Financial analysis report


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Financial analysis report

  1. 1. Rennes International School of Business ESC RENNESExecutive Master of Business Administration EMBA COHORT 1 (2003 - 2004) Financial Analysis Conducted by: Dr. Barbara Majumdar Financial Analysis By Magdy A. Sattar September, 2003 Cairo, Egypt
  2. 2. TABLE OF CONTENTSIntroduction & Objective IIPart 1. Presentation of Siemens 1 1-1 History 1 1-2 Corporation Structure 1 1-3 Financial Statement Presentation 1Part 2. Efficiency of Siemens Operating Performance & Its Financial Conditions 2 2-1 Siemens Results for 2002 2 2-2 Siemens Cash Flow Chart 2 2-3 Siemens Financial Ratios 3 2-3-1 Liquidity Ratios 4 2-3-2 Operating Ratios 4 2-3-3 Activity Ratios 4 2-3-4 Financial Leverage Ratios 4 2-3-5 Profitability Ratios 4 2-3-6 Efficiency Ratios 4 2-3-7 Summaries 4Annexes 1. Siemens Business Structure 5 2. Consolidated Statements of Income 6 3. Consolidated Balance Sheets 7 4. Consolidated Statements of Cash Flow 8 5. Siemens four year Summary 9 IEMBA CairoRennes International School of Business
  3. 3. INTRODUCTION & OBJECTIVEThe purpose of this report is to write a short financial analysis of “SIEMENS”Consolidated financial statements over the last two years, as it is difficult for me toanalyze the financial statements for the last two years of “MENATEL” the company Irepresent for the confidentiality of the data. IIEMBA CairoRennes International School of Business
  4. 4. SIEMENS PRESENTATIONHISTORY.Siemens origins trace back to 1847. It became a multi-national business by the end of the19th century. In 1966 became a stock corporation under the Federal laws of Germany.With headquarters in Munich, Siemens employed an average of 445,100 people in some190 countries during fiscal 2002, and net sales of 84.016 billion euros.Siemens has a balanced business with activities predominantly in the field of electronicsand electrical engineering, holding global leader areas such as telecommunicationsequipment, industrial automation, power generation equipment and medical equipment.CORPORATE STRUCTURE. (Annex 1) Siemens corporate structure consists of fifteen different business groups active in sevendifferent business areas. Thirteen of Siemens groups involve manufacturing, industrialand commercial solutions and services, related more or less to Siemens origins in theelectrical business, are referred to as Siemens “Operations” to distinguish them fromSiemens financial services activities.The financial services business comprises two additional activities that have a differentcharacter from Siemens other business, also managed differently from operations groups.Siemens business groups are supported by regional units and central corporatedepartments, also operate through hundreds of subsidiaries, some of which are organizedalong the lines of Siemens business group and others are organized on a geographicalbasis.In additional to the business groups, Siemens hold non-controlling interests in a numberof businesses.FINANCIAL STATEMENT PRESENTATION. (Annexes 2,3,4,5)The consolidated financial statements include the accounts of Siemens AG and allsubsidiaries, which are directly or indirectly controlled. Results of associated companies-companies in which Siemens, directly or indirectly, has 20% to 50% of the voting rightsand the ability to exercise significant influence over operating and financial policies-arerecorded in the consolidated financial statements using the equity method of accounting. 1EMBA CairoRennes International School of Business
  5. 5. EFFICIENCY OF SIEMENS OPERATING PERFORMANCE &ITS FINANCIAL CONDITIONS.SIEMENS RESULTS FOR 2002.* Sales level decreased by 3 % of the prior year.*Gross profit as a percentage of sales increased by 1 % of the prior year this meandecrease in COGS.*EBIT increased by 30 % of the prior year.*Net income increased by 24 % of the prior year.*Net cash increased by 43.5 % of the prior year.The results indicates that Siemens has a balanced business globally especially if we knowthat the economic conditions during fiscal year 2002, IRAQ WAR, were not a healthyenvironment for any business on a global basis.SIEMENS CASH FLOW CHART. 2002 2001 2000 1999CFO 5564 7016 6154 3640CFI 810 5886 435 2876CFF 859 95 1174 1111Net increase (decrease) in cash and cashequivalents. 3394 940 4725 292Net increase (decrease) in cash and cashequivalents. (Beginning of the period) 7802 6862 2137 1845Net increase (decrease) in cash and cashequivalents. (End of the period) 11,196 7,802 6,862 2137 12000 10000 8000 CFO 6000 CFI CFF 4000 NC 2000 0 2002 2001 2000 1999For the fiscal year 2002, net cash provided by operation and investing activities decreasedcompared to the prior year and net cash provided by financing activities increased.For the fiscal year 2001, net cash provided by operation and investing activities increasedcompared to the prior year and net cash provided by financing activities decreased. 2EMBA CairoRennes International School of Business
