Nokia Corporation
2019
Nokia Corporation
Analysis of Financial position
2014 - 2017
Prepared by:
Group C
Contacts:
Group C Walaalaha
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Nokia Corporation
2019
Introduction ……………………………………………………………. .
Financial performance analysis………………………..
Balance sheet analysis…………………………………..
o Liquidity:
Current Ratio
Quick Ratio
o Financial leverage
Income statement analysis…………………..………………………….
o Activities measures
o Efficiency of Assets
o Profitability measures
Conclusion…………………………………………………………………………………..
References………………………………………………………………………………….
Appendix…………………………………………………………………………………..
Introduction:
Group C Walaalaha
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Nokia Corporation
2019
Nokia, one of the leading brands in mobile phones, was started by a mining
engineer, Fredrik Idestam, in 1865 by making paper from wood pulp mill; a
second paper mill was built on Nokianvirta River that gave birth to the
present name of this company-Nokia.
The company then started different business and mergers and then finally
started mobiles business in 1968. Its head office is in Espoo, Finland and
currently has almost 132,000 employees worldwide. Its main products
(mobile phones, smartphones, mobile computers, Networks) and services
(Maps & Navigation, media software solutions, music, messaging) are in the
field of Telecommunication, Internet & computer software. Nokia is selling
its products to almost 150 countries globally with annual revenue of over 42
billion euro with 2 billion operating profits and global market share of nearly
35% in 2010. (nokia.com)
Nokia did many innovations and has credit to be the world’s No 1. in many
of its products and services e.g. world’s first portable NMT car
telephone (Nordic Mobile Telephone-NMT) built by Nokia, GSM call,
Nokia Tunes, satellite call, brings Internet on mobile. It introduces First 3g
Phone, digital hand portable phones supporting data, fax and the Short
Message Service, integrated wireless payphone, dual mode AMPS/TDMA
phone, high-speed data terminal for wireless networks, WAP handset,
introduced the industry first multimedia messaging solution, first 3GPP
compliant WCDMA/GSM dual mode phone, first TDMA handsets with fullcolor displays, mobile handset with a 4GB hard disk which can store up to
3000 tracks, Nokia N95 was the world’s first device combining GPS and
wireless broadband (HSDPA/WLAN). From January 2010, high-end car and
pedestrian navigation is available for free on Nokia smartphones. (Zacks
research, 2011)
One can imagine its success and popularity from the fact that till 2005, 2
billion mobiles were sold worldwide and Nokia alone sold its billionth
phone in that year.
According to Nokia Corporation, ‘Nokia’s story continues with 3G, mobile
multiplayer gaming, multimedia devices and a look to the future…’
(nokia.com) and “Nokia’s mission is simple; Connecting People. Our
strategic intent is to build great mobile products. Our job is to enable billions
of people everywhere to get more of life’s opportunities through mobile.”
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Nokia Corporation
2019
Currently, with the invention of many smart & android phones, Nokia is
facing stiff competition in mobiles market as its sales figures are moving
downward. But they are now making changes in their structure and
operations that is depicted by their statement, “Nokia has recently outlined
its new strategic direction, including changes in leadership and operational
structure to accelerate the company’s speed of execution in a dynamic
competitive environment.
Financial performance analysis:
Financial performance analysis includes analysis and interpretation of f
inancial statements in such a way that it undertakes full diagnosis of the
profitability and financial soundness of the business. The financial anal
yst program provides vital methodologies of financial analysis.
First Step: Balance sheet analysis:
A Balance Sheet records the total assets, liabilities, and equity (net worth) of
a business as of a specific day. This statement is divided to provide two
views of the same business: what resources the business owns, and the
creditor and owner investments that supplied these resources. These
divisions are generally set up in the two-column account form, with assets
on the left, liabilities and equity on the right.
o Liquidity:
Liquidity ratios measure a firm’s ability to meet its financial obligations.
The overall health of a firm has traditionally been measured by these ratios.
The usefulness of liquidity ratios is now changing as more companies are
holding fewer current assets to generate revenue.
