Financial Performance of the Nokia Corporation Finance Essay

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Financial Performance Of The NokiaCorporation Finance Essay

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Nokia Corporation is a Finnish multinational telecommunication corporation having

its headquarters' situated in Keilanieme, Espoo. It is one of the orld's leading

mo!ile phone suppliers and fi"ed telecom netorkers. Nokia's engaged in the

manufacture of mo!ile devices and in converging Internet and communication

industr#. It offers an e"traordinar# Internet services platform called as $vi hich

allos all its customers to !u# digital content, such as music and videos, get maps for

navigation services and manage contacts and photo files online. %he Compan#

operates in three !usiness segments& evices and (ervices) N*+%E, and Nokia

(iemens Netorks. It has over -/,000 emplo#ees spread over -0 countries. Its

su!sidiar# Nokia (iemens netorks produces telecommunications netork

equipment, solutions and services. It also provides free digital map information and

navigation services through its holl# oned su!sidiar# N*+%E.

Nokia !eing the orld's largest manufacturers of mo!ile telephone has a glo!aldevice market share of /01 in the latest financial report taken in the third quarter

0-0. 2ut hoever, it is still a disappointment to see a dip from an estimated /31 in

the third quarter of 004 and from an estimate of //1 in the second quarter in 0-0.

In this report, the financial performance and the marketing strategies of Nokia is

anal#5ed !ased on the various financial ratios. %he financial report of the past five

#ears from 004 6 007 is studied considering the change in the marketing strategiesimplemented in 007 and the glo!al recession hich has !een hitting the market

latel#..%he marketing strateg# of Nokia is studied in the light of 8E(%9E, (:$% and

2C; matri".

FINANCIAL PERFORMANCE OF NOKIA:

In the modern !usiness, the managers should have a good understanding of the

various !usiness functions in order to make effective decisions and plannings for thesuccessful operation of the !usiness. $ne of the ke# functions of the !usiness is


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!ringing together the financial information of the compan# hich is in the form of a

cash flo statement, profit and loss account and !alance sheets and carr#ing out the

necessar# calculations to determine the financial position of the compan#. %he sales

volume, and profita!ilit# generated from the shareholders' investment, the

compan#'s a!ilit# to pa# its de!tors and the compan#'s position compared to its

competitors help not onl# the management !ut also the investors in determining

hether to invest in the compan#'s share or not. arket

>easures. %hese ratios interpret the various items found in the compan#'s !alance

sheet and income statements. %his process not onl# revies the past results of Nokia

!ut also helps in evaluating the current situation of the compan#.

%he financial performance graph e"hi!ited !# Nokia in the past five #ears has !een a

fluctuating one.?cont

PROFITAILIT! ANAL!"I":

8rofita!ilit# anal#sis is an anal#sis that ena!les a compan# to evaluate the market

segments. It allos them to report the sales and profit data of a compan# using the

different customised characteristics and ke# figures. %his anal#sis can !e categorisedon the !asis of products, customers, orders or an# com!ination of these. Asing these

profita!ilit# calculations, the !usiness profits made in one #ear can !e compared ith

the other #ears and also the profita!ilit# of different !usiness can !e compared.

%he aim of this s#stem is to provide the various departments ithin the organisation

namel# marketing, product management and corporate planning departments ith

the necessar# information to support the internal accounting and decision making

process. It measures the management's capacit# to generate profits on sales and totalinvestment in the !usiness. In the case of Nokia.................?profita!ilit# anal#sis of

nokia

#$#%RO"" MAR%IN:

%he gross margin of a compan# is theB percent ofB total sales revenueB that the

compan# retains after incurring the direct costs associated ith producing the goods

and services sold !# the compan#. %he higher the percentage, the more the compan#

retains on each Euro of sales. %his shos the percentage of control that themanagement has over cost.


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%ross Mar&in '() * %ross Profit + OperationalProfit , #--

T.rno/er

?004 -/D33043G-00 /./D1

%he gross margin ?1 of Nokia is

!EAR

0--1

0--2

0--3

0--4

0--5

%ross Profit

#6047

#3636

#3033

#6631

##120

T.rno/er

7-127

5-3#-

5#-52


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7##0#

67#1#

%ross mar&in '()

60$64

67$04

66$27

60$5765$-7

?*ll the figures mentioned a!ove are in EAH millions

*s e can see from the ta!le a!ove, the gross margin 1 had a raising trend in the

00D 60 , here it increased from /.731 to /3.D1. 2ut hoever, in the #ear 004

the profits have come don from 70-0Eur m 6 3043Eur m resulting in a decrease

of -.401 in the gross margin.

