Comparative Financial Statement Analysis Between Nokia and Sony Ericsson

COMPARATIVE FINANCIAL STATEMENT ANALYSIS BETWEEN NOKIA AND SONY ERICSSON

In this report there will be critical comparative evaluation and analysis of Nokia and Sony Ericsson; major competitors in the Telecommunication Industry. Information was collected from the company's annual report.

These companies are expected to have currency and translation exposure which may result in gain or loss because they are multinational companies that have subsidiaries in different part of the world (Eiteman, et al, 2007), and according to Demirag and Goddar (1994) they argued that the account of foreign subsidiary should be provided when preparing consolidated financial statements. However, both Nokia and Ericsson have a condensed consolidated accounts published by international accounting standard boards (IASB) which is in line with the international accounting report standard (IARS).

OVERVIEW OF THE TELECOMMUNICATION INDUSTRY

These are telecommunications companies that range of products that involves electronic and non wireless systems for transmitting messages through television telephone cables or radio.

TELECOM INDUSTRY TRENDS

The control of telecom industry in most cases lies in the hands of private individuals instead of the government. Telecom industry have witness a lot of changes and innovation in recent times from the Traditional telecom technologies to modern wireless technologies, especially mobile services. Improving and enhance the quality and speed of Internet technology is their watch word and that is their core objective.

NOKIA CORPORATION BACKGROUND INFORMATION

Nokia which is the world's largest manufacturer of mobile telephones has it's headquartered in Helsinki, Finland. They are into communications and manufacturing of mobile devices and Internet services. They have about 123,000 employees located in 120 countries. Their annual revenue is 41 billion Euros with sales target exceeding 150 countries and operating profit of 1.2 billion Euros as of 2009 (Annual Report 2009).

See Appendix1 Nokia Background Information snap Shot

SONY ERICSSON BACKGROUND INFORMATION

Sony Ericsson was established on October 1, 2001 as a joint venture of Sony Corporation (a Japanese company) and Ericsson (a Swedish company) to make mobile phones. ‘The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector' (Annual Report 2009).

See Appendix2 Sony Ericsson Background Information snap Shot

COMPARATIVE ANALYSIS:

One of the main purposes of preparing financial statement is to provide adequate and reliable information for the user of the financial statement (ACCA, 2007). Users of this information may benefit from this company by calculating different ratios and performance indicators. These investors are likely to integrate these ratios or make meanings from their perspective.

In order to meet this objective, a wide range of ratios will be calculated. This includes:

(a) Profitability And Return

(b) Liquidity Ratios

(c) Leverage Ratios

(d) Activity Ratios

(e) Investment Ratios

These ratios are calculated as shown in Appendix 3 & 4 attached

In a nutshell, ratio analysis is defined as a way of comparing one figure of a company against another to produce a ratio, and providing a meaningful interpretation of those figures (ACCA, 2007)

PROFITABILITY RATIO

This ratio measures the overall profit performance of Nokia and Sony Ericsson. It should be noted that these companies exist principally to generate profit and pay adequate return to the investors or owners. This is because when the potential investors wants to buy share in the company the first question they are likely to ask ‘' is the company making profit''. If the answer is ‘'yes'' they will again ask whether company is making adequate profit or not in terms of capital invested. So this ratio provide a clue as to how successful the managers of Nokia and Sony Ericsson have been towards generating profitability (Watson and Head, 1998)

GROSS PROFIT RATIO

This