FINANCIAL ANALYSIS

Sony Companies Limited

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Sony Companies Limited

Introduction

Financial analysis serves as the lifeblood for any organization. The financial ratios indicate the overall feasibility and performance of the firm. Different ratios have different interpretations. This report presents a ratio analysis for Sony companies limited along with their interpretation. Moreover, it elaborates the uses of these ratios for the investors as well their limitations.

Ratios

Sony Companies Limited

(Amounts in 000) 

Except per share amount

2004

2005

2006

2007

Current Liabilities

£880

£940

£1,974

£1,770

Inventories

£550

£600

£700.00

£900

Purchases

£6,550

£6,350

£10,180

£11,565

Accounts Receivable

£880

£925

£1,380

£1,500

Cost of Sales

£6,000

£6,300

£10,080

£11,365

Sales

£8,000

£8,400

£12,600

£13,860

Current Assets

£1,570

£1,905

£2,080

£2,400

Fixed Assets

£3,640

£3,390

£5,400

£5,000

Total Assets

£4,330

£4,355

£5,505.

£5,630

Total Debt

£2,330

£2,605

£3,005

£3,130

Total Equity

£2,330

£2,605

£3,005

£3,130

Operating Profit

£800

£840

£1,000

£800

Interest and similar Charges

£160

£140

£300

£300

Profit Before Tax

£640

£700

£700

£500

Profit after taxes

£480

£525

£525

£375

Dividends Paid

£400

£500

£375

£250

Earnings Per Share

£0.24

£0.23

£0.21

£0.15

Market Price Per Share

£1.50

£1.50

£1.50

£1.50

Outstanding Shares

2000

2250

2500

2500

Dividends Per Share

£0.20

£0.22

£0.15

£0.10

Ratio

Formula

2004

2005

2006

2007

Liquidity

 

 

 

 

 

Current Ratio

Current assets/ Current liabilities

1.78

2.03

1.05

1.36

Interest Cover

EBIT/ Interest charges

5.00

6.00

3.33

2.67

Quick Ratio (acid test)

Current assets - Inventories/ Current liabilities

1.16

1.39

0.70

0.85

Asset Utilisation

 

 

 

 

 

Inventory turnover (times)

Cost of sales/ Average inventory

14.5

14.0

18.0

15.4

Debtor collection period

Accounts receivable/ sales/365

40

40

40

40

Creditor Repayment period

Accounts Payable/ purchases/365

49

54

71

56

Fixed-asset turnover

Sales/ Fixed assets

2.20

2.48

2.33

2.77

Total asset turnover

Sales/ Total assets

1.85

1.93

2.29

2.46

Working Capital

Current assets- Current liabilities

£690

£965

£106

£630

Working Capital turnover

Sales/ Working Capital

11.59

8.70

118.87

22.00

Capital Financing/ Gearing

 

 

 

 

 

Debt-to-equity

Total debt/ Total equity

100.00%

100.00%

100.00%

100.00%

Debt to capital employed

Total debt/ Total capital employed

67.54%

76.28%

85.10%

81.09%

Profitability

 

 

 

 

 

Gross profit margin

Sales-Cost of sales/ Sales

25.00%

25.00%

20.00%

18.00%

Net profit margin

Earnings after Taxes / Sales

6.00%

6.25%

4.17%

2.71%

Return on Capital

Earnings after Taxes / Stockholder's equity

20.60%

20.15%

17.47%

11.98%

Investor Ratios

 

 

 

 

 

Price-to-earnings ratio

Market price per share/ Earnings per share

6.25

6.43

7.14

10.00

Earnings Yield

Earnings per share/ Market value per share

16.0%

15.6%

14.0%

10.0%

Dividend yield

Dividend per share/ Market price per share

13.33%

14.81%

10.00%

6.67%

EPS

Dividend per share/ Market price per share

£0.24

£0.23

£0.21

£0.15

Dividend per share

Dividend per share/ Market price per share

£0.20

£0.22

£0.15

£0.10

Dividend Cover

Earnings per share/ Dividend per share

1.2

1.05

1.4

1.5

Comments for the Board of Directors

The report presents the financial status of Sony Companies Limited. The company's performance over the last four years has been deteriorating. In order to analyse the financial performance of the company in detail, it is imperative to review the basic concepts of financial ratios along with their uses and interpretations. Ratios are very important for any firm. They indicate the overall performance and profitability of any company. They are also used for comparing companies within the industry. Ratios are further classified into different categories depending upon their uses and potential users.

Liquidity Ratios

Liquidity ratios measure the enterprises' ability to meet its short-term obligations. The focus of liquidity ratios is the current elements of a course's balance sheet. It includes current ratio, quick ratio etc. They measure the potential of the business to pay its bills in the short term. Financial lenders and owners are very interested in these ratios as they reflect the financial risk of the company (Forgue, Garman, 2010, p.9).

Gearing Ratios

These ratios reflect the potential ability of the firm to pay its long term debt and obligations. These include Debt to Equity and Debt to capital employed ratio. They also indicate the capital structure adopted by the firm (Livingston, Grossman, 2009, p.182).

Profitability Ratios

It measures the company's ability to generate profit for its owners. Management is quite interested in these ratios as they depict the overall health of the company and performance of the company. This category includes net profit margin and gross profit margin ratios (Sullivan, Steven, 2003, p.375).

Asset Utilisation Ratios

It measures a management's ability to use the assets entrusted to them. It indicates how efficiently and effectively the management is utilizing the assigned resources. This category includes ...