Samsung as the Global Market Leader - Term Paper Example

SAMSUNG ELECTRONICS (UK) LIMITED 1. INTRODUCTION Samsung Electronics (UK) Ltd. is under the umbrella of Samsung Electronics Co., Ltd. which is known to be the global market leader in terms of world class technologies. Every now and then, the company is increasing their market share value, consumers brand recognition, and sales revenue. Samsung (UK) has different business segments and they are producing products under the categories of Digital Media, Telecommunication Network, Semiconductor, and LCD Digital Appliance. The company is viewed to be one of the profitable subsidiaries of Samsung group in terms of manufacturing microchip and electronics. And they have acknowledged that their success is indebted to the talent, creativity, and dedication of their employees. They did not only compete to gain prestige and power but they are also searching and attracting talented people to work for them. Overall, the group’s vision is to “map out a specific plan of reaching $400 billion in revenue and becoming one of the world’s top five brands by 2020” (“Samsung,” n.d.). Samsung (UK) is popular in the areas of telecommunication and digital media as they have developed and distributed several products of mobile phones and consumer entertainment devices. Despite of the company’s overwhelming success, Samsung (UK) did not stop to aim for higher goals because the global market is constantly changing, and more importantly, they did not give their competitors a chance to overhaul. For them, nothing is impossible, as long as they have the needed financial resources, talented people, and loyal customers. This is the kind of spirit a true company must have. The main thrust of this paper is to analyze the performance of Samsung Electronics (UK) Ltd. By using the company’s financial statements and by applying financial ratios, Samsung’s (UK) performance and financial situation will be determined. 2. SAMSUNG ELECTRONICS (UK) LTD. RECENT DEVELOPMENTS For the past three years, Samsung (UK) has proven its success and growth. The company has received several recognitions in terms of producing innovative and advanced technologies. Most of the company’s recent development has been accepted by the people. For 2009, they managed to release new mobile phones like Giorgio Armani smartphones, Galaxy Tab, and Windows Phone 7 (Altoft, 2010). They had also released the world’s thinnest Blu-ray player, TV (6.5mm), and watch phone. Another important event for Samsung (UK) is the restructuring of their organizational leaders and announced their new general managers in UK print and display division (“Channel Pro,” 2010). Part of the company’s global marketing strategy is the sponsorship of Chelsea FC and Jon Kirkham, the British superstock rider into the latest British Superstock Motorcycle Racing Championship (“London Bikers,” 2010). This is Samsung’s way to present to the people that they are very committed in giving assistance to the young and talented individuals. In fact, they have also launched the first educational academy for engineers in partnership with Birmingham Metropolitan College. The purpose of this major investment is to give an opportunity to educate and further enhance the technical knowledge and skills of engineers in wireless audio visual technologies. These are among the many recognitions and developments Samsung (UK) has achieved during the digital age. Samsung (UK) top competitors are Panasonic (UK) Ltd., Philips Electronics (UK), Sony (UK), LG Electronics (UK) Ltd., and Toshiba Information System (UK) Ltd. These companies have their areas of specialization that is why Samsung (UK) should not be at ease and wait for the competitors to attack; instead it should regularly move forward. 3. RATIO ANALYSIS Financial statements such as balance sheet and income statement are very important not just to the company but also to all of its stakeholders. This document will be more meaningful if the age-old technique called ratio analysis will be applied. Ratio analysis is an advantage to the company in several ways. It gives deeper understanding of the company’s financial statements and to its competitors; and historical data are also helpful in forecasting and spotting business trends. Lastly, the company’s financial strengths and weaknesses will be identified that would be helpful to the current and future stakeholders of the company. 