58962533 sony ericson project

8/2/2019 58962533 Sony Ericson Project

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Oxford Brookes UniversityBSc (Hons) in Applied Accounting

Research and Analysis

ProjectCONTENTS OF THE DOCUMENT

A. KEY SKILLS STATEMENTB. RESEARCH AND ANALYSIS PROJECT.

By: Muhammad Waqar AliRegistration Number. 0656390


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KEY SKILLS STATEMENT

By: Muhammad W Ali

Registration Number. 0656390

1 PREPARING FOR MEETINGS

1.1 PLANNING

Key Skills Statement Total word count: 1478


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Definitions of planning

* an act of formulating a program for a definite course of action; "the planning was

more fun than the trip itself"* the act or process of drawing up plans or layouts for some project or enterprise

* the cognitive process of thinking about what you will do in the event of something

happening; "his planning for retirement was hindered by several uncertainties"(wordnet.princeton.edu/perl/webwn)

Planning plays a very vital role in achieving success. It is like the foundation brickof the entire building and if this brick is not laid properly then the consequencesfaced are inevitable. The importance of planning can be judged from the famousproverb He who fails to plan, plans to fail

Therefore knowing that good planning is the first step towards the success of myproject, I carefully planned everything i.e. the timings, topic e.g. I initially wentthoroughly through the ACCA guidelines to understand what was required and on

gaining a through understanding I then processed towards the next important stepwhich was to choose the topic.

I went through all the topics and reduced the list by choosing a few that I wanted topursue with. Then I started my research and narrowed down by choice even furtheruntil I reached the decision to go with the current topic. Following that I quicklyformulated a strategy as to how I would do the work i.e. how to conduct the search?when to start?, what dates to plan for the meetings? e.t.c

1.2 PREPARATION

Having found the answers to all the above questions, the next important questionthat needed answering was who to choose as a mentor? I gave a deep thought andthen concluded that the mentor can be the person you have worked under hissupervision, and for this reason I selected my line manager at ASDA STORES LTDSTEVENAGE. Mr. Dean Shelton who is my line manager from August 2007, andwould be my perfect mentor and who would be able to take me through the projectsuccessfully.

As a result I approached my mentor who was very willing to help and we scheduledourfirst meeting. In the meeting I introduced my mentor to the topic I chose givinga brief background backed by reasoning and he was contented with my decision. Ialso informed him about the sources accompanied with the means and methods Iplanned to use. The first meeting was a successful one as my mentor was satisfiedand I was confident that I had properly communicated the reasons and objectives ofthe topic I chose. Until the next meeting I just focused on gathering informationfrom different resources

Oursecond meeting was scheduled for 3rd March and in this I demonstrated all theinformation and knowledge that I had pooled in from various resources. I did not


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encounter many problems in gathering the information even though it was a verytime consuming process however, I had some issues that were pending as I neededsome consultation from my mentor. I put them forward and got them resolved frommy mentor.

Ourthird and final meeting was held on 30th

March. I was very confident aboutthe presentation because I had a clear set of mind with transparent aims andobjectives and was absolutely certain in what I had done and was doing. Mymentors satisfaction in all the meetings was a clear reflection of this.

2. QUESTIONING

During the meetings, there were numerous questions that were raised by my mentor as wellas by me from which I learned how important it is to select right type of questions. Thequestions, which are focused and properly directed, can lead to discussion, which ends inproviding a broader perspective. On the contrary, erratic and unfocused dialogue leads to

ore confusion. It is, therefore, necessary to follow different questioning techniquesdepending upon the subject matter.

Ensuring a productive discussion required that I note down all the questions that I hadfaced concerning my project as well as the questions that my mentor might have raised.Those questions, which I had written down, helped me during the meeting.

As mentioned above, the different questioning styles ensured a more productive discussion,enabling me to understand my mentors requirements. For example, during my secondmeeting, my mentor questioned my way of searching for source material. At first I wasconfused and thought that he meant to discourage my approach or disapprove of it but after

afterwards I understood that what my mentor actually wanted was a more thoroughreasoning for following that approach and wanted me to elucidate it more clearly.

3. LISTENING

Listening is an active process and an aspect of oral communication. Listening wasimportant for me to ensure that my meetings with my mentor were beneficial to me.Therefore, I employed the following listening techniques to ensure that I clearly understoodmy mentors viewpoint and avoid any misunderstandings:

Attentive listening

Listening for content Critical listening

Emphatic listening

There is often a strong tendency to pre-judge others before hearing what they have to sayand to filter out difficult and undesirable messages. However following the abovementioned techniques allowed me to ensure that my mentor got enough opportunities toexpress his view points and that I was able to absorb their real meaning and purpose. I also


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tried to maintain an eye contact so that I would not miss any subtle hints attached with themessage. This eye contact also helped me in disregarding any noise that I could encounterand to avoid the law of least effort.

Having chosen a calm environment for our meetings with the least possible physical and

technical noises, my mind was actively engaged in receiving, interpreting and storinginformation. This happens when you trust the source of the message to be correct &objective and this encourages further communication.

