Analysis of Financial Statement of the KIA Motors Slovakia
American University of Central Asia
Aitegin Salamat Uulu
3/19/22
Financial Accounting II
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Table of Contents
1.0
Profile of the company: History, ownership structure, and prospect ........................... 2
2.0
Remuneration of CEO and CFO ...................................................................................... 2
3.0 Accounting methods and estimates ....................................................................................... 3
4.0 Financial ratios and interpretation ....................................................................................... 5
4.1 Vertical and horizontal analysis Vertical analysis of Balance Sheet: ............................ 6
5.0 Buy/hold or sell advice ............................................................................................................ 9
References .................................................................................................................................... 10
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1.0 Profile of the company: History, ownership structure, and prospect
KIA Motors Corporation was founded in 1944 and is the oldest automobile company
headquartered in Seoul, Korea. Each year the company's thirteen plants located in eight countries
produce approximately 2.1 million vehicles, which are sold and serviced by Kia Motors
dealerships in 172 countries (AS, 2021). Since the summer of 2006, Kia, as part of the Hyundai
Group, has been one of the world's top six automakers (AS, 2021). The main activity of the
company is the manufacture of the cars and engines together with spare parts of the automobiles
(SLOVAKIA, ANNUAL REPORTS, 2017).
KIA, called Kyungsung Precision Industry, was founded on May 15, 1944, shortly
before North Korea went to war with South Korea (carobka.ru, 2022). According to this website,
at first a small factory in Yangdeungpo, now in southern Seoul, the company manufactured
bicycles, bicycle parts and industrial goods, and later began to produce trucks and cars
(companieshistory.com, 2022).
In Zilina, Slovakia, on April 7, 2004, the cornerstone of the new Kia plant was laid
(Press.kia, 2010). According to the information that was published in the website, investments in
the plant exceeded 1 billion euros and approximately 3,000 new jobs were created (Press.kia,
2010). The Kia plant in Slovakia produces cars for all European dealers, including those in
Estonia, Latvia and Lithuania. Production in Zilina began in December 2006 and the plan is to
produce around 300,000 cars per year (GMBH, 2022).
2.0 Remuneration of CEO and CFO
According to the official website of KIA Motors Slovakia, organizational structure
and company management are as follows:
Seok Bong Kim – President and CEO,
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Tae Jin Kim – Chief Financial Officer Head of Finance Division,
Jeong Ick Lee – Vice President responsible for Administration Division
Geon Won Shin – Vice President responsible for Production Division
Jong Mahn Chung – Vice President responsible for Quality Management Division
Lee Jae Yoon – Vice President responsible for Procurement Division
Miloš Ondruš – Head of the Administrative subdivision
Roman Kraľovanský – Head of the Production subdivision (SLOVAKIA, COMPANY
MANAGEMENT, 2017).
Due to the fact that the information about wages of the employees is private, the KIA
Motors Slovakia was no exception. Thus, it was impossible to find information about the salary
of an executives and board members. However, there is an information from website
comparably.com (2022), it states that average compensation of American Kia Motors executive
SeungKyu (Sean) Yoon is $234,527 a year (Comparably, 2022). Therefore, considering the fact
that there is not a huge difference between Europe and USA economies, one can at least guess
that Kia Motors Slovakia`s CEO`s average salary might be between 180 000 EUR – 240 000
EUR per year.
3.0 Accounting methods and estimates
The company prepares annual financial statements in accordance with IFRS standards
adopted by the European Union (EU). Preparation of financial statements is on the historical cost
basis (SLOVAKIA, ANNUAL REPORTS, 2017). According to the annual financial report, the
currency of financial statements was prepared in euro, which is considered to be Company`s
functional currency (EUR) (SLOVAKIA, ANNUAL REPORTS, 2017). Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only
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that period or in the period of the revision and future periods if the revision affects both current
and future periods. The main accounting policies of the company have been applied consistently
to all periods presented in these financial statements. Kia Motors Slovakia is operating
inventories at the lower of cost or net realizable value. Furthermore, intangible asset is presented
in 4 categories: owned assets, subsequent costs, amortization and emission rights. For owned
assets, intangible assets acquired by the Kia Motors Slovakia have finite useful lives and are
measured at cost less accumulated amortization and accumulated impairment losses. As for
subsequent cost, it is capitalized only when it increases the future economic benefits embodied in
the specific asset to which it relates. All other expenditures are recognized in profit or loss as
incurred. Amortization is charged to the income statement on a straight-line basis over the
estimated useful lives of each part of intangible assets. The estimated useful lives are as follows:
software 4-6 years, other intangible assets 4-5 years. As for emission rights, they are acquired for
own use only and are accounted for as an intangible asset. Emission rights purchased are
measured at costs (SLOVAKIA, ANNUAL REPORTS, 2017).
