Assignment: Financial Ratio Analysis

Subject: FNBE0145

Tittle: Sony Corporation

Group members: Tan Chuu Yee (0315097)

Mak Mun Chonn (0314928)

Submission date: 24th January 2014 (Week 16)

Brief background history of Sony Corporation

Sony originally called Tokyo Tsushin Kogyo (Tokyo Telecommunications

Engineering Company). Sony’s roots go back over half a century to 1964 and it

was founded by Masaru Ibuka. Sony found its beginning in the wake of World

War II. In 1946, Masaru Ibuka started an electronics shop in a department

store building in Tokyo. Sony Corporation, commonly referred to as Sony, is a

Japanese multinational conglomerate corporation headquartered in

Konan Minato, Tokyo, Japan. Its diversified business is primarily focused on the

electronics, game, entertainment and financial services sectors. The company

is one of the leading manufacturers of electronic products for the consumer

and professional markets. Sony is ranked 87th on the 2012 list of Fortune

Global 500.

Sony recent development

The Latest Sony news and reviews of products including PS4, PS3, PS2, PSP,

Sony Ericsson mobile phones, Cyber shot camera, Sony Walkman MP3 players,

Sony XL TVs and other Sony products and services.

As of March 31, 2013, Sony had approximately 146,300 employees, a

decrease of approximately 16,400 employees from March 31, 2012. During the

fiscal year ended March 31, 2013, while employees of the Financial Services

segment increased, the total number of employees decreased significantly due

to production adjustments implemented mainly at manufacturing sites in the

East Asia areas, restructuring and the sale of chemical products related

business during the same fiscal year.

Sony Corporation's headcount peaked at 23,000 in 1993, after which it

remained fairly consistent at approximately 17,000. As of March 31, 2013,

Sony Corporation's headcount was approximately 15,500. Sony has fewer

stores than they did in the past. Now, Sony has 130 stores in the world.

Profitability

The table below show the calculations and interpret the trend form the 2012-

2013 periods. (Yen in millions)

Profitability Ratios

2012 2013 Interpretation

Return on Equity (ROE)

(4,56,660) 2028891+2547987

2 =(4,56,660) 2,288,439 =-0.1996 x 100 =-19.96%

43,034 2,197,766+2,028,891

2 =43,034 2,113,328.5 =0.0204 x 100 =2.04%

During the period of 2012 to 2013, ROE has increase from negative 19.96% to 2.04%. This means an owner is getting a higher return on his capital these years.

Net Profit Margin (NPM)

(456,660) 5,526,611 =-0.0826 x 100 =-8.3%

43,034 5,691,216 =7.5614 x 100 =0.8%

During the period 2012 to 2013, NPM has increase from negative 8.3% to positive 0.8%. This means businesses are getting better at control its expenses.

Gross Profit Margin (GPM)

1,140,164 5,526,611 =0.2063 x 100 =20.6%

1,205,791 5,691,216 =0.2119 x 100 =21.2%

During the period of 2012 to 2013, GPM has decrease from 20.6% to 21.2%. This means a business are getting better at control its COGS expenses.

Selling Expenses Ratio (SER)

687,943.5 5,526,611 =0.1245 x 100 =12.5%

728,813 5,691,216 =0.1281 x 100 =12.8%

During the period of 2012 to 2013, SER has increase from 12.5% to 12.8%. This means a business is getting worse at control its selling expenses.

General Expenses Ratio (GER)

687,943.5 5,526,611 =0.1245 x 100 =12.5%

728,813 5,691,216 =0.1281 x 100 =12.8%

During the period of 2012 to 2013, GER has increase from 12.5% to 12.8%. This means a business is getting worse at control its general expenses.

Financial Expenses Ratio (FER)

736,050 5,526,611 =0.1331 x 100 =13.3%

855,971 5,691,216 =0.1504 =15%

During the period of 2012 to 2013, FER has increase from 13.3% to 15%. This means a business is getting worse at control its financial expenses.

Stability

The table below show the calculations and interpret the trend form the 2012-

2013 periods. (Yen in millions)

Stability Ratios 2012 2013 Interpretation

Working Capital (WCR)

3,754,962 4,529,981 =0.8289 =0.83:1

3,646,533 4,315,089 =0.845 =0.85:1

During the period of 2012 to 2013, WCR has increase from 0.83:1 to 0.85:1. This means a business ability to pay of the current liabilities using current assets is getting better. In addition, it does not satisfy the minimum 2:1 ratio.

Total Debt (TDR)

10,785,546 13,295,667 =0.8112 x 100 =81.1%

11,522,117 14,206,292 =0.8110 x 100 =81.1%

During the period of 2012 to 2013, TDR has no change from 81.1%. This means that total level have maintain. However, it is still above the maximum 50% level.

Stock Turnover (STR)

365/(4,386,447) 708,553 =365/6.19 =59 days

365/(4,485,425) 708,553 =365/6.33 =57.7 days

During the period of 2012 to 2013, STR has decrease from 59 days to 57.7 days. This means a business is selling its stock faster.

Debtor Turnover (DTR)

365/(2,763,305.5) 101,022 =365/27.35 =13.4 days

365/(2,845,608) 74,071 =365/38.42 =9.5 days

During the period of 2012 to 2013, DTR has decrease from 13.4 days to 9.5 days. This means a business is effectively collecting debts.

Interest Coverage (ICR)

23,432-456,660 23,432

=(18.5) times

26,657+43,034 26,657

=2.6 times

During the period of 2012 to 2013, ICR has increase from negative 18.5 times to positive 2.6 times. This means a business ability to pay its interest expense is getting better. In addition, its didn’t satisfy a minimum 5 times requirement.

Price

= Current share price Earnings per share (in number of times) =17.11 0.45 =38.02

Recommendation: The Sony Corporation’s share as not suitable for investment.

In according to a P/E ratio of 10 means that an investor will need to wait for 10

years to recoup his investment because the higher the P/E ratio, the more

expensive a share is. The calculation above showed that the ratio as 38.02.

These means the investor will have to wait even longer 30 years more to claim

back his original principal. As we knew that the company has no good

profitability and stability, and it is currently available at a higher price, then I

recommend the company’s shares as not suitable for investment.

Appendix

Reference list

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Unknown. (2014). [online] Retrieved from:

http://www.sony.net/SonyInfo/IR/investors/Meeting96/96_Consolidated_Fina

ncial_Statements.pdf [Accessed: 23 Jan 2014].

Data.cnbc.com. (2014). Sony corp - sne - stock quotes. [online] Retrieved from:

http://data.cnbc.com/quotes/SNE [Accessed: 23 Jan 2014].

Unknown. (2014). [online] Retrieved from:

http://research.uvu.edu/management/mcarthur/Boilerplate/FinanceRatios.pd

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Caldbeck, R. (2012). 5 essentials of small business investing. [online] Retrieved

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Businesshelp.lloydsbankbusiness.com. (2014). Key accounting ratios | business

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http://businesshelp.lloydsbankbusiness.com/planning/performance/ratios/

[Accessed: 23 Jan 2014].