Finance is one of the primary sources that can be used by the organization to manage its day-to-day operations effectively. It has been seen that without having a sufficient amount of capital a firm cannot survive for a longer period. Therefore, it is important for them to maintain a certain level of capital balance within the business so that short, as well as long-term business goals, could easily be attained in the future. However, it has been analyzed that the flow of capital throughout the accounting system reduces the capacity of the business; as a result, it could lead to an impact on its overall productivity (Smit and Trigeorgis, 2012). The main objective of finance is to assist an organization like Samsung plc to manage and raise money to regulate its operations more accurately in this competitive market. Therefore, this project report intends to provide crucial information regarding the use of financial data as well as strategic decision making in the context with the management of capital. Apart from this, an analysis of the current financial position of Samsung plc is also being the highlight of this report. However, the implication of creative accounting techniques at the time of strategic decision is also been discussed effectively in this report.
In the present business scenario, it has been determined that most of the business investors are always looking for an effective appraising technique that can provide an idea regarding the growth of its investments. However, certain key investments apprising methods such as payback period, internal rate of return, AAR, and profitability index are used by the finance managers. These methods are generally used to appraise the overall performance of a new business project of Samsung plc (Janeczko, 2017). However, it could be applied in a planning process that will facilitate the determination of the present project investments, either short or long-term. In general terms, capital expenditure techniques appraisal is the budgeting of large capital as well as investments that are made by the company to increase the profitability position in the market. Here are certain key methods that are required to be taken into account by the managers:
NPV (Net present value): This investment appraisal method could be used to measure the cash inflow, whether increased or reduced after the routine finance investments. It would generally provide information regarding the total return investors would receive over its investments for the time period it was financed. In the case of a high-interest rate, it means the project is much viable for the Samsung plc.
ARR (Average rate of return): This particular method compares the overall revenue that could be generated by the Samsung plc project to the value of initial investment capital. It has been seen that the project that could provide a high return is selected by the investors without considering the time value factors.
IRR (Internal rate of return): In the investments apprising methods, IRR tends to provide a value of zero to the concerned NPV on the total capital investments within the project. It is considered to analyze the efficiency of the capital. Hence, in the case cost of capital in Samsung plc generates at higher than the IRR value, the project intends to be likely rejected. The project which is having fewer chances of capital is being profitable for the investors (Sherman, Smith and O’Rourke, 2012).
From the above-mentioned apprising techniques, it can be valuable for the investors to increase the overall profitability position of the Samsung plc. Usually, a firm has various projects that might be appraised accordingly for financial viability. It has been determined that once the appraisal of a project is accomplished, it is now compared as well as ranked in regards to the peer projects so that the most productive project could be selected. Thus, the project which is having high rank would be selected with the motive to increase the overall growth and success for the investments.
In analyzing the consolidated financial statements of Samsung plc, the management is liable for assessing the ability to regulate as a going concern, disclosing each key matter that is used for the future decision-making process. According to the annual report of 2019, it has been seen that Samsung plc is continued to increase as well as generate a sufficient amount of profit in the market with a high margin. From the last couple of years information, it has been analyzed that how Samsung plc is growing its operations at a decent rate. In the years 2018, the gross profit is recorded USD 50526547 high as well as it was reduced to USD 23826222 in 2019. Apart from this, the operating profit during the year is analyzed with KRW 27768509 in 2019, whereas it was marked as KRW 58886669 in the previous years. The downfall would lead to an impact on the overall performance of the company. The chances of growth in the future market could be quite difficult for the Samsung plc because a chance of operational risk is more than the expected. Due to which the net profit for the company also declines in the year 2019 with KRW 21738865 which is relatively low as compared to last year's performance (Kim, 2016).
In the context with the balance position of Samsung plc, the capability of the asset has increased from the last years to 181395260 KRW. It means that the company is increasing its business operations effectively into various markets by offering quality products to their customers. Similarly, the debt obligation is also reduced to a certain level as compared with the last year’s outcome. It is recorded as KRW 89684076 for 2019 and KRW 91604067 in 2018 respectively. It means that they have a sufficient amount of capital to manage their short as well as long-term liabilities effectively. It can also help them to increase their market position consistently as compared to the other in the future period.