4. THE PRESENTATION

In the last meeting I first showed him my report. He went through it and then asked me togive him a short oral presentation on the research.

I delivered the whole presentation in twenty five minutes in which starting from the topicchosen I directly summarised the analysis and concluding section of the report. My

research was based on the analysis of financial performance of theLM Ericsson TelephoneCo. therefore I started with brief history about the company, then I explained about thefinancial analysis with comparative figures and the competition analysis with financial dataof the key players in Telecommunication equipment industry and sector.

My presentation was a successful one with my mentor being very pleased with it. Mystrengths for my presentation included having a strong grasp of knowledge and goodpresentation skills. However, I would say my weaknesses included, being a little nervousinitially, and some sections of the report not being adequately presented whereby mymentor had to follow up with questions.

5. SELF ASSESSMENT OF INTERACTION

I have already mentioned above that I personally feel that all the meetings with my mentorwent very well and resulted in a good understanding. Communication between my mentorand I was an example of horizontal communication, where information was exchangedmore rapidly and effectively.

In any communication, the message passes through perceptual filters such as words,paralanguage, and nonverbal behavior etc. I considered them as key elements of successfulcommunication therefore I duly cared about the words and the language I used during mypresentation. They were simple but comprehensive and easily understandable.

Further I carefully considered the importance of voice while my presentation. It helped meconvey enthusiasm, confidence, serenity and other state of mind and intent. The timings ofspeech, increasing and decreasing tone, varying pitch and other aspects of speech patternsincreased my ability to influence my mentor. I also took good care of my facial expressionsand gestures.


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6. OUTLINE OF THE PRESENTATION

TOPIC CHOSEN: An analysis of the financial situation of your choiceof organisation

RESEARCH ON: LM Ericsson Telephone Company.

REASON FOR CHOOSING StrongInterest in the finance sectorTHE TOPIC: Topic in line with educational competence i.e. also

an accountancy/finance student

Impressed by growth and technology in the mobile

industry mobiles arent just simple phones thesedays

SOURCES USED TO Library databasesGATHER INFORMATION: Books

InternetFinancial reports of the company

Newspaper reports and Journal articlesDiscussion with knowledgeable people

OBJECTIVE Analyze and appraise the financial situation of L MEricsson.

BRIEF DESCRIPTION OF Head office in Sweden.Ericson (2007) Net sales of 187.8 SEK billion

74,011 employees

Sales in more than 130 countriesSTRUCTURE OF REPORT: Internal analysis/ TECHNIQUES USED

- Comparing performance of Ericssonagainst its previous years

External Analysis

- Analyzing Ericssons performancerelative to the sector/industry in which it

operates in- Comparing Ericssons performanceagainst its biggest competitors

AN ANALYSIS OF THE


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FINANCIAL SITUATION OFYOUR CHOICE OF

ORGANISATION

By. Muhammad Waqar Ali

Registration Number. 0656390


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1.1 TOPIC CHOSEN AND ITS CONTEXT

1. INTRODUCTION


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The topic chosen for my research and analysis project is:

An analysis of the financial situation of your choice of organization

An organization or a company is an amalgam of many stakeholder groups with its owninterests with a common goal of profit and long term stability of the company. Thisessential factor can be adjudged by evaluating the financial situation of the organizationwhich will help to make a judgment on the current and future position of the organisation.And the groups that would be particularly concerned with this analysis are the current andpotential investors.

The people or groups who invest in the organization are very sensitive towards thefinancial analysis of the companies and the figures that they produce, because accounts areopen to fraud and deception, techniques like creative accounting, profit smoothing andwindow dressing can be used to deceive investors and these have brought disrepute to the

profession of accountancy Further more, big corporate failures like WorldCom and Enronhave brought investors to their knees and have drastically increased the need of suchanalysis with considerably more detail and transparency than it used to be .

The most common and straightforward method of examining the financial situation of thecompany is simply to analyse the financial statements and compare the current financialyear with the previous one and to analyse and rationalise any changes. This is known ashorizontal analysis, but its formal title is hardly important as it amounts to the applicationof basic common sense in use since the begging of accounting. It is a form of intertemporal analysis, i.e. a comparison between accounting periods. The line by linecomparison must be performed whist also considering:

The change in the annual turnover

The relevance of anything else you may know about the company(FTC, 2007)

1.2 REASONS FOR CHOOSING THE TOPIC

Being a finance and accountancy student and one who has always been fascinated byfigures and numbers, it would not be much of a surprise for me to choose this topic. I havealways been enamored by the business sector which is one of the main reasons I chose it asmy profession. The strong affinity and interest in the finance sector is what enabled me towork on this topic.

