Strategic Financial Decisions: A Deep Dive into Samsung PLC's Data

This report provides a comprehensive financial analysis of Samsung PLC, examining its financial statements, including the statement of financial position, statement of financial performance, and statement of cash flow, across multiple years (2017-2021). It interprets financial data to assess the company's viability, conducts comparative ratio analysis (Net Profit Margin, Gross Profit Margin, Current Ratio, Debt-to-Equity Ratio, EPS, and Asset Turnover Ratio) to evaluate performance trends, and offers strategic recommendations. The report also discusses the impact of creative accounting, limitations of ratio analysis, and the importance of cash flow management in capital expenditure decisions. Furthermore, it includes a capital expenditure appraisal using techniques like Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability Index to evaluate a machine replacement proposal, concluding with an assessment of the investment's potential benefits. This student-contributed document is available on Desklib, a platform offering AI-based study tools and a repository of solved assignments.

FINANCE
FOR
STRATEGIC
MANAGERS

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................4
Task1: Financial Data and Strategic Decision Making:..................................................................4
(Covered in PPT)....................................................................................................................4
Task 2: Discussion Paper:................................................................................................................4
2.1 Interpretation of financial statements of Samsung PLC to assess the current viability of the
organisation:...........................................................................................................................4
2.2 Comparative analysis of financial data using ratio analysis for Samsung PLC:..............5
2.3 Recommendation to Samsung PLC based on analysis and interpretation of financial
position:..................................................................................................................................6
Task 3: Information Leaflet:............................................................................................................6
3.1 Impact of creative accounting technique while making strategic decisions:...................6
3.2 Limitation of ratio analysis as a tool for strategic decision making:................................7
3.3 Importance of cash flow management while evaluating proposal for capital expenditure:
................................................................................................................................................8
3.4 Recommendation for methods and tools that allow business to analyse financial data for
strategic decision making purpose:........................................................................................9
Task 4: Capital Expenditure Appraisal:.........................................................................................11
4.1 Evaluation of capital expenditure proposal using appropriate financial technique:.......11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Finance is the process of raising funds in order to meet out the expenditure needs of organisation.
Funds can be raised from multiple sources to finance the business such as loan from bank or
financial institution, raising funds from issue of equity or debt in capital market. Financial needs
are the backbone for any business as it supports the working capital needs of corporations.
Strategic financial management means managing the finance of entity with an intention to
succeed the business by achieving the entity’s goals and objectives so that wealth of the business
concern will raise along with satisfying the needs of shareholders or other person connected with
the enterprise.
In this report initially the sources of financial data have been identified that supports the business
strategy of organisation such as financial statement which includes income statement, statement
of financial position and cash flow statement which helps the entity to build or update their
strategy’s on the performance of financial figures. There are certain types of risk that affects
business strategy such as credit risk, market risk, liquidity risk etc. has been explained broadly.
This report includes the analysis for financial figures with respect to Samsung PLC including
ratio analysis for different accounting period so that evaluation can be made regarding their
performance. Recommendation has been made to Samsung PLC with respect to improvisation
they need in their strategy so that business activities and process can improve. At the end of this
report capital budgeting decision has been carried out with respect to replacement of old machine
to new machine using different financial techniques such as Net present value method, Internal
rate of return method, Profitability index etc. and conclusion drawn on whether such replacement
is beneficial to entity or not.
This reports also highlights about review of various sources of financial data, and approaches to
analyse the financial data, what are the limitation of use of ratio analysis and further the
evaluation of financial statements of Samsung Plc so that accordingly the report can be prepared.
At the end of this study investment evaluation methods have been implemented on practical
question so that which option is best can be judged in make the investment decision.

