Strategic Financial Management: A Case Study of Samsung PLC Analysis

This report provides a comprehensive financial analysis of Samsung PLC, focusing on its strategic decision-making processes. It interprets Samsung's financial statements for 2020, conducts ratio analysis to evaluate the company's performance, and offers recommendations for improvement. The report also examines the impact of creative accounting, the limitations of ratio analysis, and the importance of cash flow management in capital expenditure decisions. Various techniques for evaluating capital expenditure proposals are applied, including payback period, net present value, internal rate of return, and average rate of return. The analysis includes calculations for current machine cash inflows and outflows, providing a detailed assessment of investment options and their potential impact on Samsung PLC's strategic direction. This document, contributed by a student, is available on Desklib, a platform offering study tools and resources for students.

Finance for Strategic
Managers

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................3
2.1 Interpreting financial statements of Samsung Plc for year 2020..........................................3
2.2 Analysing financial data using ratio analysis for Samsung PLC..........................................4
2.3 Recommendations to Samsung PLC.....................................................................................5
TASK 3............................................................................................................................................7
3.1 Impact of 'creative accounting' technique when making strategic decisions........................7
3.2 Limitations of ratio analysis as a tool for strategic decision-making....................................8
3.3 Importance of cash flow management when evaluating proposals for capital expenditure. 8
3.4 Methods and tools used by organization to examine financial data for strategic decision-
making process............................................................................................................................7
TASK 4............................................................................................................................................9
4.1 Evaluating capital expenditure proposals using various techniques.....................................9
4.2 Assessing the impact of business proposal on strategic direction of company...................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Finance is important to set financial goals of company for longer periods. Strategies
regarding financial management are formulated and implemented to generate profits and ROI.
The present case scenario is based upon evaluation of Samsung Plc's performance to provide
useful learnings. Initially, the report will evaluate the need and sources of financial data used to
frame business strategy along with the risks related to financial business decisions. It will also
review the methods that are used for appraising capital expenditure projects.
Further, report will interpret financial statements of company to examine viability of it.
The study will also perform comparative analysis of financial data by applying ratios and
providing suggestions to improve performance. In addition to this, study will produce an
information leaflet which will assess impact of accounting techniques while making strategic
decisions, limitations of ratio analysis and importance of cash flow management while
evaluating proposals of capital expenditure. Lastly, report will evaluate investment proposals
using financial techniques.
TASK 1
Incorporated in PPT
TASK 2
2.1 Interpreting financial statements of Samsung Plc for year 2020
Annual report is very important document published by company in order to provide vital
information about company to all major stakeholders. The annual report of Samsung plc for the
year 2020 is interpreted to examine financial performance and position of company and also to
identify viability of organisation.
First of all, gross profit earned by company has increased from previous year which
shows that company is making good sales to cover up all cost of sales and generate sufficient
profits. Samsung Plc is trying to increase its sales by reducing cost by applying cost effective
techniques of production and acquiring basic resources at low price in bulk quantities. On the
other hand, the huge difference between net profit and gross profit shows that company is
incurring large amount of indirect expenses.
At the time of balance sheet interpretation, it was noted that company is having enough
current assets to meet its short term obligations on time. Company has made no changes in its

equities and has retained his profits in business for expansion purpose. Samsung Plc has also
paid back its debentures and long term loans which shows decreased burden of company on
external finance.
Cash Flow statement depicts that company is generating adequate cash from its basic
operational activities which increased from previous year. On contrary, company is utilizing its
cash in acquiring investment and financial assets which means it is investing in newer
technologies to create smart solutions to issues. It will also help in achieving economies of scale
which increases profits on long run. Samsung Plc has also used its cash to pay back its loans and
advances and dividend payments (Financial Statements, 2021).
2.2 Analysing financial data using ratio analysis for Samsung PLC
particular formula 2021 2020
Net profit margin Net profit/sales*100 10.92 8.83
Net profit 7141685 4884926
sales 65388503 55325178
Gearing ratio Total debt/total shareholder equity 0.43 0.37
Total debt 118557683 102287702
Total equity 274268591 275948016
Current ratio Currents assets/currents liabilities 2.32 2.62
Current assets 209155353 198215579
Current liabilities 90109462 75604351
Asset turnover ratio Net sales/total assets 0.17 0.15
Net sales 65388503 55325178
Total assets 392826274 378235718
Inventory turnover
ratio Net sales/AISP 2.14 1.73

