Ericsson is a Swedish telecommunications company that provides communication technology and services. A financial analysis of Ericsson from 2012-2014 found: 1) Ericsson's cash flows, net income, and net treasury have been declining in recent years despite some increases in 2014. Their working capital and capital employed have increased slightly. 2) Comparisons to Nokia show Ericsson had higher operating income and net income from 2012-2014. However, Nokia's acquisition of Alcatel-Lucent increases competition for Ericsson. 3) Ericsson's solvency ratio has been around 10% from 2012-2014, indicating some difficulty paying back debt given high short-term liabilities. However, their financial

1. ESC Rennes
Financial analysis
Ericsson
Juan Francisco AYALA POZO ETU20151633 Aude NICOLLET ETU20151639
Sagar DHABALIA ETU20150991 Henry POMMET ETU20141295
Yani GAO ETU20150315 Anne-Sophie TONDON ETU20151293
Julien HUMBERT ETU20141261 Valérie VOEUNG ETU20141203

2. 1
Table of contents
General overview of the company ..........................................................................................2
I. Financial structure...................................................................................................3
a. Balance sheet....................................................................................................3
b. Cash flow statement..........................................................................................3
c. Shareholder equity statement............................................................................5
d. Income statement ..............................................................................................6
1) Net treasury.......................................................................................................6
2) Working Capital................................................................................................7
3) Capital employed ..............................................................................................7
4) Net debt............................................................................................................8
5) Invested Capital................................................................................................8
6) Working Capital turnover ratio.........................................................................9
7) Comparison with Nokia ...................................................................................9
8) Financial cash flow.........................................................................................10
II. Trend analysis .......................................................................................................11
1) Solvency..........................................................................................................11
2) Solvency Ratio………………………………………………………………11
3) Financial leverage .........................................................................................12
4) Liquidity..........................................................................................................12
5) Profitability......................................................................................................13
6) Efficiency........................................................................................................15
7) Stock Quotes………………………………………………………………..16
III. Assessment of the risks.........................................................................................16
IV. Conclusion.............................................................................................................17
V. Recommendations.................................................................................................17
VI. References ...........................................................................................................18
VII. Appendices............................................................................................................19

3. 2
General overview of the company
Ericsson is a Swedish multinational provider of communication technology and services. The
company's provides services, software and infrastructure in information and communications
technology for telecom operators and other industries, more focus on mobility, broadband
and the cloud. Thus, the communications industry and other sectors increase efficiency,
improve their users' experience and look for new opportunities.
Founded in 1876 by Lars Magnus Ericsson, the company is today headquartered in
Stockholm, Sweden. The company employs more than 110 000 employees around the world
and works with customers in more than 180 countries.
Sales and marketing: North America is the leading global market in terms of smartphone
penetration and mobile data use.
Ericsson is increasingly focused on its professional services unit, which provide consulting,
customer support, network design and integration, and training, as well as managed services
such as application hosting and network operations oversight

4. 3
I. Financial structure
A. Balance sheet
The balance sheet highlights the financial condition of a company and is an integral part of
the financial statements. Therefore, it offers a snapshot / overview of a company.
In millions of dollar:
2012 2013 2014
Total current assets 193 254 190 896 201 789
Inventory 28 802 22 759 28 175
Total non-current
assets
81 742 78 294 91 769
Total assets 274 996 269 190 293 558
Total current
liabilities
97 404 91 344 100 824
Total noncurrent
liabilities
39 109 36 223 47 425
Total liabilities 136 513 127 567 148 249
B. Cash flow statement
The cash flow statement shows how much cash comes in and goes out of the company.
Cash Flows from Operating Activities: how much cash comes from sales of the company's
goods and services, less the amount of cash needed to make and sell those goods and
services.
In millions of dollar
2012 2013 2014
Net income 5 938 12 174 11 143
Depreciation 5 938 12 174 11 143

