Strategic Finance: Samsung PLC Financial Statement Analysis Report

This report presents a comprehensive financial analysis of Samsung PLC, examining various aspects of its financial performance and strategic decision-making. It begins with an introduction discussing the role of financial data in business strategy and risk analysis. Task 1 delves into profitability, capital efficiency, and solvency ratios, emphasizing the importance of external information from suppliers, government, and customers. It explores cash flow management, risk assessment (market, credit, liquidity, operational, and interest risks), and the distinction between capital and operational expenditure. Task 2 focuses on interpreting and comparing Samsung PLC's financial statements using ratios, providing recommendations based on the analysis. Task 3 addresses the impact of 'creative accounting' techniques, the importance of cash flow management in capital expenditure evaluation, and the limitations of ratio analysis. Finally, Task 4 reviews capital expenditure appraisal methods. The report highlights the importance of financial metrics in assessing the company's current viability and making strategic recommendations. It also includes an analysis of investment ratios and the overall growth of Samsung, concluding with the company's financial performance from 2017 to 2018.

Finance for Strategic Managers

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2..........................................................................................................................................13
Interpretation and the comparative of the financial statements of the Samsung PLC so that they
assess the current viability of the organization as the comparative analysis is being done by the
help of ratio................................................................................................................................13
Recommendations to the Samsung PLC....................................................................................15
TASK 3............................................................................................................................................1
The impact of ‘creative accounting’ techniques when making strategic decisions.....................1
Recommends, with justifications, methods and tools that allow businesses to analyse financial
data for strategic decision-making purposes................................................................................1
Importance of cash flow management while evaluating proposals for capital expenditure........1
The limitations of ratio analysis as a tool for strategic decision-making....................................1
Interpretation and the comparative of the financial statements of the Samsung PLC so that they
assess the current viability of the organization as the comparative analysis is being done by the
help of ratio..................................................................................................................................1
Recommendations to the Samsung PLC......................................................................................1
TASK 4............................................................................................................................................1
Please review the following method: capital expenditure appraising methods...........................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
This report is about the Pietro yon who was an Italian born organist and the composer
who has made their career in the United States. Pietro yon born in Settimo Vittone and served for
the time as an organist in the Vatican and at the royal church in the Rome. In the year 1926 he
become the assistant organist of St. Patric Cathedral, New York. He is the local businessman
who owes and manages the retail stores who has been sell the number of home wares and also
become the member of the local business and chamber of commerce and is being asked to chair
the committee for the research and did the research on the success of Samsung PLC. This report
contains the evaluation of the various sources of the financial data that can be used in making the
business strategy and did the analysis of risk that is being related business decision that is being
based on the financial business decision. This report also contains the interpretation of the
financial statements of the Samsung PLC to find out the current viability of the business. This
report also elaborate the limitations of the ratio analysis as a tool for the strategic decision
making (Christensen and et.al., 2015).
TASK 1
1

2

3

4

5

Profitability ratios:
The organization shall set targets for its profitability ratio, when it is essential to plan for
enhancing the operations' effectiveness and enhancing value-chain activities.
Capital efficiency and Solvency
This reveals the quantum of profits which the company is generated for its investors. High
capital efficiency reflects that company is using the resources with higher effectiveness.
Along with this, for the purpose of decision making and formulation of strategic
framework business unit also requires external information. It includes following:
 Information from suppliers: Firm needs information about cost and availability of raw
material while taking business decisions.
 Information from government: For ensuring smooth functioning of business operations
Samsung requires information about tax, licensing formalities etc.
 Government budget: It includes information about subsidies, concession, contribution of
6

government in varied projects etc.
 Customer’s information: Success of the firm is highly depending on the needs, wants
and preferences of customers. Thus, for the purpose of objective attainment Samsung
need to collect information about the same.
Information received by the way of different financial metrics such as cash flow statements,
statement of profit and loss, balance sheet etc., aids the management of Samsung Plc in
anticipating the revenues and incomes for the future accounting period with higher accuracy.
Balance sheet provides the information regarding how conveniently the company can pay
its liabilities with the amount of assets it owns on a particular date.
Cost information or cash flow analysis aid in decision making to the significant level in
the following manner:
 Assessing monetary requirements: Through evaluation business unit can assess funds
needed for performing business activities and functions effectually.
 Obtaining funds / finance: By analysing cash flows manager of the firm can assess
7

finance requires for future projects.
 Reporting to shareholders and other stakeholders: It has assessed from the evaluation
that by preparing and publishing report Samsung can provide stakeholders with suitable
information for decision making.
 Setting targets and appraising new projects: Cash flow helps in assessing variances that
take place in existing performance and thereby helps in setting appropriate targets for
near future.
 Risk management: It also helps in assessing position pertaining to cash deficit etc and
thereby offers opportunity in relation to developing competent framework for mitigation
purpose.
Market risk: It involves the risks that arises due to ever-changing circumstances in the
marketplace. Example, changing preferences of customers to shop from online platform.
Credit risk: This risk is associated with company's extension of credit to its customers. Example
is risk of bad debts in the form of defaults made by customers.
8

