Financial Analysis of Samsung PLC

This assignment delves into a comprehensive analysis of Samsung PLC's financial position. It examines key aspects like cash flow management, the impact of creative accounting techniques on strategic decision-making, and capital expenditure strategies for enhancing profitability. The analysis also highlights the significance of strategic planning, decision-making tools, and ratio analysis in understanding the firm's financial health and guiding future strategic plans.

Strategic Resource
Management
1

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Financial data information to inform business strategy.........................................................3
1.2 Significance of financial and information to formulate business strategy.............................4
1.3 Risk assessment regarding financial business decisions........................................................4
3.1 Technique used for appraising strategic capital expenditure projects...................................5
TASK 2............................................................................................................................................5
2.1 Financial statement analysis..................................................................................................5
2.2 Ratio analysis.........................................................................................................................6
2.3 Recommendations related to financial statement interpretation............................................7
TASK 3............................................................................................................................................7
3.2 Impact of creative accounting techniques when making strategic decisions.........................7
3.3 Limitations of ratio analysis tools..........................................................................................7
3.4 Significance of cash flow management when evaluating proposals for capital expenditures
......................................................................................................................................................8
TASK 4 ...........................................................................................................................................8
4.1 Capital expenditure appraisal.................................................................................................8
CONCLUSION..............................................................................................................................13
REFERENCE.................................................................................................................................14
2

INTRODUCTION
Strategic management is a concept for formulating and implementing strategies to reduce
issues occur at workplace. In this regarding improving effectiveness of entity by following
overall strategic plans. The present report is based on understanding strategic resource
management tools of Samsung Plc. It is public limited wide spread organization of UK that
provide electronic items to million customers. However, financial data and information analysis
for analyzing current organization's performance can be described. In accordance to this, critical
evaluation on collected data for strategic planning procedure and decreasing risks occur at
enterprise is to be expressed. Moreover, financial statements' interpretation to present economic
position of firm including ratio analysis and fund/cash flow statement. Along with this, cash flow
management and balancing expenditure for business operations is to determined. Thus, capital
expenditure appraisal for further investment to purchase new machinery equipment can be
expressed. Hence, proper strategic management and planning for entity's increasing efficiency is
to understood through this assignment.
TASK 1
1.1 Financial data information to inform business strategy
Covered in attached ppt.
1.2 Significance of financial and information to formulate business strategy
Covered in attached ppt.
1.3 Risk assessment regarding financial business decisions
Covered in attached ppt.
3.1 Technique used for appraising strategic capital expenditure projects
Covered in attached ppt.
TASK 2
2.1 Financial statement analysis
Financial statements including income statement, profit and loss account, balance sheet,
fund/cash flow statements are analyzed. On the basis of which, various tools and techniques are
created enhancing profitability of firm at high level (Brewster and et.al., 2016). In this regard,
3

finance department's manager recognizes last years' business performance regarding incurred
expenses and gained revenue that presents profit earning capacity of entity. Moreover, different
statements are identified through data interpretation and evaluating ratios related to profitability
and liquidity. In this process, economic growth of firm is obtained and varieties of ideas are
created for effective business management. However, statements' analysis is beneficial for
accomplishing tasks and increasing efficiencies of organization at high level (Edelman and et.
al., 2016). By comparing last two years' business performance, systematic strategic planning
procedure is created for decision making and implementing strategies. Thus, financial statement
analysis is useful for economic stability and improving monetary profile of organization at large
scale through implementing different strategies.
2.2 Ratio analysis
2014 2015
Net profit 23082499 18694628
Net sales 206205987 200653482
Net profit ratio 0.111939 0.0931687
Current assets 115146026 124814725
Current liability 52013913 50502909
Current ratio 2.2137543 2.4714363
Debt 1379871 1424046
Equity 162181725 172876767
Debt equity ratio 0.0085082 0.0082373
Financial manager of organization determines these ratio to present financial performance
of entity. In this regard, for evaluating liquidity and debt equity data of 2014 and 2015 are
analyzed. In which, current ratio for 2014 was 2.21 while in 2015, it raised as 2.47. Therefore, it
is determined entity has enough liquidity and cash for further investment as well it will be useful
for further implementation. In addition to this, debt equity ratio was 0.0085 which decreases in
2015 to 0.0082. Therefore, it can be forecast that in further years, organization can improve its
profit earning capacity and proper management of all business operations can be gained
4

