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Samsung Inc. Financial Analysis

During the financial year under review, Samsung Electronics Inc., like in other previous years realized an increase in profitability with a sales’ revenue increasing by 6.7% in the year ending 31st December, 2011 compared to the year ending December 2010. The financial structure remains robust with liability ratio of 32.1% and 75.7% of capital adequacy ratio. The sales were record-breaking despite the world economic crisis affecting the United States of America and Europe and the ever-increasing competition from electronic companies manufacturing the same products like what Samsung does. The results depict a company that continues to realize sustained global leadership. The company increased profitability by consistent growth in production including TVs and smart phones and getting indicative strong growth in the component business like microchips and base stations’ components.

To get a sense of it we will analyze financial situation of the company covering two years, the year 2011 compared to 2010. From the figures in the income statement it can be observed that the company did make strong revenues from sales of its products. Hence, there is an increase in the total revenue by about $9 billion. On the other hand, the total cost of sales increased by over $8 billion mean that as sales grow, expenses on the cost side to deliver the product to the market increase at almost the same rate. The company had to spend on awareness campaigns at every available platform in all its markets in the world. In the year under review the gross profit increased by a small margin, perhaps not the same rate as the total revenue, meaning that there is an indirect link between growth of revenue and growth in the cost of sales. In the hardware business Samsung gained unparalleled competitiveness all over the globe and the company diversified into software production capabilities in the user interface, user experience and design and brand awareness. The company has been addressing overall business models and strong focus to the trendsetting variety of content for consumer and business solutions and services by distinctive platforms and ecosystems. During the year strong synergy was set between sets and components of business areas and strong focus was kept on expanding the market share with very unique premium in product lines in the core areas that included mobile phones, TV sets, memory chips, specific product lines like sensor segments, System LSI Business and AP. Since Samsung GALAXY S II’s debut there were sold more than 10 million smartphones across the globe and this propelled the company to attain the biggest market to be the number one mobile company in the Smartphone segment. In the TV segment the company had made strong showing in sales of the number of units to maintain the number one position for the sixth year in a row. In the chip business the company developed the new line in products and expanded the line of highly profitable products like DRUMS for mobiles and servers to achieve the top position again for the umpteenth time (Samsung 4-5).

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Growth in operating expenses in the current financial year to record higher expense ratio than the previous year’s means that the company incurred more expenses this year than the previous year which resulted in the lower operating profit. Additional incomes from other sources were lower this year but with higher financial expenses which compounded with the problem of decreased profitability this year compared to previous one. Below is the income statement, adapted from the 2011 Samsung financial report, which will show in figures what we have just discussed.

Income Statement: The figures are quoted in U.S. Dollars (Thousands).

2011 2010
Total Revenue 143,069, 254 134,076,414
Cost of sales 97,238,463 89,020,051
Gross profit 45,830,791 45,056,363
Operating expenses 31,741,034 30,058,933
Operating profit 14,089,757 14,997,430
Additional income 7,632,636 8,438,584
Finance expense 6,844,204 6,676,579
Profit before income tax 14,878,189 16,759,435
Income tax expense 2,969,694 2,759,153
Profit for the year 11,908,495 14,000,282

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Source: 2011 Samsung Electronics Annual Report

On the other hand, the figures above demonstrate overall liabilities besides the equity in the same financial situation to show financial position of the company in relation to its creditors and shareholders. During the period under review, the current assets increased by double digit to stand at the company’s record level. The current assets grew by more than $8 billion, while non-current assets grew by more than $9 billion. In effect, the total assets of the company grew from an estimate of $116 billion to stand at the current estimate of $135 billion. On the opposite side of balance sheet to offset the assets the current liabilities grew by more than $4 billion to stand at over $38 billion, while noncurrent liabilities almost doubled in the period ending December 31 2011. Share capital grew by almost $11 billion from the previous of approximately $77.5 billion to stand at $88.3 billion. In the process the shareholder cost increased (Samsung 32-34).

Balance Sheet

2011 2010
Assets
Current assets 61,997,800 53,240,778
Noncurrent assets 72,946,494 63,197,914
Total assets 134,944,294 116,438,692
Liabilities
Current liabilities 38,428,001 34,635,152
Noncurrent liabilities 8,208,547 4,330,991
Total liabilities 46,636,548 38,966,143
Capital 88,307,746 77,472,549
Total liabilities and capital 134,944,294 116,438,692

Source: 2011 Samsung Electronics Annual Report

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Conclusion

In conclusion, financial health position of the company seems to be doing the right thing, and if it maintains the continued strong innovations the company would be engaged to get more customers to ensure continued profitability. The company will continue in trendsetting all over the world competitively and will be doing the same in the future. Innovation is the core motivator in driving the business as the world moves to 4G equipment. The company expects GALALXY S III to outsell all other smartphones in the world in the following year (Samsung 40).