 2.12 1.71
Financial Leverage 1.42 1.4 1.41 1.46
Debt/Equity — 0.01 0.01 0.01
Profitability ratios – After determining various profitability ratio of Samsung, it has
been observed that gross profit margin of this company is consistently increasing since year
2014. Highest gross profit margin of this company was as 46% in the year 2017 and was lowest
as 37.85% in the year 2014. Similar to gross profit, operating profit of this company also rising
with a increasing rate. This growing consistency shows that Samsung is slowly developing in the
market and capturing major market share.
Solvency ratios – Liquidity ratios of Samsung reflects the capacity of paying long term
debts. The debt equity ratio of this company is seen to be consistent from the year 2014 to year
2017 as 0.1. The financial leverage ratio of this company has recorded to be the lowest in the
year of 2015 and 2016 as 1.4 and 1.41 .
Liquidity ratios – These ratios are calculated to observe the capacity of the company to
meet its short term debt obligations. Here, current ratio of Samsung was recorded to be the
highest as 2.47:1 in the year 2015 which means that in the year of 2015, this company had a
efficient management and controlling activities.
SWOT analyses of Apple:
SWOT analyses is the internal external evaluation which helps in ascertaining several
strengths, weaknesses, opportunities and threats of an organisation. SWOT analyses of Apple
Inc., is discussed below:
Strengths:
 Apple has a innovative process in the field of designing and technology due to which
they introduce such innovative products and has a wide range of products (Golicic,
2013).
 The mentioned company holds a strong brand position in the market due to their
leadership position and loyal consumers.
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 Due to effective brand appeal, Apple earns high profit margins. Even after fulfilling all
the corporate social responsibilities, this is company is successful in achieving high
profits.
Weaknesses:
 Products offered by Apple are of high prices which makes it unaffordable for a lot of
people.
 Products of this company are incompatible with the subsidiary products of other
companies, which makes it undesirable.
 Apple has a limited distribution network and lack of innovation due to which consumers
tend to use other products which are relatively more cheaper and innovative (Weaknesses
of Apple, 2017).
Opportunities:
 Due to huge brand equity, consumers has high expectations from their future products.
 Various litigations levied on Samsung can result in opportunity for Apple, as Samsung is
the competitive brand of Apple which is facing issues of decreasing market share.
 Apple can expand their distribution network and can diverse their products, so that they
can increase their sales and earn more profit.
Threats:
 Electronics and technology sector is a growing industry, due to which Apple faces
aggressive competition from several brands like Samsung, Nokia etc.
 Various Asian countries, launches smartphones which are similar to iPhones but much
cheaper.
 Due to de localized factories and workshops of Apple, this company can face increased
labour costs in future.
SWOT analyses of Samsung:
SWOT analyses of Samsung helps in ascertaining internal and external strengths,
weaknesses, opportunities and threats. SWOT of Samsung is conducted below:
Strengths:
 Samsung has a strong brand value which helps them in acquiring high market share.
 Unlike its competitors, Samsung has a diversified product line and offers various
products such as Televisions, smartphones, refrigerators and many more.
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 This company has high financial leverage and financial stability (Grant, 2016).
Weaknesses:
 There are several litigations levied on this company due to patent infringements and
trademark issues.
 Samsung earns less profit margin due to their competitors who uses much more efficient
operating systems like iOS.
 Samsung has inefficient marketing communication system. This company is not engaged
in its related software industry which has high revenue margins.
Opportunities:
 Samsung has diversity in its product line due to which it can increase its market share in
all major product categories.
 This company can obtain patents through acquisitions which will also help them to
escape from several legal litigations.
 Growing smartphones industry is also a major opportunity of Samsung to earn more
profit and increase its productivity.
Threats:
 There are several cheaper choices in the market which are more affordable.
 Due to rapid technological changes, Samsung has to levy more funds on research and
development department.
 There are several competitors of this company, few of them are Apple, Motorola etc.
which are in leading position in the market.
 Samsung has a shorter product life cycle which results in internal disagreement of brand
role (Higgins, 2012).
