Financial Analysis and Comparison of Samsung and Apple

The assignment involves conducting horizontal and vertical analyses of Samsung electronics and Apple Inc. to identify their strengths and weaknesses in terms of financial stability. It also includes a discussion of various corporate social responsibilities of both companies to determine which one is better. Finally, based on the financial analysis, it can be concluded that Samsung is growing faster than Apple but Apple has high consumer base and brand loyalty.

Financial Analysis
Management & Enterprise

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1(A).......................................................................................................................................1
1.1: Comparison of financial Performance and Financial position of given companies........1
Horizontal analyses of Samsung Electronics:........................................................................6
Vertical analyses of Samsung Electronics:............................................................................6
Horizontal analyses of Apple:..............................................................................................10
Vertical analyses of Apple: ................................................................................................10
TASK 2..........................................................................................................................................11
2.1: Critical analysis of CSR sections over the last couple of years....................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15
APPENDIX....................................................................................................................................16

INTRODUCTION
Financial analyses is the process of evaluating business statements of an organisation
which helps in ascertaining a true and fair position of a company. In this project report, financial
analyses of two companies are conducted which are Apple Inc. and Samsung electronics. Both
the companies are engaged in manufacturing electronics such as smartphones, tablets etc. Due to
the competitive environment between these two companies, various analyses are conducted.
Ratio analyses is performed to ascertain various profitability and liquidity of the companies.
Horizontal analyses is performed to determine most challenging year by considering a period as
the base year and vertical analyses is performed to evaluate most challenging and profitable year
by calculating percentages of various costs and incomes involved in the organisation.
In this project report, various financial analyses of above mentioned companies are
conducted in order to evaluate strengths and weaknesses of both the companies.
TASK 1(A)
1.1: Comparison of financial Performance and Financial position of given companies
Samsung company:
Samsung is a multinational company which deals mainly in electronics, textiles,
insurance etc. and has headquarters in Seoul. Founded in 1938. Samsung electronics is a
telecommunication company which has 220 subsidiaries which generates annual revenue of
around 220 trillion euros. Product range of Samsung includes printers, computers, smartphones,
televisions, refrigerators, tablets, air conditioners and many more. The mission of this company
is to produce innovative products which can improve standard of living of their consumers.
Samsung has the major market share in the field of smartphones along with which it is
considered as the world's largest manufacturer of television. The new vision statement of
Samsung electronics is “Inspire the world, create the future” which focuses on growing their
strengths such as new technology and innovative products (Chapman, 2011).
Ratio analysis of Samsung Electronics:
Ratio analyses is a tool which is used to analyse financial position of an organisation.
Here, ratio analyses of Samsung is conducted in order to identify their profitability, solvency and
liquidity so that a true and fair picture can be framed. Various ratios with their interpretations are
discussed below:
1

Profitability ratios: These ratios reflects profit making ability of an organisation. From
the below ratios, it can be said that Samsung's gross profit margin is way higher than operating
profit margin and net profit margin due to the cost which is involved in the activities of this
company such as research and developmental activities. Highest gross profit margin of this
company was 46% in the year 2017 and highest operating profit margin was 22.39% in the year
2017.
A higher profitability ratio reflects high revenue generating power of the company, These
ratios are used to analyse comparison between companies or comparison between past years.
There are various types of profitability ratios and some of them are discussed below:
 Operating ratio – This ratio is used to determine earnings of an organisation in
percentage. Companies with high profit margin are considered to be highly capable of
paying fixed costs and other debt obligations. This helps in assessing strength of the
company.
 Gross margin – This ratio is used here to compare gross profit of Samsung to sales
revenue of Samsung. This ratio reflects earning power by accounting all the cost involved
in the production of goods and services. Higher the gross profit, higher the efficiency of
Samsung.
 Net profit margin – This ratio expresses comparison between operating activities of
Samsung and sales revenue of the Samsung. It helps in measuring the ability of company
to covert their sales into cash. Higher net profit margin means higher cash available in the
organisation. Managing this ratio considered as the most complex and complicated task
for an organisation.
2

0
5
10
15
20
25
30
35
40
45
50
40.42
14.49
46.03
22.39
Gross Margin Operating Margin
2016-12
2017-12
Solvency ratios: Solvency ratios are the tools which helps in determining long term debt
paying ability of an organisation. The debt equity ratio of Samsung is consistent for the last four
years as 0.1 and the financial leverage ratio of this company has recorded as 1.41 in 2016 to be
the highest. This ratio is used to determine ability of meeting its debt obligations. Some of these
solvency ratios are discussed below:
 Debt-Equity ratio – This ratio reveals the reliability of Samsung in order to available
inventory for the repayment of debts.
 Current debt to net worth ratio – According to this ratio, debt paying ability of this
organisation can be ascertained in terms of percentage.
3