efficiently. Thus, in future time, entity can develop its efficiencies and quality services at high
level.
2.3 Recommendations related to financial statement interpretation
Finance department manager recognizes financial statement through ratio analysis and
presenting economic performance at high level. it is determined that entity can improve its profit
earning capability and quality services in future time for better work performance. However, it is
interrelated with strategic planning and decision making process to enhance quality services at
high level.
TASK 3
3.2 Impact of creative accounting techniques when making strategic decisions
Creative accounting is a system to manage balance sheet. It provides different guidelines
and instructions for operating business activities related to incurring expenditures and gaining
revenue. However, proper balance between expenses and income is achieved through this
process. On the basis of its evaluation, strategic decisions are taken for implementing quality
services and efficiencies of firm at high level (Donovan, 2016). Moreover, creative accounting
components are important for preparing planning procedure and making decisions regarding
business activities. In addition to this, through using creative accounting tools, ideas are created
for creations and innovations in business operation. Thereby, decisions are made efficiently and
systematic estimation for planning procedure is obtained. However, it impacts on strategic
management and decision making tools for financial management as well increasing efficiencies
in future time. Along with this, decision making process can be proceed for implementing
business and competitive strategies that is helpful for financial development and improving
business performance to operate business activities. Moreover, auditors analyzes entire activities
and business management that is helpful for transferring information related to expenditure and
income. Along with this, trading skills and its account is managed thoroughly that impacts on
strategic decision making process. Thus, creative accounting is beneficial for effective goodwill
of organization as well managing inventories efficiently.
5

3.3 Limitations of ratio analysis tools
Ratio analysis is a financial component that is helpful to identify financial performance of
organization. Through this technique, comparison between last years' performance to present
year is created that impacts on organization's effectiveness. In addition to this, overall business
operations are analyzed through profitability, liquidity and debt equity ratios. Therefore, proper
entity's performance is obtained as well several ideas are created for operating business activities
in future time. As per critical evaluation, it is evaluated that ratio analysis is unable due to wrong
predictions over business operations. In accordance to this, inaccurate data interpretation is
difficult to set appropriate planning procedure and making decisions for strategic management.
Including this, occurrence of uncertain problems are not suitable for further business operations.
Moreover, it is difficult to analyze overall business activities as well determining so many ratios
that affects on financial performance of entity. Hence, it is required for manager of organization
to apply ratio analysis technique for identifying financial statements and making further
decisions related to business operations in future time (Ball and et. al., 2015).
3.4 Significance of cash flow management when evaluating proposals for capital expenditures
Cash flow is an approach for evaluating difference between outflows and inflows. In this
process, incurred expenditures and gained revenue are recognized for further investment and
getting sources to funding. It is significant for preparing strategies and making decisions related
to further implementation and enhancing its efficiencies for proper financial development. In
addition to this, financial position of organization is recognized that leads to create different
ideas that is helpful to enhance profitability of organization at high level. In addition to this,
capital expenditures are related to incurring expenses to operate further business activities are
determined. However, cash flow management is useful for evaluating proposals for capital
expenditures (Verschoor, 2015). Thus, cash flow management is crucial for implementing
strategies and increasing quality services for further business operations as well increasing
revenue for profitability.
TASK 4
4.1 Capital expenditure appraisal
Many-times, company has to put huge investment in the capital projects like for
acquisition of new machinery for the technological success, geographical expansion and others.
6