#$0 NET MAR%IN:

%he net margin ratio of a compan# is the ratio that allos an e"ternal person to make

an overall assessment of the profita!ilit# of the compan# over a given period of time

!# comparing the level of net trading profit to the sales volume.


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T.rno/er

Net Mar&in '()

0--1

140

7-127

0$65

0--2713-

5-3#-

1$2

0--3

2042

5#-52

#4$#1

0--4

5306

7##0#

#6$1#

0--5

713#


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67#1#

#7$56

'All the fi&.res in the tale ao/e are in E.ro m)

*s the figures sho, there has !een a significant fall in the net profit 1 from the #ear

00 6004) the net profit 1 in the #ear 00 as 4.1 hich then decreased to

./31 in the #ear 004. Joever, the #ears 007 6 00 have !een good ith the

profit 1 !eing -3.7/, -/.-4 and -D.-4 respectivel#. %his shos that the operating

e"penses of nokia have increased and the cost of must !e controlled. %he cost have

increased drasticall# resulting in a decrease in the net profits.

#$6 RET;RN ON E ann.al report)

!ear

Ret.rn on E=.ity '()

0--1

4$5

0--2

03$5

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0--3

56$1

0--4

65$5

0--5

03$#

'All the fi&.res in the tale ha/e een taken fromthe nokia?s official @esite) 5B

%he return on equit# 1 shoed stead# groth in the #ears 007 and 00D and then

reached the peak value in 00 ith a H$E 1 of 7/.4 !ut the H$E has decreased to a

great e"tend in the #ears 00 and 004. *s a result of the decrease in the profits

after ta", the profits of the ta" in #ear 00 ere /4 Eur m hich decreased to D0

Eur m in 004.

#$7 RET;RN ON CAPITAL EMPLO!E:

Heturn $n Capital Emplo#ed is the ratio that indicates the efficienc# and profita!ilit#

of a compan#'s capital investments. %he Heturn $n Capital Emplo#ed should ala#s

!e higher than the rateB at hichB the compan# !orros, otherise an# increase in

!orroing ill reduce shareholders' earnings.

Ret.rn on Capital Employe> * Earnin&s efore

Interest an> Ta8 , #--Net Assets

'it is &i/en in > ann.al report)

!ear

Ret.rn on capital employe> '()

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0--1

4$3

0--2

03$0

0--3

57$2

0--474$#

0--5

64$5

ACTIDIT! ANAL!"I":

*ctivit# anal#sis measures the compan#'s efficient utili5ation of resources. %he

greater the efficienc# in the use of its assets to generate sales, the higher is the

potential profita!ilit#. Jence, the anal#sis compares the level of sales ith the

investments in selected assets. %he activit# anal#ses that are considered here to stud#

a!out Nokia are&

%urnover of *ssets

%urnover of Fi"ed *ssets

(tock %urnover

a#s of (tock Jeld

0$# T;RNODER OF A""ET":


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%urnover of assets is the efficient use of assets for the profita!le operation of the

!usiness. It is a consistent relia!le indicator of managerial skills in generating sales

volume on a !ase of the total assets emplo#ed !# the compan#.

T.rno/er assets * T.rno/er

Assets

'0--1 * 7-127+65362 * #$#7)

!ear

T.rno/er Assets

T.rno/er of Assets

0--1

7-127

65362

#$#7

0--2

5-3#-

61520

#$02

0--3

5#-52

63511


10/30

#$65

0--4

7##0#

004#3

#$2#

0--5

67#1#00750

#$50


0$0 T;RNODER OF FI,E A""ET":

%he turnover of fi"ed assets is the measure of a compan#'s a!ilit# to generate net

sales from fi"ed6asset investments 6B specificall# ith regard to propert#, plant and

equipment etc. %he higher the fi"ed6asset turnover ratio the more effective the

compan# has !een using the investment in fi"ed assets to generate revenues.

T.rno/er of Fi8e> Assets * T.rno/er

Fi8e> Assets

'0--1 * 7-127+#0#05 * 6$62)

!ear

T.rno/er

Fi8e> Assets

T.rno/er of Fi8e> Assets


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0--1

7-127

#0#05

6$62

0--2

5-3#-

#5##06$65

0--3

5#-52

26-5

4$#7

0--4

7##0#

7-6#

#-$0-

0--5

67#1#

6673

#-0#$57


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0$6 "TOCK T;RNODER:

%he (tock %urnover is the total value of stock sold in a #ear divided !# the average value of goods held in stock. %his makes sure that the cash is not tied up in stock for

too long, so as to lose its value over time. It measures sales turnover as a ratio of

stocks, and is intended to sho ho fast stock is moved. %he higher the score, the

more liquid is the position and loer the investment in stock the !etter it is.