The cash flow statements are also showing a remarkable position for the Samsung plc because the amount of cash generated from all three activities is sufficient enough to manage their day to day operations effectively. It has been seen that in the year 2019 KRW 26885999 of total cash balance is retained by the firms which are slightly low as compared to the previous year’s which was collected KRW 30340505 respectively. Although, it could be reliable enough to handle their capital flow efficiently within the business (Soundararajan, 2017). However, the entire financial statements, it has been seen that from the last couple of years the Samsung plc has done specific measures to increase its market position by generating relevant profit for the company but at a slow rate. In the current years, the performance is little adverse in terms of the profit and cash position.
the availability of cash position in the ratio of 2.8 and 2.5 respectively which is high from the idea range of 2:1. It means that the company is more assets in regard to the liabilities. However, the quick ratio is also showing remarkable growth in their performance. It could effectively be profitable for the investors to take some crucial investments decision that can be profitable enough to deal with the current business scenario. The gross profit ratio for the Samsung plc is 36% in 2019 which is low as compared to the previous year 45% mark. It means that the company is not having enough profit from the available capital resources.
Similarly, the net profit margin for the company is also showing negative growth of only 9% as compared to the last year’s growth rate of 18%. It is directly made an impact on the total investments made by the firms during these two years (Carraher and Van Auken, 2013). It can further be examined through the ROI ratio which is not providing enough return to the Samsung plc in 2019. It has able to incurred 87% return in 2019 and 114% return in 2018 respectively. Apart from this, the return on equity is also a major concern for the management of Samsung, because the investors are not able to get a reliable amount as profit from the sale of the products. The ROE is showing an 8% return to the shareholders which are relatively low as compared to the previous year return of 20%. The overall analysis has shown a valuable fluctuation in the financial performance of the Samsung plc that can be noticeable for the investors while making any investments decision. Despite being slight issues with the return the company is able to profit healthy profit on a constant basis that could be reliable enough to draw the attention of various stakeholders towards the company’s new projects.
Throughout the entire financial statement analysis, it has been determined that the company is must a strong position in terms of the market share. It has been clear from the profit and loss statements that the company is able to generate a sufficient amount of profit each year. The operational expenses are also low from the previous year hike. Moreover, the performance of the asset for the Samsung plc is quite interesting because it is continuously increasing from the last years. Similarly, the debt obligation for the company is also reducing as compare to the previous data of 2018. On the other hand, the ratio analysis has provided specific information regarding the liquidity position of the company is attractive for the investments. The net profit and gross margin are also having enough ability to increase the market share for a longer period. The returns are sufficient enough for the shareholders by it is still have the change to get back on a high note in terms of revenue growth. The Samsung plc needs to cut down its expenses to earn reliable revenue in the future because in 2019 the total income margin is relatively low as compare to the previous year. The return on investment is also reduced by 27% from 2018 which is creating negative impact on the growth of the company. Therefore, the manager of Samsung plc need to deal with its cash balances so that future complication can be avoided in the future.
Ratio analysis tends to provide specific information regarding the margin or return that could be attained by the Samsung plc during the past couple of years. The company could make certain changes to its financial statements by taking into account the ratio values. It ignores the cost level changes because of inflation. The accounting value does not reflect present value, especially in the case of Samsung plc of assets that are purchased at various dates by the firm. However, it is having limited resources that can help in evaluating the current performance of the company. The liquidity decisions sometimes lead to affect the cash position that could be used to manage the debt obligation by the firm in recent times (Healy and Palepu, 2012). It could have a certain subject to fraud that might lead to a negative growth rate for the company.
Cash flow management is intending to be an essential process by which a firm could maintain control over the total inflow and outflow of capital. It would also serves the ancillary functions of revenue the surplus capital are invested to reap maximum return on capital stopped up. It a payment made for any product and services that are recorded into the balance sheet despite of expensed on the profit and loss statements. It is important for companies to maintain existing fixed assets as well as other assets for the success of the firm. For the overall performance of Samsung plc, the most vital activity of the managers to manage the cash flow position that is required to ensure the adequate cash that could be used to meet the current obligation. It is quite vital as an organization because it relies on the recovery of the receivable that might increase the overall growth of the company. It has been determined that the Samsung plc could continue to trade its short to long-term even if it is making a loss in the current period. It might be useful for the administration that can lead to pay creditors as well as manage their investments for the further variable cost. However, the Samsung plc required ensuring that it is having the adequate cash flow to fulfill the specific requirements of cash obligation while making sure that no other complication could impact the profitability position of the firm.
According to the various analyses, it has been suggested that the manager need to use various fundamental analysis and vertical evaluation that can be used to manage the overall financial position of the Samsung plc. The ratio analysis, income statement, and cash flow values is used to determine the current financial ability of the company. These methods are effectively reliable for the success of the firm in future growth. However, the financial techniques are taken into account for an organization to examine the financial reporting of the organization. Moreover, the descriptive theories, as well as accounting methods, allow users to create limits that can lead to an increase in the efficiency of the Samsung plc.