Analysis of Apple Inc. and Samsung Electronics' Financial Performance

The report presents a detailed comparison of Apple Inc.'s and Samsung Electronics' financial statements, using various ratios to evaluate their profitability, efficiency, turnover, and growth rates. It also explores the companies' corporate social responsibilities, including their commitment to education, labour rights, employee health and safety, gender equality, and energy consumption.

Financial Analysis
Management & Enterprise

INTRODUCTION
Financial analyses is a method of evaluating financial statements in order to serve true
and fair financial position of the company. Apple Inc. and Samsung electronics are two
companies which are analysed in this project report. In order to analyse and interpret financial
performance of both the companies, various methods are used such as horizontal, vertical and
ratio analyses. The aim of this project report is to identify financial strengths and weaknesses of
these companies. The above mentioned companies are competitors of each other which are
engaged in telecommunication sector. Analysing methods like ratio analyses is been conducted
in order to determine profitability, solvency and liquidity of these companies. Along with
evaluation, various corporate social responsibilities are also discussed in this report.
TASK 1(A)
1.1: Comparison of financial Performance and Financial position of given companies
Samsung company
Samsung company is an electronic and information technology organisation which has its
headquarters in South Korea and was founded in 1969. Samsung electronics has divided into
four main divisions and they are Digital media, semiconductors, information & communications
and home appliances. Product range of this company includes televisions, smartphones,
refrigerators, monitors, printers and automation products. This company is considered as world's
second largest IT company by revenue and largest manufacturer of televisions. The above
mentioned company is a multinational enterprise which operates in numerous countries. This
company has 220 subsidiary company which has average annual revenue of 220 trillion euros.
Mission of Samsung electronics is focused on building a positive brand image by becoming
market leader. The primary aim of this company is to produce innovative technologies which can
improve standard of living of their consumers. Vision statement of this company is “Inspire the
world, create the future” which is focused on taking advantage of their strengths, innovative
products and new technology in order to contribute a better world (Aebi, 2012). Samsung has a
strong financial position in the market, various financial analyses of this company are discussed
below:
Ratio analysis of Samsung Electronics:
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Ratio analyses is a quantitative evaluation of data collected from financial statements of a
company. With the help of this analyses, various aspects such as liquidity, efficiency,
profitability of Samsung electronics can be evaluated. Main aim of this method is to examine and
compare various aspects of the financial performance (Chapman, 2011).
Various ratios and its interpretations are calculated below:
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 Profitability ratio – Profitability ratios are the financial tools which measures profit
making ability of an organisation. To determine profitability of Samsung gross profit
margin and net profit margin are calculated. According to gross margin, company
achieved highest profitability of 46% in the year 2017 and lowest of 37.79% in the year
2014. Similar gross margin, operating margin is also reflecting increasing trend which
shows this company is continuously growing but the huge deficit of these margins shows
high cost involvement in business activities.
 Solvency ratio – Solvency ratio are used to measure solvency level of the organisation
which helps in determining long term debt obligations of the organisation. This ratio can
be ascertained by dividing company's after tax income from debts. After calculating this
ratio, it has been observed that Samsung is having consistent debt equity ratio of 0.1 and
consistently increasing financial leverage ratio. Highest financial leverage ratio was
recorded as 1.41 in 2016.
 Liquidity ratio – These ratios are calculated to determine whether a company is capable
to meet their current financial obligations or not. Here current and quick ratio is
calculated to measure liquidity of Samsung electronics. After analysing these ratio, it can
be said that this company is having sound liquidity as ideal current ratio in this industry is
considered as 2:1 and here current ratio of this company is 2.47:1 which is comparatively
higher than the ideal ratio. Even quick ratio is also showing positive results, recorded to
be 2.12 as highest and 1.71 as lowest.
Horizontal analyses:
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%
Horizontal analyses is a method of analysing financial statements using a base year. In
this case year 2014 is considered as the base year from which it has been seen that 2017 was the
most profitable year but then also this company is facing problems regarding high expenditures.
(Cohen, 2017).
Vertical analyses:
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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%
Vertical analyses is a evaluation of financial statements of an organisation. Here income
statement has been analysed using this method so that all changes in expenditures can be
measured. From the below analyses, it has been clear that Samsung has earned highest profit in
year 2017 due to high sales revenue (Grant, 2016).
Apple company
Apple Inc. is an American company which deals in telecommunication and information
technology sector. This company was founded in 1976 and has headquarters in California,
United States. Founded by Steve Jobs this company manufactures high rated software and the
product line of this company includes iPhone, iPod, iPad, Mac book etc. Apple Inc. has 250
retail stores over the world. This company generates average annual revenue of 171 billion from
the personnel assets of 42,800 employees in total. Apple has a huge brand equity and customer
base which are devoted and loyal towards the company. According to Fortune magazine, Apple
considered as the most admired company of 2008. Apple Inc. has major share in the market of
smartphones. Mission of this company is to attain success as the most valuable company of the
world. Vision of this company is focused on producing innovative products which are simple and
not complex, which can make significant contribution in their customer's lives (Hull, 2012).