0
0.005
0.01
0.015
0.02
0.025
0.01
0.01
2017-12
Debt/Equity 2016-12
Liquidity ratios: These ratios are the key to determine capacity of paying short term
debts of an organisation. Here to ascertain liquidity of Samsung, two ratios are calculated which
are current ratio and quick ratio. Highest current ratio of this company was 2.47:1 in the year
2015 and highest quick ratio of this organisation was 2.12:1 in the year 2016. Both of these ratios
are higher than the ideal ratio which shows that Samsung has efficient management practices.
These ratio accurately measure the liquidity of a company, some of these ratios are discussed
below:
 Current ratio – This ratio indicates ability to pay current liabilities from the amount of
current assets such as cash at bank, cash in hand. The formula of this ratio is current
ratio/current liabilities. Current assets are those assets which can easily concerted into
cash and current liabilities are those debts which can paid within an year.
 Acid test ratio – This ratio is helps in measuring ability of company of paying short term
debt obligations. The aim purpose of this ratio is to measure capability of Samsung to
meet its short term debts with its most liquid assets. Formula of this ratio is quick
assets/current liabilities.
4

0
0.5
1
1.5
2
2.5
3
2.59
2.12
2.19
1.71
Current Ratio 2016-12
2017-12
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
5

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
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
Horizontal analyses of Samsung Electronics:
Horizontal analyses helps an organisation in comparing their historical data of two or
more accounting years. This analyses is considered as base year evaluation, here base year of
Samsung is 2014. After conducting this analyses it can be said that the above mentioned
company was having highest profitability in the year 2017.
This analyses is also known as base year analyses as in this process, one year is
considered as base year which helps in measuring profit margins, inventory turnover and return
on equity. This evaluation procedure is beneficial as companies can change the way they break
down their operations segments. Major challenge related with this analyses is that information in
the financial statement can change time to time. Revenues, expenses and other elements may
shift from different accounts.
6

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%
Vertical analyses of Samsung Electronics:
Vertical analyses is the method of evaluating final statements which helps organisations
like Samsung in determining relative changes which are occurred in profitability and
expenditures over the years. Here, Samsung is having highest profitability as 22.36% in the year
of 2017. Apart from profitability, expenses which were incurred recorded highest in the year
2016 as 6.99%.
Vertical analyses is a technique which helps in determiming relationship between items
of income statement and balance sheet. This method compares sales revenue with other expenses
and other incomes of the organisation. This analysis can be performed on:
 Balance sheet – According to this method, assets and liabiloties are compared with total
assets. The comparision is presented in percentage form which shows proportion of total
assets.
 Income statement – In case of income statement, each expense is compared with total
sales revenue. Total expenditure is presented as a proportion of total sales revenue along
with amounts. The main advantage of using this analyses is to compare financial
statements of various companies. This comparision provide conclusions about financial
performance and financial position.
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%
Apple company:
7

Apple Inc. is a American multinational company which has its headquarters in California
and was incorporated in 1976. This company is engaged in manufacturing and designing
electronic units and computer software. Product range of Apple includes iPhone, iPad, Mac
book, iPod etc. and the service range of this company includes iTunes, iOS, iLife suite etc. Apple
is considered as most admired company of the world due to their innovative products which
focuses on improving a standard of living of their consumers. Apple generates annual sales
revenue of 32.48 billion with help of 35000 employees which are employed worldwide. This
company has a huge brand equity. Apple was founded by Steve Jobs and incorporated as Apple
Computers Inc. which has captured major market share of smartphones market by launching
various innovative technologies (Christoffersen, 2012).
Ratio analysis:
Ratio analyses is the tool of analysing a company's financial position. Here, final
accounts of Apple Inc. are evaluated with the help of ratio analyses. Various ratios which are
discussed are profitability ratios, solvency ratios and liquidity ratios in order to ascertain true and
fair picture of the organisation. Various ratios with their interpretations are discussed below:
 Profitability ratios: These ratios are considered as the financial tools which benefits an
organisation like Apple in calculating their percent of gross profit margin and net profit
margin. According to the below performed ratio analyses, company has earned highest
gross profit in the year of 2015 as 40.06 and lowest in the year of 2017 as 38.47 . In this
case, both gross profit and operating profit shows decreasing trend due to high
competition involved in the market of electronics.
8