"tock T.rno/er * Cost of "ales

A/era&e "tock '0--1 * 0330-+0#11 * #0$4-)

!ear

Cost of "ales

A/era&e "tock

"tock T.rno/er

0--1

0330-

0#11

#0$4-

0--2

66663

03-7$5

#0$60


13/30

0--3

6632#

00#5

#5$05

0--4

03370

#4###3$00

0--5

000-1

#724$5

#7$17


0$7 A!" OF "TOCK EL:

%he num!er of da#s the stock is held is the ratio that measures the average num!er

of da#s' stock held !# an organi5ation.

ays of "tock hel> * A/era&e "tock , 645

Cost of sales

'0--1 * 0#11+++00330-9645 * 02$15)

!ear

A/era&e "tock


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Cost of sales

ays of "tock el>

0--1

0#11

0330-

02$15

0--203-7$5

66663

01$4#

0--3

00#5

6632#

06$16

0--4

#4##

03370

0#$#15

0--5

#724$5


15/30

000-1

07$76


"OLDENC! ANAL!"I":

(olvenc# ratios is the ratio that measures the relationship !eteen de!ts and oners

equit# and e"amine the proportion of de!t the compan# is using i.e.) toB measure a

compan#'s a!ilit# to meet long6term o!ligations. It measuresB the si5e ofB a

compan#'s after6ta" income, e"cluding non6cash depreciation e"penses, as compared

to the firm's total de!t o!ligations. It provides a measurement of ho likel# acompan# ill !e a!le to continue meeting its de!t o!ligations. *ccepta!le solvenc#

ratios ill var# from industr# to industr#, !ut as a general rule of thum!, a solvenc#

ratio of greater than 01 is considered financiall# health#. ;enerall# speaking, the

loer a compan#'s solvenc# ratio, the greater the pro!a!ilit#B that the compan# ill

default on its de!t o!ligations. %he different solvenc# ratios are&

Current Hatio

uick *ssets

e!tors Collection 8eriod

Creditors 8a#ment 8eriod

(peed of cash flo

6$# C;RRENT RATIO:

Current ratio is the most popular measure of short term solvenc#. It indicates the

e"tend to hich the claims of short6term creditors are covered !# comparative liquid

assets.


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'0--1 * 064#6+#5#22 * #$55)

!ear

C.rrent Assets

C.rrent Liaility

C.rrent Ratio

0--1

064#6#5#22

#$55

0--2

0773-

0-655

#$0

0--3

01017

#2134

#$57

0--4

#2524

#-#4#


17/30

#$20

0--5

#215#

143-

#$14

Nokia Corp.'s current ratio deteriorated from 00 to 00 !ut then improved from

00 to 004 !ut hoever the ratios still remain !elo the 00 levels.

6$0


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0--1

064#6

#245

#5#22

#$76

0--2

0773-0566

0-655

#$-3

0--3

01017

0234

#2134

#$61

0--4

#2524

#557

#-#4#

#$43


19/30

0--5

#215#

#442

143-

#$32

%he Nokia Corp.'s quick ratio deteriorated from 00 to 00 !ut then improved

from 00 to 004.

6$6 ETOR" COLLECTION PERIO'note>ite> )

%he period, on average, that a !usiness takes to collect the mone# oed to it !# its

trade de!tors. If a compan# gives one month's credit then, on average, it should

collect its de!ts ithin 37 da#s. %he de!tor. he term e!tor Collection 8eriod

indicates the average time taken to collect trade de!ts. In other ords, a reducing

period of time is an indicator of increasing efficienc#. it ena!les the enterprise to

compare the real collection period ith the grantedtheoretical credit period.

e!tor Collection 8eriod ?*verage e!tors Credit (ales " /D7 ? No. of da#s

?average de!tors de!tors at the !eginning of the #ear L de!tors at the end of the

#ear, divided !#

etors Collection Perio> * etors , 645

"ales

'0--1 * 312#+7-1279645 * 3#$-2)

!ear

etor

"ales

etors Collection Perio>


20/30

0--1

312#

7-127

3#$-2

0--2

1777

5-3#-43$13

0--3

##0--

5#-52

2-$-4

0--4

5222

7##0#

50$04

0--5

5674

67#1#

53$-3


21/30


6$7 CREITOR" PA!MENT PERIO:

Creditors 8a#ment 8eriod is the ratio that relates the amount oed to trade creditors !# a compan# at the end of a specified period in relation to the cost of purchases

!ought on credit during that period i.e.) it is the total num!er of da#s that a compan#

ill take to settle the amounts it oes to its creditors.