These ratios are still a good measure for this industry because the discount
electronics industry does rely on a large amount of current assets to generate
revenue. The meaning of high and low ratios is judged based on the relevant
industry norms.Current Ratio
Quick Ratio
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Nokia Corporation
2019
Current Ratio
Current Ratio =
𝑻𝒐𝒕𝒂𝒍 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕
Total Current Liabilities
6
5
4
Quick ratio
3
Current ratio
2
1
0
2014
Quick Ratio
Current
Raton
2015
1.88
1.06
2016
2.48
2.32
2017
1.64
1.44
1.56
1.35
The current ratio is a measure of total current assets to total current
liabilities. This indicates a firm’s ability to meet its current obligations with
cash, inventories or other liquid current assets. A high ratio usually
indicates that a firm is better able to meet liability obligations.
According to the above “line chart” the liquidity performance of Nokia
Corporation was quiteoptimistic as stated that in
2014 for each dollar of current liabilities there will be $1.88 of current
assets, however the firm’s liquidity performance improved through the years
and reach the peak in 2015 which stated that for each dollar of current
liabilities there will be $2.48 of current assets, though in 2017 the firm
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Nokia Corporation
2019
showed the lowest level of liquidity which $1.56 to meet each dollar of
current liabilities.
Quick Ratio
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭−𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
Quick Ratio =
Total Current Liabilities
The quick ratio is considered a more accurate measure of a firm’s ability to
meet its current liabilities. In calculating this ratio, inventory is subtracted
from the total current assets because it is the most commonly inflated and
least liquid current asset.
Financial leverage:
In order to understand the concept of leveraging we relate the debt of the
firm(total liabilities) with assets and owner’s equity and relate the total
assets with owner’s equity to have full picture about the usage of debt and
the ability of thefirm to cover these debts over the years. Nokia
Corporationfinancial leverage was as follow:
$5,00
$4,00
$3,00
Financial leverage
$2,00
Debt to equity
Debt to assets
$1,00
$0,00
1
2
Financial Leverage $2.45
Debt to Equity
$1.45
Dept to Asset
$ 0.59
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3
4
$1.99
$0.99
$0.50
$2.23
$1.23
$0.55
$2.54
$1.45
$0.61
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Nokia Corporation
2019
The above “line chart” shows to which extent the firm is using debt, in
2017Nokia Corporation showed that for each dollar of assets there will be
$0.61 Which represents that 61% ofthe total assets are debt (liabilities) and
the rest 39% are Owner’s equity, however theportion of the debt reduced
through the years and reaches the best level in 2015 which was $0.50 in each
dollar of total asset.
Comparing the debt to equity, in most years the level of equity was always
below the level of debt or liabilities except in 2015 and 2016 which stated
$1.23 and $0.99.
The financial leverage represents the relationship between the assets and the
share holders’ equity which is moving congruently with debt to equity,
therefore 2016considered the best year in terms of financial leverage.
Nokia Corporation usage of debt fluctuating form 50% to 61% out of the
total assets, however the years 2015 and 2017 represent the lowest use of
debt even the portion of owner’s equity was higher the portion of debt in
each dollar of assets
Secondly Step: Income statement analysis:
Evaluation of the income statement will be consisting of
and profitability ratios as follow;
activities ratios
o Activities measures:
Activity ratios or measures shows how efficient the firm is managing its
primaryactivities which are; receivables, payables and inventories.
Nokia Corporation during the four years managed to keep its activities as
follow;
2014
Receivables
turnover
Receivables
turnover in days
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2015
2016
2017
0.99
0.92
10.87
0.94
368.69
396.74
33.58
388.29
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Nokia Corporation
Inventory
turnover
Inventory
turnover in days
5.39
6.86
9.43
8.75
68.74
53.21
38.71
41.71
2019
The table summaries some of the activities ratios for the four years,
Receivable turnover =
Annual Credit sales
Net Sales
This ratio measures the number of times receivables turn over in a year
relative to sales. This determines the time between a sale and actual
collection. The credit terms and quality of receivables can be measured
using this ratio relative to the industry.
the receivables turnover in times calculated by using the assumption of“30%
of the firm’s revenues are sold on credit in all four years” the collection of
the receivables during the four years considered to be very good as started in
2016 10.87 times
Another way to view this ratio is in the number of days the receivable
remains on the company’s books.