MAIN BODY
Task1: Financial Data and Strategic Decision Making:
(Covered in PPT)
Task 2: Discussion Paper:
2.1 Interpretation of financial statements of Samsung PLC to assess the current viability of the
organisation:
Samsung Plc also called as Samsung electronics limited founded during the year 1969 and
registered as listed company in the stock exchange during the year 1975. They had a wide range
of products and working on different segments including consumer electronics, mobile
telecommunication, information technologies etc. Further these range of products is divided into
various products such as in consumer electronics they offer television, washing machines, air
conditioners and so on. Similarly, in mobile communication they offer mobile handsets,
telecommunication networks, workstations etc. Their books of accounts have been prepared by
complying with Korean international financial reporting standards also known as Korean IFRS
(About us: Samsung Plc 2021)
The interpretation on financial statement has been carried out by studying the consolidated
financial statements of the group expressed in USD thousand for the year 2021, 2020, 2019 and
2018 and evaluation of changes in financial figures have been carried out which is mentioned
below: -
 Statement of financial Position:
After analysing the balance sheet figures of Samsung Plc the conclusion drawn that
company total current assets reflected are USD are 190,685,555 and 173,250,348 in the
year ended December 2021 and 2020 Similarly their currents assets during the year ended
2019 and 2018 are 155,634,050 and 149,895,684 respectively which indicated the decline
in current assets and the reason can be the falls and rise in operational cash activities of
Samsung PLC. However, such decrease can be easily offset by either increase in another
asset or decrease in their liability or equity or any operating expense (Bouaziz and
Hachicha, 2018).

Similarly, their non-current assets are 372,888,268 and 330,596,969 in 2021 and 2020
which involves majority of assets in the form of property plant and equipment which is
around 53% of non-current assets that simply signifies that Samsung has invested in
developing fixed infrastructure around the world to expand their business as they deal in
range of products. Similar flows have been seen after analysing the non-current assets
during the 2019 and 2018 which is 302,511,023 and 291,178,800 respectively. Here the
difference is Samsung plc has generated some intangible assets amounting to 17,764,234
and 12,777,442 other then property plant and equipment. The total current liability over
the period of 2021 and 2020 is 77,018,789 & 66,081,991 respectively which reflects an
increase in current liability and the reason for same can be that during such year Covid 19
has affected the operating cycle of many business and due to such reason Samsung needs
more funds to flow into their working capital as the goods and services are not consumed
in such period by consumers whether residential or institutional. Similarly, the results of
2019 and 2018 period are 54,727,544 & 59,274,029 which shows decline in current
liability that signifies that Samsung has recovered from the pandemic and they are able to
generate sufficient cash to repay their short term dues.
 Statement of financial Performance:
Samsung’s gross profit in 2017 was 110,284,715 which has been increased to KRW
110,284,715 in 2018, thereafter it has been declined to 83,161,332 in 2019 which further
increased to 92,318,692 in 2020. After 2017, the company’s overall operating expenses
has been increased. The net profit of Samsung in 2017 was 41,344,569 which has been
increased to 43,890,877 in 2018. But in 2019, Samsung’s net profit has been majorly
decreased to 21,505,054 in 2019 which further rose to 26,090,846 in 2020.
 Statement of Cash flow:
Cash Flow Statement: Analysis of the cash-flow statement of Samsung depicts that
company’s Operating cash flows have been declined from 67,031,863 in 2018 to
45,382,915 in 2019, which further increased to 65,287,009 in 2020. Samsung’s net cash
used in investing activities has been increased from 39,948,171 in 2019 to 53,628,591 in

