School of Architecture, Building & Design Basic Accounting [FNBE0145]

FNBE April Intake

Financial Ratio Analysis on

‘Samsung Electronics Co. Ltd’

Prepared by: Karen Kong Chai Ni (0315480) Lily Then (0313973)

Lecturer: Chang Jau Ho

Table of Content

Content PagesHistory of Samsung Electronics Co. Ltd

1-2

Recent Development of Samsung Electronics Co. Ltd

3-4

Awards and Recognition 5-6

Ratio Analysis of Business 7-10Investment Recommendation 11Appendix 12-16Reference 17

SAMSUNG ELECTRONIC CO. LTD HISTORY

Samsung Electronics Co., Ltd. is the chief subsidiary of South Korea's giant

Samsung Group and the largest electronics producer in Asia. Samsung Electronics

operates four main divisions including Digital Media, Semiconductors,

Information & Communications, and Home Appliances. The company sells

televisions, video, and audio equipment; computers and related products; phones,

cellular phones, and fax machines; home appliances; semiconductors; network-

related products; factory automation products; fiberoptics products; closed circuit

security products; motors and compressors; and solar energy systems.

Samsung Electronics was created in 1969 as a division of the mammoth

Korean chaebol Samsung Group. The unit was established as a means of getting

Samsung into the burgeoning television and consumer electronics industry. From

its beginning as a small export business in Taegu, Korea, Samsung has grown to

become one of the world leading electronics companies. Today, Samsung

Electronics Co., Ltd., a global leader in high-tech electronics and digital media,

holds approximately 20% of the U.S. television market as well as the top global

market share position for 13 of its products, including semiconductors, TFT-LCDs,

monitors, and CDMA mobile phones. By the end of the 1980s, Samsung Group

allowed the combined Samsung Electronics Co., Ltd., to become Samsung Group's

chief subsidiary

1

Samsung Electronics Co., Ltd. mainly engaged in the production of consumer

electronic products. It operates in two divisions: DMC division, which is divided

into consumer electronics (CE) and information technology & mobile

communications (IM) businesses, as well as DS division, which is divided into

semiconductor and liquid crystal display (LCD) businesses. Its CE business

engages in the production of color televisions (CTVs), monitors, air conditioners,

refrigerators and others. Its IM business engages in the production of printers,

computers, handhold phones (HHPs) such as feature phones, smart phones and

others, and network systems, among others. Its semiconductor business engages in

the production of semiconductors, such as memories, system large scale integrated

circuits (LSIs) and others. Its LCD business engages in the production of thin film

transistor (TFT) LCDs and organic light-emitting diodes (OLEDs), among others.

2

RECENT DEVELOPMENT OF SAMSUNG

ELECTRONIC CO.,LTD

Diaxonhit SA Enters into a Distribution Agreement with Samsung

Electronics Co Ltd Health Medical Equipment Division for

Commercialization of Point of Care Diagnostic Tests - Diaxonhit

SA:Says InGen, its commercialization affiliate, has signed a distribution

agreement with the In Vitro Diagnostic Department of Samsung Electronics

Co Ltd's Samsung Electronics France.Says the agreement covers the

marketing of IB10, PT10 and HC10 equipment together with associated

reagents, in France and its overseas territories.

Apple Inc and Samsung Electronics Co Ltd CEOs agree to mediation in

U.S. patent fight – Reuters - Samsung Electronics Co Ltd:Says Apple Inc

and Samsung Electronics Co Ltd have agreed to attend a mediation session

to be held on or before Feb. 19, as they prepare to clash in court in Mar.

2014 over smartphone patents - Reuters.Says Apple CEO Tim Cook and

Samsung CEO Oh-Hyun Kwon will attend the session with in-house lawyers

only.

3

Samsung Electronics Co Ltd issues Q4 2014 guidance in line with

analysts' estimates - Samsung Electronics Co Ltd:Sees Q4 2014 sales of

approximately 59 trillion Won.Sees Q4 2014 operating profit approximately

8.3 trillion Won.Revenues of KRW61.677 trillion and operating profit of

KRW9.670 trillion for Q4 2014 - Thomson Reuters I/B/E/S Estimates.