I am very much impressed by the impact of technology on broadcasting andtelecommunication. This means no physical presence is required for communication thesedays. We are thus freed from space in our interpersonal communications. This freedomfrom space did not begin with the facsimiles and long-distance phone calls of thetwentieth century; it really began to evolve with the invention of mass communication. Wehave the technologies of Samuel F.B. Morses telegraph, Alexander Graham Bellstelephone, Guglielmo Marconis radio, and Philo Fransworths television, added them to


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the technology of the computer, and come up with a whole new way of communicationwith each other. (Kethryn A. Marold & Gwynne Larsen)

The first ever mobile phone that was made was launched in April 1973 in New York andthe technology was incorporated by Motorola. In Britain the first call on a mobile phone

was made in January 1985 and within 20 years mobile phone has become an integral partof life and almost 90% of the Britons now own a handset and many prefer it as their onlyphone rarely using a landline.

(www.bbc.co.uk)

Today we can see that mobile technology has impacted the business world profoundly overthe last few years at a rapid pace with colour phones, cameras, radios e.t.c , smart phoneslike blackberry are an integral part of a savvy business man , These reasons allowed me totake greater interest in analysing the accounts of a mobile producer/manufacturer toappraise its financial situation over the years and how it has been affected. This is why Ichose this topic and the organisation that I focused upon is LM Ericsson Telephone

Company, the market leader in the mobile industry.

1.3 AIMS AND OBJECTIVES OF THE REPORT

My main aim and objective of the report is to analyse the financial situation of thecompany/organization. This usually includes interpreting the financial statements to give acomparison of the turnover and other factors no only with in the company but that of itscompetitors over a period of years to examine performance and trends of the industry.Other comparisons may include those on an interim basis, with published industry averagefigures. Users of accounting information are interested in a number of concepts, whichinclude:

Profitability

Liquidity

Management efficiency

Risk

Shareholder interest (Student accountant, Jan 01 issue)My research and analysis is based on LM Ericsson a world leader in mobilecommunications network, contributing to the growth and sustainability of the broadermobility industry.

So therefore I would examine and compare the financial statements of Ericsson over theyears to determine its past performance and trend and would also demonstrate a competitoranalysis to judge how well has Ericsson done relative to its next biggest competitor. LastlyI would inspect the future forecasts laid down by Ericsson to judge the performance andstability of the company in the future. And these comparisons therefore would focus andtake into account all the stakeholder interests stated as above.


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2.1 SOURCES USED AND REASONS FOR THEIR USE

2. INFORMATIONGATHERING


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Information gathered from different sources can be divided into two categories:

Primary data: Data which is collected specifically by, or for the user e.g. directly bymeans of interview, questions forms, surveys etc.

Secondary data: Data which is neither collected specifically for or by the user e.g.newspapers, research of other and third party information.

(BPP, 2008)

Primary data is more reliable than secondary data but being more time consuming as I ambound by time constrictions; my report mainly comprises of secondary data.

The sources I used to gather information are as follows:

My main source of information was books and reports comprising of a vastamount of research made by financial experts who have a greater understandingof the field.

I also had a lot of research conducted on the internet as with the passage of timeeverything is getting electronically modified this was a great help.

I also went thoroughly through the past and current financial accounts of thecompany and its competitors as a major part of my project is based on theiranalysis.

I also conducted a market research on the industry itself so as to know aboutEricssons more relative to the market in which it operates.

My next targets were the newspapers and journal articles to keep myselfupdated with the ongoing events.

Lastly I had some questioning done with the people in general who are familiarwith the field to get a grasp of any knowledge that would be helpful and to giveme a clear understanding.

2.2 METHODS USED TO GATHER INFORMATION


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LIBRARY VISITS

As soon as I selected my topic my first priority was to visitthe libraries as they are the trough of knowledge. I chose tovisit the Hertfordshire Library Stevenage. I spent hours thereconducting research on my topic. I found quite a few

important researches made by famous investment analystswhich were very useful for me. The library had all theannual reports for all the UK and overseas companies whichhelped me to gain all the annual reports and financialstatements for Ericsson. There were other books, newspaperand journal articles over there that were very constructiveand handy.

BOOKS

The library helped me to get hold a few books that werevery essential and helped me to have a deeper understandingof the topic so that I could apply it to the case/organisation.Also my ACCA 2.5 and P2 text books (Financial Reportingand Corporate Reporting) gave me a lot of insight that wasvery constructive for me.

INTERNETThe internet is a very powerful and helpful tool and can giveyou access to a pool of information. I browsed a few sitesand extracted the relevant information that was required.

NEWSPAPER AND

JOURNAL ARTICLES

Newspaper and journals are the best form of information tokeep oneself in touch with the environment and currentevents. Previous searches helped me to have an insight ofthe past performance of Ericsson however, in order to knowthe future stability and prospects of Ericsson, the analysis

columns in various newspapers and journals helped me fillthe gaps , especially The Financial Times.

COMPANY FINANCIAL

STATEMENTS

The companys (i.e. Ericsson in my case) financialstatements were probably the most vital information becausethe entire analysis was depended upon them. They providedme with a lot of information for me to reach considerableconclusions and I thoroughly went through all the statementsto achieve a sound analysis for Ericsson.