Net sales 65388503 55325178
Average inventory at
selling price 30619976 32043145
The above mentioned table highlights the ratio analysis of Samsung PLC year 2021 and
2020. The net profit margin in the year 2021 is higher as compared to 2020 which is 10.92 and
8.83. Because indirect expenses are less in the year 2021 thus, this company attains high
profitability. The current ratio in the year 2021 is 2.32 which is less than 2.62 in the year 2020. A
ratio analysis indicates that the firm has enough funds in the short term to pay its obligations.
Samsung PLC is advised to manage its working capital to run into short term liquidity issues.
The gearing ratio in the year 2020 is 0.37 which is less than 0.43 in the year 2021. A low gearing
ratio means company has a low proportion of debt which is good.
In the above mentioned table in year 2021 company would be at optimal financial risk its
means company needs to pay higher interest. The firm is suggested to increase profitability ratio
by negotiating with lenders for shares. Inventory turnover ratio determine the company sells
inventory. In the year 2021 inventory ratio is 2.14 which is good sales performance as compared
to 2020 in which popularity of stock is 1.73. It is advised to improve forecasting methods and
focus on top products with better price. Asset turnover ratio represents efficiency of the
organization assets and shows revenue earned. In the year 2021 and 2020 asset ratio is 0.17 and
0.15 which means Samsung PLC has low asset efficiency. The company is advised to improve
its ineffective assets management by elaborating debtor’s collection and take assets on lease.
2.3 Recommendations to Samsung PLC
It is recommended to Samsung PLC to improve current ratio and gearing ratio both. The
management needs to focus on faster rolling of money via debtors in this way firm can control
current ratio. Regularly follow up with the debtors will improve the collections of funds from
them. Another improvement which the organization needs to follow is to sell unused fixed assets.
Hence, the management should try to cut down on hard cash levels and keep the funds in bank
accounts. Thus, this process is known as sweeping accounts.
It is also suggested to Samsung PLC to upgrade gearing ratio analysis by reducing
working capital. The management should negotiate with lenders to swap up the debt for shares in

the organization. Along with that management must reduce the amount of outgoing cash and
increase the profits to achieve financial targets.

TASK 3

3.1 Impact of 'creative
accounting' technique when
making strategic decisions
Creative accounting
is a popular technique to
manipulate the profit figures
to avoid extra taxation in the
future. Tax figures are mostly
not correct in the books of
accounts, in this way
manipulation is done at very
primary level. Samsung PLC
adopts creative accounting at
very basic stage to pretend
that the financial condition is
good and people can invest in
this company. Samsung PLC
follows manipulation
technique by booking less
expense and lowering
personal liabilities of
company.
Features & impact of creative
accounting
1. Wrong estimation is
being provided to
avoid excessive tax in
the future.
2. Manipulative
information about
revenues and sales
Limitations
All the information used
in ratio analysis is obtained
from previous data. Thus, it
increases unusual ratio results
while taking strategic decisions.
Accounting policies are
different in company for
recording accounting data. This
means comparing the ratio
analysis may be lengthy and
time-consuming process. If
Samsung PLC shows unusual
information this can impact the
outcome of the ratio analysis to
take strategic decision process.
Operational changes are a major
drawback of ratio analysis as a
company changes its
operational structure. It may
increase wrong conclusion
about financial conditions and
actual performance of
organization. The inability to
arrange the ratio analysis to the
seasonal effects may increases
the manipulation of financial
data.
3.4 Methods and tools used by
organization to examine
financial data for strategic
decision-making process.
Ratio analysis
It is advisable to Samsung
PLC that they must use the
traditional tools to analyse
financial data for strategic
decision. Ratio analysis investigate
various aspects of the
organizational condition. Ratio
analysis assist Samsung PLC to
compare one company against
another and it can also help
management to determine the
actual financial position of
company by adopting previous
data. Trend analysis suitable to the
company because it helps to
examine the financial statements of
the firm. A small change in
financial data will give actual trend
of the company. The trend ratio
shows whether the business is
trending upward or downward.
Balance sheet
Balance sheet is a report card of
company's financial position in
terms of book value. Samsung
PLC must note down the detailed