5. 4
Non cash item 515 -1,647 -721
Change in working capital 6, 195 -3, 124 -2, 072
Cash from operating activities 22, 031 17, 389 18, 702
The cash keeps falling down nowadays, despite a small rise in 2014. This proves that the
company is not doing as well as it used to (as the previous years).
Operating Cash Flows Ratio: Cash Flows From Operations/Sales
2012 2013 2014
Cash from operating
activities
22 031 17 389 18 702
Net sales 227779 227376 227983
Operating Cash
Flows Ratio
3,815 1,448 1,617
The Operating Cash Flow Ratio for Ericsson is more than 1.0, which means thatthe company
is generating enough cash to pay off its short-term debt which is a serious situation.
Cash Flows from Investing Activities: reflect the amount of cash the company has spent on
capital expenditures.
2012 2013 2014
Change in fixed investments - 4, 861 - 4,125 - 4, 800
Net cash from Acq & Div - 2, 682 - 4, 394 -2, 260
Other investing activities 2, 050 - 4, 302 1, 681
Cash flow from investing activities - 4, 888 -11, 109 - 7,513
Cash Flow From Financing Activities: it shows the goings-on of cash associated with outside
financing activities.
2012 2013 2014

6. 5
Dividend paid -8,632 -9,153 -9,846
Repayment - 701 + 862 - 8,102
Cash of equity - 52 - 1217 -277
Cash from financing activities - 9,385 - 9,508 - 18, 225
The cash from financing activities keeps dropping which means they are spending more and
more cash either to repurchase previously issued stock, pay interest on debt or pay interest on
debt or pay dividends to shareholders.
2012 2013 2014
Cash from operating activities 22, 031 17, 389 18, 702
Cash from financing activities - 9,385 - 9,508 - 18, 225
Cash from investing activities - 4, 888 -11, 109 - 7,513
Net changes 6, 006 -2, 587 -1,107
A company not generating the same amount of cash as competitors is bound to lose out when
times get rough.
Net changes in cash dropped since 2010, which is not a good sign, and since 2013, it is
negative. However, this can be explained by the huge investments made by the company
which decrease the overall cash flows.
C. Shareholder equity statement
A statement of shareholders' equity details the changes within the equity section of the balance sheet
over a designated period of time. The report provides additional information to readers of the
financial statements regarding equity-related activity during a reporting period.

7. 6
D. Income statement
The Profit Margin of a company determines its ability to withstand competition and adverse
conditions like rising costs, falling prices or declining sales in the future
Gross profit / net sales
2012 2013 2014
Revenue 227 779 227 376 227 983
+ Sales &
Services Revenue
221 160 216 824 218 066
+ Other
Revenue
6 619 10 552 9 917
- Cost of Revenue 153 474 148 348 144 527
+ Cost of
Goods & Services
153 474 148 348 144 527
Gross Profit 74 305 79 028 83 456
Gross Profit margin 32,62 34,76 36,61
Net worth is an important determinant of the value of a company, considering it is composed
primarily of all the money that has been invested since its inception, as well as the retained earnings
for the duration of its operation.
1) Net Treasury
Cash – Short term financial liabilities (short term Debts)
Formula 2012 2013 2014
Cash 30 358 28 618 29 650
-Short term Debts 4 769 7 388 2 281
TOTAL 25 589 21 230 27 369
The net treasury is the factor of the financial stability, has the role of informing the mangers
concerning the degree of financial autonomy and the level of liquid assets of their company.

8. 7
Ericsson Net treasury is positive, which in turn has good effect on its evolution of the influx
and outflow.
2) Working capital
Current assets – Currents liabilities
Formula 2012 2013 2014
Current assets 193 254 190 896 201 789
-Current Liabilities 97 404 91 344 100 824
TOTAL 95850 99552 100 965
The company’s working capital is positive and increasing, it could indicate that they have too
much inventory or they are not investing their excess cash.
3) Capital Employed:
Non-current Assets + Working Capital
Formula 2012 2013 2014
Non-current Assets 81 742 78 294 91 769
Working Capital 95850 91344 100824
TOTAL 177592 169640 192593
One of the major uses of calculating and estimating capital employed is that it is used to
calculate return over capital employed ratio. The return over capital employed is a ratio that is
used equally in account finance and valuation matters of a company.
Net Operating Profit after Taxes/ Capital Employed
Year 2012 2013 2014
Net operating profit after
taxes(NOPTA)
12340.3 13505.4 12137.4
Capital employed 177592 169640 192593
Return over capital employed ratio 6.94 7.9 6.30

