ATHE Finance for Strategic Managers: Analysis of Financial Data

This report, prepared for an ATHE Finance for Strategic Managers module, delves into various aspects of financial analysis and strategic decision-making. It begins by evaluating diverse sources of financial data used to inform business strategy, including cash availability, revenue growth, and profitability ratios, highlighting their importance in strategic planning. The report assesses the significance of financial data in framing business strategy and examines the risks associated with financial decisions. It then reviews methods for appraising capital projects, such as Net Present Value, Internal Rate of Return, and Payback Period, and provides a financial analysis of Samsung Plc and Apple using liquidity, profitability, efficiency, and gearing ratios. The report also discusses creative accounting techniques, limitations of ratio analysis, and the benefits of cash flow management, concluding with an evaluation of capital expenditure proposals and recommendations for improvement. This assignment is a comprehensive analysis of financial management principles and their practical application in a business context.

ATHE Finance for Strategic Managers

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Evaluation of various sources that can be used in order to inform the business strategy............1
Assessment of requirement for the financial data and the information relating to framing of
business strategy..........................................................................................................................2
Assessing the risk associated in the financial decisions within the business...............................2
Reviewing the methods that could be used in order to appraise capital projects and the
strategic directions. .....................................................................................................................3
TASK 2............................................................................................................................................3
Financial analysis ........................................................................................................................3
TASK 3............................................................................................................................................6
‘Creative accounting’ techniques.................................................................................................6
Limitations of ratio analysis.........................................................................................................7
Benefits of cash flow management..............................................................................................7
TASK 4............................................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
This study will highlight, various sources of financial data which can be effectively used
to take strategic decision. It helps in assessing financial information in order to formulate a
strategy. It also analyses the risk associated with financial decision making. It will also review
methods which helps in appraising capital expenditure projects. This study will interpret the
financial statements of company and ratio analysis to assess the viability of the organization.
Furthermore, this study will highlight creative accounting techniques, limitations of ratio
analysis and importance of cash flow management. Lastly, it will also evaluate capital
expenditure proposals with the help of effective financial techniques.
Samsung plc is an electronic multinational Korean company which was founded in the
year 1969 and is headquartered in Samsung Digital City, Suwon, South Korea. This company
operates business worldwide and deals in consumer electronics, home appliances and
semiconductors.
TASK 1
Evaluation of various sources that can be used in order to inform the business strategy
There are several aspects that could be used by Samsung Plc for the purpose of informing
business strategy as follows-
Cash availability- For developing the strategy for the business it is important to the know
the net cash that is available within the business as it states the financial fitness (Boyas and
Teeter, 2017). It indicates the efficiency level through which the organization is making use of
its financial resources. This metric is been used by the company for the making the strategy
regarding the capital expenditures and the advancements in the current projects.
Revenue growth- The quality, quantity and the timing the revenues are the major
determinants of the business in order to measure the long term success and is major concern in
making the strategic planning (Konstantin and Konstantin, 2018). Before developing the
strategy, Samsung Plc has to assess it growth in the sales and accordingly taking appropriate
measures.
Profitability ratio- It is one of the critical measure that is taken into account in relation to
inform about the business strategy (Sisodia, Soares and Ferreira, 2016). Samsung Plc should
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have to establish the appropriate goals in respect of its profitability ratio, as it is necessary for
making the plan for the purpose of the increasing the effectiveness within the operations and in
achieving the improvements within the entire value-chain.
Assessment of requirement for the financial data and the information relating to framing of
business strategy
Financial data or the statements are of great importance in order to frame the effective
business strategy as it communicates the financial position and the performance of an entity
(Features of Financial Statements, 2019). If in case the profits are declining and the debts are
increasing then it is of major concern for Samsung Plc and is necessary for developing the
strategy by keeping in mind these aspects so that improvements can be resulted in the
profitability of the organization (Häcker and Ernst, 2017). Financial data are very useful as it
reports for the operational efficiency and in making the suitable decisions regarding the
investments made and in making the strategic decisions relating to the financial improvements
that are required to be made for reaching the goals with efficiency.
Assessing the risk associated in the financial decisions within the business
Financial risk is an important aspect that is attached to the business in making the crucial
decisions regarding the finances within the business. There are various risk that are been faced in
running the business that includes strategic risk, compliance risk, operational risk, reputational
risk and the financial risk. In making the suitable financial decisions, risk regarding debt and the
financial leverage is been faced (Scholes, 2015). On the other hand business risk means the
ability of an entity in generating adequate revenue in order to cover the operational expenses. As
the debt of the Samsung Plc is managed so it does not have any financial risk and in turn could
be able to pay-off its financial obligation in an easy way. This reflects that the company will not
face the risk in relation to its leverage condition. The major factors that affects the financial
decision making of the company is the changes in the interest rate and the overall change in the
debt financing of an entity.
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Reviewing the methods that could be used in order to appraise capital projects and the strategic
directions.
