Introduction
The primary aim of the paper is to do the financial analysis of Samsung and provide a clear and concise view to the investors. It includes a brief overview of Samsung along with its financial position determines through the horizontal analysis. The ratio analysis is also used to determine the liquidity position of the company. The recommendation is also provided to help the investor in decision making for investment in Samsung. The conclusion is provided at the end by summarizing all the facts that are discussed in this paper.
Company overview
Samsung is a South Korean multinational company that is headquartered in
Suwon, South Korea. It businesses is mostly affiliated that are operate by its subsidiaries located in different cities. Samsung belongs to the conglomerate industry. It is one of the world’s largest providers of electronic products in the international market. Samsung has more than 480,000 employees who are working in the subsidiaries of the company. The products of Samsung include consumer electronics, medical equipment, semiconductors, telecommunications equipment, and mobile phones. The main source of income is Smartphones that is sold all over the world. The major competitors of the company are Sony, Panasonic, LG, Nokia, and Apple. The company operates in highly competitive market and expands its business by acquiring new businesses.
Horizontal analysis
The horizontal analysis is the comparison of financial information during a specific period. It shows the difference or changes that take place during this period. The analysis is essential to identify strengths and weaknesses of the financial components and prepare strategies for the next period. It highlights the areas that need the attention of the management to ensure high profits. The horizontal analysis of income statement and balance sheet are shown below.
The total revenue of Samsung showed an increase of 13.7 percent in 2013. However, it was unable to manage the growth and showed a negative trend in 2014. The reason for the declining revenues of the company is high competition and low efficient management that cannot control the expenditures. The decline in the gross profit in 2014 indicates that Samsung is not efficient in controlling its costs and direct expenses. The net income of the company is also showing negative trend due to the decrease in revenue as it operates in highly competitive environment .
The positive trend is shown in the total assets of Samsung during 2013 to 2015 that indicates the company had acquired potential current assets to generate revenue. The liabilities of Samsung increased in 2014 as compared to 2013, but the company managed to pay off the liabilities in 2015 as shown by the negative trend. The total equity of Samsung is also showing a positive trend due to the increase in retained earning account. Although Samsung showed a negative trend in comparison, the net income of the company is positive (Griffin & Media, 2016).
Ratio analysis
Current Ratio
The current ratio is calculated to determine the liquidity position of a company. It shows the potential of the company to pay off its short-term obligations by utilizing current assets. The value of 2.16 and 2.21 in 2014 and 2015 respectively indicated that the company had managed to increase its assets more as compared to liabilities. The increase in this ratio highlights that Samsung can utilize its potential assets to pay off its current liabilities that are due in one year .
Cash Ratio
Cash ratio identifies the resources available to pay off current liabilities in a short period. The ratio determines the potential of a company to pay its short-term liabilities by utilizing cash and cash equivalent. The cash ratio of Samsung was stable in 2014-2015 that is 0.32 that indicates the company has sufficient resources to pay off its short-term debts. Although there is a change in current liabilities and cash, the management of Samsung is efficient in managing cash flows .
Quick Ratio
Quick ratio also shows the liquidity position of the company by considering most liquid assets that can be easily converted into cash. The value of quick ratio increased by 0.9 in 2014-2015 that shows the company has a variety of current assets to meet its current obligations. However, the decrease in ending inventory did not put an impact on the ratio due to the increase in assets. The company is efficient in acquiring new assets that can provide long-term benefits while operating in the highly competitive market .
Sony has liquidity issues that relate to paying off its short-term obligations. The company does not have sufficient cash reserve to pay its short-term liabilities. It is the major issue that affects the liquidity position, long-term credibility, and sustainable growth of the company.
Final recommendation
The financial position of Samsung is stable and reliable that is represented by ratio analysis. The company is efficient in increasing the number of current assets and managing cash flows to strengthen its liquidity position as compared to its competitors. The financial management of Samsung is ineffective in utilizing assets to generate high revenue. However, it has a potential to increase assets and decrease liability. The horizontal analysis reveals that the performance of the company decreased in 2013-2015 so it can be predicted that the company cannot provide a high dividend to the shareholders due to a negative trend in the net income. If an investor intends to make long-term investment to obtain high return, Samsung is the best option to invest .
Conclusion
The financial analysis reveals all the relevant information regarding the financial position of Samsung working in the highly competitive environment. The information presented in the paper is helpful for the investor to make a decision. The recommendation summarizes the overall financial condition of the company and a suggestion for investment to obtain long-term profits. The company has strong liquidity position that shows its strength for long-term sustainability and reliability. The leverage position of Samsung is better as compared to other operating in the same industry.
References
Goel, S. (2015). Financial Ratios. New York: Business Expert Press.
Griffin, D., & Media, D. (2016, April 5). Advantages of a Financial Statement Analysis. Retrieved April 5, 2016, from http://smallbusiness.chron.com/advantages-financial-statement-analysis-4124.html
Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. New York: RatioAnalysis.net.
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