2.

Gearing Analysis
Level of gearing is crucial for the company in analysing the risk. Gearing ratio measures the
ability of a company long-term capital debt(ACCA Global, 2007) in other words it able to
short out the financial proportion that comes from debt as opposed to equity
It come from the attraction that the investment from a loan has lower return rather and less
risky rather than investment that come from the shares. (ACCA,2016). The company with
higher debt will have a high gearing ratio , while the one with small debt amount will be low
in its ratio .Moreover, It is considered more risky and unsafe when the company has higher
leverage(Michael &Albert,2015)

2.1 Debt Ratio

Debt Ratio able to provide the creditors and investors with general idea of the amount
of leverage utilized by the company and the firm’s ability to pay off the debt in the
future. The lower the level of leverage the higher its equity position (Investopedia,2017).
The debt ratio is calculated by dividing the total liabilities by total assets as it seen
below:

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
Debt Ratio=
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Table 2.1 Samsung Debt Ratio Annual Report 2012-2016 (measured in thousand USD)
Year Total Liabilities Total Assets Debt Ratio
2012 $55,635,669 $169,051,975 0.33
2013 $60,852,104 $203,358,050 0.30
2014 $59,214,186 $218,887,585 0.27
2015 $54,421,329 $208,805,303 0.26
2016 $59,673,438 $226,044,667 0.26

Based on the tab 2.1 it can be seen that from 2012-2016 there are a gradual decreased
number of debt ratio witnessed by Samsung. In 2015 and 2016 only about a quarter of
the assets of Samsung financed by the loan, generally implies greater equity position
and less risk faced by investor due the fact that the lesser financial burden that beared
by Samsung Company.

In contrary, Apple boomed almost double than the beginning of the year from only 33%
to 60% it it can indicates the higher potential risk regarding to its loans about 66% of
the company operates by loans or more than half of the company runs by loan.

Figure 2.1 Samsung and Debt Ratio Annual Report 2012-2016

 Debt Ratio Samsung vs Apple
70%

60%

50%

40%

30%

20%

10%

0%
2012 2013 2014 2015 2016

SAMSUNG APPLE

1.1 Equity Ratio

The company Equity ratio measure the percentages of equity to finance the company
assets. The higher the level of Equity ratio indicate the greater financial strength of the
company it is because that the equity is safer than a debt since there is no obligation of
interest payment, if the company’s equity ratio is extremely lower the assumption is
that the company take high amount of debt which able to lead to the collapse of the
company(Bryan Keyman,2012)

The company equity is calculated by taking its total stockholder’s equity divided by the
total assets:

𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
Equity Ratio=
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Table 2.2 Samsung Equity Ratio Annual Report 2012-2016 (in USD)
Year Total Equity Total Assets Equity Ratio
2012 $113,416,306 $169,051,975 0.67
2013 $142,505,946 $203,358,050 0.70
2014 $159,673,399 $218,887,585 0.73
2015 $154,383,974 $208,805,303 0.74
2016 $166,371,229 $226,044,667 0.74

From the description in table 1.2 above it can be seen that in 2012 the from 169 trillion
dollars about 133 trillions dollars is part of stakeholders’ equity, it increased slightly
along the time whereas in 2016 about 0.74% of company assets are equity. Samsung
typically generates more profit without taking too much on risk besides the higher it
equity the higher contribution of Samsung shareholders to the capitals.
 Equity Ratio Samsung vs Apple
0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00
2012 2013 2014 2015 2016

Samsung Apple

Meanwhile the leverage used by the Apple has higher proportion than its assets
financed by the stockholders, more than half of its capital are part of debt while from
the current report only about 40% owned by shareholders.

3.Profitability Analysis
Profitability ratio used to measure the performance of company and as one of indication of
company’s ability to generate profits, as it importance to fund business and to pay devident to
Shareholders. It gives a clear insight on how efficient a particular company on generating
profit which is one of consideration of stakeholder in investing its money (Australian
Shareholder’s Association,2010)

3.1 Gross Profit Margin

The gross profit margin is important to help in determining if the company has sufficient fund
to cover the operating expenses and can be seen as a measurement of production efficiency.
The company that higher in gross profit margin tipically has greater margin than the
incumbent industry.