Below are the financial statements (income statement, balance sheet) of the organization,
obtained from the official sources of KIA Motors Slovakia:
Table 1. Income Statement in TEUR (thousand euros)
Revenue
Cost of Sales
Gross Profit
2020
4 575 453
-4 374 571
200 882
2019
5 593 433
- 5 288 603
304 830
Administrative and selling expenses
Operating profit
2 646
203 528
58 860
363 690
Interest costs
Interest income
Other financial (expense)/income, net
Net finance costs
-4 077
3 860
-20 884
-1 101
-305
2 174
-914
955
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Other operating income/(expenses), net
Profit before taxes
-48 075
134 352
39 170
403 815
Current and deferred income tax
Total comprehensive income for the year
-28 458
105 894
-85 202
318 613
Table 2. Balance Sheet in TEUR
Non-current assets
Current assets
Total assets
Legal capital
Legal reserve fund and accumulated
profit
Total equity
Non-current liabilities
Current liabilities
Total Liabilities
Total equity and liabilities
31 December 2020
Assets
699 216
1 841 417
31 December 2019
2 540 633
Equity
433 323
975 165
2 283 343
1 408 488
Liabilities
257 616
874 529
1 132 145
2 540 633
1 302 594
763 657
1 519 686
433 323
869 271
307 036
673 713
980 749
2 283 343
4.0 Financial ratios and interpretation
Analysis of financial ratios is conducted to identify optimal ways to achieve the
objectives of the enterprise, such as increasing business activity, asset turnover, ensuring
liquidity and financial stability, increasing the profitability of the enterprise.
The profitability ratio is calculated as the ratio of profit to the assets, resources, or flows
that generate it. Profitability ratios serve as a management tool in the investment, innovation,
human resources, pricing, production and marketing strategies of an enterprise (HAYES,
Profitability Ratios, 2021). As an illustration, return on equity and profit margin were taken. The
following changes in Kia Motors Slovakia had happened during 2019-2020 accounting year.
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Profitability ratio
Return on equity (ROE)
Profit margin
2020
20%
2.3%
2019
24.4%
5.7%
Second ration is about liquidity. The liquidity ratio can represent the Kia Motors
Slovakia`s ability to repay its current debts at the expense of funds in circulation within a
specified period of time. The liquidity ratio is of interest not only to the company's management,
but also to investors, suppliers of raw materials, banks, shareholders, and even ordinary
employees. As an illustration, current ratio and inventory turnover ratio was taken, the results are
following:
Current ratio formula: Current Assets / Current Liabilities
Inventory turnover ratio formula: Cost of Goods Sold / Average Inventory
Liquidity ratio
Current ratio
Inventory turnover ratio
2020
2.11
10.26
2019
2.26
22.20
Third one is about solvency ratio. The financial condition of the Kia Motors Slovakia
from a short-term perspective is assessed by solvency indicators, which characterize the ability
of the Kia Motors Company to timely and fully perform calculations of short-term liabilities.
Presented ratio and results are attached below:
Solvency ratio
Times interest earned ratio
Debt-to-equity ratio
2020
34
0.80
2019
1325
0.75
In accordance with annual report of the Kia Motors Slovakia and website information
there was no information that can help to calculate market test.
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Market test
Price/earnings ratio
Dividend Yield ratio
2020
2019
EBIDTA or in other words “earnings before interest, taxes, depreciation, and
amortization, is a measure of a company’s overall financial performance and is used as an
alternative to net income in some circumstances” (HAYES, EBITDA — Earnings Before
Interest, Taxes, Depreciation, and Amortization, 2022). Kia Motors Slovakia`s EBIDTA is as
followed:
EBIDTA
2020
266,180,000 EUR
2019
524,672,000 EUR
4.1 Vertical and horizontal analysis
Vertical analysis of Balance Sheet:
Table 3. Balance sheet in TEUR
31 December 2020
31 December 2019
Assets
Non-current assets
Current assets
699 216
1 841 417
27.52%
72.48%
763 657
1 519 686
33.44%
66.56%
Total assets
2 540 633
100 %
2 283 343
100%
433 323
975 165
30.77%
69.23%
433 323
869 271
33.27%
66.73%
1 408 488
55.44%
1 302 594
57.05%
257 616
22.75%
307 036
31.31%
874 529
1 132 145
77.25%
44.56%
673 713
980 749
68.69%
42.95%
Equity
Legal capital
Legal reserve fund
and accumulated
profit
Total equity
Liabilities
Non-current
liabilities
Current liabilities
Total Liabilities
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Total equity and
liabilities
2 540 633
100%
2 283 343
100%
According to the observation of changes in balance sheet, one can say that 55.44% of
assets in 2020 are financed by equity and 44.56% finances by debt. In 2019 a company`s balance
sheet represented almost the same ratio, it was 57.05/42.95.