There are different methods that could be used by the company in order to choose the
profitable and the growing project. For appraising the proposal different methods that could be
used are as follows-
Net present value- It is the most important investment appraisal method that measures
the difference in between the present value of the cash outflows and the inflows. It helps in
assessing the profitability from the projected investment or the proposal (Warren and Seal,
2018). Positive value of the specific project states that the project is profitable while the negative
value indicates that the proposal will resulting a net loss. Therefore, this method enables the
company in making suitable strategic decisions and selecting the best project from the available
alternatives.
Internal rate of return- It is the metric that is used for estimating the returns that will be
generating from the potential investments. It is the discount rate which makes the NPV of all the
cash flows from the specific project equated as zero. The higher the IRR of a project, more better
returns it will be attaining (Zainudin and Hashim, 2016). Thus, it helps the organization in
adapting the most profitable proposal that helps in attaining growing success in the future.
Payback period- It is the capital budgeting method that will helps Samsung Plc in
knowing the time period that will be taken by the project in order to recover the original cost of
the investment (Hillson and Murray - Webster, 2017). It reflects the desirability of a particular
proposal. The shorter the payback period, the investment will be counted as more attractive.
TASK 2
Financial analysis
Samsung Plc Apple
Particulars 2017 2018 2018
Liquidity ratio
Current Ratio
Current Assets 146982464 174697424 131339
Current Liabilities 67175114 69081510 116866
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Current Ratio = Current Assets/
Current Liabilities 2.19 2.53 1.12
Quick ratio
Current assets 146982464 174697424 131339
Inventory 24983355 28984704 3956
Quick assets=Current assets-stock 121999109 145712720 127383
Current liabilities 67175114 69081510 116866
Quick ratio= Quick assets/current
liabilities 1.82 2.11 1.090
Profitability ratios
Operating Profit Margin
Operating Profit 53645038 58886669 70898
Total Revenue 239575376 243771415 265595
Operating Profit Margin =
Operating Profit /Total Revenue 22.39% 24.16% 26.69%
Net Profit Margin
Net Profit 41344569 43890877 59531
Net sales 239575376 243771415 265595
Net Profit Margin = (Net Profit/ Net 17.26% 18.00% 22.41%
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sales)*100
Efficiency ratio
Fixed assets turnover ratio
Net sales 239575376 243771415 265595
Average fixed assets 43359807 72439716 129481
Fixed assets turnover ratio=Net
sales/average fixed assets 5.53 3.37 2.05
Asset turnover ratio
Net sales 239575376 243771415 265595
Average assets 111298279 132073468 192456.5
Asset turnover ratio= Net
sales/average assets 2.15 1.85 1.38
Gearing ratios
Debt -equity ratio
Total debt 2710269 996935 93735
Shareholders' equity 207213416 240068993 107147
Gearing = Total debt /Shareholders'
equity 0.01 0.00 0.87
Interest coverage
EBIT 53645038 58886669 70898
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Interest Expenses 655402 674617 3240
Interest coverage = EBIT/Interest
Expenses 81.9 87.3 21.9
Interpretation- From the above table it has been interpreted that over the years the
current ratio of Samsung Plc is showing an increasing trend and is greater than the ideal ratio
which means that the company is making efficient use of its current assets so that it could be able
to meet its current obligations. Moreover, the current ratio of Samsung Plc is also higher than its
competitor that is Apple. This means that overall liquidity position of Samsung Plc is better than
Apple. Quick ratio of the Samsung Plc is also greater than Apple which clearly reflects that the
the company is having sufficient cash in order to pay off its current liabilities. Overall the
profitability ratio of Samsung Plc is increasing over the years but is earning lower profit margins
as compared to Apple company. This reflects that the performance in terms of the profitability is
better of Apple than Samsung. Thus, company must increase its profit margins in order to
increase its operating and net profit ratio. In the year 2017, the net fixed asset turnover ratio of
Samsung Plc was higher than Apple but during the year 2018, it ratio decreases and reaches to
3.37 from 5.53. It means that an enterprise is not making an effective use of its fixed assets for
the purpose of generating the sales (Alkaraan, 2017). However, the asset turnover ratio of
Samsung Plc is resulting better outcomes as compared to its competitor. On the other hand the,
its efficiency ratio over the year is declining which means that its assets are not been used
effectively for gaining higher sales. The gearing ratio includes the analysis of the Debt and the
interest related obligations of the company. The debt-to-equity ratio of Samsung Plc is much
better than Apple as its ratio is lower and it has been stated that lower ratio depicts better
solvency position of the company. The Debt equity ratio of Samsung Plc is declining over the
year and resulting to zero, this means that its debts are very less against its equities and the
company is fully capable in meeting its long term obligation (Akter and et.al., 2016). Interest
coverage ratio of Samsung Plc is higher than Apple which indicates that it has adequate earnings
in order to pay-off their interest obligation. Moreover, over the years it ratio is increasing which
means that its operating income is increasing and the interest obligation is reducing.
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Recommendations-
Samsung Plc must take necessary measures in order to improve its profitability ratios like
it has to eliminate the activities that is irrelevant and the products that are unprofitable.