3.1 Liquidity Ratios 3.1.1 Current Ratio - This is a general liquidity ratio that will determine how capable the company is in disbursing its near-term obligations. This is also known as the working capital ratio that measures the financial strength and liquidity of the company. Through this ratio, Samsung (UK) will be able to determine its ability to pay its current liabilities with its current assets only. Significance: The current ratio of the company is 1.87. The result is very near to the standard current ratio which is 2.0. This indicates that Samsung (UK) is a liquid company and its current assets have the ability to settle its current obligations in time. Compared to its top competitors, Panasonic (UK) Ltd., Sony (UK), and Toshiba (UK) have the higher current ratios (See Appendix 2). For the past three years, the company’s current ratio is doing well, from 1.53 in 2007, to 1.46 in 2008, and 1.87 for 2009 (See Appendix 3). Based on the 2009 balance sheet of the company, its current assets are declining in a trend of -20.83% compared to the 47.36% in 2008; however, its current liabilities is also declining from -579,384 (2008) to -356,249 (2009). 3.1.2 Quick Ratio - This ratio is also called acid-test ratio which is a more specific liquidity ratio compared to current ratio because the inventory and some current liabilities are excluded in the computation. The ratio concentrates only on the real liquid assets and liquid liabilities such as cash, marketable securities, bills receivable, work in progress, etc. Significance. Samsung (UK) quick ratio is 1.59. Generally, the result is satisfactory and Samsung’s liquidity position is good because 1.59 is a good indicator that the company does not rely on the sales of inventory to pay off its current obligations when they become due. In the same manner, the company should not be blinded by this result because if the company’s debtors are slow-paying, the interpretation will not be realized. From 2007 to 2009, Samsung quick ratio is 1.30, 1.27, and 1.59 (See Appendix 3). The figures are good considering that they are increasing and they are also higher compared to the quick ratios of its top competitors. 3.2 Profitability Ratios 3.2.1 Profit Margin - This ratio is also called net profit margin ratio wherein every dollar of total sales is determined after subtracting all the necessary expenses such as cost of goods sold, but before deducting income taxes. The higher the profit margin the higher is the profitability of the company, and the more efficient they are in controlling costs the more they will be able to achieve higher return of investment. Significance. 2.11 % is the net profit margin ratio of Samsung (UK). The profit margin indicated that the company has a net income of $0.02 for each dollar of sales. The profit margin for 2008 is 2.11%, and 2.88% for 2007 which means that the company needs to further increase the control and management of its operating expenses. Although the ratio is much higher compared to Panasonic (0.72%), and Sony (0.69%), it is still much lesser compared to its other competitors such as Philips Electronics (4.02%), and Toshiba (2.05%). 3.2.2 Return on Total Assets (ROTA) - This ratio sometimes referred to as “return on investment” as it measures the efficiency of the company to produce greater earnings out from a small investment. A higher ROTA indicates that the company has a good management in terms of allocating resources, and the more it is profitable because they are using their assets well. Significance. The company’s ROTA is 9.74%. The result suggested that Samsung (UK) is in between the 5% asset-heavy and 20% asset-light. 9.74% is a good figure compared to the 7.32% ROTA last 2008, and this only means that the company’s efficient use of business assets is improving from time to time. 3.2.3 Profit per Employee (Unit) - This is one of the important ratios that will measure the profitability of the company in terms of utilizing its employees. The higher is the profit per employee, the more it is ideal to the company because it denotes how efficient the productivity of the company is. Significance. Samsung (UK) has a profit per employee ratio of 72,890. The result for 2009 should be increased considering that they have a 3.19% increased of employees. In general, the 72,890 per employee ratio is a positive sign that Samsung hiring system for 2009 which is called “Creative New Employee” is very efficient and served its purpose. Compared to its competitors, Panasonic has 330 employees and a ratio of 16,964; Philips Electronics has 2,050 employees and only got a ratio of 14,488, and Sony (UK) has 37 employees with a ratio of 65,297. Based on results, Samsung has more efficient revenue per employee, in fact it is expected that they should have higher revenue per employee because this ratio is also influenced by company’s age. 3.3 Long-Term Solvency Ratio 3.3.1 Equity Ratio - This ratio is called as proprietary ratio which will determine the future solvency position of the company as long as it’s able to meet its debt obligations. A higher equity ratio indicates company’s stability and a lower equity ratio means the company will be in default. Significance. 40.97% is the equity ratio of Samsung (UK). This means that the shareholders contribution to the company is about 40% and the remaining 60% is creditors’ contribution. The company is said to be financially healthy based on the standard equity ratio of 20%. 