Apple is earning high revenues and in order to evaluate their financial statements, few analyses
are conducted below:
Ratio analysis:
Ratio analyses is used measure financial performance of an organisation using various
aspects of financial statements of the company. Here to determine liquidity, solvency and
profitability of Apple Inc. ratio analyses and its interpretations are conducted below (Jacobs,
2014):
Margins % of Sales 2014-09 2015-09 2016-09 2017-09
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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 — — — —
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 ratio – Under these ratios, capacity of earning profit is ascertained.
According to below analyses, company is earning highest profit in the year 2015 as 40.06
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and lowest in 2017 as 38.47. Due to less expenses involved in the operations of Apple,
operating profit margin was recorded highest in year 2017 as 30.48% and lowest in year
2017 as 26.76%.
 Solvency ratio – Solvency ratios are used as a technique to ascertain long term debt
payment ability of the organisation. According to the below conducted analyses, it has
been observed that Apple Inc. has sound debt paying ability as highest debt equity ratio
of this company was recorded as 0.80 in 2017 and lowest 0.26 in 2014 which reflects
consistent growth. Highest EBT margin ratio of Apple Inc. was recorded as 31.03 in
year 2015 and lowest as 27.96 in the year 2017.
 Liquidity ratio – These ratios indicates short debt paying ability of an organisation.
According to below performed ratio analyses, Apple Inc. has low liquidity as ideal
current ratio of this industry is considered as 2:1 and here highest recorded current ratio
of this company was 1.45:1 in year 2017 and lowest as 1.08 in year 2014.
Horizontal analyses:
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%
In order to analyse income statements of Apple Inc., a base year is chosen as 2014
according to this 2015 was observed as most profitable year for this company as they earned
27.90% sales revenue with gross profit of 32.70% which is highest amongst chosen 4 years.
Vertical analyses:
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%
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Under vertical analyses, sales revenue is considered as full capacity at 100% and every
aspect is calculated by considering sales as their base. According to below performed analyses, it
has been clear that year 2017 was the most difficult year of Apple Inc. because they earned only
38.46% of gross revenue and even lower net profit of 26.76%.
TASK 1(B)
SWOT Analyses of Samsung
SWOT analyses is the internal external evaluation of an company. Various strengths,
weaknesses, opportunities and threats of Samsung electronics are discussed below:
Strengths:
 Samsung has wide variety of products which facilitates their costumers with unique and
innovative electronic units.
 Samsung smartphones operates with Android operating system which is way simpler than
other systems and offer various features and options.
 By following concept of economies of scale, Samsung has decreased their production
costs and gained competitive advantage in manufacturing quality products and low costs.
 Samsung has their manufacturing operations at countries which has cheaper labour force
which decreases the cost of their products (Jing, 2011).
Weaknesses:
 Due to intense competition, Samsung offers their products at low prices which results
into low profitability of the organisation.
 Various litigations which are levied on Samsung has affected brand image of the
company. Third party permissions are also necessary which results in complexity.
 Due to wide product range, It becomes hard for Samsung to focus on every product.
Opportunities:
 Smartphone market is widely growing which provides an opportunity to introduce and
launch new innovative smartphones.
 Samsung can acquire small companies in order to attain new patent rights which can
provide them legal rights over those companies.
 Samsung has highly skilled workforce which can help in setting market in new countries
such as few African countries.
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Threats:
 There are large number of competitors of Samsung. Some of them are Apple, HTC,
Oppo, Vivo etc.
 There are various Chinese companies which are offering cheaper electronic products than
Samsung which affects demand and profitability of the company.
 Samsung has a wide product range and failure of one product affects productivity of other
products. This process even impacts brand image and brand equity (Paape, 2012).
SWOT Analyses of Apple
Strengths:
 Apple has been known for its innovative products which leaves an impressive imprint on
the minds of costumers. Their innovative product line which includes iPhone, iPod is
considered as their biggest strength.
 Apple has devoted customers with brand equity of estimated 118.9 billion. With high
brand value, Apple Inc. has attained market leadership.
 Apple uses sophisticated product design, which helps in capturing major market share
(Ramdani, 2013).
Weaknesses:
 Major issue with Apple products is that they are incompatible with other branded
products, due to which it results in undesirable for many people.
 Due to high brand value, there are huge customer expectations which is hard to be
maintained as working under pressure is not an easy task.
 Product range of Apple Inc. is relatively short due to which it has only few products in its
portfolio. Low range has high chances of company failure as they do not have much
products to compensate.
Opportunities:
 Apple Inc. can diversify their product line and can introduce more products in the market.
 Apple Inc. is engaged in information technology and this industry has always an
opportunity to upgrade their technology to gain competitive advantage.
