FINANCIAL COMPARISON

BETWEEN

THE SAMSUNG ELECTRONICS

COMPANY

AND

APPLE COMPANY

Introduction

This study will financially compare The Samsung Company and the Apple Company by analyzing the financial performance and financial position using various ratios of the 2016 Balance and Income statements of each company such as profitability, liquidity, efficiency, capital structure and investment ratios and information in the statement of cash flow.  

Background and Product Lines

Samsung Company was founded in Suwon; Korea in 1969. Currently, its headquarters is in Korea. The Company is in charge of Information Technology, consumer Electronics, Mobile Communications, and Device Solutions. Consumer Electronics includes products such as a printer, monitor, TV, etc., Mobile Communications includes products such as Digital Camera, HHP, Computer, and etc. while products such as NAND Flash, DRAM are examples of Device Solutions

On the other side, Apple Inc. Company was founded in1976 by Steve Jobs (O’Regan, G, 2015). The headquarters of the Company is in California. The Company deals with the design and manufacture of mobile and media devices, personal computers, etc. Apple Inc. also deals and overseas three divisions, NAICS, SIC, and ISI.

Profitability ratios

Profitability ratios show the general efficiency and performance of a Company. These ratios are divided into two margins and returns ratios. The margins ratios show the ability of the two Companies to convert sales into profits. The most common margin ratios include Gross Margin, Operating margin, and Net Margin. Returns ratios of the companies show the ability of the Companies to measure its efficiency in generating returns for the shareholders. Examples of Return ratios are Return on Assets (ROA), Return on Equity Ratio (ROE), and Return on Capital Employed (ROCE).

The profitability for Samsung Electronics Co. Ltd 

Profitability ratios

Gross profit Margin ratio     +39.23

Operating net profit Margin   +14.49

Pretax profit Margin                  +15.21

Net profit Margin                   +11.10

ROA                                        8.89

ROE                                         12.48

ROCE                                       11.57

Cash returns on assets                 12.38

The profitability of Apple Inc

Profitability

Gross profit Margin ratio      +38.47

Operating net profit Margin   +26.76

Pretax profit Margin     +27.96

Net profit Margin        +21.09

ROA                              13.87

ROE                             36.87

ROCE                           20.80

Cash returns on assets  22.23

Source: http://quotes.wsj.com/SSNLF/financials 

From the above tables, the Gross margin for Samsung Electronics Ltd is $39.23 which is higher to that of Apple Inc. i.e. $38.47. This shows that Samsung Electronics Ltd is better in controlling its inventory and the manufacturing costs as compared to the Apple Inc.

The operating margin for Samsung Electronics Ltd ($14.49) is smaller than that of the Apple Inc. ($26.76). It shows that Apple Inc. earns more than Samsung Electronics Ltd before interest and taxes.

Apple Inc. makes $21.09 of every dollar as a profit while for Samsung Electronics Ltd makes $11.10 of every dollar as a profit

Also, it can be stated that return on assets ratio of Samsung Ltd is $8.89 which is lower than the Apple Inc. i.e. $13.87. Hence, Samsung Ltd is the less profitable company in comparison to its peer.

The return on equity ratio of Samsung Electronics Ltd is $12.48 which is lower than that of Apple Inc. i.e. $36.87. Hence, Apple Inc. is able to generate more profits from its shareholder’s investments in the company in comparison to Samsung Electronics Ltd

Liquidity Ratios 

Liquidity ratios basically define how, in this case, the two companies can meet their Short -Term obligations.  Therefore, liquidity ratios show the cash levels of the two companies as well its ability to convert other assets into cash which will be required to pay liabilities. Common ratios of liquidity are current ratio, Quick ratio, and cash ratio. 

Current ratio shows the ability of the two companies to meet the obligations of the short-term debt while the quick ratio measures the ability of the two companies to meet the obligations of short-term debt by using the liquid assets available. On the other hand, Cash ratio is the ratio of cash as well as the cash equivalent assets of the two companies to its total liabilities (Financial Events and Liquidity, 2015). 

The liquidity ratios for Samsung Electronics Co. Ltd are displayed as shown below;

Liquidity Ratios

Current Ratio 2.64

Acid-test Ratio 2.31

Cash asset Ratio 1.61

Liquidity ratios for Apple Inc

Liquidity Ratios

Current Ratio 1.28

Acid-test Ratio 1.23

Cash asset Ratio 0.74

Source: http://quotes.wsj.com/SSNLF/financials 

From the above tables, it can be stated that current asset ratio of Samsung Electronics Ltd is $2.64 which is higher than the Apple Inc. i.e. $1.28. Hence, the ability for Samsung Electronics Ltd to meet the obligations of short-term debt is quite higher in comparison to its peer. However, the preferred current ratio in financial analysis is between (1-1.5). Therefore, Samsung Electronics Ltd maintains more liquidity than required.