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3. ANALYSIS


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3.1 THE VISION, HISTORY AND ACTIVITIES OF ERICSON .

3.1.1 THE VISION. To be the prime driver in an all communicating world. A world inwhich all people can use voice, text, images and video to share ideas and informationwhenever and wherever they want. As leading

supplier of communication networks andservices, Ericson plays a vital role in makingsuch a world a reality.

3.1.2 THE HISTORY. Ericsson is a leadingSwedish-based provider of telecommunicationand data communication systems, and relatedservices covering a range of technologies,including mobile phones. Founded in 1876 as atelegraph equipment repair shop by LarsMagnus Ericson, it was incorporated on August

18, 1918. Headquartered in Kista, Stockholm,since 2003. Since the mid 1990s, Ericsson'sextensive presence in Stockholm helpedtransform the capital into one of Europe's hubsof Information Technology (IT) research.

In the early 20th century, Ericsson dominatedthe world market for manual telephoneexchanges but was late to introduce automaticequipment. The world's largest ever manualtelephone exchange, serving 60,000 lines, was

installed by Ericsson in Moscow in 1916.Throughout the 1990s, Ericsson has held a 35-40% market share of installed cellulartelephone systems. Like most of thetelecommunications industry, LM Ericssonsuffered heavy losses after the telecommunications crash in the early years of the 2000s,and had to retrench tens of thousands of staff worldwide in an attempt to staunch the losses.

The handsets division got a fresh start in 2001 in the form of a joint venture with Sonycalled Sony Ericson. LM Ericsson is a major provider of handsets and an infrastructuresupplier for all major wireless technologies. It has played an important global role in

modernizing existing copper lines to offer broadband services and has actively grown anew line of business in the professional services area.

(Source. Wikipedia, www.datamonitor.com, Ericsson Annual; report 2007).
http://en.wikipedia.org/wiki/Stockholm_Municipalityhttp://www.datamonitor.com/http://www.datamonitor.com/http://www.datamonitor.com/http://en.wikipedia.org/wiki/Stockholm_Municipality


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3.1.3 ACTIVITIES. Ericson divided its operation in foursegments.

NETWORKS. Provides network infrastructure,communications and network service platforms. This is the

largest business segment of Ericson. Network sales are 69%of total sales in 2006/7.

PROFESSIONAL SERVICES. Services portfolio includescapability in consulting, education, systems integration,managed services, network rollout, deployment andoptimization and technical/customer support services formore than 800 networks.

MULTIMEDIA. This segment develops the multimediasolutions (IPTV, mobile TV, music, SMS & MMS), and acts

as a facilitator to match operators and service providers withthe right tools to distribute media and internet content to their customers.

PHONES. Sony Ericson Mobile Communications is a 50/50 joint venture between Ericsonand Sony Corporation. In 2007 SonyEricson sold over 100 million handsets, 18 percentmore than previous year. (Ericsson Financial Reports 2007)

3.2 INTERPRETATION OF THE FINANCIAL STATEMENTS FOR

LM ERICSSON TELEPHONE CO.

One of the best ways and in fact the main indicator of the companys financial situation andits performance is to carry an interpretation of its financial statements, also known as ratioanalysis and to compare its performance . I would therefore initially conduct the analysiswith relation to Ericson and give a comparison with its previous year.

FOUR MAIN GROUPS OF RATIOS AND ITS SUMMARY,

PROFITABILITY. Reflects on the Performance of companies and its managers i.e.,ROCE, Gross and NET profit as percentage of sales revenue.

MANAGEMENT EFFICIENCY. Reflects on the efficiency of asset usage i.e., Inventory

turnover, Debtors collection period, Creditors payment period.

FINANCIAL. It reflects on financial structure and stability of the company i.e., Equity toassets ratio, Currant and liquid ratio.

INVESTMENT. Relationship of the number of ordinary shares and their price to theprofits, dividends and assets of the company i.e., EPS, P/E ratio, Dividend yield, Dividendcover, Net Assets per share.


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We would therefore look at the key ratios that are vital for the financial analysis of Ericson.

3.2.1 PROFITABILITY RATIOS

KEY RATIO 2007 2006 CHANGE COMMENTS

Return on capital employed (ROCE) =

Profit before taxes + interest and other netfinancial expensesAverage capital and reservesattributable to equity holders of the parent +short-term borrowings + long-term interest-

bearing liabilities(including the current portion thereof) +minority shareholders interests

20.9% 27.4% - 6.5%

Return on capital employed is the key business

objective and is also known as the primary ratiobecause it is often the most important measure of

profitability. It reflects the earnings power of the

business operations and shows how efficiently abusiness is using its resources.

We can see that there is an downward change of 6.

in the ROCE for Ericson, results from increased

borrowings and provisions (used for funding new

acquisitions during the year).

Return on shareholders equity =

Profit attributable to equity holders of theparent

Average capital and reserves attributable toequity holders of the parent during the year

17.2% 23.7% - 6.5%

Return on shareholders equity is a key measure of

success from the shareholders point of view. It

therefore demonstrates how successful the compan

in using the funds provided by shareholders togenerate profit.