2020. The free cash flow of Samsung in 2019 was 16,765,245 which has been increased
to 25,015,196 in 2020
2.2 Comparative analysis of financial data using ratio analysis for Samsung PLC:
The following is the ratio analysis of Samsung PLC as shown under: -
Net Profit Margin:
Period Year 2017 Year 2018 Year 2019 Year 2020
Net Profit reported $ 41344569 $ 43890877 $ 21505054 $ 26090846
Sales amount Reported $ 239575376 $ 243771415 $ 230400881 $ 236806988
Net Profit Margin (%) = NP /
Sales
= 41344569 /
239575376 *
100 = 17.26
%
= 43890877 /
243771415 *
100 = 18 %
= 21505054 /
230400881 *
100 = 9.33 %
= 26090846 /
236806988 *
100 = 11.02
%
Analysis of aforementioned table shows that Samsung company has reported an Net-
profit ratio of 11.02 percent for 2019, 9.33 percent for 2018, as well as 17.26 percent for 2017,
indicating a declining trend there in the enterprise 's overall net profitability. Such NP percentage
graph clearly discloses that Samsung plc's collective efficacy of generating net profitability has
been dropped throughout the previous four years. Meanwhile, Samsung's NP ratio has

been increased slightly during 2020 despite adverse economic conditions due to COVID
pandemic.
Gross Profit Margin:
Period Year 2017 Year 2018 Year 2019 Year 2020
Gross Profit reported $ 110284715 $ 111377004 $ 83161332 $ 92318692
Sales reported $ 239575376 $ 243771415 $ 230400881 $ 236806988
Gross Profit Margin (%) =
Gross Profit / Sales
=
110284715 /
239575376 *
100 = 46.03%
=
111377004 /
243771514 *
100 = 45.69%
= 83161332 /
230400881 *
100 = 36.09%
= 92318692 /
236806988 *
100 = 38.98%
Samsung company's gross profitability ratio for 2017 is 46.03 percent, but it has since
dropped to around 45.69 percent in year-2018, 36.09 percent for year 2019, and
38.98percent during 2020, indicating a downward pattern in this ratio. Such a GP percentage
pattern demonstrates that Samsung's capability to make profits through its fundamental
commercial and industrial processes has been dropped over last 4 year; however, a noticeable
factor herein is that Samsung company's GP ratio has been improved in year-2020 during
adverse financial and economic scenarios.

Current Ratio:
Period Year 2017 Year 2018 Year 2019 Year 2020
Current Assets $ 146982464 $ 174697424 $ 181385260 $ 198215579
Current Liabilities $ 67175114 $ 69081510 $ 63782764 $ 75604351
Current Ratio = Current
Assets / Current Liabilities
=
146982464 /
67175114 =
2.19 Times
=
174697424 /
69081510 =
2.53 Times
=
181385260 /
63782764 =
2.84 Times
=
198215579 /
75604351 =
2.62 Times
Samsung Company’s current ratio level in 2020 stands 2.62, compared to 2.84 during
year-2019, 2.53 during year-2018, as well as 2.19 in year-2017, demonstrating an overall
growing trend, however, Samsung Corporation’s current ratio has been decreased in year-2020.
This reduction in Samsung's current ratio in 2020 indicates that the enterprise's short-
run liquidity condition has weakened over such a period.
Debt-to-equity ratio:
Period Year 2017 Year 2018 Year 2019 Year 2020
Debt $ 2767807 $ 1047057 $ 3172479 $ 2947853
Equity $ 207213416 $ 240068993 $ 254915472 $ 267670331
Debt-to-Equity = Debt /
Equity
= 2767807 /
207213416 =
= 1047057 /
240068993 =
= 3172479 /
254915472 =
= 2947853 /
267670331 =

0.01 Times 0.00 Times 0.01 Times 0.01 Times
Throughout all years, the corporation's DE ratio is about 0.01. Furthermore, the chart
reveals that Samsung Company’s DE ratio will fall somewhat in year-2020. Samsung company's
overall capital structure is good, as seen by its DE proportion of 0.1
EPS/Earning per Share:
Period Year 2017 Year 2018 Year 2019 Year 2020
Net Profit $ 41344569 $ 43890877 $ 21505054 $ 26090846
Total no. of ordinary shares 6,894 Shares 6,793 Shares 6,792 Shares 5,970 Shares
Earnings per share = 41344569
/ 6894 =
5997.18
=
43890877 /
6793 =
6461.19
=
21505054 /
6792 =
3166.23
=
26090846 /
5970 =
4370.33

