Financial

Management
FIN-200
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Contents
Introduction:.................................................................................................................................................. 2
Importance of study: ..................................................................................................................................... 2
Objective of the study: .................................................................................................................................. 2
Ratio analysis: ............................................................................................................................................... 3
1. Short term solvency or liquidity ratio: .............................................................................................. 3
 Current Ratio = Current assets ÷ Current liabilities .......................................................................... 3
 Quick Ratio = (Current assets – Inventory) ÷ Current liabilities ...................................................... 4
2. Asset management or turnover ratio: ................................................................................................ 5
 Inventory turnover = Cost of goods sold ÷ Inventory ....................................................................... 5
 Days sales in Inventory = 365 days ÷ Inventory turnover ................................................................ 6
3. Profitability ratios: ............................................................................................................................ 7
 Profit margin = Net income ÷ Sales .................................................................................................. 7
 Return on Assets (ROA) = Net income ÷ Total assets...................................................................... 8
4. Long term solvency ratio: ................................................................................................................. 9
 Total debt ratio = (Total assets – Total equity) ÷ Total assets .......................................................... 9
 Debt equity ratio = Total debt ÷ Total equity ................................................................................. 10
5. Market value ratio: .......................................................................................................................... 11
 Price earnings ratio = Price per share ÷ earning per share .............................................................. 11
 Price sales Ratio = Price per share ÷ Sales per share ...................................................................... 12
Conclusion: ............................................................................................................................................. 12
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Introduction:

I have selected Apple Inc. and Samsung Electronics to conclude my financial analysis on these
companies. Both of these companies are listed on Securities exchange in their respective region.
Financial statements period is as on 30 September 2017 for Apple and 31 December 2017 for
Samsung because these are the last audited financial statement available.
Apple Inc. is widely traded on NASDAQ with symbol of AAPL. It has it’s headquarter in
California.
Whereas Samsung is incorporated and has registered head office in South Korea. Samsung
Electronics is listed on Korea Exchange (KRX).
I will be using financial rations to analyze these companies and conclude on the basis of analysis
which company is more beneficial than the other. Whether it’s Apple Inc. or Samsung Electronics.

Importance of study:
Financial management is important because of following reasons;
 Financial management helps an organization to determine its financial requirement to run
its day to day affairs.
 It helps organization to estimate and analyze different sources from where finance to meet
its requirement can be obtained at minimum cost.
 It helps an organization to utilize available fund in most effective way in order to ensure
maximum profitability.
 Financial management help in critical financial decision on the basis of about the working
capital requirement.

Objective of the study:

Financial management has two objectives 1st is Liquidity and 2nd Profitability.
Financial management is important for long and short run of a business. It helps to ensure that
company is effectively maintaining its liquidity and profitability. There is trade off in profitability
and liquidity, in order to achieve one objective we have to sacrifice other objective. Now here
comes the importance of financial management it ensure that company does not tied all of its funds
to ensure its liquidity and does not invest its fund in operating activates to earn most of profits.
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Ratio analysis:
I will be using following ratios to conclude my analysis. First I will compute Apple’s ratio and
after it Samsung’s ratio.
Figures are taken in thousands dollar to ease understanding and analysis.
1. Short term solvency or liquidity ratio:

 Current Ratio = Current assets ÷ Current liabilities

 128,645,000 / 100,814,000

1.276

 129,949,219/59,390,443

2.188

Current ratio
2.500

2.000

1.500

1.000

0.500

-
Apple Samsung
Series1 1.276 2.188

Current ratio is used to calculate short term solvency of company it determine whether the
company has enough current assets to pay current liabilities if it faces financial difficulties.
Higher current ratio will be better and in this scenario Samsung’s current ratio is better.
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 Quick Ratio = (Current assets – Inventory) ÷ Current liabilities

 (128,645,000 – 4,855,000) / 100,814,000

1.228

 (129,949,219 - 22,088,128) /59,390,443

1.816

Quick Ratio
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Apple Samsung
Series1 1.228 1.816

Quick ratio is used to measure a company strength to pay current liabilities from its quick
assets which can be converted in liquid asset quickly.
Higher quick ratio will be better and Samsung’s quick ratio is better than Apple’s.
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2. Asset management or turnover ratio:

 Inventory turnover = Cost of goods sold ÷ Inventory

 141,048,000 / 4,855,000

29.05 times

 114,307,653/22,088,128

5.18 times

Inventory turnover
35
30
25
20
15
10
5
0
Apple Samsung
Series1 29.05 5.18

Inventory turnover ratio tell how many times inventory is converted into finished products
to sale to the market. Higher inventory turnover ratio is better. And Apple’s inventory
turnover ratio is far better than Samsung. Apple inventory is converted 29 times during a
year.
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 Days sales in Inventory = 365 days ÷ Inventory turnover

 365 / 29.05

13 days

 365 /5.18

71 days

Days sales in inventory

80
70
60
50
40
30
20
10
0
Apple Samsung
Series1 13 71

Inventory turnover days ratio used to inform that how may days a company take before it
sold its product into the market. Lower day would be better. And Apple takes only 13 days
to convert its raw material into finish product and sold into market that Samsung which
takes 71 days.
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3. Profitability ratios:

 Profit margin = Net income ÷ Sales

 (48,351,000 / 229,234,000)*100

21.09%

 (37,297,884/211,811,887)*100

17.61%

Profit margin
22.00%
21.00%
20.00%
19.00%
18.00%
17.00%
16.00%
15.00%
Apple Samsung
Series1 21.09% 17.61%

Profit margin ratio tell how much a company is earning as net income of net sales. Higher
ratio will be better which will conclude that a company is earning better and incurring less
expenses in driving that income. In our scenario Apple’s profit margin ratio is better that
Samsung’s ratio.
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 Return on Assets (ROA) = Net income ÷ Total assets

 (48,351,000 / 375,319,000)*100

12.88%

 (37,297,884 /266,783,176)*100

13.98%

Return of Assets
14.20%
14.00%
13.80%
13.60%
13.40%
13.20%
13.00%
12.80%
12.60%
12.40%
12.20%
Apple Samsung
Series1 12.88% 13.98%

Return on assets ratio is used to determine how much company’s total assets are and how
much effectively they are being used to earn profits. Higher ROA will be better and in this
situation Samsung’s ROA is better that Apple’s ROA ratio.
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4. Long term solvency ratio:

 Total debt ratio = (Total assets – Total equity) ÷ Total assets

 (375,319,000 - 134,047,000/ 375,319,000)*100

64.25%

 (266,783,176 - 189,634,824/266,783,176)*100

28.92%

Total debt ratio

70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Apple Samsung
Series1 64.25% 28.92%

Total debt ratio is used to determine in what percentage company’s assets are financed
through liabilities. Higher debt ratio means that company has more financial risk of
insolvency. Therefore, Lower ratio will be better and Samsung’s is in a better position
because it has less debt than its assets.
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 Debt equity ratio = Total debt ÷ Total equity

 (241,272,000/ 134,047,000)

1.80

 (77,148,352/189,634,824)

0.41

Debt equity ratio

2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
-
Apple Samsung
Series1 1.80 0.04

Debt equity ratio is used to determine what percentage of equity is being used to finance
company relatively to debts that company has undertaken. Lower ratio will be better which
will indicate that company has debt lower that investment made by shareholders.
Samsung’s debt equity ratio is better.
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5. Market value ratio:

 Price earnings ratio = Price per share ÷ earning per share

 172.50 / 9.42

18.3

 45.44 / 265.12

0.17

Price earning ratio

20
18
16
14
12
10
8
6
4
2
0
Apple Samsung
Series1 18.3 0.17

Price earnings ratio determines how much amount investor is required to invest in order to
earn $1 from that company. Shorter the ratio will be better it concludes that investor will
earn its investment back in short period of time.
Samsung’s ratio is better that Apple’s ratio.
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 Price sales Ratio = Price per share ÷ Sales per share

 172.50/44.65

3.86

 45.44 / 23.56

1.928

Price sales ratio

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Apple Samsung
Series1 3.86 1.928

Price sales ratio indicate how much investor is paying for a share in relation to sales per
shares. Lower price sales ratio is better.
Therefore Samsung’s price sales ratio is better as compared to Apple’s.

Conclusion:
Decision about which company to invest is made on the basis of ratio analysis which company has
superior viability in short term, long term viability, market strength.
Short term, long term solvency, Market value ratios for Samsung’s are better than apple but Apple
is performing well in profitability, asset management ratios.
If investor is considering for short term benefit that Apple may be the good decision but Samsung’s
position for long term investment is good for an investor who is looking for long term investment.