Apple Inc scores legal victory over Samsung Electronics Co Ltd in

South Korea – Reuters - Samsung Electronics Co Ltd:Samsung Electronics

Co Ltd on Dec. 12 lost its bid to ban sales of Apple Inc's older iPhone and

iPad in South Korea after a court dismissed a lawsuit claiming the U.S. firm

had infringed on three of Samsung's mobile patents - Reuters.A judge at the

Seoul Central District Court said Apple products such as the iPhone 4S,

iPhone 5 and iPad2 did not violate Samsung patents on short message

display methods and messaging grouping features.

4

A WARDS and RECOGNITION

Samsung Electronics has received numerous awards for its environmental practices

and eco-friendly products. Samsung announced that it earned 49 top honors for

innovation and technology excellence from media outlets and organizations such

as CEA, Digital Trends, Reviewed.com, and PCWorld during the 2014

International CES.

Samsung underlined its technology leadership in TVs, mobile devices and home

appliances by launching a range of category- defining products at the show. It

combined deep consumer insight, engineering excellence, software innovation, and

clever design to deliver curves into UHDs, chefs into consumers' kitchens, and the

best viewing and productivity into tablets.

These are some of the awards:

1.) TVs, Audio/Video-CES Innovations Design and Engineering Awards - Best of Innovations: Samsung 65-inch Real 240Hz FHD Smart LED TV with Quad- core Multi-tasking Capability-HD Guru 2014 CES Top Picks Awards - Best in Show: 105-inch Curved UHD TV-HD Guru 2014 CES Top Picks Awards - Best Media Player: UHD Video Pack

2.) Tablets, Wearables-Digital Trends Best of CES 2014 - Tablets: NotePRO 12.2-Expert Reviews Best Tablet at CES 2014: NotePRO 12.2-LAPTOP Best of CES 2014 Awards - Best Large Tablet: NotePRO 12.2

5

3.) PCs, Monitors

-CES Innovations Design and Engineering Awards - Best of Innovations: Samsung Curved LED Monitor-Techlicious 2014 Best of CES Awards: Samsung ATIV One 7-TechRadar Best of CES 2014 - Best All-in-One Computer: Samsung ATIV One 7

Cameras-Reviewed.com CES Editors' Choice Awards: Samsung NX30-Tom's Guide Best of CES 2014 - Best Camera: Samsung NX30

6

Ratio Analysis of Business

Profitability

Ratios

2011 2012 Interpretation

Return on

Equity

(ROE)

17191918÷ [(121480206+101313630)÷2] ×100%

= (17191918÷111396918)× 100%

=0.15433× 100%

=15.4%

29915017÷

[(121480206+101313630)÷

2] × 100%

= (29915017÷111396918)×

100%

=0.268544 ×100%

26.9%

During the period 2011 to

2012, ROE increase from

15.4% to 26.9%. This means

that the owner is setting the

higher return on his capital this

year.

Net Profit

Margin

(NPM)

(17191918÷165001771)×

100%

=0.10419× 100%

=10.4%

(29915017÷201103613)×

100%

=0.14875× 100%

=14.9%

During the period 2011 to

2012, NPM increase from

10.4% to 14.9%. This means

that the business is getting

better at controlling expense.

Gross Profit

Margin

(GPM)

(52856651÷165001771)

×100%

=0.32133× 100%

=32.0%

(74451682÷201103613)×

100%

=0.37021× 100%

=37.0%

During the period 2011 to

2012, GPM increase from 32%

to 37%. This means that the

business is getting better in

controlling the cost of goods

sold expenses.

Selling

Expense

Ratio(SER)

(18606180÷165001771)

×100%

=0.11276×100%

=11.3%

(18606180÷201103613)

×100%

=0.09252×100%

=9.3%

During the period 2011 to

2012, SER decrease from

11.3% to 9.3%. This means that

the business is getting better in

controlling the selling

expenses.

7

General

Expense

Ratio(GER)

(18606180÷165001771)

×100%

=0.11276×100%

=11.3%

(18606180÷201103613)

×100%

=0.09252×100%

=9.3%

During the period 2011 to

2012, SER decrease from

11.3% to 9.3%. This means

that the business is getting

better in controlling the general

expenses.