Samsung Company’s EPS for year-2020 is 4370.33, up from 3166.23 during year-2019.
Meanwhile, Samsung Company’s EPS for year-2017 and year-2018 was 5997.18 as well
as 6461.19, respectively. Such general downward tendency in EPS indicates that the
corporation's capability to pay earnings to every shareholder has been declined over last 4 years.
Asset turnover ratio:
Period Year 2017 Year 2018 Year 2019 Year 2020
Net Sales $ 239575376 $ 243771415 $ 230400881 $ 236806988
Average total assets 281963207 320554667 345960870.50 365400107.50
Asset turnover ratio = Net
sales / Average total asset
=
239575376 /
281963207 *
100 = 85 %
=
243771415 /
320554667 *
100 = 76 %
=
230400881 /
345960870 *
100 = 67 %
=
236806988 /
365400107.5
* 100 = 65 %

As observed from the aforementioned graph, Samsung corporation's assets turnover ratio
has steadily declined over the previous four years. Such a falling pattern in Samsung's Assets
turnover ratio demonstrates that Samsung's competence in utilising their overall assets has
been worsened. The entire ratio assessment of Samsung company reveals that the enterprise's
performance level during year-2019 has been fallen owing to weaker demand, intense
competitiveness, US-China trade conflict including impacts of Brexit. However, amid the
COVID-19 epidemic, Samsung's total performance during 2020 has been strengthened,
indicating that the corporation's productivity in the future year would enhance.
2.3 Recommendation to Samsung PLC based on analysis and interpretation of financial position:
According to Samsung Plc's performance review and study, the corporation should persist with
its present marketing approach and target developing markets like India, Shri Lanka, China, as
well as other Parts of Asia. Moreover, it's been advised that the corporation should raise their
overall research and development expenditure in an attempt to offer clients more innovative or
remarkable products. For strengthening its total profitability level, Samsung should consider
reducing overall operating expenses. Samsung should also reallocate inefficient operations and
consider outsourcing tasks that are producing excessive expenditures for the organization in
order to cut operational expenditures. Furthermore, in order to attain an optimal capital structure
with a lower debt level, the enterprise should reduce its longer-term and shorter-term

borrowings. This firm should seek equity funding, utilize longer-term loans for longer-term
objectives, and restructuring its existing debts
Task 3: Information Leaflet:
3.1 Impact of creative accounting technique while making strategic decisions:
Creative accounting techniques is directly being related to preparation of financial statement
because these statements have the direct influence on strategic decision made by the organisation
and on the basis of changes in financial figures these decisions are being modified accordingly.
Sometimes these techniques may generate risk on the organisational structure and may lead to
their failure due to declining rate and mislead the connected audience, stakeholders of the entity
and investors the business concern is targeting.
Further there are various policies that does not have proper checks, sanctions and rewards on
regular course of interval but creating accounting helps the management to identify those
loopholes in the accounting process along with identification of biased reporting so that
ineffective decision making can be improved towards achieving goals and objective of entity.
Moreover, creative accounting encourages, supports and enhance the reputation and goodwill of
the concern and work towards safeguarding the interest of companies.
Sometimes there is a situation where due to financial pressure or something else the management
takes wrong decision towards strategic planning without taking into account the implication they
may face at individual and organisational level as these functions are being carried out without
considering ethical values and principles. The existence of alternatives based on liberty of
selection and appreciation empowers management enterprise, promised to be in its best interest,
to counter act the causes or translate the economic, legitimate and financial inventions issues that
can be solved by legislation, resulting in creating accounting which helps in shaving the financial
outcomes of the corporate.
The techniques of creating accounting can be used by the management in submission of financial
statement so that management needs must be fulfilled with respect to performance of entity and