Organization must focus on gaining larger customer base and reducing the cost in relation to
overheads. This will helps the firm in gaining the competitive edge against Apple and in the
overall market. By making timely review of the pricing structure and by increasing the rate of
conversion, an entity can earn larger profit margins. Increasing the sales revenue by capturing
larger market and by increasing the customers base through expanding the business in the new
market.
TASK 3
‘Creative accounting’ techniques.
‘Creative accounting’ is an effective accounting practice as it follows standard laws and
regulations (Bhasin, 2015). Creative accounting technique capitalise on loopholes in the various
accounting standards in order to falsely depict a better image of the organization (Sadgrove,
2016.). Financial statements of the company is used to analyse the financial health of the
company. However, when organization gets indulged in creative accounting then this distort the
worth of financial information. This leads to tweaking of amounts which leads to higher
valuation of the company (Tassadaq and Malik, 2015). There are various techniques such as
overestimation of revenues, lowering depreciation charge, delaying expenses, masking of
contingent liabilities, manipulation of inventory, etc. ‘Creative accounting’ techniques is an
unethical practice as it leads to distortion of reality by changing figures. It also misleads to the
various users of financial statements.
Limitations of ratio analysis.
Ratio analysis is a method which helps in evaluating the financial health and performance
of the company (Faello, 2015). They highlight the financial statements and determines the
relationship between various items in the statements which in turn helps in assessing the
financial performance and health of the organization. There are various limitations of ratio
analysis which includes:
 Financial ratios does not take into consideration qualitative and non- monetary
transactions of the firm.
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 This does not resolve the financial problems of the firm.
 It is based on past historical data which does not results in accurate information.
 It may lead to skewness of the results which in turn affects the viability of the outcomes
(Ebner and et.al., 2018).
 Ratio analysis does not integrate accounting policies which may lead to biasses and does
not exhibit true information on comparison between two or more companies.
Benefits of cash flow management
Cash flow management is an effective process as it helps in tracking inflow and outflow
of the money from the organization.
 It is useful in keeping track of all the expenses and maintaining liquid cash to pay off the
expenses.
 It helps in expansion of the business by relying less on external resources of the
company.
 It helps the company in assessing their cash position and in keeping the control over the
irrelevant expenditure.
 It facilitates detailed information in relation to the quality of an enterprise revenue.
 This statement cannot be manipulated as it reflects the information of the cash inflows
and the outflows.
 It provides for the information of all the sources that generates cash receipts and the
payments for the organization.
 It helps in evaluating the changes that occurs in the operating, investing and the financing
activities of the company.
 It assist the management and the users in making the best possible decisions in terms of
financial and economic aspects (Sadgrove, 2016).
 Firm by making use of the cash flow statement can determine its financial structure and
the ability of the corporate in order to adopt the changing conditions and the
opportunities.
 It enables the managers of an entity in making an effective plan and in attaining the
coordination among the employees.
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TASK 4
Current
ye
ar
mat
erial
labo
r
over
head
deprec
iation
repairs
&
mainte
nance
Tota
l
outfl
ows
EBI
T/
EA
T
add:
deprec
iation
Cash
inflo
w
PV
fac
tor
@
15
%
Disco
unted
cash
flows
1
450
000
162
000
675
00
4050
0 31500 7000
308
500
141
500 31500
1730
00
0.8
7
15051
0
2
250
000
945
00
393
75
2250
0 17500 7000
180
875
691
25 17500
8662
5
0.7
56
65488
.5
3
150
000
595
35
248
06.3
1350
0 10500 7000
115
341
346
58.8 10500
4515
8.8
0.6
58
29714
.5
Total
disco
unted
cash
flows
24571
3
Less:
capita
l cost
26000
0
NPV
-
14287
New
year
materi
al
la
b
o
r
ov
er
he
ad
deprec
iation
repairs
&
mainte
nance
Tota
l
outfl
ows
EBI
T/
EA
T
add:
deprec
iation
Cash
inflo
w
PV
fac
tor
@
15
%
Disco
unted
cash
flows
1
450
000
16200
0
5
4
0
0
0
27
00
0 49500 10000
3025
00
147
500 49500
19700
0
0.8
7
17139
0
2 250
000
94500 3
1
5
0
15
00
0
27500 10000 1785
00
715
00
27500 99000 0.7
56
74844
9

0
3
150
000 59535
1
9
8
4
5
90
00 16500 10000
1148
80
351
20 16500
12662
0
0.6
58 83316
Total
disco
unted
cash
flows
32955
0
Less:
capita
l cost
10000
0
NPV
22955
0
CONCLUSION
From the above study it has been summarized that finance is an essential aspect for the
managers that helps in gaining the efficiency in managing the financials by making optimum use
of the funds so that larger returns could be generated. It helps in determining the money flow
within the entire financial system. In order to gain the operational efficiency and the in managing
the working capital, it is very important for Samsung Plc to have adequate funds so that it could
be able to meet the uncertain circumstances if any occurs in the long run.
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