0
5
10
15
20
25
30
35
40
45
39.08
27.84
38.47
26.76
Gross Margin Operating Margin
2016-09
2017-09
 Solvency ratios: These are the techniques of determining long term debt paying ability
of an organisation. According to this ratio analyses, Apple has relatively good debt equity
ratio. Current debt equity ratio of above mentioned company is 0.80 which is higher than
the ratios of last four years which shows that Apple is improving their debt paying ability.
Highest EBT margin ratio of Apple was recorded as 31.03 in year 2015.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
0.59
0.73
2017-09
Debt/Equity 2016-09
 Liquidity ratios: According to the below performed liquidity ratios analyses of Apple
Inc. it can be said that this company has average ability of paying short term debt
9

obligations. As the ideal current ratio is considered to be 2:1 but here highest current ratio
was recorded as 1.45:1 in the year 2017.
0
0.5
1
1.5
2
2.5
3
1.35
1.28
2017-09
Current Ratio 2016-09
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 — — — —
Operating Margin 28.72 30.48 27.84 26.76
10

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
Horizontal analyses of Apple:
From the below horizontal analyses, it can be said that 2014 was the base year of this
analyses and according to which year 2015 was the most profitable period for Apple Inc. as it
earned 32.70% profitability from the sales revenue of 27.90%. Year 2017 seen to be the most
challenging period as at that time Apple only earned 4.65% of gross profitability and even low
net profitability of 2.19%.
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%
Vertical analyses of Apple:
Vertical analyses is used to interpret final accounts of an organisation. Here, Income
statement of Apple Inc. is interpreted in order to identify the most challenging year. After
conducting this analyses, it can be said that year 2017 was the most difficult period for Apple as
it earned only 38.46% of gross profit and even low net profitability of 26.76%. The most
profitable year for Apple Inc. was 2015 as they earned 40.10% of gross profit in that period.
2014 2015 2016 2017
Revenue 100.00% 100.00% 100.00% 100.00%
11

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%
Conclusion of the reports:
By conducting various analyses of both the companies with the help of ratio analyses,
horizontal analyses and vertical analyses, it has been observed that Apple has strong brand image
due to which it earns more profit than Samsung electronics. Major reasons of low profitability of
Samsung are the high cost involvement in the activities of this company. Even after having high
customer base and profitability, Samsung is growing with a increasing rate and Apple is growing
with a declining rate which shows that Samsung has stronger financial position than Apple.
TASK 2
2.1: Critical analysis of CSR sections over the last couple of years
CSR of Samsung are mentioned below:
Samsung supporting local communities:
 In order to serve the community, Samsung has introduced various SMART schools where
education is provided to underprivileged students.
 Samsung has initiated a social program named as Solve for tomorrow which tackle
various important social issues to identify their solutions.
 Samsung is also engaged in de rooting poverty from the world by providing an efficient
infrastructure, clean water and construction of community centres (Paape, 2012).
Samsung Educating and empowering workers:
 Samsung provides training to their every employee in order to educate them about their
rights and responsibilities. Time for training per employee is 78 hours.
 The above mentioned company has launched various career consulting centres which
helps around 5500 people.
 This company has also initiated a talent review program which supports and encourages
new talents and provide them a clear vision for career path.
Labour and Human rights at Samsung:
12

 Samsung is engaged in inspection activities for child labour which helps children of few
Asian countries.
 This company is also engaged in eradication of forced labour in various places especially
in Malaysia.
Employee health and Safety:
 Samsung is majorly involved in activities related to employee health and safety.
Recently, they have initiated to prohibit business trips to the regions which are of high
risks of infectious diseases like Ebola.
 Samsung has hired a team of professionals who look after the occasional emergencies
such as natural disasters, fires etc.
Waste reduction and recycling by Samsung:
 Samsung is actively engaged in recycling their waste products which are extracted from
their plastic products such as monitors, printers, vacuum cleaners etc. (Ramdani, 2013).
Carbon Emission by Samsung:
 Samsung introduces Eco management practices which perform activities for reduction of
greenhouse gases. Green communications initiative of Samsung includes environmental educational courses
and events that support employee interest to participate in such events.
Corporate social responsibilities of Apple are discussed below: Apple Supporting Local
communities.
 Apple has initiated a program which provides rights to employees for choosing projects
of their own choice related to contribution towards local communities.
 Apple is engaged in contributing towards charities and non profit organisations around
the world (Vernon, 2014).
Apple Education and Empowering Workers:
 Apple has launched an education and development program which offers various courses
to thousands of employees of 18 factories.
 Under new human resource policies of Apple, employees can be benefited by the
programs which allows workers to expand their employee benefits to a considerable
extend.
Labour and Human right at Apple:
13