There has been a negative -6.5% change from the

previous year which shows not good accumulation

funds to generate profits for the shareholders.

Operating profit margin =

Operating profit (i.e. profit before interest,taxes and investment income)

Sales revenue

16.3% 19.9%

-3.6%

Operating profit margin reflects the degree of

competitiveness in the market, the economic situati

the ability to differentiate products and the ability t

control expenses.

We can see that there has been a 3.6% decrease in

operating profit margin which is reflected by theincrease in expenses such as research and

development and selling and distribution.


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3.2.2 FINANCIAL RATIOS


Equity ratio =

Capital and reserves attributable to the equityholders of the parent + minority shareholdersinterests

Total assets advance payments received

55.1% 56.2%

- 1.1%

Equity to assets ratio tells us what proportion of to

assets is financed by equity and hence what

proportion if financed by loans and non equity shar

A low equity ratio indicates that much of the busineis financed by loans and a high one indicates that

most or all of the long term capital is equity.

Ericson still has a high equity ratio indicating that

more than 50% of its total assets is financed by

equity, however, there is a decline of 1.1% indicati

that more proportion of the assets are being financ

by loans or non equity shares.

Current ratio

Current assetsCurrent liabilities

2.03:1 2.15:1 -5.58%

Current ratio measures the adequacy of current as

to meet short term liabilities so as to know whether

the company is in a position to meet these liabilitie

when they fall due.

The current ratio of Ericsson is still very high and

shows enough adequacy even though there has bee

fall of 5.58%.

3.2.3 EFFICIENCY RATIOS


Accounts payable payment period =

Accounts payable______________ X 365 daysCredit purchases.

57days

54days

+5.5%

This presents the credit period taken by the compan

from its suppliers. It is like a source of free finance

generally the higher it is the better

The credit period for Ericson has increased by 5.5%

which indicates that they can pay slightly later thabefore

Accounts receivable collection period=

Trade receivables 365 days

Credit sales revenue

102days

85days

+20%

This ratio measure the average period of credit

allowed to customers. An increase in this measure

might indicate that the company is building up cash

flow problems.

The increased 20% credit period to customers is du

to increased growth in turnkey projects and marke

with longer payment terms.

Inventory days =

Average stock held 365Cost of sales

5.2days

5.2days

0%

This measures the average period during which stoof goods are held before being sold or used in

operations of the business.

The unchanged inventory turnover period is a good

sign in the year of growth and expansion.

3.2.4 INVESTMENT RATIOS


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KEY RATIO 2007 2006 CHANGE COMMENTSDividend per share =

Nominal dividend per share

The adjustment coefficients of the share issues

that have taken place during or after year inquestion*Board proposal

0.50* 0.50

0%

Dividend per share is one of the key measures

announced by the company at the end of the financ

year so the shareholders immediately know what to

expect in total dividend depending on the shares he

Dividends are thought to carry a signal to the mark

of the strength and stability of the company.

The unchanged dividend per share in the year whe

decreases in share prices were observed is a good

sign.

Earnings per share (EPS) =

Profit attributable to equity holders of theparent

Average of adjusted number of shares duringthe year

1.371.65

-16.9%

This is the most frequently quoted measure ofcompany performance and progress. It is used

primilarily as a measure of profitability, therefore

increasing EPS is seen as a good sign.

The EPS for Ericson has fallen by 16.9% which is

because of increased number of shares and reduceprofits in 2007.

Payout ratio / Dividend Cover =

Dividend per share

Earnings per share37Times

30Times

+7%

This is the relationship between available profits a

the dividends payable out of the profits. It shows th

number of times the dividend has been covered by

profits of this year.

An increase is observed in dividend cover, which

suggest that the dividend is safe and it is likely that

the current level of dividend will be sustained in th

future.Price earning ratio =

Share price

Earnings per share

* Based on the current and most latest shareprice i.e. 17.12 (www.reuters.com)

11

17

-6%

The P/E ratio (also known as earnings multiple)

compares the amount invested in one share with th

earnings per share. It represents the markets

consensus of the future prospects of the company. T

higher the ratio, the faster the growth the market isexpecting in the companys future EPS and longer

earnings sustained

We can see that Ericsons P/E ratio has decrease b

6% which is because of lower share prices and

reduced EPS.Dividend yield =

Dividend per share

Share price

3.29% 1.8% +82.77%

The dividend yield is an indicator of the relationsh

between what the investor can expect to receive fro

the shares and amount invested in them

The yield for Ericsson has increased by 82.77%resulted from decrease in share price in 2007.

(www.reuters.com ), (www.morningstar.com), (Ericsson financial reports 2007), (ACCA

BPP TEXT P2).