The quick ratio of Samsung Electronics Ltd is stated as $2.31 which is higher than the Apple Inc. i.e. $1.23. Hence, Samsung Electronics Ltd has more than sufficient short-term assets to cover its immediate liabilities in comparison to Apple Inc. Hence, Samsung Electronics Ltd is more liquid and rides out any downturn in the business better.

Moreover, Samsung Electronics Ltd has a higher current ratio ($1.61) as compared to Apple Inc. ($0.74). This shows that Samsung Electronics Ltd is in better financial shape as compared to Apple Inc. 

Efficiency ratios

These ratios are used to examine the way the two companies use its assets and liabilities internally. In most cases, the efficiency ratios are used by management to help improve the company. These ratios provide an easy way to the companies to turn resources into revenue. When the ratio is low, the Company will perform better and vice versa. In most cases, financial analysts regard 50% as the maximum optimal ratio. However, when there is an increase in the efficiency ratio, it shows either increase in costs or decreases in revenues.

The common efficiency ratios include Accounts receivable turnover, Inventory turnover, fixed asset turnover, and Accounts payable turnover (Mousa, G. A. 2015).

Efficiency ratios of Samsung Electronics Ltd

Efficiency Ratios

Revenue-Employee          2,165,952,200

Income to Employee           240,511,320

Ratio of Accounts Receivables Turnover     7.17

Total Assets Turnover                    0.80

Efficiency ratios of Apple Inc 

Efficiency Ratios

Revenue- Employee               1,863,691

Income to Employee                  393,098

Ratio of Accounts Receivables Turnover    7.06

Total Assets Turnover                       0.66

Source: http://quotes.wsj.com/SSNLF/financials 

From the two tables above, the accounts receivable turnover ratio of Samsung Electronics Ltd (7.17) is slightly higher than the accounts receivable turnover ratio of Apple Inc. (7.06). This shows that Samsung Electronics Ltd collects its average accounts receivable during the year 7.17 times while Apple Inc. collects an average of 7.07 times in a year. 

The total assets turnover shows how the two companies can use its assets efficiently to generate sales. Based on the above tables, Samsung Electronics Ltd has a higher total asset turnover (0.80) as compared to Apple Inc. (0.66). It means that Samsung Electronics Ltd uses each dollar of assets to generate 80 cents of sales while Apple Inc. uses each dollar of assets to generate 66 cents of sales. Thus, Samsung Electronics Ltd is more efficient. 

Capital structure ratios

These are ratios which are used to test the financial position of the two Companies over a long period of time. These ratios are divided into leverage Ratios and coverage ratios. To analyze the capital structure of the business concern, we calculate ratios such as Debt to Equity Ratio (Capital ratios and leverage ratios, 2014). 

Capital structure for Samsung Electronics ltd

Capital Structure Ratios

Total Debt-Total Equity   Ratio        8.20

Total Debt- Total Capital   Ratio     7.58

Total Debt – Total Assets   Ratio     5.83

Coverage Interest    Ratio             48.29

Long-Term Debt – Equity Ratio     0.70

Long-Term Debt – Total Capital Ratio 0.65

Long-Term Debt – Assets Ratio         0.00

Capital structure for Apple Inc.

Capital Structure Ratios

Total Debt – Total Equity Ratio      86.30

Total Debt – Total Capital Ratio        46.32

Total Debt – Total Assets Ratio        30.82

Coverage Interest   Ratio                 26.41

Long-Term Debt- Equity Ratio       72.52

Long-Term Debt – Total Capital       38.93

Long-Term Debt – Assets Ratio         0.26

Source: http://quotes.wsj.com/SSNLF/financials 

The D/E ratio shows the amount of debt each company is using to finance its assets. 

From the above tables, the total debt to total equity for Apple Inc. ($86.30) is higher than the Samsung Electronics Ltd i.e. $8.20. This indicates that Apple Inc. has been financing its growth with debt. Hence, it has higher financial leverage compared to Samsung Electronics Ltd.

The debt ratio is defined as the total debt to the total assets. Samsung Ltd has a debt ratio of $5.83 which is lower than the Apple Inc. i.e. $30.82. Hence, the debt content of Apple Inc. is quite higher in comparison to its peer. Thus, the assets of Apple Inc. are mostly provided via debt. 

Investment ratios 

These are ratios which are used to assess the performance of the two company’s shares. They include earnings yield, price per earnings, price per sales, earnings per share, sales per share, etc. (Financial ratios, 2005)