This ratio will be discussed with the Days in Accounts Receivable ratio
below.
Days Receivable Ratio
Days Receivables =
𝟑𝟔𝟓
Receivables Turnover
Day’s Receivables ratio tells how many days on average it takes to collect
on sales. If this number is high, it indicates that there are some accounts that
are aging and may never be collected. It may also indicate loose credit
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Nokia Corporation
2019
policies and poor collection processes. In some extreme cases, it can reveal
poor internal controls and processes in accounting such as cash collection
and reconcilement of accounts.
The Receivable turnover in Days is almost 33.58 days to collect
$7,648,000?
Inventory =
𝑪𝒐𝒔𝒕 𝑶𝒇 𝑺𝒂𝒍𝒆𝒔
Inventory
This ratio measures the number of times inventory is turned over during the
year in terms of dollars.
High and low turnover relative to the industry
could mean either poor inventory management (high turnover) or poor
utilization of related resources (low turnover).
Days Inventory Ratio (INVDOH)
Days Inventory =
𝟑𝟔𝟓
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
Inventory days on hand measures how long the company holds
inventory before it is sold
Which is almost 33.58 days to collect $ 7,648,000?
The inventory management is one of the most important activities that an
analyst require to understand the overall activities performance of the
company, in 2014 was the lowest turnover of inventory which was 5.39
times almost each 69 days.
Group C Walaalaha
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Nokia Corporation
2019
o Efficiency of Assets:
The efficiency of assets represent how good the company in using assets
togenerate sales over the time, during the five years Nokia Corporation was
indicating thefollowing;
Total assets turnover
$0,62
$0,60
$0,58
$0,56
Total assets turnover
$0,54
$0,52
$0,50
$0,48
1
Total Asset Turnover
2
3
0.56
4
0.60
0.53
0.56
This ratio is a measure of management's ability to utilize its assets, in this
case all of its assets.
It appears that Nokia Corporation is only able to generate $0.53 versus their
industry peers generating $0.60 in sales for every $1 of assets.
Thus, it appears that Nokia Corporation is somewhat less efficient.
This ratio is slightly lower than the industry average due to the higher
inventory and low cash balances. As stated above an effort should be made
however to increase sales volume to improve the ratio. Another option for
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Nokia Corporation
2019
improvement would be to improve its current asset turnover by improving
inventory management, which will improve its total asset turnover, thus
improving the net sales-total asset ratio.
o Profitability measures:
One of the best measures for evaluating management lies in their ability to
control costs. Thus, profit margins are an important means of assessing this
ability:
Profitability measures are one of the most important indicators of the
business success NPM, ROI and ROE are the most valuable profitability
ratios, the following chart showsthe profitability of Nokia Corporation.
$1,00
ROE
$0,80
ROI
$0,60
Net profit margin
$0,40
$0,20
$$(0,20)
2014
2015
2016
2017
$(0,40)
Net profit margin
ROI
ROE
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0.295
$0.17
$0.40
0.196
$0.12
$O.23
-0.0392
$(O.O2)
$(0.05)
-0.0629
$(0.04)
$(0.09)
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Nokia Corporation
2019
Reccomondations
Generally the performance of the NOKIA corporation is very low
specially the last two years (2016,2017).
So the company must flow these advance to become well
performance.
1 – Dicreasing cost of production:
The cost of production ware increased year after year more than
sales increasing so the company should look other suppliers to get
low cost row matearial.
2-Collection of an accounts receivable:
Also accounts receivable collection is very bad, in the 2014 was
$4,302,000 and the 2017 8,831,000 so the must manage the ways
of improving accounts receivable such as:
-Reducing payment terms.
-set clear credit policies.
Group C Walaalaha
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Nokia Corporation
2019
CONCLUTION
As conclusion, NOKIA CORPORATION showed an outstanding
financial performance during the last four years of the
conducted analysis which started 2014 to 2017,
Therefore the firm will be recommended for all kinds of
activities of investments and financing due to its strong ability
to sustain profit over time.
However the firm is low performance during the last two
years.
In the last Nokia will come back with high market share if they
apply our advises.
Group C Walaalaha
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