ATHE Level 7 Finance: Strategic Analysis of Samsung PLC

This report provides a comprehensive analysis of Samsung PLC's financial performance, focusing on key aspects such as financial statement interpretation, ratio analysis, and strategic decision-making. The report examines the company's liquidity, leverage, efficiency, and profitability ratios over three consecutive years, highlighting trends and potential areas of concern. It also delves into the impact of creative accounting techniques on strategic decisions, discussing their positive and negative implications. Furthermore, the report explores the importance of cash flow in evaluating capital expenditure proposals, recommending valuation techniques for informed strategic decision-making. Finally, the report includes a capital expenditure appraisal, comparing the financial viability of current and new machine investments, and concludes with a recommendation for the most financially sound option. The assignment is based on the provided assignment brief for the ATHE Level 7 Diploma in Management, focusing on Finance for Strategic Managers.

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Name of the Student
Name of the University
Author Note

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Table of Contents
Task 2- Discussion.....................................................................................................................3
Task 3- Information Leaflet.......................................................................................................4
Task 4- Capital Expenditure Appraisal......................................................................................6
References................................................................................................................................10

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Task 2- Discussion
(a) Interpretation of the Financial Statements of Samsung Plc
The financial Statement for three consecutive years is taken into consideration. The
third quartered financial review at September 30, 2019 is used for understanding the current
trends of the organisation. Interim reports at December 31 for both the financial year 2017
and 2018 is used to identify the unusual trends of the business. Ratio analysis is calculated for
the three financial year 2017, 2018 and 2019 by using their financial statements.
(b) Ratio Analysis
(a) Liquidity Ratios
The company has maintained an ideal current ratio of 2:1 in the three consecutive
year. It has the capacity to pay their short-term obligations (Images.samsung.com, 2020). It
has also maintained an ideal quick ratio of 1:1 and the cash ratio is also sufficiently
maintained. Therefore, Samsung PLC is in a good liquidity position.
(b) Leverage Ratios

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There is an increase in debt to equity ratio and Interest Coverage ratio, as compared to
the three financial year. This indicates that, the company has enough debt and has not
generated enough profit in the last three consecutive years.
(c) Efficiency Ratios
There is a decrease in inventory turnover ratio. This is due to decrease in the revenue
of the business (Samsung global, 2020). The asset turnover ratio also decreases; this
indicates that the company has not efficiently used its assets for doing its business operations.
(d) Profitability Ratios
It can be seen from the above findings that, all the profitability ratios have been
increased in the three financial years 2017, 2018 and 2019. This indicates that, Samsung is in
a good financial position.
Task 3- Information Leaflet
(c) The impact of Creative Accounting techniques on Strategic decision-making
Creative accounting is the accounting technique, which is used not to follow the required
accounting standards and principles.

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Techniques of Creative accounting:
(a) Manipulation of balance sheet items.
(b) Changes in depreciation methods
(c) Changes in accounting policies
(d) Overestimation of revenues
(e) Manipulation of various accruals
Creative accounting can have a positive impact on business decisions if it has a positive
sense (Reischmann, M., 2016). However, in various circumstances it has shown some
negative impact, in the business decisions. In most cases, the management is involved in
using this technique. There is a manipulations involved in overestimation of the revenues and
other items. This can affect the business strategy.
 Limitations of Ratio Analysis
1. The management of the company cannot predict their future business performance
from this technique. Strategic decisions related to future business risk, can be
calculated from this technique.
2. The real prices of the financial items in case of inflation is not reflected in the
company’s financial statement (Nicolae et al. 2018).
3. Financial measurements in ratio analysis is altered, in case of changes in accounting
policies and procedures.
4. Manipulation of financial statement- Ratio analysis is done on the basis of, the
information provided in the financial statement. However, the company can
manipulate the information.
 Importance of Cash flow in evaluating the proposals for capital expenditures

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Cash flow is most essential aspect of a company’s business operations. In order to
increase the capital expenditures, cash flow is very important. The more the cash flow is, the
more a company is investing in its future operations. Company can determine its profitability
in rate or return from the investments, by analyzing the cash inflows and cash outflows from
the company’s long-term investments (Ma and Barnett 2018).
 Recommendations
The management of a company must look forward to valuation techniques for doing a
strategic decision-making. The different valuation technique is very important to obtain an
accurate information related to investment appraisal, profitability and many more. Various
techniques for valuation are:
(a) Discounted cash flow technique- This method helps in projecting the future cash
flows of the company and determine the present value of the cash flows generated
from the operations. Terminal value of the cash flows is calculated on the basis of cost
of capital.
(b) Equity valuation- This method estimates the value of the company in the public
market by analyzing the trading and operating elements of the company. It calculates
a fully distributed value during the trade (Rani, Jain and Hooda 2018).
(c) Transaction analysis- This method calculates the benchmark of the private market. It
also considers the operating metrics of the company.
(d) LBO Analysis- This helps to determine the price range that a financial buyer will be
willing to pay for the company’s rate of return and leverage capital.
Task 4- Capital Expenditure Appraisal
The tax generated from the project is considered negligible in this case.

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For current machine:
Initial cost for investing the current machine is £2,60,000.

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The net present value of the current machine is found to be negative. This means that, the
expected rate of return form the current machine will not be profitable for the company (Shu,
Zeithammer and Payne 2016).
For purchasing a new machine:
The initial investment for purchasing the new machine is £ 2,20,000. The new
machine also provides a replacement discount of £1,00,000. The total value for purchasing
the new machine is 1,00,000. The machines also generates a residual value of £75,000.

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The net present value for purchasing the new machine is found to be £1,62,059.65,
which is positive (Leyman and Vanhoucke 2017). This indicates that on purchasing the new
machine and the company will be able to generate more return. Therefore, purchasing the
new machine will be a best option for the company rather than replacing it with current one.

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References
Images.samsung.com (2020). [online] Images.samsung.com. Available at:
https://images.samsung.com/is/content/samsung/p5/global/ir/docs/2018_con_quarter04_all.p
df [Accessed 14 Jan. 2020].
Leyman, P. and Vanhoucke, M., 2017. Capital-and resource-constrained project scheduling
with net present value optimization. European Journal of Operational Research, 256(3),
pp.757-776.
Ma’aji, M.M. and Barnett, C., 2018. CAPITAL BUDGETING PRACTICES AND RISKS
ADJUSTMENT: PRACTICES AMONG CAMBODIAN COMPANIES. ICMEBSS 2018,
p.101.
Nicolae, D., Talianu, C., Vasilescu, J., Nicolae, V. and Stachlewska, I.S., 2018. Strengths and
limitations of the NATALI code for aerosol typing from multiwavelength Raman lidar
observations. In EPJ Web of Conferences (Vol. 176, p. 05005). EDP Sciences.
Rani, P., Jain, D. and Hooda, D.S., 2018. Shapley function based interval-valued intuitionistic
fuzzy VIKOR technique for correlative multi-criteria decision making problems. Iranian
Journal of Fuzzy Systems, 15(1), pp.25-54.
Reischmann, M., 2016. Creative accounting and electoral motives: Evidence from OECD
countries. Journal of Comparative Economics, 44(2), pp.243-257.
Samsung global (2020). Audited Financial Statement │ Financial Information │ Investor
Relations │ Samsung Global. [online] Samsung global. Available at:
https://www.samsung.com/global/ir/financial-information/audited-financial-statements/
[Accessed 14 Jan. 2020].

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Shu, S.B., Zeithammer, R. and Payne, J.W., 2016. Consumer preferences for annuity
attributes: Beyond net present value. Journal of Marketing Research, 53(2), pp.240-262.