  6. 6. For the fiscal year 2000, net cash provided by operation and financing activities increasedcompared to the fiscal year 1999 and net cash provided by investing activities decreased.The net cash and cash equivalents at the end of each period was gradually increasing, thismean that Siemens manage the three generators of cash flow to maintain a gradualincrease and growing for the corporate using mainly its internal sources.SIEMENS FINANCIAL RATIOS. 2002 2001 CommentsLIQUIDITY RATIOS.Current Ratio 1.2 1.1 ImproveQuick Ratio 0.96 0.84 ImproveCash Ratio 0.32 0.17 ImproveOPERATING CYCLENumber of days Inventory (NDI) 64 76.6 DecreaseNumber of days Receivable (NDR) 66 74.4 DecreaseNumber of days Payables (NDP) 52 62 DecreaseNet Operating Cycle (NOC) 78 89 DecreaseACTIVITY RATIOSActs receivable turnover 5.5 4.9 IncreaseInventory turnover 5.7 4.8 IncreaseTotal assets turnover 1.1 0.96 IncreaseFixed assets turnover 7.1 4.8 IncreaseCurrent assets turnover 1.9 1.7 IncreaseFINANCIAL LEVERAGE RATIOSDebt-To-Assets Ratio 30 % 25 % IncreaseDebt-To-Equity Ratio 96 % 95 % IncreaseInterest rate coverage Ratio 477 % 280 % IncreasePROFITABILITY RATIOSGross Profit Margin (GPM) 27.6 % 26.5 % IncreaseOperating Profit Margin (OPM) 4.1 % 3% IncreaseNet Profit Margin (NPM) 3% 2.4 % IncreaseBasic Earning Power Ratio (BEPR) 4.4 % 2.9 % IncreaseEFFICIENCY RATIOSReturn On Assets (ROA) 3.3 % 2.3 % IncreaseReturn On Equity (ROE) 11 % 8.7 % IncreaseEquity Multiplier (EM) 3.3 % 3.7 % Decrease 3EMBA CairoRennes International School of Business
  7. 7. LIQUIDITY RATIOS.The current ratio improved by more than 10 percent, from 1.1 in 2001 to 1.2 in 2002, thequick ratio increased from 0.84 to 0.96, also the cash ratio improved by more than 15percent, from 0.17 in 2001 to 0.32 in 2002, indicating a stronger liquid position. We cansee also that the working capital increased by 2861 million euros in-spite of the net salesdecrease by almost the same amount, 2984 million, indicating that the increasing in theworking capital is due to the cash position.OPERATING CYCLEThe number of days it takes to sell the inventory decreased by 12.6 days, the averagelength of time from sales to cash collection decreased by 8.4 days, the number of days ittakes for Siemens to pay its trade payable decreased by 10 days, the operating cycle asresults decreased by 11 days indicating an improved cash position.ACTIVITY RATIOSThe number of times it takes receivables to run into cash per year increased by 60 percentof a cycle reflecting a stronger credit and collection policies, the number of times Siemensliquidates its inventory over a year increased by 90 percent of a cycle reflecting effectivemanagement controls over inventory, the turnover rate of total assets to achieve net salesincreased from 0.96 in 2001 to 1.1 in 2002 indicating effective use of assets in supportingsales, the turnover rate of fixed assets to achieve net sales increased by 2.3 timesindicating effective management to put the fixed assets to work to generate revenue.FINANCIAL LEVERAGE RATIOSThe debt to assets ratio increased by 5 % indicating increase in the proportion of assetsthat are financed with debt (long-term in our case), and the debt to equity ratio show thesame increase for relying on long-term debt as sources of capital.PROFITABILITY RATIOSThe gross profit margin increased by 1.1 % not due to increase in sales, but to costreduction in sales cost, the operating profit margin increased from 3 % in 2001 to 4.1 % in2002 indicating effective management controlling the operating expenses, the net profitmargin increased by 0.6 % indicating a profitable firm.EFFICIENCY RATIOSThe return on assets increased from 2.3 % in 2001 to 3.3 % in 2002 indicating improvedeffective use of all the resources of Siemens, the return on equity increased by 2.3 %reflected a roughly increase in net income after taxes.SUMMARY OF FINDINGSThe two-year financial ratio analysis discloses a substantial improvement resulting from: - *An increase in working capital, (cash), which improved the liquidity position. *Increased profitability in absolute Euros, affected mainly by price policy, cost reduction, and controlled expenses. *Increased efficiency indicated by higher inventory and payable turnovers, stable receivable turnover. 4EMBA CairoRennes International School of Business