Liquidity risk: It involve asset liquidity risk, funding of operations liquidity risk etc. Asset
liquidity means the degree of convenience with which company can convert its assets into cash.
Operational funding risk are associated with routine cash flow.
Operational risk: Such risks are associated with the routine operations of business such as
lawsuits, personnel issues etc.
Interest risk: This involves changes in the interest rates which could affect the profitability of
Samsung Plc.
9

Capital expenditure: It implies for the funds spent business organization for purchasing
and maintaining fixed assets such as plant & equipment, machinery etc.
Difference between capital and operational expenditure is enumerated below:
Basis of difference Capital expenditure Operational expenditure
Meaning It occurs when company
acquires or focuses on the
upgradation of fixed assets.
It refers to the expenses that
firm incurs for performing
daily activities.
Payment mode Whole amount is paid in one
time.
Paid in terms of either
monthly or annual instalments
Time period Long-term Short-term
Profitability In CAPEX, profit is earned
gradually.
Amount is covered within a
short period.
Accounting treatment  Amortization of
intangible assets
In this, expenses fall under the
category of full tax deduction.
10

 Treatment of
depreciation is applied
on tangible assets over
the life cycle.
Net Present Value: This method evaluates the present time value of all the cash inflows
that will be generated by taking up of a capital project/expenditure.
Advantages Disadvantages
 Helps in ascertaining whether
investment will increase firm’s value or
not
 Present solution for decision making
referring time value of money concept
 Estimation about cost of capital is
difficult
 Not presents results in the form of %
Pay-back period: This is a technique which identifies the time which an investment will
require to recover its costs. Basically it assesses the profitability of a capital expenditure in terms
of time which it will take for recovering its costs.
Advantages Disadvantages
 Easy to compute
 Involves less risk in the evaluation
 Ignorance of time value of money
concept
 Ignores cash flow that will be
generated after payback period
Internal Rate of Return: This is that interest rate at which net present value of all the
cash inflows of an investment or capital expenditure is equal to zero. This method is used by the
company in assessing the attractiveness of the proposed project.
Advantages Disadvantages
 Considers time value of money concept
 It clearly presents retrun associated
with capital project in the form of %
 Highly complex as it involves two
discounting factors
 Fails to consider aspects pertaining to
11

risk and uncertainty
12

13

TASK 2
Interpretation and the comparative of the financial statements of the Samsung PLC so that they
assess the current viability of the organization as the comparative analysis is being done by
the help of ratio
14

15

Investment ratios
Particulars Formula 2017 2018
Earnings per share
(Net income - preferred
dividend) / Number of
shares outstanding
5,9
97 6,461
Recommendations to the Samsung PLC
As profitability ratio is most valuable for the business and one of the most frequently
used tool in doing the financial analysis of ratio that is being used to determine the company’s
bottom line and return to its investors. As the Samsung PLC is having the positive impact of this
ratio and it shows the company’s overall efficiency as well as performance.
In the case of liquidity ratio of Samsung PLC is also having the positive impact on the
business from the previous year as they are the important class in the financial matrix as it is
been helpful for analysing the debtor’s ability for identification of their debt obligation that too
16

