Comparative Financial Statement Analysis Between Nokia and Sony Ericsson
Comparative Financial Statement Analysis Between Nokia and Sony Ericsson
COMPARATIVE FINANCIAL STATEMENT ANALYSIS BETWEEN NOKIA AND SONY ERICSSON
In this report there will be critical comparative evaluation and analysis of Nokia and Sony Ericsson; major competitors in the Telecommunication Industry. Information was collected from the companys annual report.
These companies are expected to have currency and translation exposure which may result in gain or loss because they are multinational companies that have subsidiaries in different part of the world (Eiteman, et al, 2007), and according to Demirag and Goddar (1994) they argued that the account of foreign subsidiary should be provided when preparing consolidated financial statements. However, both Nokia and Ericsson have a condensed consolidated accounts published by international accounting standard boards (IASB) which is in line with the international accounting report standard (IARS).
OVERVIEW OF THE TELECOMMUNICATION INDUSTRY
These are telecommunications companies that range of products that involves electronic and non wireless systems for transmitting messages through television telephone cables or radio.
TELECOM INDUSTRY TRENDS
The control of telecom industry in most cases lies in the hands of private individuals instead of the government. Telecom industry have witness a lot of changes and innovation in recent times from the Traditional telecom technologies to modern wireless technologies, especially mobile services. Improving and enhance the quality and speed of Internet technology is their watch word and that is their core objective.
NOKIA CORPORATION BACKGROUND INFORMATION
Nokia which is the worlds largest manufacturer of mobile telephones has its headquartered in Helsinki, Finland. They are into communications and manufacturing of mobile devices and Internet services. They have about 123,000 employees located in 120 countries. Their annual revenue is 41 billion Euros with sales target exceeding 150 countries and operating profit of 1.2 billion Euros as of 2009 (Annual Report 2009).
See Appendix1 Nokia Background Information snap Shot
SONY ERICSSON BACKGROUND INFORMATION
Sony Ericsson was established on October 1, 2001 as a joint venture of Sony Corporation (a Japanese company) and Ericsson (a Swedish company) to make mobile phones. ‘The stated reason for this venture is to combine Sonys consumer electronics expertise with Ericssons technological leadership in the communications sector (Annual Report 2009).
See Appendix2 Sony Ericsson Background Information snap Shot
COMPARATIVE ANALYSIS:
One of the main purposes of preparing financial statement is to provide adequate and reliable information for the user of the financial statement (ACCA, 2007). Users of this information may benefit from this company by calculating different ratios and performance indicators. These investors are likely to integrate these ratios or make meanings from their perspective.
In order to meet this objective, a wide range of ratios will be calculated. This includes:
Profitability And Return
Liquidity Ratios
Leverage Ratios
Activity Ratios
Investment Ratios
These ratios are calculated as shown in Appendix 3 & 4 attached
In a nutshell, ratio analysis is defined as a way of comparing one figure of a company against another to produce a ratio, and providing a meaningful interpretation of those figures (ACCA, 2007)
PROFITABILITY RATIO
This ratio measures the overall profit performance of Nokia and Sony Ericsson. It should be noted that these companies exist principally to generate profit and pay adequate return to the investors or owners. This is because when the potential investors wants to buy share in the company the first question they are likely to ask ‘ is the company making profit. If the answer is ‘yes they will again ask whether company is making adequate profit or not in terms of capital invested. So this ratio provide a clue as to how successful the managers of Nokia and Sony Ericsson have been towards generating profitability (Watson and Head, 1998)
GROSS PROFIT RATIO