  8. 8. SIEMENS BUSINESS STRUCTURE Information and Communication Automation and ControlInformattion & Information & Automation & Siemens DematicCommunication Communication Drives (A&D) (SD)Networks (ICN) Mobile (ICM) Siemens Industrial Siemens Building Business Solutions & Technologies (SBT) Services (SBS) Services (I &S) Power Transportation Power Power Transmission & Transporttion Siemens VDO Generation Distribution (PTD0 Systems (TS) Automotive (SV) (PG) Medical Lighting Medical Osram Solutions (Med) Financing and Real Estate Siemens Siemens Real Financial Estate (SRE) Services (SFS) Business Areas Business Groups 1000 800 600 400 200 0 ICN SBS I&S SBT PTD SV OSRAM SRE EBIT Annex 1 5 EMBA Cairo Rennes International School of Business
  9. 9. Consolidated Statements of IncomeFor the fiscal years ended September 30, 2002 and 2001 (in millions of €, per share amounts in€) Siemens worldwide 2002 2001Net sales 84,016 87,000Cost of sales (60,810) (63,895)Gross profit on sales 23,206 23,105Research and development expenses (5,819) (6,782)Marketing, selling and general administration expenses (15,455) (16,640)Other operating income (expense), net (therein gain on issuance ofsubsidiary and associated company stock €37 and €617, respectively) 1,321 2,762Income (loss) from investments in other companies, net (114) 49Income (expense) from financial assets and marketable securities, net 18 173Interest income (expense) of operation, net 94 (32) EBIT(1) from operations / EBIT lnfineonOther interest income (expense), net 224 43Goodwill amortization and purchased in-process R & D expenses ofoperationsGains on sales and dispositions of significant business interestsOther special items Income (loss) before income taxes 3,475 2,678Income Taxes(2) (849) (781)Minority interest (29) 191 Net income (loss) 2,597 2,088Basic earning per share 2.92 2.36Diluted earning per share 2.92 2.36 (1) EBIT is measured as earning before financing interest, income taxes and certain onetime items. In fiscal 2001, EBIT excluded the amortization of goodwill and purchased in-process research and development expenses. Beginning October 1,2001, Siemens adopted the provision of SFAS 142 and no longer amortizes goodwill. Interest income related to receivables from customers, cash allocated to the segments and interest expense on payables to suppliers is part of EBIT. (2) The income taxes of Eliminations, reclassifications and Corporate Treasury, Operations, and Financing and Real Estate are based on the consolidated effective corporate tax rate applied to income before income taxes. The corresponding figures for fiscal year 2001 are calculated based on the consolidated effective corporate tax rate excluding Infineon. (3) As of December 5, 2001, Siemens deconsolidated Infineon. The results of operations from Infineon for the first two months of the fiscal year 2002 are included in Eliminations, reclassifications and Corporate Treasury. AS of December 5, 2001, the share in earning from Infineon is included in “Income (loss) from investments I other companies, net” in operations. The accompanying notes are an integral part of these consolidated financial statements. Annex 2 6EMBA CairoRennes International School of Business
  10. 10. Consolidated Balance SheetsAs September 30, 2002 and 2001 (in millions of €) Siemens worldwide 2002 2001 AssetsCurrent assets Cash and cash equivalents 11,196 7,802 Marketable securities 399 791 Accounts receivable, net 15,230 17,734 Intracompany receivables Inventories, net 10,672 13,406 Deferred income taxes 1,212 1,113 Other Current assets 5,353 10,167 Total curent assets 44,062 51,013Long-term investments 5,092 3,314Intangible assets, net 8,843 9,771Property, plant and equipment, net 11,742 17,803Deferred income taxes 3,686 3,684Other assets 4,514 4,533Other intracompany receivables Total assets 77,939 90,118 Liabilities and Shareholder’s EquityCurrent liabilities Short-term debt and current maturities of long-term debt 2,103 2,637 Accounts payable 8,649 10,798 Intracompany liabilities Accrued liabilities 9,608 10,864 Deferred income taxes 661 754 Other Current liabilities 13,691 19,471 Total curent liabilities 34,712 44,524Long-term debt 10,243 9,973Pension plans and similar commitments 5,326 4,721Deferred income taxes 195 111Other accruals and provisions 3,401 2,957Other intracompany liabilities 53,877 62,286Minority interests 541 4,020Shareholders’ equity Common stock, no par value Authorized: 1,145,917,335 and 1,145,773,579 shares, respectively Issued: 890,374,001 and 888,230,245 shares, respectively 2,671 2,665 Additional paid-in capital 5,053 4,901 Retained earnings 21,471 19,762 Accumulated other comprehensive income (loss) (5,670) (3,516) Treasury stock, at cost. 49,864 and 1,116 shares, respectively (4) Total shareholders’ equity 23,521 23,812 Total liabilities and shareholders’ equity 77,939 90,118The accompanying notes are an integral part of theseconsolidated financial statements. Annex 3 7EMBA CairoRennes International School of Business