without any external support. From the above analysis it is being clearly interpret ate that the
company is having the ability to pay off its debt obligation and maintains the margin of safety
through the various calculations and the company is having the ability that they can convert their
cash very quickly and it shows the company is having more liquid and having the better coverage
of its outstanding debt.
Solvency ratio is the ratio that shows the company ability to meet its long term
obligations so it is important to keep the eye on the solvency ratio and it helps the company in
preventing the bankrupt and the company has maintain the good solvency ratio (Wuttke and
et.al., 2013).
As the company is having the favourable Efficiency ratio that shows the company is how
well in utilising its assets to generate the income , as the company often looks to collect the cash
from the customer or it represent the time the company convert its inventory into the cash. As
Samsung is good in selling its product with the average price at high volumes.
Investment ratio is also increasing as it assess the company performance of distributing its shares
by giving the dividend and the company has paid good amount of dividend.
Overall the company is doing the growth as the Samsung is being reached the economies
of scale by outsourcing its production to different countries and gain the competitive advantage
in producing the quality as well as maintain the small cost as by offering the product at low cost
from its competitors. As Samsung is doing the continuous growth and now it becomes the one of
the most recognisable brand in the world. As company has did the financial growth from 2017 to
2018 as the earning per share is being increased from that the investors will invest more in the
company (Yazdanfar and Öhman, 2015).
17

TASK 3
1
Finance for Strategic Managers
The impact of ‘creative accounting’ techniques when making strategic
decisions
Creative accounting can be defined as a procedure whereby an accountant
applies its skills and professional knowledge relating to rules of accounting
for manipulating the data or amounts reported in the accounts of business. It
is also called by the name of aggressive accounting in which financial data of
the company is manipulated but it is manipulated within the boundary of
legislation and accounting standards, yet it is against the spirit of disclosing
the true and fair picture of company's financial position and performance.
Slush funding is one of the technique of creative accounting wherein
the profits for one quarter are kept hidden for the purpose of hiding the
situation when the company does not make any profits in other quarter.
Creative accounting impacts the strategic decision-making of Samsung Plc
significantly.
Application of creative accounting by the managers , makes them to
prepare financial reports which are not very true and fair. This includes
manipulation of data for presenting a happy picture of company towards the
interested stakeholders. This altogether has a negative impact in the process
of decision-making because information provided by such statement are not
true, the decision maker cannot rely on such information for creating a sound
business strategy for the entire organization.
Recommends, with justifications, methods and tools that allow businesses to
analyse financial data for strategic decision-making purposes
Ratio analysis: Company can use this tool for evaluating and analyzing its
performance and conclude meaningful information for helping in the
strategic decision-making. By applying this technique, the company would
be able to assess its efficiency in the performance, efficiency in the
operations, position of its liquidity, capital efficiency and earning capacity.
Vertical analysis: Samsung Plc could use vertical analysis or proportional
analysis in which each of the item in financial statement is written as
percentage of another element. This analysis will aid the managers of
company in assessing the relative changes in the different elements of
financial statements over time, usually over a period of five-year.
Horizontal analysis: It is also known by the name of trend analysis, wherein
variations in the figures of financial statements in relation to corresponding
financial statements over the passage of time is reflected and showed. It is an
essential for evaluating the trending situations.
Importance of cash flow management while
evaluating proposals for capital expenditure
Business manager relies heavily on cash flow while
exercising capital budgeting for the purpose of
evaluating the viability and feasibility of taking a
proposed capital expenditure. This indicates the
importance of cash flow management in evaluation
of proposals for capital expenditure. The reasons are:
Using of cash flow data while evaluating the
intended capital expenditure facilitates a verifiable
measure through which costs and benefits of each
project could be delineated. This in turn helps the
managers of Samsung Plc in prioritizing and
choosing the projects on the grounds of higher
expected returns.
Determination of cash inflows and cash outflows of
a specific capital expenditure is a way of making an
immediate impact of attractiveness of a project on
the interested stakeholders.
Moreover, cash flow management aids the business
managers in determining whether the project goals
are realistic, reasonable and realizable with the
available resources.
The limitations of ratio analysis as a tool for strategic
decision-making
Ratio analysis is a tool that measures the
efficiency of a company. It assesses how well the
company has performed and has utilized its resources
in carrying out its operations. However, there are
some limitations of the ratio analysis which affects
the quality of decision-making which are as follows:
Ratio analysis does not prove beneficial for the
management in their decision-making when the
accounting data is itself wrong.
The biggest limitation of ratio analysis is that, it does
not take into account the qualitative factors of the
company. This limits the scope of ratio analysis in the
decision-making of Samsung Plc.
If there are variations in the methods of accounting
then, it does not serve the purpose of providing useful
information to the decision makers in Samsung Plc.
This is because no comparison can be made when
different accounting methods are applied which
ultimately limits the scope of ratio analysis.
Changes/variations in the price level makes its
difficult for the management of Samsung Plc to
compare the results of different years. This in turn
does not provide any meaningful and impactful
information to decision-makers for formulating
business strategies.