Such projects require large sum of money and bigger risky for the firm. Therefore, it seems
essential for the companies to examine the risk associated with the every investment alternative
and thereafter select the best course of action to derive greater yield (Catita and et. al., 2014).
According to the stated case, there are two alternatives available to the Samsung Plc that is either
to replace the old machinery and purchase the new ones. If old machinery is replaced then it will
receive a part time allowance of 120,000GBP. There are number of methods available to the
business for making the best investment decisions that are applied here as under:
Cash flow: Payback period, net present value and internal rate of return (examined
below) considers net cash flow for the project appraisal and evaluation purpose, whilst,
accounting rate of return measure the profitability of the project by considering the accounting
return.
Table 1 Calculation of initial investment
Replacement decisions Purchase
Initial investment 220000 220000
Less: Part time allowance 120000
Initial investment 100000 220000
Table 2 Calculation of profitability and cash flows under replacement option
Year 1 2 3
Number of units 90000 50000 30000
Selling price 5 5 5
Cash inflow 450000 250000 150000
Less: expenditures
Direct material 162000 94500 59535
Direct labor 67500 39375 24806.25
Variable overheads 40500 22500 13500
Repair & maintenance 7000 7000 7000
Depreciation 31500 17500 10500
Total expenditures 308500 180875 115341.25
Profitability 141500 69125 34658.75
Add: depreciation 31500 17500 10500
Cash flows 173000 86625 45158.75
7

Table 3 Calculation of profitability and cash flows under purchase option
Year 1 2 3
Number of units 90000 50000 30000
Selling price 5 5 5
Cash inflow 450000 250000 150000
Less: expenditures
Direct material 162000 94500 59535
Direct labor 54000 31500 19845
Variable overheads 27000 15000 9000
Repair & maintenance 1000 1000 1000
depreciation 49500 27500 16500
Total expenditures 293500 169500 105880
Profitability 156500 80500 44120
Add: Depreciation 49500 27500 16500
Add: Residual value 75000
Cash flows 206000 108000 135620
Non-discounted/traditional methods
Payback period: This is a non-discounted method which is useful for the risk averse
investors to find out the time length which the project will take to recover the beginning outlay
(Stanley and et. al., 2013). Shorter the duration is founded attractive for the investor or vice-
versa.
Table 4 Calculation of payback period under replacement
Year Cash flows Cumulative cash flows
Beginning investment -100000 -100000
1 173000 73000
2 86625 159625
3 45158.75 204783.75
Payback period = 100,000/173,000
= 0.58 year
= 0.58*12 = 7 months
Table 5 Calculation of payback period under buying option
Year Cash flows
Cumulative cash
flows
Beginning investment -220000 -220000
1 206000 -14000
2 108000 94000
8

3 135620+75000 = 210,620 304,620
Payback period = 1 year + (14,000/108,000)
= 1.13 year OR
= 1 year 1.5 month
Interpretations:
After deriving the output, it is considered better to advice Samsung Plc to replace their
old machinery costing worth 260,000GBP by the newer ones costing 220,000GBP at a part-time
allowance of 120,000 because by this, the beginning outflow of 100,000GBP can be generated in
7 months only. In contrast, purchase of machine will require a time of 1.5 month which is
comparatively greater.
Accounting rate of return: It aims at measuring the return of the project by making
evaluation of the net return or profit, so as to assess that whether Samsung Plc will be able to
meet out their shareholders expectations regarding return or not (Baker and Riddick, 2013).
Accounting rate of return (ARR): Average annual accounting profitability/Average investment
Average return = Total profitability/Number of years
Average investment = (Initial investment + scrap/residual value)/2
Table 6 Calculation of ARR under replacement option
Year Profitability
1 141500
2 69125
3 34658.75
Total 245283.75
ARR = 245.283.75/3/(100,000+0)/2*100
= 81,761.25/50,000*100
= 40.88%
Table 7 Calculation of ARR under buying option
Year Profitability
1 156500
2 80500
3 44120
Total 281120
9