The formula is presented below:

𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
Gross Profit Margin=
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
x 100%

Table 3,1 Samsung Gross Profit Margin from the Annual Report 2012-2016 (in USD
measures in thousand)
Year Gross Profit Sales/Revenue Gross Profit Margin
2012 $69,509,553 $187,754,283 0.37
 2013 $86,440,922 $217,243,913 0.40
2014 $74,026,016 $195,882,955 0.38
2015 $66,536,551 $173,001,874 0.38
2016 $70,345,428 $174,047,940 0.40

Based on the table 3.1 the gross profit margin of Samsung Company increasing over the time,
means that the stock of control is improved and the selling price is slightly improved in the
line of the cost of goods sold by the company.

Gross profit Margin Apple vs Samsung

46%

44%

42%

40%

38%

36%

34%

32%
2012 2013 2014 2015 2016

Samsung Apple

The gross profit of Apple is slightly higher than its rival Samsung with at the beginning of the
year given. However, on the final year in 2016, the Samsung witnessed increased of 3% of its
margin while on the contrary the gross profit margin of Apple lowered 5% from 44% to 39%
within the 5 years of given period.

3.2 Net profit margin

Net profit margin measures the percentage of sales revenue after all cost being taken into
account (Australian Shareholder’s Association,2010) the net profit margin indicated te
overall success of a business moreover it useful to compare the business in the same industry
that might have similar cost structure( Steven Bragg,2011)

The calculation is including:

𝑃𝑟𝑜𝑓𝑖𝑡(𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥)
Net Profit Margin=
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
x 100%
(explained more about Samsung)
Year Net profit Sales/Revenue Net profit Margin
2012 $22,262,426 $187,754,283 12%
 2013 $28,949,145 $217,243,913 13%
2014 $22,223,194 $195,882,955 11%
2015 $16,433,508 $173,001,874 9%
2016 $19,594,260 $174,047,940 11%

From the table above it shows that there are decreased in number of net profit margen from
11% down to 9% in 2015 Possibility because on the given period the Samsung company
developed alaxy S6 edge costs $290.45 to make, that is more expensive than any galaxy S
model and I phone analysed by US Research Company(Indian Express, 2015)

Overall a net profit margin in excess of 10% is considered excellent, Though it might be
depends on the type of industry and the business structures(Accountingtools,2011) both of
the company shows high net profit margin with the margin owned by Samsung two times
lower than its rival Apple Company. Since galaxy S II IN 2011 Samsung have consistently
cost more to build to sol at similar prices of comparable prices of comparable Iphones.

despite of its lower profit margin however the margin showed by the Samsung Company
fluctuated however it witness small changes only while Apple decreased about 6 % from
previous 5 years. However according to Miachael Rist and Albert in Financial Ratio for
Executives in some cases in mature market the profit margin of a company sometimes
represent price war which means lowering profits. A decline of its margin can also be a
procomg strategy in order to increase the market share of the company(Reuters,2015)

(MARKET CONDITION ESPECIALLY IN DEVELOPING COUNTRIES)

Net Profit Margin Samsung vs Apple

2016

2015

2014

2013

2012

0% 5% 10% 15% 20% 25% 30%

Apple Samsung

http://www.cimaglobal.com/Documents/Student%20docs/2010%20syllabus%20docs/F2/F2_
Ratios_March2013_study%20notes.pdf
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0731-4.pdf
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cheaper-than-iphone-6-but-apple-is-winning-on-production-costs/
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iphone-6-but-apple-is-winning-on-production-costs/
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March2013_study%20notes.pdf
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4.pdf
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4.Analysis of Statement of Cash flow

4.1 Operating Cash flow Ratio
4.2 Cash Flow to Revenue Ratio

4.3 Cash Flow on total Asset Ratio

4.4 Receivable turnover

4.5 Inventory Turnover ratio