Horizontal analysis of Balance Sheet:
Table 4. Balance sheet in TEUR
31 December 2020
31 December 2019
Assets
Non-current assets
Current assets
699 216
1 841 417
763 657
1 519 686
-8.44%
21.18%
Total assets
2 540 633
2 283 343
11.27%
433 323
975 165
433 323
869 271
0%
12.19%
1 408 488
1 302 594
8.12%
257 616
307 036
-16.1%
874 529
1 132 145
673 713
980 749
29.80%
15.43%
2 540 633
2 283 343
11.27%
Equity
Legal capital
Legal reserve fund
and accumulated
profit
Total equity
Liabilities
Non-current
liabilities
Current liabilities
Total Liabilities
Total equity and
liabilities
Changes in %
According to the results for 2019-2020, it is clear total assets increased by 11.27% and
total equity increased by 8.12%, similarly total liabilities increased by 15.43%. One can say that
increased liabilities might be caused by COVID-19 pandemic which has happened at very that
year, 2020 (SLOVAKIA, ANNUAL REPORTS, 2017). Considering the that pandemic had
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happened and there was a global economic crisis in every industry, the company is doing good.
Not dynamically but step by step, at least there was no decreased asset or equity.
5.0 Buy/hold or sell advice
Observing operating activities of the company, I would recommend one to wait and
analysis 2021-2022 accounting year of Kia Motors Slovakia and research a little bit market price
per share. However, there was an information that states, in 2019, Kia`s sales on the Old
Continent decreased by 17% to 416,715 cars in yearly comparison, with an increased market
share of 3.5%. (SLOVAKIA, ANNUAL REPORTS, 2017). In general, it looks good if we
consider COVID-19 pandemic and economic crisis. In 2020, the total sales of passenger cars of
all brands on the European market fell by 23.7%, when only 9.9 million units were sold. In 2021,
Kia plans to sell 2.92 million cars worldwide (SLOVAKIA, ANNUAL REPORTS, 2017).
Analyzing the financial statements, one can see that company decreases its sales by 1 017 980
comparing 2020 to 2019 year. As for ratio analysis, the company made negative changes almost
in each ratio. Again, this changes based on harsh period of 2020.
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References
AS, K. A. (2021). KIA MOTORS. Retrieved from kia.ee: https://www.kia.ee/ru/about/kiamotors
carobka.ru. (2022). History of the KIA Brand. Retrieved from carobka.ru:
https://carobka.ru/cars/history/kia/
companieshistory.com. (2022). Kia Motors. Retrieved from companieshistory.com:
https://www.companieshistory.com/kia-motors/
Comparably. (2022). Kia America Executive Salaries. Retrieved from comparably.com:
https://www.comparably.com/companies/339931/executive-salaries
GMBH, K. E. (2022). KIA’S EUROPEAN PRODUCTION PLANT, ŽILINA, SLOVAKIA.
Retrieved from press.kia:
https://press.kia.com/eu/en/home/corporate/factoryslovakia.html
HAYES, A. (2021). Profitability Ratios. Retrieved from investopedia.com:
https://www.investopedia.com/terms/p/profitabilityratios.asp
HAYES, A. (2022). EBITDA — Earnings Before Interest, Taxes, Depreciation, and
Amortization. Retrieved from investopedia.com:
https://www.investopedia.com/terms/e/ebitda.asp#:~:text=EBITDA%2C%20or%20earni
ngs%20before%20interest,net%20income%20in%20some%20circumstances.
Press.kia. (2010). Factory Slovakia. Retrieved from press.kia.com:
https://press.kia.com/ie/en/home/corporate/factoryslovakia.html
SLOVAKIA, K. (2017). ANNUAL REPORTS. Retrieved from kia.sk:
https://www.kia.sk/en/about-us/annual-reports
SLOVAKIA, K. (2017). COMPANY MANAGEMENT. Retrieved from kia.sk:
https://www.kia.sk/en/about-us/company-management
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