Financial

Expense

Ratio(FER)

(7893421÷165001771)

×100%

=0.04783×100%

=4.8%

(7934450÷201103613)

×100%

=0.03945×100%

=3.9%

During the period 2011 to

2012, FER decrease from 4.8%

to 3.9%. This means that the

business is getting better in

controlling the financial

expenses.

8

Stability 2011 2012 Interpretation

Ratios

Working

Capital

(71502063÷44319014)

=1.61:1

(87269017÷46933052)

=1.86:1

During the period 2011 to

2012, working capital increase

from 1.61:1 to 1.86:1. This

means that the ability of

business to pay off its current

liabilities with current assest is

getting better. In addition, it

was not satisfy the minimum

working capital 2:1.

Total Debt (54486633÷155800263)×

100%

=0.34972× 100%

=34.9%

(59591364÷181071570)×

100%

=0.32910× 100%

=32.9%

During the period 2011 to

2012, total debt decrease from

34.9% to 32.9%. This means

that the business’s total debt

level has gone down but the

total level is below the

maximum 50% level.

Stock

Turnover

365÷[112145120÷{(177474

13+15716715)÷2}]

=365÷[112145120÷1673206

4]

=365÷[6.7024]

=54 days

365÷[126651931÷{(177474

13+15716715)÷2}]

=365÷[126651931÷1673206

4]

=365÷[7.5694]

=48 days

During the period 2011 to

2012, stock turnover decrease

from 54 days to 48 days. This

means that the business sell its

goods faster.

Debtor

Turnover

365÷[165001771÷{(266745

96+24153028)÷2}]

=365÷[165001771÷2541381

2]

=365÷[6.4926]

=56.2 days

365÷[201103613÷{(266745

96+24153028)÷2}]

=365÷[201103613÷2541381

2]

=365÷[7.9131]

=46.1 days

During the period 2011 to

2012, debtor turnover decrease

from 56.2 days to 46.1 days.

This means that the business is

faster in collecting debts.

9

Interest (644133+17191918)÷644133 (599006+29915017)÷599006 During the period 2011 to

Coverage =(17836051)÷644133

=28 times

=(30514023)÷599006

=51 times

2012, interest coverage

increase from 28 times to 51

times. This means that the

business’s ability to pay its

interest expense is getting

better. In addition, it is satisfy

minimum 5 times

requirement.

Sharing Price Earnings Ratio

Price/Earnings or P/E ratio=Current share price/Earnings per share =1299000.00/195380.94=6.65

With the P/E ratio of 6.65, it shows that the investor will need to wait for 6.65 years to

recoup his investment but it still below the maximum 15 years for a share.

10

Investment Recommendation

Based on my analysis, I think Samsung Electronics Co. Ltd is profitable and stable.

I have to take into three factors:

Profitability

-Based on the profitability ratio, I found that Samsung Electronics Co. Ltd

has good profitability. During the period 2011 to 2012, the business is

setting higher return on his capital. This means that investors can get back

their investment more. Besides that, the company also getting better in

controlling the expense, cost of goods sold expense, selling expense, general

expense and financial expense. This mean that the business can earn more

profit by have a good controlling in all expenses and investors also can get

back more investment.

Stability

-Based on the stability ratio, I found that Samsung Electronics Co. Ltd has a

strong financial stability. During the period 2011 to 2012, the total debt

level of the business is gone down. The business is faster in collecting the

debts and can sell its good faster. Besides that, the ability of business to pay

current liabilities and interest expense is better. This means that the investors

not need worry about when the business will bankrupt.

Price

-P/E ratio of Samsung Electronics Co. Ltd is 6.65. The company share’s is

suitable for investment because investors only need to wait 6.65 year then

investors can recoup their investment. Besides that, the share of the company

also very cheap that is below 15 year.