9. 8
The return over capital employed ratio has a certain drawbacks as well such as it is used to
measure the return in opposition to the book value of the assets of the business. The return of
capital employed will increase in the case of depreciation of the assets even if the cash flow
for that time period remains same.
According to the theory and our observations the ratio is high, which in turn means that
Ericsson has high depreciated assets.
4) Net Debt
Non-current liabilities – Net Treasury
Formula 2012 2013 2014
Non-current Liabilities 39 109 36 223 47 425
-Net Treasury 25 589 21 230 27 369
TOTAL 13 520 14 993 20 056
Net debt is a measure of a company's ability to repay its debts if they were all due today.
Ericsson has increasing debts but on the other hand has increasing cash flow also, which puts
them in a better position to whether adverse changes in the economic landscape.
5) Capital Invested
Equity + Net Debt
Formula 2012 2013 2014
Equity 136883 140204 144306
Net Debt 13 520 14 993 20 056
TOTAL 150403 155197 164362
Invested capital, reflects an estimate of the total funds held on behalf of shareholders, lenders
and any other financing sources. A key idea in economic profit is that, in the calculation, a
company is charged "rent" for the use of these funds. Economic profit then represents all
profit in excess of this rental charge.

10. 9
6) Working Capital Turnover ratio
Net sales/((Beginning working capital + Ending working capital) / 2)
Formula 2012 2013 2014
Net sales 227779 227376 227983
Working capital 95850 91344 100824
TOTAL 2.40 2.35
According to our analyis the company has a high turnover ratio and is constant through out
the years. In short the management is being efficient in using the firm`s short term assets and
liabilities.
7) Comparison with Nokia
ERICSSON
FIGURES 2012 2013 2014
Operating Income 10 458 17 845 16 807
Net Income 5 938 12 174 11 143
NOKIA
FIGURES 2012 2013 2014
Operating Income -821 519 170
Net Income -3 786 -739 3 476
 Ericsson Exposed to cyclical Service-provider spending: Primer (refer graph 1)
The cyclical nature of wireless carriers' capital spending is among the key risks Ericsson
faces.
Ericsson is targeting segments such as IP networking, cloud and TV and media to spread its
risk across several segments and expand its addressable market. As wireless data and video
traffic continues to rise, these opportunities make sense given Ericsson's core expertise in
wireless.

11. 10
 Ericsson's Margins Dependent on Timing, Mix of Projects: Primer (refer graph 2)
Ericsson's margins can be volatile, depending on the timing of new network construction
projects and the mix of software. New construction aimed at expanding coverage tends to be
capital-intensive and include lower-margin hardware sales and network rollout services.
 Cost Cuts, Software Growth May Drive Ericsson Profits: Primer (refer graph 3 and 4)
Ericsson is seeking to reduce expenses in legacy segments to free up funds for investment in
growth areas and expand its software and services sales to raise profits. Ericsson estimates
that its restructuring will generate charges of 3 billion to 4 billion kronor ($361 million to
$481 million) a year in 2015-17, the cost savings should bolster profit.
 Larger Nokia With Alcatel a Stronger Rival to Ericsson, Huawei
Ericsson is exposed to stepped-up competition from Nokia's acquisition of Alcatel-Lucent.
Ericsson may face pressure from increasing competition. Nokia has proposed to purchase
Alcatel-Lucent, which would have surpassed Ericsson's leading market share, while Huawei
remains a strong competitor that offers lower-cost, quality equipment.
 Ericsson Matching Nokia-Alcatel May Require Multiple M&A Deals (refer graph 5)
Should Ericsson seek larger acquisitions in response to Nokia's announced purchase of
Alcatel-Lucent, as reported by Bloomberg News, Ericsson may be forced to do more than one
deal to match the capabilities of the new Nokia.
 Financially Attractive Nokia-Alcatel (refer graph 5)
Combined revenues of approx. €26bn in 2014 with additional cross-sell opportunities and
expanded addressable market
Operating cost synergies of approx. €900m annually anticipated in 2019
Interest expense reduction of approx. €200m annually anticipated in 2017, mainly from
proactive debt reduction
Strong balance sheet with combined net cash of €7.4bn2 at 31 December 2014
EPS accretive in 2017 for Nokia shareholders
8) Financial Cash Flow
Financial cash flow: Proceeds from share issues + Proceeds of borrowing – Repayment of
borrowing – Dividends