figure.
3. Contingent liabilities
are not shown in
exact figures thus it
will give good sense
that the company is
not having any
liabilities.
4. Creative accounting
promotes company's
fair image in front of
customers. Therefore,
company shows
increase in total debts
but it is not reflected
in books of accounts.
3.2 Limitations of ratio
analysis as a tool for
strategic decision-
making.
Ratio analysis refers
to the calculation of ratios
from financial statements of
a business to make strategic
decision. It provides overall
information about the
company's financial position
showing profitability and
liquidity. Ratio analysis
assist Samsung PLC to
3.3 Importance of cash flow
management when
evaluating proposals for
capital expenditure.
Cash flow refers to the
inflow and outflow of cash in
terms of income and
expenditure. It is important for
the organization as it assist
them in evaluating the
projecting on the basis of higher
return which is determined by
cash inflows. At the time of
evaluation proposal for capital
expenditure cash flow statement
determine the use of cash basis
data which can be taken into
consideration to evaluate high
returns. This method helps to
reduce negative cash flow in the
organization to achieve
financial support. Cash flow
management assist Samsung
PLC to reduce unnecessary
costs and produce regular sales
information of shareholder’s
equity, accounts receivable to
evaluate the operational efficiency
of company. The management of
Samsung must adopt balance sheet
to attain strategic decision by
giving deep information of capital
investments for financial activities
of business. It is recommended to
company because balance sheet
will help company in maintaining
assets and liabilities in books of
accounts. This in turn will improve
the strategic decision-making
process of the company.

analysis comparisons and
identify market gaps between
two companies. The
management of Samsung
PLC can also use ratio
analysis to determine the
efficiency level of assets and
liabilities. Trend line is being
adopted by Samsung PLC to
predict the direction of future
performance.
estimation. By adopting this
method Samsung financial
flexibility can take benefit of
profitable investments. It is
suggested to have a credit
policy and manage payments in
the organization. Along with
that company must take care of
inventories for future needs.
TASK 4
4.1 Evaluating capital expenditure proposals using various techniques
CURRENT MACHINE
Cash Inflow
Year Inflow
1 450000
2 250000
3 150000
Cash Outflow
Particulars Year 1 (90000 units) Year 2 (50000 units) Year3 (30000 units)
Direct material 1.8 1.89 1.98
Direct labour 0.75 0.79 0.83
Variable overheads 0.45 0.45 0.45

Depreciation 0.35 0.35 0.35
Total 3.35 3.48 3.61
Cost of production 301500 173875 108341.25
Repair & maintenance
cost 7000 7000 7000
Total cost 308500 180875 115341.25
Net Cash flow
Year Cash flow
1 141500
2 69125
3 34658.75
Capital Expenditure Methods
5. Payback Period
Initial investment 260000
Year Cash flow Cumulative cash flow
1 141500 141500
2 69125 210625
3 34658.75 245283.75
Payback period is of more than 3 years because cash flow generated in 3rd year is still less than
initial investment.
2. Net Present value
Year Cash flows PV factor Discounted cash flow
1 141500 0.87 123105
2 69125 0.756 52258.5
3 34658.75 0.658 22805.4575
total 198168.9575
initial investment 260000

NPV -61831.04
3. Internal Rate of Return
Years Cash flows
0 -260000
1 141500
2 69125
3 34658.75
IRR -3.63%
4. Average rate of return
Year Cash flows
1 141500
2 69125
3 34658.75
Initial investment 260000
Scrap value 0
Average annual net earnings 81761.25
Average investment 130000
Average rate of return 0.63%
NEW MACHINE
Cash inflow
Year inflow
1 450000
2 250000
3 150000
Cash Outflow
Particulars Year 1 (90000 units) Year 2 (50000 units) Year 3 (30000 units)