ARR = 281,120/3/(220,000+75,000)/2*100
= 93,705.67/(295,000/2)*100
= 93,705.67/147,500*100
= 15.88%
Interpretations:
As per the results, it can be seen that the replacement option has greater ARR to 40.88%
in comparison to the purchase option as it was derived to 15.88%. It showcase that Samsung Plc
must replace their old machinery to take benefits of new technologies.
Discounted/modern techniques
Net present value: It is a discounted technique which believes that time value of the
currency must be considered while measuring the viability and feasibility of any project (Gelman
and et.al., 2014). This method discounts the cash inflows at an appropriate discounting factor and
subtracts from the initial outlay to find out the net return.
Internal rate of return: This technique just find out the rate which equates the present
value of potential cash inflows to the current investment or beginning outlay required. Higher the
IRR of a project looked attractive and viable.
Table 8 Calculation of net present value &IRR under replacement option
Year Cash flows Discounted value of 1GBP @ 15%
Discounted cash
flows
Beginning
outlay -100,000
1 173000 0.8696 150434.7826
2 86625 0.7561 65500.94518
3 45158.75 0.6575 29692.61116
IRR 121%
Total discounted cash inflows 245628.3389
Less: Beginning investment 100000
Net present value 145628.3389
Table 9 Calculation of net present value & IRR under purchase option
Year Cash flows
Discounted value of 1GBP
@ 15%
Discounted
cash flows
Beginning
outlay -220,000
1 206000 0.8696 179130.43
10

2 108000 0.7561 81663.52
3 135620+75000 = 210,620 0.6575 138486.07
IRR 68%
Total discounted cash inflows 399,280.02
Less: Beginning investment 220,000
Net present value 179,280.02
Interpretations:
Although PBP and ARR are founded greater in replacement option and IRR is also
computed to 121% which considers 1st option as more feasible. However, on the other side, NPV
which is the best method of assessing project feasibility suggests Samsung Plc to buy the new
machinery because its NPV is 179,280.02 above the NPV under replacement option to
145,628.34. Therefore, it is founded better to recommend the company to replace the old
machinery at a part-time allowance of 120,000 for the acquisition of the new machine costing
worth 220,000GBP so as to get a return of 179,280.02.
CONCLUSION
The report is concluded that strategic resource management is useful for effectiveness of
business organization. In this regard, importance of financial data and information analysis is
described. However, risk analysis and several techniques to reduce them are determined.
Moreover, significance of strategic planning procedure and decision making tools are considered
for effectiveness of Samsung Plc. Along with this, ratio and analysis and data interpretation is
recognized to present financial position of entity that leads to prepare strategic plans for further
years' implementation. Therefore, through this project report, impact of cash-flow management is
determined for adequate funding and enhancing profit earning capability of firm. However,
creative accounting techniques are presented for strategic decision making and preparing action
plans for entity's effectiveness. Along with this, capital expenditure techniques are presented for
choosing best adequate project planning related to enhancing profitability of organization
effectively through this assignment. Thus, importance of strategic resource management is
identified for proper allocation and management of fund related to increasing efficiencies of
entity.
11

REFERENCE
Books and Journals
Baker, H.K. and Riddick, L.A., 2013. International finance: a survey. Oxford University Press.
Ball, R. and et. al., 2015. Deflating profitability. Journal of Financial Economics. 117(2). pp.
225-248.
Brewster, C. and et.al., 2016. New Challenges for European Resource Management. Springer.
Catita, C. and et. al., 2014. Extending solar potential analysis in buildings to vertical facades.
Computers & Geosciences. 66(2). pp. 1-12.
Donovan, R., 2016. Impactful written communication: information has value only if it drives
action. Strategic Finance. 97(10). pp. 19-21.
Edelman, B. and et. al., 2016. To groupon or not to groupon: The profitability of deep discounts.
Marketing Letters. 27(1). pp. 39-53.
Gelman, A. and et. al., 2014. Bayesian data analysis. Boca Raton, FL, USA: Chapman &
Hall/CRC.
Stanley, D.J. And et. al., 2013. The efficient market hypothesis: the applicability of quantitative
methods to foreign stocks traded as American depository receipts (ADRs). International
Journal of Entrepreneurship and Small Business. 19(3). pp. 293-308.
Uechi, L. and et. al., 2015. Sector dominance ratio analysis of financial markets. Physica A:
Statistical Mechanics and its Applications. 42(1). pp. 488-509.
Verschoor, C.C., 2015. Too big to jail? Banks and financial companies are being prosecuted and
penalized for large-scale frauds and unethical actions, but the people behind these events
still aren't facing jail time. Strategic Finance. 97(4). pp. 16-18.
12