Financial Statement Analysis of Samsung Electronics

Financial Statement of Samsung Electronics

The standard financial statements of companies provide solid background information that becomes useful for managers and any other interested parties. Taking into account the common sizing, vertical and horizontal analysis, ration analysis and other financial data, there remain little to no obstacles on the way to determining the position of the definite company in the industry. Therefore, the understanding of financial trends and profitability becomes crucial not only for directors, who aim to improve the company performance, but also for investors, who demand credible justifications and evidence for beneficial financial transactions. The current paper will present the financial statement analysis of Samsung Electronics to prove that the company is a good choice for potential investments and presents more solid benefits than risks.

Being established in 1938, Samsung Electronics has become a real giant in the area of technologies during the latest decades (Samsung, 2014). As a part of Samsung that is a multimillion-dollar corporation, nowadays, it is well-known as a great multinational company offering a great variety of technologies, digital appliances and other products in the areas of consumer electronics, IT & Mobile communications, and device solutions (Samsung, 2014). Nowadays, it is a respected word-class company fortifying the future development of new technologies, keeping pace with social changes and innovations that appear on the market. The creative solutions are offered for smartphones, tablets, engines, household appliances, business and entertainment. On the market of the IT & Mobile communications, Samsung has to compete with different companies, including LG, Apple, BlackBerry, Nokia and others (Hernandez, 2013). In the smartphones production area, Apple Inc. is the strongest rival of Samsung. It is a well-known fact that these two companies were involved in court cases several times and are widely discussed in the media. Even though Samsung provides cheaper alternatives to iPhones, Apple outdoes Samsung in smartphone industry. Nevertheless, the orientation toward innovations and experience of working in the highly competitive environment show that Samsung Electronics is able to struggle with various challenges on the way to keeping their primary positions in the market.

Horizontal Analysis of Income Statement and Balance Sheet

A horizontal analysis is applied to compare the essential data from several periods and show the changes that have occurred (K Wainwright, 2012). Its value is that is shows both positive and negative trends in the company incomes.

A three-year horizontal analysis of the income statement and balance sheet of Samsung Electronics must show positive and negative trends in its functioning.

Table 1: Horizontal Analysis of Income Statement (Sourcs: (Samsung, 2016))

(In thousands of US Dollars)	2013	2014	2015
Revenue	216,708,677	182,273,479	177,365,404
Cost of sales	130,480,725	113,390,613	109,150,639
Gross profit Selling and administrative expenses	86,227,952 51,370,553	68,882,866 46,762,235	68,214,765 44,866,898
Operating profit Other non-operating income Other non-operating expense Share of profit of associates and joint ventures Financial income Financial expense	34,857,399 2,302,237 1,529,468 477,649 7,594,686 7,348,595	22,120,631 3,360,167 1,997,469 302,763 7,301,184 6,447,452	23,347,867 1,490,274 3,291,288 974,040 9,294,510 8,867,472
Income Before Taxes	36,353,908	24,639,824	22,947,931
Income taxes	7,476,087	3,960,643	6,099,929
Profit for the year	28,877,821	20,679,181	16,848,002

The above-mentioned data has showed that the revenues of the company have decreased during three years. In comparison to USD 216,708,677, the revenues have declined to the level of USD 177,365,404 in 2015 (Samsung, 2016). Consequently, these indexes show 18% decline of revenues during 3 years. Some other indicators such as cost of sales, gross profit, operating profit, income before taxes and profit for the year have also increased. The cost of sales, which was USD 130,480,725 in 2013 became USD 109,150,639 in 2015, which totals a 16,3% decrease (Samsung, 2016). Gross profit has decreased from USD 86,227,952 in 2013 to USD 68,214,765 in 2015, which totals a 21% decrease (Samsung, 2016). Talking about the decrease in the operating profit, it is USD 11,509,532 or 33% (Samsung, 2016). The income before taxes was USD 36,353,908 in 2013 and fell to the index of USD 22,947,931 in 2015 (Samsung, 2016). Therefore, one can see that it has decreased to 36,9% in three years. The comparison of the profit for the year also shows a considerable decrease. The profit that was USD 28,877,821 in 2013 has become USD 16,848,002 in 2015 (Samsung, 2016). Hence, a 42% decrease is observed.

Nevertheless, it is necessary to pay attention to the fact that the decrease in the above-mentioned indexes is not equal when comparing the 2013-2014 period to 2014-2015. It is evident that the fall of the profits is considerably lower in the second case. Therefore, one can assume that the company has already implemented policies and strategies to tackle the existing difficult issues. Probably, a year after their implementation was not enough to arrange all the processes. The trends of the next year will become particularly important to see whether Samsung has chosen effective strategies to overcome the existing challenges.