12. 11
Financing activities 2012 (millions SEK) 2013 (millions SEK) 2014 (millions SEK)
Proceeds from
borrowing
8969 5956 1282
Repayment of
borrowing
-9760 -5094 -9384
Proceeds from stock
issue
159 - -
Sales and repurchase
of own share
-93 90 -
Dividends -8632 -9153 -9846
Other financing
activities
-118 -1307 -277
Financial cash Flow -9385 -9508 -18255
According to our analysis Ericsson has been re-paying a hug amount of its borrowings over
the few years, which has caused the negative financial cash flow at twice the rate compared
to the previous 2012. This kind of negative cash flow is not healthy for any company.
II. Trend analysis:
1) Solvency
The solvency ratio is tool that measures whether a company is able to meet its debt and other
obligations.
2) Solvency Ratio
Solvency Ratio = Net Income (or After Tax Net Profit) + Depreciation
Long term liabilities + short term liabilities
2012 2013 2014
After Tax Net Profit 5,775 12,005 11,568
Depreciation 4,052 4,227 4,329
LT liabilities 39,109 36,223 47,425
ST liabilities 97,404 91,344 100,824
Solvency Ratio 7,2% 12,7% 10,7%

13. 12
Since 2012 Ericsson solvency ratio keeps maintaining around 10% which means that it has
difficulty to pay back its debt. This stems from the fact that its short term liabilities are very
high and have swiftly increased from 2013 to 2014.
3) Financial leverage
The financial leverage is a ratio that shows us whether the business is more financed by debt
or by equity.
Financial Leverage= Total Debt/ Total Shareholders equity
In millions dollar
2012 2013 2014
Total Debt 20,989.1 19,852 19,006.3
Equity 21,292 22,039.4 18,629.4
Leverage 0.98 0.90 1.02
The leverage ratio is around one: the debt of the company is not too high and the firm is
finding a balance between debt and equity. The ratio is inferior to 2. ERICSSON can still
borrow to invest but has to be careful with this indicator that is already quite high as it does
not want to lose the investors (banks and shareholders) trusts.
4) Liquidity
Current ratio = total current assets / total current liabilities (SEK million)
Formula 2012 2013 2014
Current assets 193254 190896 201789
Current Liabilities 97404 91344 100824
Current ratio 2.0 2.1 2.0
The current ratio of Ericsson is always larger than one, which means the short term liquidity
is in good condition. And the current ratio is quite stable.
Quick ratio = (total current assets - inventories) / total current liabilities (SEK million)
Formula 2012 2013 2014

14. 13
(Current assets 193254 190896 201789
-Inventories) 28802 22759 28175
/Current liabilities 97404 91344 100824
Quick ratio 1.75 1.78 2.00
The table indicates that the liquidity of Ericsson is arguably good. The ability of paying
current liabilities is quite good.
5) Profitability
Growth of sales (SEK million)
2012 2013 2014
REVENUE 0.38 -0.18 0.27
The net sales of the company remain more or less stable from one year to the next. If
expenses and costs do not go up, the margin should also remain stable.
Margins:
Operating margin= operating income/ sales
Net profit margin= net income/ sales
Gross margin= gross profit /sales
EBITDA margin= EBITDA / sales
Margin 2012 2013 2014
Gross margin 31.6% 33.6% 36.2%
Operating margin 4.6% 7.8% 7.4%
Net profit margin 2.6% 5.4% 4.9%
EBITDA margin 13.93% 12.37% 11.75%
The gross margin of Ericsson has been increasing over the past three years. The operating
margin and net profit margin increased dramatically from 2012 to 2013.