11

AppendixConsolidated Statements of Income

Samsung Electronics Co., Ltd. and its subsidiaries

(In millions of Korean won)

Year Ended December 31,        2012          2011

Revenue 201,103,613   165,001,771

Cost of sales 126,651,93   112,145,120

74,451,682   52,856,651

Selling, general and administrative expenses  45,402,344   37,212,360 

Operating profit 29,049,338   15,644,291

Other non-operating income 1,552,989   2,251,019

Other non-operating expense 1,576,025   1,612,690

Share of profit or loss of associates and joint ventures 986,611   1,399,194

Finance income 7,836,554   7,403,525

Finance expense 7,934,450   7,893,421

Profit before income tax 29,915,017   17,191,918

Income tax expense 6,069,732   3,432,875

Profit for the year 23,845,285   13,759,043

Profit attributable to owners of the parent 23,185,375   13,382,645

12

Gross Profit

Profit attributable to non-controlling interests 659,910    376,398 

Earnings per share for profit attributable to the owners of the parent  

-Basic 154,020   89,229

-Diluted 153,950    89,146 

Profit for the year 23,845,285   13,759,043

13

Consolidated Statements of Financial Position

Samsung Electronics Co., Ltd. and its subsidiaries

(In millions of Korean won)      

December 31 2012   2011

Assets      

Current assets:      

Cash and cash equivalents 18,791,460   14,691,761

Short-term financial instruments 17,397,937   11,529,905

Available-for-sale financial assets 1,258,874   655,969

Trade and other receivables 26,674,596   24,153,028

Advances 1,674,428   1,436,288

Prepaid expenses 2,262,234   2,329,463

Inventories 17,747,413   15,716,715

Other current assets 1,462,075 988,934

Total current assets 87,269,017 71,502,063

Non-current assets  

Available-for-sale financial assets 5,229,175   3,223,598

Associates and joint ventures 8,785,489   9,204,169

Property, plant and equipment 68,484,743   62,043,951

Intangible assets 3,729,705   3,355,236

14

Deposits 814,693 791,863

Long-term prepaid expenses 3,515,479 3,454,205

Deferred income tax assets 2,516,080 1,783,086

Other non-current assets 727,189 442,092

Total assets 181,071,570 155,800,263

Liabilities and Equity      

Current liabilities:      

Trade and other payables 16,889,350   18,509,490

Short-term borrowings 8,443,752   9,653,722

Advance received 1,517,672   1,450,733

Withholdings 966,374   1,715,070

Accrued expenses 9,495,156   7,823,728

Income tax payable 3,222,934   1,262,798

Current portion of long-term borrowings

and debentures999,010   30,292

Provisions 5,054,853 3,514,536

Other current liabilities 343,951 358,645

Total current liabilities 46,933,052   44,319,014

Non-current liabilities

Long-term trade and other payables 1,165,881   1,024,804

Debentures 1,829,374   1,280,124

15

Long-term borrowings 3,623,028   3,682,472

Retirement benefit liabilities 1,729,939 1,119,188

Deferred income tax liabilities 3,429,467 2,333,442

Provisions 408,529 363,223

Other non-current liabilities 472,094 364,366

Total liabilities 59,591,364 54,486,633

Equity attributable to owners of the parent      

Preferred stock 119,467     119,467

Common stock 778,047   778,047

Share premium 4,403,893   4,403,893

Retained earnings 119,985,689   97,622,872

Other components of equity (8,193,044)   (5,833,896)

Non-controlling interests 4,386,154   4,223,247

Total equity 121,480,206 101,313,630

Total liabilities and equity 181,071,570 155,800,263

16

Reference

1. 4-traders (2014) Samsung Electronics Co. Ltd. Retrieved from http://www.4-

traders.com/SAMSUNG-ELECTRONICS-CO-6494906/news/Samsung-Electronics-

Co-Ltd--Samsung-Receives-49-Awards-Across-Multiple-Product-Categories-at-CES-

17811844/ [Accessed 22 Jan 2014]

2. FUNDINGUNIVERSE (2001) Samsung Electronics Co. Ltd History. Retrieved

from http://www.fundinguniverse.com/company-histories/samsung-electronics-co-

ltd-history/ [Accessed 22 Jan 2014]

3. REUTERS (2012) Samsung Electronics Co. Ltd. Retrieved from

http://www.reuters.com/finance/stocks/005930.KS/key-developments [Accessed

22 Jam 2014]

4. Yahoo! Finance (2014) Samsung Electronics Co. Ltd. Retrieved from

http://uk.finance.yahoo.com/q?s=005930.KS [Accessed 23 Jan 2014]

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