4. THE IMPACT OF CURRENT EVENT Samsung (UK) has considered their employees as an important asset to the company. In fact they have increased their total number of employees in 3.19 %. They are also implementing their “Creative New Employee” as the new hiring system of the company. This is one of the events that give the company increased in revenue per employee ratio from 71,205 last 2008 to 72,890 for 2009. Samsung’s (UK) investment is also one of the highlighted events in the digital age. Just like the launching of its new educational academy in partnership with the Birmingham Metropolitan College, and sponsoring events such as the Chelsea FC, and British Superstock Motorcycle Racing Championship. In the company’s balance sheet for 2009, it has a total investment of 1,384 KRW or 1.21 USD, and the return on investment ratio is increasing from 7.32% to 9.74%. It only means that despite of the company’s several investments, it still manages to use its assets efficiently. On the other hand, the many products they have released into the market particularly in Digital Media seemed to be successful because the turnover is increasing for the past three years. The company had also a better control of its operating expenses despite of the 9% allocation in Research and Development activities from the sales revenue. Overall, the results of the company’s profitability, liquidity, and solvency ratios are positive, and it indicates that the company is financially healthy and has the ability to pay off its obligations when it is due. 5. CONCLUSION AND RECOMMENDATIONS Samsung Electronics (UK) Ltd. has proven to be successful in its field. The company did not settle for being a leader because it wanted to be at the top among its competitors. It has released and introduced several innovative products and developments that could help the business in terms of profitability and brand recognition. Samsung (UK) has also acknowledged the creativity and talent of their people and gives what is due to them. Being technologically advanced in assets and products is the company’s strength. Their products really suit the taste and preferences of their customers, although it lacks differentiation. They also have a higher return of investment, revenue per employee, and equity ratio. However, the company’s current ratio needs to be increased. It is much better for Samsung (UK) to reach the standard current ratio (2.0) or a little bit higher. By paying some of its current liabilities, converting non-current assets into current assets, and have more equity investments, are the possible ways to increase the current ratio. On the other hand, Samsung (UK) needs to consider the historical/previous records of its competitors in doing its financial forecasting. Finally, examining a company’s financial status and performance with ratios alone is not adequate because they are only indicators and not a measurement of company’s position. 6. APPENDIX Appendix 1 Financial Ratios Computation: Current Ratio: Total Assets / Total Current Liabilities = ₩667,885 / ₩356,259 = 1.87 Quick Ratio: Total Current Assets - Inventories (Stock) / Total Current Liabilities = ₩667,885 - ₩101,537 / ₩356,249 = 1.59 Profit Margin: Net Profit Before Tax / Net Sales (Turnover) * 100 = ₩66,038 / ₩3,130,825 = 2.11% Return on Assets: Net Profit Before Tax / Total Assets * 100 = ₩66,038 / ₩677,690 = 9.74% Profit per Employee: Net Profit Before Tax / Number of Employees = ₩66,038 / 906 = 72,890 Equity Ratio: Shareholders’ Funds / Total Assets * 100 = ₩277,644 / ₩677,690 = 40.97% Appendix 2: Peer Analysis: Ratio Comparison PEER ANALYSIS: RATIO COMPARISON       TOP COMPETITORS CURRENT RATIO QUICK RATIO PROFIT MARGIN (%) PROFIT PER EMPLOYEE (Unit) Samsung Electronics (UK) Ltd. 1.87 1.59 2.11 72,890 Panasonic (UK) Ltd. 1.99 1.65 0.72 16,964 Philips Electronics (UK) Ltd. 1.11 0.93 4.04 14,488 Sony (UK) 2.57 2.25 0.69 65,297 LG Electronics (UK) Ltd. 1.18 0.93 1.92 44,892 Toshiba Information System (UK) Ltd. 2.36 1.27 2.05 29,383 Appendix 3: Samsung Electronics (UK) Ltd. Financial Ratios - Historical Data SAMSUNG ELECTRONICS (UK) LTD FINANCIAL RATIOS: HISTORICAL DATA         YEARS 2009 2008 2007 Current Ratio 1.87 1.46 1.53 Quick Ratio 1.59 1.27 1.3 Profit Margin (%) 2.11 2.11 2.88 Return on Total Assets (%) 9.74 7.32 12.65 Profit per Employee 72890 71205 94886 Equity Ratio 40.97 28.48 32.14 Appendix 4: Samsung Electronics (UK) Ltd. - Profit & Loss Account and Balance Sheet SAMSUNG ELECTRONICS (UK) LIMITED : PROFIT & LOSS ACCOUNT   31/12/2009 31/12/2008 31/12/2007       Turnover 3130825 2961509 2561730 UK Turnover     1990881 Overseas Turnover     570849 Cost of Sales -2753699 -2642503 -2318059 Exceptional Items pre GP       Other Income pre GP       Gross Profit 377126 319006 243671 Administration Expenses -311897 -267972 -176832 Other Operating Income pre OP       Exceptional Items pre OP       Operating Profit 65229 51034 66839 Other Income 3020 13273 19110 Total Other Income & Int. Received 3020 13273 19110 