Interpretation and the comparative of the financial statements of the Samsung PLC so that they
assess the current viability of the organization as the comparative analysis is being done by
the help of ratio
Profitability ratio
analysis
Particulars Formula 2017 2018
Gross Profit 110284715 111377004
Net profit 41344569 43890877
Sales revenue 239575376 243771415
Earnings before interest
and tax or operating
profit 53645038 58886669
GP ratio
Gross profit / sales *
100 46% 46%
NP ratio Net profit / sales * 100 17% 18%
Liquidity ratio analysis
Particulars Formula 2017 2018
Current assets 146982464 174697424
Current liabilities 67175114 69081510
Inventory 24983355 28984704
Prepaid expenses 5588892 5497974
Quick assets
Current assets - (stock
+ prepaid expenses)
116410217.00 140214746.00
Current ratio
Current assets /
current liabilities 2.188049 2.528859
Quick ratio
Quick Assets/current
liability 1.732937 2.0297
Solvency ratio analysis
Particulars Formula 2017 2018
Long-term debt 2710269 996935
Shareholder's equity 207213416 240068993
1

Debt-equity ratio
Long-term debt /
shareholders’ equity 0.01308 0.004153
Efficiency ratio
analysis
Particulars Formula 2017 2018
Cost of goods sold 129290661 132394411
Average Inventory
(Current + past
inventory) / 2 21668429 26984030
Turnover or sales
revenue 239575376 243771415
Average total assets
(Current + past total
assets) / 2 281963207 320554667
Average fixed assets
(Current + past fixed
assets) / 2 101569345 113541186
Receivables or debtors 27695995 33867733
Stock turnover ratio
(In times)
Cost of goods sold
/Average Inventory 5.966776 4.906399
Total assets turnover
ratio
Turnover or sales
revenue /Average total
assets 0.849669 0.760468
Fixed assets turnover
ratio
Turnover or sales
revenue /Average
fixed assets 2.358737 2.146987
Receivables or debtors
turnover ratio (in days)
(Debtors * 365) /
Credit sales 42.19565 50.7103
Investment ratios
Particulars Formula 2017 2018
Earnings per share
(Net income - preferred
dividend) / Number of
shares outstanding 5,997 6,461
Recommendations to the Samsung PLC
As profitability ratio is most valuable for the business and one of the most frequently
used tool in doing the financial analysis of ratio that is being used to determine the company’s
bottom line and return to its investors. As the Samsung PLC is having the positive impact of this
ratio and it shows the company’s overall efficiency as well as performance.
In the case of liquidity ratio of Samsung PLC is also having the positive impact on the
2

business from the previous year as they are the important class in the financial matrix as it is
been helpful for analysing the debtor’s ability for identification of their debt obligation that too
without any external support. From the above analysis it is being clearly interpret ate that the
company is having the ability to pay off its debt obligation and maintains the margin of safety
through the various calculations and the company is having the ability that they can convert their
cash very quickly and it shows the company is having more liquid and having the better coverage
of its outstanding debt.
Solvency ratio is the ratio that shows the company ability to meet its long term
obligations so it is important to keep the eye on the solvency ratio and it helps the company in
preventing the bankrupt and the company has maintain the good solvency ratio (Wuttke and
et.al., 2013).
As the company is having the favourable Efficiency ratio that shows the company is how
well in utilising its assets to generate the income , as the company often looks to collect the cash
from the customer or it represent the time the company convert its inventory into the cash. As
Samsung is good in selling its product with the average price at high volumes.
Investment ratio is also increasing as it assess the company performance of distributing its shares
by giving the dividend and the company has paid good amount of dividend.
Overall the company is doing the growth as the Samsung is being reached the economies
of scale by outsourcing its production to different countries and gain the competitive advantage
in producing the quality as well as maintain the small cost as by offering the product at low cost
from its competitors. As Samsung is doing the continuous growth and now it becomes the one of
the most recognisable brand in the world. As company has did the financial growth from 2017 to
2018 as the earning per share is being increased from that the investors will invest more in the
company (Yazdanfar and Öhman, 2015).
TASK 4
Please review the following method: capital expenditure appraising methods
In the context of business unit, investment appraisal techniques are highly significant
which helps company in evaluating viability of capital projects. It mainly includes net present
value, payback period, average and internal rate of return which helps in assessing the extent to
which investment project will aid in company’s profitability.
3