3.3 INDUSTRY AND SECTOR COMPARISON FOR ERICSON.
http://www.reuters.com/http://www.morningstar.com/http://www.reuters.com/http://www.morningstar.com/


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After analysing the company internally i.e. comparing accounting periods, the next step isto analyse its financial situation externally i.e. relative to the industry and sector that itoperates in. The table below gives a comparison of Ericsson relative to the industry,demonstrating us how well or bad does Ericsson do against the sector and industry in

which it operates:

1-Day Price Market Dividend Debt to Price to Net Profit Price to Free

Description*1 Change % Capitalisation P/E

ROE

% Yield % Equity Book

Margin

(mrq)*2 Cashflow (mrq

Sector -0.603 5130.66B 19.764 13.731 2.209 0.656 6.349 8.48 25.7

Industry -0.212 357.49B 19.3 17.1 1.74 0.192 5.78 10.3 118

Alcatel-Lucnt 3.46 12.83B NA -22.518 6.3 0.368 0.588 -7.931 -70.9

Ericsson 2.57 30.42B 8.427 17.178 0 0.203 1.368 10.36 15

Motorola Inc. 2.66 22.59B NA -0.644 2 0.28 1.468 1.037 42.6

Nokia Corp. -0.54 120.84B 10.986 53.887 2.5 0.086 5.245 11.675 56.1

QUALCOMM -0.76 65.28B 19.965 22.978 1.6 0.006 4.225 31.434 125.8

1. All figures are in US $ (finance.yahoo.com)

2. mrq = Most recent quarter

3.4 COMPETITOR ANALYSIS

We also need to analyse the financial situation for Ericsson relative to competitors to judgeits performance comparatively. This can be done so with the help of following tables.

Telecommunications Equipment Makers Ranked By Sales.

Company Price Change Market

Cap.

P/E

Nokia Corp. 30.91 0.00% 118.88B 10.66

Motorola Inc. 9.50 0.00% 21.42B N/A

Cisco Systems Inc. 24.18 0.00% 144.14B 18.80

L M Ericsson 18.81 0.00% 29.91B 08.18

Alcatel-Lucent 5.61 0.00% 12.67B N/A

Nortel Networks 6.53 0.00% 2.85B N/A

QUALCOMM Inc. 39.72 0.00% 64.04B 19.59

(www.finance.yahoo.com)

Direct Competitor Comparison
http://www.finance.yahoo.com/http://www.finance.yahoo.com/


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Description Ericsson Alcatel Motorola Nokia Industry

Market Cap. 29.91B 12.67B 21.42B 118.88B 76.31M

Employees 74,011 89,370 66,000 65,324 267

Qrtly Rev Growth 0.50% 50.40% -18.20% 34.30% 13.30%

Revenue 31.57B 25.98B 36.62B 80.75B 71.99B

Gross Margin 39.15% 32.67% 28.22% 34.51% 38.06%

EBITDA* 5.30B 1.31B 1.35B 13.14B 1.41M

Oper Margin 12.23% -3.06% 1.21% 13.91% 0.39%

Net Income 3.67B -3.62B -105.00M 11.39B -1.54

EPS 2.3 -1.167 -0.021 2.9 N/A

P/E 8.18 N/A N/A 10.66 20.91

P/S 0.96 0.49 0.58 1.49 1.16

Source. www.finance.yahoo.com.


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4. SWOT ANALYSIS

4. CONCLUSION


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I would like to conclude my report by performing a SWOT analysis on the Ericson thusidentifying its strengths which it can build on to further improve its performance, itsweakness which need improvisation so that they dont effect the company, its opportunitieswhich it can exploit in order to further enhance its market share and profits and its threatswhich it needs to monitor in order to reduce its business and financial risk.

4.1 Strengths

Strong Revenue Growths. Ericsson has recorded astrong revenue growth over the past three years. Thecompany recorded revenues of SEK187,780 million($30,674.8 million) during the fiscal year endedDecember 2007, an increase of 22.5% over 2005. This isa result of expansion in new markets, whichconsiderably increased its market share.

Diversified operation.The company conducts business

in more than 175 countries, with a significant proportionof business in emerging markets like Asia Pacific, LatinAmerica, Eastern Europe, the Middle East and Africa.Western Europe, the company's largest geographicmarket, accounted for 52.7% of the total revenues for thefiscal year 2007.The company derived 48.7% fromCentral and Eastern Europe, Middle East and Africa inthe same period. The company recorded 54.6% sales in


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Asia Pacific which is 14% more than last year. There is also considerable increases inrevenue recorded from sales in Latin and North America. The company also has adiversified customer base. Ericsson serves a broad base of more than 600 customers in over175 countries, including the largest mobile operators in Europe, North America, LatinAmerica, Asia, Middle East and Africa. The company has a customer base of more than

425 network operators. Diversified geographic presence and diversified customer basereduces the business risk of the company.(Figure: Sales by Countries)

4.2 Weaknesses

Decline in Share Price.While this year was a dynamic and eventful one for Ericsson, itwas a disappointing time for investors, suffered from the significant share price decline.The price of Class A shares at the last day of trading in 2007 was recorded 15.36 SEK ascompared to SEK 27.60 in 2006, a 44% decrease. If this situation continues it will breakthe investors confidence and may result in financial and operational difficulties in future.