 Apple is engaged in the activities of investigation about the cases of labour abuse and
evidently investigated various foreign workers who were abused by their respective
organisation. These workers were given a considerable amount of compensation against
their abuse.
 Apple has enforced the supplier code of conduct, which is considered to be the most
difficult in electronics industry (Wilson, 2012).
Employee Health and Safety at Apple:
 An academy has been launched by this company which allows employees and supplier to
attend a 18 month program which aims to improve health and safety situations of
employees around the globe.
 The above mentioned company has conducted a research which resultant in improving
standards for managing workstation design changes.
Gender equality and Minorities:
 Apple considers their all employees as their assets, there is no discrimination in terms of
gender, race or minorities. To evident this statement there are 32 percent of female
employees, 9 percent of black people and 12% of Hispanic employees.
 In the year 2016, apple reached at equal pay to employees position.
Energy consumption by Apple:
 Apple Inc. is the only company which is awarded by Clean Energy Index of 100 percent.
 Apple runs on 100 percent renewable energy in around 24 countries.
 Apple has praised for various environmental records that include decrease of total power
consumption. This company has introduced Mac mini product which is considered as
world's most energy efficient desktop computer (Wu, 2014).
CONCLUSION
From the above project report, it can be concluded that financial management helps in
analysing performances of the companies. In this report, various analyses such as ratio analyses,
horizontal analyses and vertical analyses are conducted of Samsung electronics and Apple Inc. in
order to identify their strengths and weaknesses in terms of financial stability. Horizontal and
vertical analyses helps in determining profit making ability of an organisation which can reflect a
true and fair position of the organisation. Various corporate social responsibilities of both the
companies are discussed in order to identify which company is better. Finally, from the financial
14

analyses it can be concluded that Samsung is growing faster than Apple Inc. but Apple has high
consumer base and brand loyalty.
15

REFERENCES
Books and Journals:
Chapman, R. J., 2011. Simple tools and techniques for enterprise risk management (Vol. 553).
John Wiley & Sons.
Christoffersen, P. F., 2012. Elements of financial risk management. Academic Press.
Dunning, J. H., 2013. International Production and the Multinational Enterprise (RLE
International Business). Routledge.
Ghobakhloo, M., Arias-Aranda, D. and Benitez-Amado, J., 2011. Adoption of e-commerce
applications in SMEs. Industrial Management & Data Systems, 111(8). pp.1238-1269.
Cohen, J., Krishnamoorthy, G. and Wright, A., 2017. Enterprise Risk Management and the
Financial Reporting Process: The Experiences of Audit Committee Members, CFO s,
and External Auditors. Contemporary Accounting Research, 34(2). pp.1178-1209.
Jing, B. J. L., 2011. Government's R&D Subsidies and Enterprise Technology Innovation: An
Empirical Analysis based on the Perspective of Efficiency. Journal of Financial
Research, 6. p.016.
Lam, J., 2014. Enterprise risk management: from incentives to controls. John Wiley & Sons.
Paape, L. and Speklè, R. F., 2012. The adoption and design of enterprise risk management
practices: An empirical study. European Accounting Review, 21(3). pp.533-564.
Ramdani, B., and et. al., 2013. SMEs' adoption of enterprise applications: A technology-
organisation-environment model. Journal of Small Business and Enterprise
Development, 20(4). pp.735-753.
Vernon, R. and Aharoni, Y., 2014. State-Owned Enterprise in the Western Economies
(Routledge Revivals). Routledge.
Wilson, D. C., and et. al., 2012. Comparative analysis of solid waste management in 20 cities.
Waste Management & Research, 30(3). pp.237-254.
Wu, D. D., Chen, S. H. and Olson, D. L., 2014. Business intelligence in risk management: Some
recent progresses. Information Sciences, 256. pp.1-7.
Online
Opportunities of Apple. 2016.[Online]. Available through:
<http://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Apple_Inc_.aspx#.W
03Ul_F94l8>
16

APPENDIX
Income statement of Samsung
Balance sheet of Samsung
17

Income statement of Apple Inc.
18

Balance sheet of Apple Inc.
19