 Industry in which this company is dealing has high growth rate due to which Apple has
an opportunity to increase their profitability by diversifying their distribution channel in
developing countries.
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Threats:
 Apple has major threat of market penetration which means threat of new entrants which
can obtain their market share.
 Apple Inc. has major competition in Laptop market. MacBook is the product of Apple
which faces intense competition from other laptops such as HTC, Dell, Sony etc.
 Apple smartphones uses iOS operating software which is way expensive and complex
than Android operating system.
 Low priced products of its competitive brands is also a threat to Apple smartphones
(Ghobakhloo, 2011).
Conclusion of the reports:
After evaluating financial statements of Apple Inc. and Samsung electronics with the help
of various analyses methods it has been observed that in spite of having huge customer base and
brand equity, last few years were problematic for Apple Inc. On the other hand, Samsung
electronics is consistently growing with a increasing rate due to their efficient management.
Horizontal and vertical analyses reflects that Samsung has huge expenditures involved in their
activities due to which they are having low income but those profits are high from Apple Inc. In
totality, Samsung and Apple are both growing companies but Apple is growing with a decreasing
rate and Samsung is developing with an increasing rate.
TASK 2
2.1: Critical analysis of CSR sections over the last couple of years
CSR of Samsung electronics:
 Education programs – Samsung has introduced smart classes which challenge
conventional methods of learning. Conventional methods includes learning from
textbooks, whereas smart study involves attainment of practical knowledge. The main
aim of this initiative is to decrease inferiority of low skilled manpower and poor
outcomes of higher education levels. This system has introduced with a vision of
improving level of innovation and creativeness. The Samsung smart class program
supports education through usage of technology and expertise tools. Combine efforts of
mentors and information technology can enhance standard of education.
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 Employability – The major corporate social responsibility which is fulfilled by Samsung
is job availability. The main aim of this initiative is to find solution for the biggest
problem of world's economy and that is unemployment. This issue is the base of various
social problems such as societal inequalities, lack of skills etc. and in order to eradicate
all these issues, Samsung has introduced various employment programs which provides
jobs to numerous career oriented individuals. According to few programs of Samsung,
educated graduates are trained in order to provide skills.
 Healthcare – After analysing current health scenarios, Samsung has observed that
urbanisation is the key issue of all health problems and accidental injuries and in order to
comfort society Samsung has initiated various programs. Main aim of these programs is
to enhance health care services in hospitals through upgrading medical equipment and
technologies. Samsung has installed automated biochemistry and haematology
equipments in various public hospitals. These equipments helps in fast diagnosis of
diseases. This company has also arranged various blood donation and camps and other
drives which contributes in society.
 Sports – Sports are considered as main element of society as they contribute at
international level. The main aim of Samsung is to improve sports infrastructure so that
sports person can motivate themselves. Sports programs of Samsung includes
advancement of sports culture by providing training to various sports person (Wheelen,
2011).
CSR of Apple Inc.:
 Education and Empowering Workers – Apple has initiated various programs which
provides rights of employees in order to chose projects related to contributing towards
local communities. According to few human resource policies of Apple, they provides
training to their employees in order to benefit them.
 Labour and Human right- Apple Inc. follows the supplier code of conduct which is
considered as the most difficult in electronics industry. This organisation is also engaged
in activities of investigation about labour abuse and with that they found several foreign
workers which were victims and Apple compensated them (CSR of Apple, 2016).
 Employee Health and Safety- Apple Inc. has a team of professionals who look after
improving standards of workstation in order to provide suitable work environment. Along
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with that this company has also launched an academy which allows employees to attend
classes about healthcare and safety.
 Gender equality and Minorities – Apple Inc. is the market leader and has huge brand
equity and this positive image is the result of no discrimination between employees in
terms of gender, race or minorities. In the year 2016, apple reached at equal pay to
employees position.
 Energy consumption – Apple Inc. runs on 100 percent renewable energy in around 24
countries. This is the only company which was awarded by Clean Energy Index. Apple
was praised by several environmental records (Wilson, 2012).
CONCLUSION
After preparing above project report, it has been observed that financial analyses and
management helps in ascertaining financial performance of the organisation. After performing
various analyses over Apple Inc. and Samsung electronics, it has been clear that Samsung is
earning high profits in spite of high brand equity and devoted customer base of Apple. Ratio
analyses helped in determining various aspects and Vertical, horizontal analyses helped in
ascertaining most profitable and challenging year for these companies. Various corporate social
responsibilities are ascertained by this project along with SWOT analyses. Ratio analyses is a
process of evaluating financial statement of an organisation using various ratios such as
profitability, efficiency, turn over etc. These ratios are the tools which are performed in this
report for interpreting income statement and balance sheet. Using these tools it has been
concluded that Apple has much more higher brand equity but then also Samsung electronics has
more growth rate.
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REFERENCES
Books and Journals:
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