Decline in research and development expenditure. The companys research anddevelopment expenses declined in the recent four years. Research and developmentexpenses as a percentage of sales were 17.7%, 16.1%, 15.3% and 15.3% for the years 2004,2005, 2006 and 2007 respectively. Decline in research and development expense mayadversely affect the product development efforts of the company, which, in turn, hasnegative implications for revenue growth.

4.3 Opportunities.

Expansion in emerging markets.The company is expanding in the growth markets. In

2007 Ericson was entered in agreements with Warid telecommunications Limited Pakistan,Personal, a leading Argentinean operator, China Unicom, BSNL India, CMPak Pakistan,Telecom Egypt the largest fixed operator in Middle East and Africa, and IDEA cellularIndia. This will result in growth of market share and revenue. .

New opportunities.Television-internet protocol, IPTV is expected to illustrate the largestgrowth and by 2012 is expected to be in approximately 19.3 million households. As awhole, it is expected that around 53% of all households in the regions will have some formof pay-TV service by 2012. In this context, the recent acquisitions of Entrisphere andRedback Networks, that of Marconi in 2006 and the public offer to acquire TandbergTelevision, have special relevance. They round out Ericsson's product portfolio with world-

leading solutions in the fields of IPTV, optical broadband access and IP routing.

The company also upgraded its high-performance Gigabit Passive Optical Network systemin 2007, the EDA 1500, an important part of the company's broadband offering. Theupgraded version of EDA 1500 can switch bandwidth up to 320Gbps for commercial andresidential next-generation multimedia services.


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Ericsson manages networks covering 100 million subscribers. Ericsson with the recentacquisitions is well positioned to tap the full potential of these opportunities.Ericsson and Texas Instruments strategic technology engagement. Ericsson and TexasInstruments (TI), the provider of silicon solutions for wireless communications, formed the

strategic technology engagement to develop custom solutions for new Open OS enabled 3Gdevices. The collaboration between Ericsson and TI would enable handset manufacturers todeliver the exciting mobile entertainment and multimedia experiences that more and moreconsumers around the world are demanding. Ericsson's access technology leadership wouldcontinue to push the performance boundaries of mobile devices and mobile entertainmentfeatures.

The result of the joint effort would bring to market an evolving portfolio of wirelesstechnology platforms with Open OS support to reduce complexity, investment and time-to-market for device manufacturers. The collaboration enhances the product portfolio of thecompany that addresses the requirements of the rapidly evolving mobile device

market.

4.4 Threats

Consolidation among network operators. The market for mobile network equipment ishighly concentrated, with the 10 largest operators representing more than 40% of the totalmarket. Network operators have undergone significant consolidation, especially amongcompanies operating in different countries. This trend is expected to continue, while alsointra-country consolidation is likely to accelerate as a result of competitive pressure. Amarket with fewer and larger operators will increase the companys reliance on keycustomers and, the increased size of these companies, may negatively impact the

companys bargaining position and profit margins. Moreover, if the combined companiesoperate in the same geographic market, less network equipment and associated servicesmay be required. Another possible consequence of customer consolidation is that it couldcause a delay in their network investments while they negotiate merger and acquisitionagreements, secure necessary approvals, or are constrained by efforts to integrate businesses. Consolidation among network operators may increase the companysdependence on a limited number of key customers and impact its bargaining power as wellas profit margins.

Intense competition.The company operates in a very competitive environment. In systemssegment, it competes mainly with large and well-established communication equipment

suppliers. Ericssons most significant competitors in mobile communication includeAlcatel/Lucent, Nortel, Huawei, and Nokia/Siemens. With respect to fixed communicationsequipment, the competition is highly concentrated and includes, among others,Alcatel/Lucent, Cisco, Huawei, Nokia/Siemens and Nortel. The company also competeswith numerous local and regional manufacturers and providers of communicationequipment and services. Competition in professional services not only includes manytraditional systems competitors but also a number of large companies from other industrysectors, such as IS/IT, for example IBM, EDS, Accenture and electronics manufacturing


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services companies as well as a large number of smaller but specialized companiesoperating on a local or regional basis. Within the segment phones, the primary competitorsinclude Nokia, Motorola, Samsung and a number of other companies such asLG Electronics, NEC and Sharp. Intense competition would negatively affect the marketshare of the company.

Currency risks.With the majority of its cost base being Swedish Krona denominated and alarge share of sales in currencies other than Swedish Krona and many subsidiaries outsideSweden, the companys foreign exchange exposure is significant. Currency exchange ratefluctuations affect the companys consolidated balance sheet, cash flows and incomestatement when foreign currencies are exchanged or translated to Swedish Krona. Thecompanys attempts to reduce the effect of exchange rate fluctuations through a variety ofhedging activities may not be sufficient or successful, resulting in an adverse impact on itsresults.