Computation of cash flows pertaining to both old and new machine
Existing machine
Year units sales material labor overhead depreciation
Repairs &
maintenance
of new
machine EBIT
1 90000 450000 162000 54000 40500 31500 7000 155000
2 50000 250000 94500 31500 22500 17500 7000 77000
3 30000 150000 59535 19845 13500 10500 7000 39620
Year EBIT add: depreciation
Cash inflow or net
cash inflow
1 155000 31500 186500
2 77000 17500 94500
3 39620 10500 50120
NPV
Year Net cash inflow
PV factor @
15% Discounted cash inflow
1 186500 0.870 162174
2 94500 0.756 71456
3 50120 0.658 32955
Total discounted cash
flows 266584
Less: initial investment 120000
NPV 146584
4

IRR
Year Net cash inflow
0 -260000
1 186500
2 94500
3 50120
IRR 104%
ARR
Year Net cash inflow
1 186500
2 94500
3 50120
Average EAT 110373
Average investment 120000
ARR 92%
Payback period
Year Net cash inflow Cumulative cash inflow
1 186500 186500
2 94500 281000
3 50120 331120
Payback period Within an year
5

Yea
r units
New
machin
e sales
materia
l labor
overhea
d
depreciatio
n
Repairs &
maintenanc
e of new
machine EBIT
1
9000
0 450000 162000
5400
0 27000 49500 1000
15650
0
2
5000
0 250000 94500
3150
0 15000 27500 1000 80500
3
3000
0 150000 59535
1984
5 9000 16500 1000 44120
Year EBIT add: depreciation Cash inflow
Net cash
inflow
1 156500 49500 206000 206000
2 80500 27500 108000 108000
3 44120 16500 60620 75000 135620
Net Present Value:
Year
Net cash inflow
(in £) PV factor @ 15%
Discounted cash inflow
(in £)
1 206000 0.870 179130
2 108000 0.756 81664
3 135620 0.658 89172
Total discounted cash
flows 349966
Less: initial investment 100000
6

NPV 249966
Payback period
Year Net cash inflow Cumulative cash inflow
1 206000 206000
2 108000 314000
3 135620 449620
Internal rate of return
Year Net cash inflow
-120000
1 206000
2 108000
3 135620
IRR 132%
Average rate of return
Year Net cash inflow
1 206000
2 108000
3 135620
Average EAT 149873
Average investment 97500
ARR 154%
By doing evaluation, it has identified that investment option pertaining to new machine
will prove to be beneficial for component manufacturer. Moreover, in the case of new machine,
manufacturer would become able to recoup initial investment within a year. Further, NPV, ARR
and IRR associated with new machine is higher over other option available. Referring solution
derived through NPV and IRR it can be said that component manufacturer should give priority to
the option of purchasing new machine. Moreover, NPV and IRR presents suitable results by
7

taking into account time value of money concept. Thus, by investing money in new machine
component manufacture can meet goal regarding high profitability attainment.
CONCLUSION
From the above project, it can be summarized that there are different sources of financial
data through which company informs its business strategies to its interested stakeholders such as
net cash available, profitability ratios, operational efficiency and growth rate of revenue. It was
seen in the report that a company needs financial data for the purpose of forming strategic
business decision-making. This is because by the way of financial information, organization is
enabled to evaluate its own performances that allows it in taking corrective actions for the
purpose of improving the same for meeting the future needs of the business. Further, it was
observed in the report that there are various risks which a business organization could face in its
financial decision-making such as market risk, interest rate risk, credit risk etc. Moreover, the
financial information of Samsung Plc was analysed by the way of ratio analysis through which
the operational efficiency was highlighted.
8

REFERENCES
Books and Journals
Abdel-Kader, M. G., Dugdale, D. and Taylor, P., 2018. Investment decisions in advanced
manufacturing technology: A fuzzy set theory approach. Routledge.
Wuttke, D.A and et.al.,2013. Managing the innovation adoption of supply chain finance—
Empirical evidence from six European case studies. Journal of Business Logistics. 34(2).
pp.148-166.
Yazdanfar, D. and Öhman, P., 2015. Debt financing and firm performance: an empirical study
based on Swedish data. The Journal of Risk Finance. 16(1. pp.102-118.
Christensen, D.M and et.al., 2015. Top management conservatism and corporate risk strategies:
Evidence from managers' personal political orientation and corporate tax
avoidance. Strategic Management Journal. 36(12). pp.1918-1938.
Bromiley, P and et.al., 2015. Enterprise risk management: Review, critique, and research
directions. Long range planning. 48(4). pp.265-276.
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