  11. 11. Consolidated Statements of Cash FlowAs September 30, 2002 and 2001 (in millions of €) Siemens worldwide 2002 2001Cash flows from operating activities Net income 2,597 2,088 Adjustments to reconcile net income to cash provided Minority interest 29 (191) Amortization, depreciation and impairments 4,126 6,264 Deferred taxes (191) 36 Gains on sales and disposals of business and property, plant and equipment, net, and gain fromissuance of subsidiary and associated company stock (1,610) (4,429) (Gains) losses on sales of investments, net (177) 141 Gains on sales and dispositions of significant business interests Losses (gains) on sales and impairments of marketable securities, net 4 (209) Losses (income) from equity investees, net of dividends received 298 27 Write-off acquired in-process research and development 195 Change in current assets and liabilities (Increase) decrease in inventories, net 1,349 (716) (Increase) decrease in accounts receivable, net 1,763 1,797 Increase (decrease) in outstanding balance of receivables sold (503) 866 (Increase) decrease in other current assets 1,213 (1.397) Increase (decrease) in accounts payable (899) 467 Increase (decrease) in accrued liabilities (575) 629 Increase (decrease) in other current liabilities (1,025) 2,682 Supplemental contributions to pension trusts (1,782) Change in other assets and liabilities 947 (1,234) Net cash provided by (used in) operating activities 5,564 7,016Cash flows from investing activities Additions to intangible assets and property, plant and equipment (3,894) (7,048) Acquisitions, net of cash acquired (3,787) (3,898) Purchases of investments (332) (410) Purchases of marketable securities (338) (436) Increase in receivables from financing activities (172) (619) Increase (decrease) in outstanding balance of receivables sold by SFS Proceeds from sales of long-term investments, intangible and property, plant and equipment 1,218 3,804 Proceeds from sales and dispositions of business 6,097 1,878 Proceeds from sales marketable securities 398 1,143 Net cash (used in) provided by investing activities (810) (5,886)Cash flows from financing activities Proceeds from issuance of capital stock 156 514 Purchase of common stock of Company (152) (514) Proceeds from issuance of treasury shares 81 233 Proceeds from issuance of debt 384 4,141 Repayment of debt (847) (976) Change in short-term debt 512 (1,828) Change in restricted cash (2) 45 Dividends paid (888) (1,412) Dividends paid to minority shareholders (103) (298) Intercompany financing Net cash (used in) provided by financing activities (859) (95)Effect of deconsolidation of Infineon on cash and cash equivalents (383)Effect of exchange rates on cash and cash equivalents (118) (95)Net increase (decrease) in cash and cash equivalents 3,394 940Cash and cash equivalents at beginning of period 7,802 6,862Cash and cash equivalents at end of period 11,196 7,802Supplemental disclosure of cash paid for: Interests 794 779 Income taxes 389 1,098The accompanying notes are an integral part of these consolidated financial statements. Annex 4 8EMBA CairoRennes International School of Business
  12. 12. FOUR-YEAR SUMMARY 2002 2001 2000 1999Sales and earnings (in millions of euros)Net sales 84,016 87,000 77,484 68,069Gross profit on sales 23,206 23,105 21,535 17,909Research and development expenses 5,819 6,782 5,848 5,260As apercentage of sales 6.9 7.8 7.5 7.7Net incom 2,597 2,088 8,860 1,209Assets, liabilities and shareholders’equity (in millions of euros)Current assets 44,062 51,013 49,091 44,850Current liabilities 34,712 44,524 36,855 31,049Debt 12,346 12,610 9,338 7,492Long-term debt 10,243 9,973 6,734 4,753Pension plans and similar commitments 5,326 4,721 2,473 11,540Shareholders’ 23,521 23,812 28,480 19,138As apercentage of total assets 30 26 35 27Total assets 77,939 90,118 81,654 71,720Cash flows (in millions of euros)Net cash provided by operating activities 5,564 7,016 6,154 3,640Amortization, depreciation and impairments 4,126 6,264 4,652 3,594Net cash uesd in investing activities 810 5,886 435 2,876Additions to intangible assets, property,plant and equipment 3,894 7,048 5,544 3,998Net cash used in financing activities 859 95 1,174 1,111Net increase (decrease) in cash and cash equivalents 3,394 940 4,725 292EmployeesEmployees ( in thousands) 624 484 448 437Employee cost (in millions of euros) 27,195 27,102 26,601 23,126 Annex 5 9 EMBA Cairo Rennes International School of Business