Working Capital of Samsung

Question: Select a company of your choice and research the working capital of that company

(i.e. GE Capital, Wal-Mart, Apple, Google, Yahoo, IBM, Boeing, Target ...etc) and explain their

working capital strategy based on your findings.

Working Capital and its Application

Working Capital is also known as the operating capital. Formal definition of the term is

suggested by Ganesan (2007) as “The working capital meets the short-term financial

requirements of a business enterprise”. It indicates the ability of company to run its daily

business requirements via the help of liquid assets available. As a general rule, it is believed

that the more the operating capital available, the easier will be for the company to run its daily

business activities Ganesan (2007).

Working Capital Formula

The formula used to calculate the working capital of a organization is as follows:

Working Capital= Current Assets- Current Liabilities

This statement, in literal terms informs about the amount of assets available for the company,

above and beyond the liabilities (short term) to fulfill the basic daily operational needs.

Applications

To measure the company’s short term financial health and operations efficiency, it is pertinent

to know about its working capital ratio (Rasheed, 2012). The working capital can be both

positive or negative, which means in the case of positive working capital, the company has

enough liquid assets to meet its requirements however, in case of a negative working capital it
Working Capital of Samsung

is very essential for the company to manage its resources in order to meet the requirements

without any difficulty.

This ratio gives the over view of the companies short term health and is used by many investors

and managers (Janeczko, 2017). Investors try to get an idea from this financial calculation

regarding the ability of the company to face difficult times and get through them. Whereas, the

managers they can predict or speculate if any difficult in the daily requirements might arise and

cater to the needs accordingly.

Samsung & Its Working Capital

Samsung

Samsung is a world known brand which does not only operate in the home appliances but also

work as one of a leading firm in electronics. It makes appliances such as televisions, washing

machines, DVD players, digital cameras, mobile phones, computers, digital TVs, LCD panels and

what not in the electronics industry. Samsung competes with other electronic giants such as

Apple, Panasonic, Sony and LG electronics. Samsung is based in South Korea and has made its

economy worth a lot now.

Working capital

The working capital, as per the calculations above is worker out below. For reference, the

financial statements have been added in the Appendix.

Samsung March 31, 2019 (USD) December 31, 2018 (USD)

Current Assets 157,762,828 155,369,463

Current Liabilities 59,902,251 61,438,554

Working Capital 97,860,577 93,930,909

The working capital calculation suggests that the working capital has increased by roughly 4 %.

This means that the current assets have increased at a higher rate and the liabilities have fallen.

Analysis

Samsung existing comparative balance sheet, confirms that the Net working capital has risen.

This is due to the fact that the current assets have significantly increased and simultaneously

the liabilities have decreased resulting in a 4% increase in Operating capital.

In more details, the balance sheet shows that the liquid assets are sufficient to meet the needs

of purchasing, other liquidity requirements and the outstanding commitments. However, it is

worth noting that the certain assets have decreased in the current section of the balance sheet.

The cash amount is fallen as compared to the closing account of 2018. Moreover, the short

term financial instruments have also fallen. It is to draw attention that the receivables have

increased. This suggests that the company has been selling the products on credit which are yet

to be recovered. Also, the company has paid for a couple of activities before hand (pre-paid

expense) which will now to accrued over the period of time, this maybe one of the reason as to

why the cash amount has fallen. Another reason for decrease in cash amount can also be that

the company is paying dividends to the shareholders. The details of cash can be checked from
Working Capital of Samsung

cash flow statement which can describe the investing and financing activities happening

because of cash (Rasheed, 2012). Overall the assets have increased.

Moreover, on the other hand, the increase in the net working capital has been due to the fall in

the current liabilities. The liabilities in March 2019 were reported to be USD 59,902,251 as

compared to USD 61,438,554 at the end of 2018. This is because of the fact that the short term

borrowing has fallen. Going back to the assets, we can see the rise in prepaid expense and fall

in cash, it suggests that the company is trying to utilize its own sources rather than borrowing

and increasing its liability. Similarly the companies accrued expenses have also fallen which also

indicate that Samsung is focusing reducing its liabilities by using its own assets.

Conclusion

Samsung just like every other company which does not want to be bankrupt focuses on its net

working capital ratio and calculations. This ratio and calculation can help Samsung to avoid

pitfalls. By the help of the analysis above, it can be clearly said that the working capital of the

company has risen. But this statement might not be entirely a positive one. Sometimes, high

working capitals may indicate that the company is not using its assets effectively. In other

words, investors may conclude that the company is not effectively reinvesting and allowing its

cash flows to sit idle in the company. However, in the case of Samsung, one cannot easily

conclude this as their needs to be a proper financial analysis with liquidity ratios and cash flow

statements to figure out the perfect mix of working capital.

Bibliography

Ganesan, V. (2007). An analysis of working capital management efficiency in

telecommunication equipment industry. Rivier academic journal, 3(2), 1-10.

Rasheed, R., Nawaz, R., & Abbas, Y. (2012). Samsung Electronics and Apple, Inc.: A Study in

Contrast in Competitive Analysis in 21st Century.

Janeczko, S. (2017). Samsung Technical and Fundamental Analysis.

Appendix
1. Details of Assets

2. Details of Liabilities
Working Capital of Samsung