Cre>itors Payment Perio> * Cre>itors

P.rchase

!ear

Cre>itors

P.rchase

Cre>itors Payment Perio>

0--1

715-

0--2

5005

0--3

3-37

0--4

6360

0--5

6717


22/30

6$5 "PEE OF CA" FLOG:

"pee> of Cash Flo@ * T.rno/er etors

645

'0--1 * 7-127312#+645 * 1-$70)

!ear

T.rno/er

etors"pee> of Cash Flo@

0--1

7-127

312#

1-$70

0--2

5-3#-

1777

##6$-5

0--3

5#-52

##0--

#-1$0


23/30

0--4

7##0#

5222

14$50

0--5

67#1#

567431$-0

FINANCIAL "TR;CT;RE: 'not e>ite>)

Financial (tructure is the frameork of the various t#pes of financings emplo#ed !# a

firm to acquire and support resources necessar# for its operations. Commonl#, it

comprises of stockholders' ?shareholders', investments ?equit# capital, long6term

loans ?loan capital, short6term loans ?such as overdraft, and short6term lia!ilities?such as trade credit as reflected on the right6hand side of the firm's !alance sheet.

Capital structure, in comparison, does not include short6term lia!ilities.


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et

E=.ity

Capital %earin&

0--1

0-121

65362

-$510--2

06-30

61520

-$52

0--3

0-04#

63511

-$57

0--4

#-553

004#3

-$73

0--5


25/30

1162

00750

-$77


7$0 INTERE"T CODER: 'not e>ite>)

Interest cover is a measure of the adequac# of a compan#'s profits relative to interest

pa#ments on its de!t. %he loer the interest cover, the greater the risk that profit

?!efore interest ill !ecome insufficient to cover interest pa#ments. It is&

E2I% Mnet interest paid

* value of more than is normall# considered reasona!l# safe, !ut companies ith

ver# volatile earnings ma# require an even higher level, hereas companies that have

ver# sta!le earnings, such as utilities, ma# ell !e ver# safe at a loer level. (imilarl#,

c#clical companies at the !ottom of their c#cle ma# ell have a lo interest cover !ut

investors ho are confident of recover# ma# not !e overl# concerned !# the apparent

risk.

Interest Co/er * %ross Profit 'Operationalprofit)

Interest Payale

'0--1 * #6047+#44# * 3$11)

!ear

%ross Profit

Interest Payale

Interest Co/er

0--1


26/30

#6047

#44#

3$11

0--2

#3636

06-0

3$570--3

#3033

0545

4$36

0--4

#6631

10

#75$70

0--5

##120

0-5

52$75



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5 "TOCK MARKET MEA";RE":

5$# PRICE PER EARNIN%":

It is the valuation ratio of a compan#'s current share price compared to its per6shareearnings.

Price Per Earnin&s Ratio * Market Price of"hares

Earnin&s per "hare

'0--1 * 2$22+-$07 * 63) !ear

Market Price of "hare

Earnin&s Per "hare

Price Per Earnin&s

0--1

2$22

-$07

63

0--2

0-$-7

#$-3

#2$36

0--3


28/30

#4$12

#$25

1$#2

0--4

#3$-2

#$-4

#4$##0--5

##$14

-$26

#7$7#

'All the share prices mentione> ao/e has eencalc.late> takin& the >ate as 6#st Mar for e/eryfi/e years)

5$0 EARNIN%" PER "ARE:

It is the portion of a compan#'s profit allocated to each outstanding share of common

stock.B Earnings per shareB serve as an indicator ofB a compan#'s profita!ilit#.

Earnin&s Per "hare: Profit after Ta8

No: of "hares

'it is &i/en in > ann.al report)

!ear

Earnin&s Per "hare


29/30

0--1

-$07

0--2

#$-3

0--3

#$25

0--4#$-4

0--5

-$26

5$6 IDIEN !IEL

i/i>en> yiel> * i/i>en> per share

Market /al.e per share

'0--1 * -$7-+2$22 * -$-75)

!ear

i/i>en> Per "hare

Market Dal.e Per "hare

i/i>en> !iel>

0--$1

-$7-


30/30

2$22

-$-75

0--2

-$7-

0-$-7

-$-#11

0--3-$56

#4$12

-$-6#

0--4

-$76

#3$-2

-$-05

0--5

-$63

##$14

-$-6#

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Financial Performance of the Nokia Corporation Finance Essay