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Sony Corp. Final Report - Research Paper Example

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Summary
Sony’s current ratio has dropped in 2009 from 1.25 to 0.95 but risen to 1.02 in 2010 while quick ratio similarly demonstrates a drop in 2009 from 0.67 to 0.53 and surged to 0.66 in 2010. Both the current ratio and quick ratio are slightly below the electronics industry average of 1.09 and 0.76 respectively for the year 2009 and 2010 (Reuters, 2011) due to unfavourable financial performance of the group…
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Sony Corp. Final Report
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Sony Corp. Final Report

Download file to see previous pages... The management believe that the strategy implementation would further reduce costs by more than ?300 billion. Nevertheless, Sony should pay particular attention in improving its long term solvency position given that its liquidity ratio is currently below the industry average and it poses a risk that it might not be able to meet its current obligations in an event of emergency even though inventories are not liquidated. (Annual Report, 2009-2010) The debt-to-worth ratio expresses the extent to which the business is relying on debt financing as opposed to shareholders funds (Albrecht, 2004). The increase in debt-to-worth ratio from 2.62 in 2008 to 3.05 and 3.34 in 2009 and 2010 respectively display that Sony is gradually increasing its reliance on debt financing mainly to fund the innovation required for the business growth. The Group’s financial risk position is increased as reflected by the total debt position of the Group. The total debt in 2008 as at balance sheet amounted to ?1,084 million, ?1,111 million in 2009 and ?1,209 million in 2010. (Annual Report, 2009-2010) The debt-to-worth ratios for 2008, 2009 and 2010 which are higher than the industry average further lay emphasis that Sony is currently at a highly leverage position as compared to its competitors. It would pose a threat to its financial safety and flexibility to borrow in the future if the trends continue. Moreover, there might be debt covenants which the Group is obliged to comply and it is critical that the Group monitors them tightly as non-compliance cause breaches in contract and immediate repayment is required. Gross Profit Margin shows a decrease from 2008 (23.1%) to 2009 (19.7%) mainly caused by the challenging economic environment hit by the global financial crisis and the negative impact driven by the appreciation of the yen against U.S dollar and Euro. There is an overall decline of sales in the Electronic, Game, Pictures and Financial Services businesses. Sales in the Electronic business declined 17% from ?6,613 billion to ?5,488 billion as there is a low demand for products such as the Handy cam video cameras, Cyber-shot compact digital cameras and VAIO PCs. Additionally, Sony has exited its business in LCD rear-projection televisions and CRT televisions during the year. The drop in sales in the Game business from ?1,284 billion to ?1,053 billion is mainly contributed by the decrease in revenue in its PS2 business while motion pictures revenue were down by 16.4% from ?858 billion to ?718 billion primarily driven by lower home entertainment demand and fewer films being sold to the home entertainment market. Financial Services revenue dropped 7.4% from ?581 billion to ?538 billion due to profit deterioration at Sony Life caused by the net valuation loss of convertible bonds and increase in impairment loss on equity securities. However, in 2010, the gross profit margin has improved considerably recording a margin of 22.9% subsequent to restructuring measures and cost reduction activities implemented. The restructuring consists of three horizontal platforms – the Global Sales and Marketing Platform, the Manufacturing, Logistics, Procurement and Customer Service Platform and the Research and Development and Common Software Platform aim to achieve cost efficiencies, ...Download file to see next pagesRead More
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