Exceptional Items -98 -486 -675 Profit (Loss) on Sale of Operations       Costs of Reorganisation       Profit (Loss) on Disposal       Other Exceptional Items       Profit (Loss) before Interest 68151 63821 85274 Interest Received       Interest Paid -2113 -1303 -11453 Paid to Bank       Paid on Hire Purchase       Paid on Leasing       Other Interest Paid       Net Interest -2113 -1303 -11453 Profit (Loss) before Tax 66038 62518 73821 Taxation -19122 -17960 -22076 Profit (Loss) after Tax 46916 44558 51745 Extraordinary Items       Minority Interests       Profit (Loss) for Period 46916 44558 51745 Dividends     -40100 Retained Profit(Loss) 46916 44558 11645       Depreciation 2690 3530 4443 Depreciation Owned Assets       Depreciation Other Assets       Audit Fee 270 240 172 Non-Audit Fee 317 153 225 Tax Advice       Non-Tax Advisory Services       Other Auditors Services       Total Amortization and Impairment 422 333   Amortisation       Impairment       Total Operating Lease Rentals       Hire of Plant & Machinery       Land & Building or Property Rents & Other       Research & Development       Foreign Exchange Gains/Losses       Remuneration 62982 57006 47663 Wages & Salaries 55586 50318 41574 Social Security Costs 4596 4007 3575 Pension Costs 2800 2681 2514 Other Staff Costs       Directors' Remuneration 3409 2710 2590 Directors' Fees     2590 Pension Contribution       Other Emoluments       Highest Paid Director 1291 1166 1168 Number of Employees 906 878 778       SAMSUNG ELECTRONICS (UK) LIMITED : BALANCE SHEET   31/12/2009 31/12/2008 31/12/2007       Fixed Assets       Tangible Assets 7071 8808 10894 Land & Buildings 4463 5867 3847 Freehold Land       Leasehold Land       Fixtures & Fittings 960 1734 2775 Plant & Vehicles 1648 1207 4272 Plant       Vehicles       Other Fixed Assets 0 0 0 Intangible Assets 1350 1667   Investments 1384     Fixed Assets 9805 10475 10894       Current Assets       Stock & W.I.P. 101537 106410 86165 Stock 101537 106410   W.I.P. 0 0   Finished Goods       Trade Debtors 426526 244733 267810 Bank & Deposits 49777 283261 101574 Other Current Assets 90045 205402 115722 Group Loans (asset) 66377 152363 52398 Directors Loans (asset) 0 0 0 Other Debtors 23668 53039 63324 Prepayments       Deferred Taxation       Investments   3776 1187 Current Assets 667885 843582 572458       Current Liabilities       Trade Creditors -51115 -64446 -37680 Short Term Loans & Overdrafts -213326 -400855 -225558 Bank Overdrafts -21470 -251294 -45033 Group Loans (short t.) -191856 -149561 -180525 Director Loans (short t.) 0 0 0 Hire Purch. & Leas. (short t.) 0 0 0 Hire Purchase (short t.)       Leasing (short t.)       Other Short Term Loans 0 0 0 Total Other Current Liabilities -91808 -114083 -111221 Corporation Tax -9102 -5066 -11048 Dividends 0 0 0 Accruals & Def. Inc. (sh. t.) -55832 -93378 -73425 Social Securities & V.A.T. -24099 -13564 -12573 Other Current Liabilities -2775 -2075 -14175 Current Liabilities -356249 -579384 -374459       Net Current Assets (Liab.) 311636 264198 197999 Net Tangible Assets (Liab.) 320091 273006 208893 Working Capital 311636 264198 197999 Total Assets 677690 854057 583352 Total Assets less Cur. Liab. 321441 274673 208893       Long Term Liabilities       Long Term Debt       Group Loans (long t.)       Director Loans (long t.)       Hire Purch. & Leas. (long t.)       Hire Purchase (long t.)       Leasing (long t.)       Other Long Term Loans       Total Other Long Term Liab.     -17 Accruals & Def. Inc. (l. t.) 0 0 0 Other Long Term Liab. 0 0 -17 Provisions for Other Liab. -43797 -31465 -21378 Deferred Tax       Other Provisions -43797 -31465 -21378 Pension Liabilities       Balance Sheet Minorities       Long Term Liabilities -43797 -31465 -21395       Total Assets less Liabilities 277644 243208 187498       Shareholders Funds       Issued Capital 109546 109546 109546 Ordinary Shares       Preference Shares       Other Shares       Total Reserves 168098 133662 77952 Share Premium Account 0 0 0 Revaluation Reserves 0 0 0 Profit (Loss) Account 168098 133662 77952 Other Reserves 0 0 0 Shareholders Funds 277644 243208 187498 References Altoft, P., 2010. Samsung launches Giorgio Armani branded headset. [Online] Available at: https://docs0.google.com/document/d/1j6332oQ9sAMMGcPvjaxnDTM0z4mqPsd9JahzLhleb9w/edit?hl=en# [Accessed 9 December 2010]. Channel Pro, 2010. Samsung reveals new general managers. [Online] Available at: http://www.channelpro.co.uk/Community/600116/samsung_reveals_new_general_managers.html [Accessed 9 December 2010]. London Bikers, 2010. Samsung mobile sponsors British superstock rider, Jon Kirkham, 2010 and beyond. [Online] Available at: http://londonbikers.com/news/15055/samsung-mobile-sponsors-british-superstock-rider-jon-kirkham-in-2010-and-beyond [Accessed 9 December 2010]. Samsung, n.d. About Samsung. [Online] Available at: http://www.samsung.com/us/aboutsamsung/corporateprofile/vision.html [Accessed 9 December 2010]. Read More