The balance sheet analysis is also crucial to understand the company performance. The reason is that it shows shifts in the key business elements. Hereby, among such, one can find inventory, capital investments, debt levels etc. (K Wainwright, 2012). In fact, these are important indicators that provide understanding of the problems that exist within the company.

Table 2: Horizontal Analysis of Balance Sheet (Source: (MarketWatch, 2016))

	2013	2014	2015
Cash	16.28T	16.84T	22.64T
Accounts receivable	27.88T	28.23T	28.52T
Inventory	19.13T	17.32T	18.81T
Short-term investments	38.21T	44.98T	48.86T
Land & Improvements	7.43T	7.71T	7.85T
Buildings	23.38T	26.47T	32.85T
Other Property, Plant & Equipment	5.52T	5.66T	6.3T
Total assets	214.08T	230.42T	242.18T
Accounts payable	8.44T	7.91T	6.19T
Total liabilities	64.06T	62.33T	63.12T
Common Stock Par/Carry Value	897.51B	897.51B	897.51B
Retained earnings	44.43T	49.58T	53.59T
Total equity	150.02T	168.09T	179.06T
Total liabilities and equity	214.08T	230.42T	242.18T

From the data mentioned above, one can follow the improved liabilities, assets, cash and other indexes during three years. The total liabilities and inventories have decreased in 2014, but they increased again in 2015. With regard to accounts payable, they have deteriorated since 2013, whereas all the other categories show the growth.

Ratio Analysis

Investors and creditors can take into consideration the company financial statements to develop ratios and define the possible troubles. The ratios can be divided into several categories and reflect the liquidity measures, debt service, turnover, and profitability (K Wainwright, 2012). The data mentioned above provides a possibility to calculate the current ratio, quick ratio, and cash to current liabilities ratio over a two-year period. In such a way, the current ratio of Samsung Electronics for 2016 equals 2.47 (MarketWatch, 2016). This number reveals the relative amount of the working capital in the company and does not indicate any particular problems with liquidity. In 2014, the same ratio was 2.45:1 (MarketWatch, 2016). However, the current assets include inventory and prepaids that are not very useful when handling the current debts satisfaction.

The quick ratio is more helpful to define the stringent liquidity measures. In the current case, the quick ratio can be counted as 2.10:1 (MarketWatch, 2016). This ration must show the true readiness of the company to meet financial obligations. In this case, the amounts of cash obtained are enough. They have grown in contrast to the previous year when the ratio was 2.02:1 (MarketWatch, 2016).

Cash to current liabilities ratio that is 1.42:1 reflects that the cash flow in the company is enough to meet the liabilities in 2016 (MarketWatch, 2016). The same ratio for the previous year, however, was lower, namely 1.38:1 (MarketWatch, 2016).

To conclude, one can see that the ratios reflect the improvement in Samsung Electronics indicators during the last two years. In addition to that, the results of the ratios can be erroneously interpreted in case there are some payment obligations according to the contract, but the services have not been received yet. In such case, neither the expenses nor the liabilities will be properly reported. However, the duties can sometimes be reported. In addition to that, the long and lingering trial with Apple can also become one of the liabilities that can be represented improperly in the case of the appeals.

Discuss liquidity issues of competitive companies within the industry show the similar trends toward deterioration in 2014 that improved in 2015 and 2016. In 2015, Apple current ratio was 1.11, the quick ratio was 0.89 and the cash ratio was 0.52 (Stock Analysis, 2016). In 2016, the indicators have grown up to 1.31, 1.13 and 0.86 accordingly (Stock Analysis, 2016). One can see that Samsungs indicators are higher. Hence, from this perspective, Samsung can be considered as the beneficial company for investments.

Recommendation

With regard to this analysis, the investments in the company are profitable. Regardless the decline in the indexes in 2014, the company is rather experienced in working in the highly competitive environment and is able to address various challenges on the way to maintaining their leading position in the market. The comparison of the indexes shows that Samsung improves its position year by year. The company reports the growing share of profit of associates and joint ventures. The financial income is also growing. However, some risks are associated with the increased financial expenses and other non-operating expenses. The balance sheet shows the growth of the assets and investments, and the liquidity ratios are high in comparison to those of the industry representatives.

Conclusion

Samsung Electronics financial statement makes it evident that it is a strong company that worth investments. Even though there exist some risks that are associated with increased financial expenses, other non-operating expenses, and rivalry with its main competitor, its position is quite strong to be rapidly lost. The indicators of the last three years reflect the deceased numbers in 2014 as well as the following return to the previous level in 2016. Therefore, the horizontal analysis of the income statement and balance sheet as well as the ration show that the potential benefits are much higher than the possible risks associated with Samsung Inc.