The tables below displays illustrations of the ratios

Investment ratios for Samsung Electronics Ltd

Investment ratios

Price/ Earnings Ratio (TTM) –

Price/Earnings Ratio (including extraordinary items) –

Ratio of Price – Sales          1.27

Ratio of Price – Book         1.35

Ratio of Price – Cash Flow 5.40

Ratio of Enterprise Value – EBITDA  6.26

Ratio of Enterprise Value – Sales 1.38

Total Debt – Enterprise Value 0.08

Total Debt – EBITDA 0.31

Earnings Per Share (recurring) 162,083.70

Earnings Per Share (basic) 157,782.00

Earnings Per Share (diluted) 157,782.00

Investment ratios for Apple Inc

Investment ratios

Price/Earnings Ratio (TTM)          18.49

Price/Earnings Ratio (including extraordinary items) 18.13

Ratio of Price – Sales                                3.48

Ratio of Price – Book                              5.81

Ratio of Price – Cash Flow                    12.54

Enterprise Value – EBITDA                  13.12

Enterprise Value – Sales                           4.09

Total Debt – Enterprise Value                  0.14

Total Debt – EBITDA                                  1.62

Earnings Per Share (recurring) 9.21

Earnings Per Share (basic) 9.27

Earnings Per Share (diluted) 9.21

Source: http://quotes.wsj.com/SSNLF/financials 

The price-earnings (P/R) ratio is the share prices of the Companies to its per-share earnings. From the above tables, Samsung Electronics Ltd does not have (P/R) ratio since it has a small Current Value per Share and high EPS. The (P/R) ratio for Apple Inc. is $9.21. Hence, the EPS of Apple Inc. is higher in comparison to its peer indicating that it is a growth stock.

The earnings per share (EPS) represent the profit that the two companies have made over the last one year divided by the number of shares in the market. The earning per share of Samsung Electronics Ltd is $162,083.70 which is very high than the Apple Inc. i.e. $9.21. Hence, the amount that each share held by a shareholder will earn is higher for Samsung Electronics Ltd than for Apple Inc. 

Cash flow statement 

This is a financial statement that is issued by a business and provides cash flows description into and out of the Company. In most cases, it is prepared to discern trends in the performances of the business that are not captured in the rest of the financial statements such as balance sheet. However, cash flow statement is much helpful in situations where there is a difference between the net cash flows that is reported and the ones generated. In presenting the Cash flows statement, there are three key areas which must be factored in; 

Operations; these are activities of the Company that generates revenue. They may include cash, commissions, net income, increase in supplies, cash paid for interest, etc. 

Investing cash flows; these cash flows provide company’s purchases or the sales of assets. These activities include cash paid for the purchase of equipment.

Financing; these cash flows provides purchase or sale of stock made by the Company. It includes cash paid for loan repayment, the repurchase of shares, and the net cash flow from financing (The Free Cash Flow Statement, 2011).

Cash flow statement for Samsung Electronics ltd

2016	Trend for 5 years
Expenditures of capital	-25.19 T
Cash Flow at the end of the year	+23.24 T
Cash Flow/Share	+333544.34	–
Cash Flow at the end of the year/Share	+141679.1

Cash flow statement for Apple Inc.

2017	Trend for 5 years
Expenditures of capital	-12.79 B
Cash Flow at the end of the year	+51.15 B
Cash Flow/Share	+12.11	–
Cash Flow at the end of the year/Share	+7.31	–

Source: http://quotes.wsj.com/SSNLF/financials/annual/cash-flow 

According to the market watch, Samsung Electronics Co Ltd.’s operating cash flow in FY 2016 grew 18.28% as compared to FY 2015 at 43.16B.  In 2016, the net operating cash flow summed up to $47.39T, the net investing cash flow added up to $29.65T, while the amount generated from financing activities summed up to $8.68T. This left the company with a free cash flow of $23.24T at the end of 2016.

From the 2016 cash flow statement of Apple Inc., Apple Inc.’s operating cash flow in FY 2017 fell 3.38% as compared to FY 2017 at 63.60B. The net operating cash flow summed up to $63.6B; the net investing cash flow added up to $46.45B, while the amount generated from financing activities summed up to $17.35B. This left the company with a free cash flow of $51.15B as the end of 2017

Apple Inc.’s cash generated by operating activities declined from 2015 to 2016 and from 2016 to 2017.

Conclusions

As far as the comparison to the industry is concerned, Samsung Electronics Ltd is a more profitable company as compared to Apple Inc. The company is able to utilize its current assets and pay for the short-term liabilities as compared to Apple Inc. However, Apple Inc. is more confident in financing its growth with debt. 

References

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Financial Events and Liquidity. (2015). Unified Financial Analysis, 175-190. doi:10.1002/9781119206071.ch8

Financial ratios. (2005). Capital Investment & Financing, 143-154. doi:10.1016/b978-075066532-2.50006-1

The Free Cash Flow Statement. (2011). Free Cash Flow, 35-52. doi:10.1002/9781118266847.ch4

Mousa, G. A. (2015). Financial Ratios versus Data Envelopment Analysis:The Efficiency Assessment of Banking Sector in BahrainBourse. International Journal of Business and Statistical Analysis, 2(2), 75-85. doi:10.12785/ijbsa/020202

O’Regan, G. (2015). Apple Inc. Pillars of Computing, 25-30. doi:10.1007/978-3-319-21464-1_5

SAMSUNG ELECTRONICS CO LTD v APPLE RETAIL UK LTD. (2015). Reports of Patent, Design and Trade Mark Cases, 132(1), 42-58. doi:10.1093/rpc/rcu069

Selected average profitability ratios. (2013). doi:10.1787/eco_surveys-col-2013-graph64-en