Conclusion
From the above ratio analyses it has observed that, overall Apple has the strong
management. Average gross profit margin of Samsung is higher than Apple but Average Net
profit margin of Apple is higher than Samsung, this difference is caused due to level of cost
involved in the activities of Samsung, these costs are Research & development costs and selling
& administration costs. In case of liquidity ratio, capacity of paying short term debts of Samsung
is better than Apple. And in case of solvency ratios, ability of meeting long term debts
obligations of Apple is better than Samsung.
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3. Conclusion
After conducting several analyses such as Ratio analyses, horizontal analyses and vertical
analyses, it can be concluded that Apple Inc. has better financial position than Samsung
electronics. Apple Inc. evidently has high profitability than Samsung electronics as gross profit
and net profit margin of Apple was way higher than Samsung. Apart from Ratio analyses,
horizontal and vertical analyses reflects same results. Reason of low profitability of Samsung is
high costs involvement in the activities of this company, such activities are research and
developmental activities, selling and administration activities etc.
4. Corporate social responsibility
Corporate social responsibilities includes various programs and initiatives which are
performed in order to serve society. Various CSR activities conducted by Apple and Samsung
are discussed below:
Apple supporting local communities:
 Apple has initiated “Global Volunteer Program” which designed to help employees in
terms of volunteering in local communities.
 These initiatives are focused to allow employees to choose their projects in which they
would like to contribute (Hoyt, 2011).
Apple educating employees:
 Apple has launched an education and development program which offers free education
to the employees of several factories which has about 280000 workers.
 Apple has introduced a leadership program, under which this company expanded
employee benefits program in order to provide convenience to employees.
Labour rights at Apple:
 Due to continuous labour abuse, Apple has investigated several cases of foreign workers
abuse which helped them in fixing compensation and reimbursements.
 Apple has enforced various conducts which are considered to be the toughest in the
electronics industry (Wu, 2015).
 Apple has achieved an average 95% compliance among suppliers to maximum 60 hours
work week.
Employee health and safety at apple:
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 Apple has conducted a research which identify risks involved in supply chain
management which resultant to be improved standards in the office premises.
 In order to improve employee health and safety in the industry, Apple has launched
supplier academy which involves 18 month program for about 270000 workers (Li,
2012).
Energy consumption at Apple:
 This company has launched Mac mini device which is considered to be the world's most
energy efficient computer in the history having exceeding stars according to the energy
star guidelines.
 Apple Inc. uses 100% renewable energy in about 24 countries and 96% renewable
energy worldwide.
 Apple has the record of decreasing its total power consumption by 57% and has been
awarded for clean energy index of 100%.
Samsung supporting education:
 Samsung has build libraries so that children can have a clean and safe environment where
they can learn with various sources available by this company. These libraries serves
several countries including Iraq, India, Bolivia etc.
 Along with libraries, Samsung has initiated to introduce book donation camps, where
people can donate their books which will help children who can not afford study material
(Pardo, 2012).
Samsung empowering workers:
 Samsung provides training to all their employees and has prepared career consulting
centre which is used by around 5000 people.
 Annually Samsung conducts talent review sessions which nurture employees in order to
provide them an individual career path and clear vision.
Labour rights at Samsung:
 In countries like China, Samsung has conducted several inspections for child labour
prevention.
 Samsung has also helped workers which were eradicated due to migrant cooperation
(Pogrebova, 2017).
Employee health and safety at Samsung:
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 Samsung supports various employee health and safety measures such as prohibiting
business trips to areas which involves high risks for infectious diseases like Ebola.
 The employee safety team of Samsung monitors workplaces regularly in order to avoid
fire, explosions and spills of harmful chemical substances.
 Samsung has a separate health and safety management system due to which it complies
OHSAS 18001 standard for occupational health and safety management
systems(Wheelen, 2011).
Conclusion
After reviewing corporate social responsibilities of both the companies, it can be said that
Apple and Samsung both are equal in terms of fulfilling their social responsibilities. Both the
companies contribute towards community in order to educate unprivileged children. Apart from
society and community, these company has taken various initiatives in order to benefit their
employees and workers.
5. Appendix
Income statement of Apple Inc.
Income statement of Samsung electronics
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