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5.1

Consolidated Income Statement Years ended December 31, SEK million 2007 20061) 2005 1)

Net sales 187,780 179,821 153,222

Cost of sales-

114,059-

104,875 -82,764

Gross margin 73,721 74,946 70,458

5. ANNEXURE


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Research and development expenses -28,842 -27,533 -24,059

Selling and administrative expenses -23,199 -21,422 -16,800

Operating expenses -52,041 -48,955 -40,859

Other operating income and expenses 1,734 3,903 1,090

Share in earnings of joint ventures and associated companies 7,232 5,934 2,395

Operating income 30,646 35,828 33,084

Financial income 1,778 1,954 2,653

Financial expenses -1,695 -1,789 -2,402

Income after financial items 30,729 35,993 33,335

Taxes -8,594 -9,557 -8,875

Net income 22,135 26,436 24,460

Net income attributable to:

Stockholders of the Parent Company 21,836 26,251 24,315

Minority interest 299 185 145

Other information

Average number of shares, basic (million) 15,891 15,871 15,843

Earnings per share attributable to stockholders of the Parent Company, basic (SEK ) 1.37 1.65 1.53

Earnings per share attributable to stockholders of the Parent Company, diluted (SEK ) 1.37 1.65 1.53

5.2

Consolidated Balance SheetDecember 31, SEK million 2007 2006

ASSETS

Non-current assets

Intangible assets

Capitalized development expenses 3,661 4,995


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Goodwill 22,826 6,824

Intellectual property rights, brands and other intangible assets 23,958 15,649

Property, plant and equipment 9,304 7,881

Financial assets

Equity in joint ventures and associated companies 10,903 9,409

Other investments in shares and participations 738 721

Customer financing, non-current 1,012 1,921

Other financial assets, non-current 2,918 2,409

Deferred tax assets 11,690 13,564

87,010 63,373

Current assets

Inventories 22,475 21,470

Trade receivables 60,492 51,070

Customer financing, current 2,362 1,735

Other current receivables 15,062 15,012

Short-term investments 29,406 32,311

Cash and cash equivalents 28,310 29,969

158,107 151,567

Total assets 245,117 214,940

EQUITY AND LIABILITIES

Equity

Stockholders equity 134,112 120,113

Minority interest in equity of subsidiaries 940 782

135,052 120,895

Non-current liabilities

Post-employment benefits 6,188 6,968

Provisions, non-current 368 602

Deferred tax liabilities 2,799 382

Borrowings, non-current 21,320 12,904

Other non-current liabilities 1,714 2,868

32,389 23,724

Current liabilities

Provisions, current 9,358 13,280

Borrowings, current 5,896 1,680

Trade payables 17,427 18,183

Other current liabilities 44,995 37,178

77,676 70,321

Total equity and liabilities 1) 245,117 214,940

5.3

Consolidated Statement of Cash Flows Years ended December 31, SEK million 2007 2006 2005

Operating activities


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Net income 22,135 26,436 24,460

Adjustments to reconcile net income to cash 7,172 6,060 10,700

29,307 32,496 35,160

Changes in operating net assets

Inventories -445 -2,553 -3,668

Customer financing, current and non-current 365 1,186 -641

Trade receivables -7,467-

10,563 -5,874

Provisions and post-employment benefits -4,401 -3,729-

15,574

Other operating assets and liabilities, net 1,851 1,652 7,266 -

10,097-

14,007-

18,491

Cash flow from operating activities 19,210 18,489 16,669

Investing activities

Investments in property, plant and equipment -4,319 -3,827 -3,365

Sales of property, plant and equipment 152 185 362

Acquisitions of subsidiaries and other operations-

26,292-

18,078 -1,210

Divestments of subsidiaries and other operations 84 3,086 30

Product development -1,053 -1,353 -1,174 Other investing activities 396 -1,070 13

Short-term Investments 3,499 6,180 6,375

Cash flow from investing activities -

27,533-

14,877 1,031

Cash flow before financing activities -8,323 3,612 17,700

Financing activities

Proceeds from issuance of borrowings 15,587 1,290 657

Repayment of borrowings -1,291 -9,510 -2,784

Sale of own stock and options exercised 94 124 174

Dividends paid -8,132 -7,343 -4,133

Cash flow from financing activities 6,258-

15,439 -6,086

Effect of exchange rate changes on cash 406 58 -288

Net change in cash -1,659-

11,769 11,326

Cash and cash equivalents, beginning of period 29,969 41,738 30,412

Cash and cash equivalents, end of period 28,310 29,969 41,738


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BPP (2008) P2 STUDY TEXT

Wheetman, P (2003) Financial And Management Accounting, 3rd edition,England, Pearson Education Limited

Annual reports of LM Ericsson Telephone Co. (2007)

Marketline Business Information Centre Database/Datamonitor Database Hertfordshire Library, Stevenage.

6. BIBLIOGRAPHY


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ACCA Student Accountant January 2001 issue Interpretation ofaccounts

Ericsson website

Morningstar.com Key ratios page

Yahoofinance.com Ericsson page

Reuters.com Ericsson Stock price page

58962533 sony ericson project

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