15. 14
The EBITDA margins of the company are positive which means the company is generating
money (more revenues than expenses). However, we can notice a slight decrease in EBITDA
in the past few years going from 13.93 in 2012 to 11.75 in 2014 (-15.65%).
Overall, margins are increasing over years, which show a positive trend of the profitability of
Ericsson.
Returns:
Return on assets (ROA) = operating profit after taxes / total assets (SEK million)
2012 2013 2014
Operating profit after taxes 6097 12706 11849
/Assets 274996 269190 293558
ROA 0.02 0.05 0.04
The table shows the return on assets is increasing, which results from the boom of operating
profit.
Return on equity (ROE) =net income/ shareholder’s equity (book value)
(SEK million)
Formula 2012 2013 2014
Net income 5938 12174 11143
/Shareholder’s
equity
136883 140204 144306
ROE 0.04 0.09 0.08
Return on capital employed (ROCE) = operating profit after tax/capital employed
(SEK million)
Formula 2012 2013 2014
Operating profit
after taxes
6097 12706 11849
Capital employed 152003 156616 165365
ROCE 0.04 0.08 0.07

16. 15
The return on equity measures the profitability of shareholders, while the return on capital
employed measures the profitability of both shareholders and debtholders. ROCE and ROE
almost doubled from 2012 to 2013.
6) Efficiency
Accounts payable turnover = cost of goods sold/ accounts payable (SEK million)
Formula 2012 2013 2014
Cost of goods sold 155699 151005 145556
/accounts payable 23100 20502 24473
Accounts payable
turnover
6.74 7.37 5.95
Accounts receivable turnover = annual sales / accounts receivable (SEK million)
Formula 2012 2013 2014
Annual sales 227779 227376 227983
Accounts receivable 63660 71013 77893
Accounts receivable
turnover
3.58 3.20 2.93
Inventory turnover = cost of goods sold / average inventory (SEK million)
Formula 2012 2013 2014
Cost of goods sold 155699 151005 145556
/Average inventory 28802 22759 28175
Inventory turnover 5.41 6.63 5.17
As can be seen, the accounts receivable turnover and inventory turnover is quite high over the
past three years, which means the liquidity of accounts receivable and inventory is very good.
However the accounts receivable turnover is decreasing, which means the ability to receive

17. 16
money from debtors is getting weaker. The accounts payable turnover is decreasing, which is
a good signal as it means the payment terms are getting better.
7) STOCK QUOTES:
Price earnings ratio (PER) = market capitalization ÷ net income
2012 2013 2014
Market capitalization 214,84B 259,45B 311,83B
÷ Net Income 5,938 12,174 11,143
= PER 36,18B 21,31B 27,98B
Higher the PER is, the less risky the company is. According to the data the company’s PER is falling
down year over year, which in-turn makes investment in this company more risky.
Market price to book value ratio (P/BV) = Market capitalization ÷ accounting equity
2012 2013 2014
Market Capitalization 214,84B 259,45B 311,83B
÷ Accounting Equity 136,840 140,243 144,365
= P/BV 1,57B 1,85B 2,16B
Accounting equity is increasing, which in turn means that the price per book value ratio is increasing
and the hence the stock is not undervalued, since a lower P/BV means the stock is undervalued.
CAPM Model:
Expected Market return:9.15
Risk free rate: 0.92
Beta:1.01
E(R) = 0.92+1.01*(9.15-0.92)
=9.2323
The beta is slightly more than 1, it means its slightly more risky then the market.
Also looking at the E(R) the return on investment is high.
III. Assessment risk
 The potential adverse effects of an economic downturn include:
 Reduced demand for products and services, resulting in increased price competition or
deferrals of purchases, with lower revenues not fully compensated through reduced
costs.
 Risks of excess and obsolete inventories and excess manufacturing capacity
 Risk of financial difficulties or failures among Ericsson’s suppliers
 Increased demand for customer finance, difficulties in collection of accounts
receivable and increased risk of counter party failures
 Risk of impairment losses related to Ericsson’s intangible assets as a result of lower
forecasted sales of certain products.
 Increased difficulties in forecasting sales and financial results as well as increased
volatility in Ericsson’s reported results
 End user demand could also be adversely affected by reduced consumer spending on
technology, changed operator pricing, security breaches and trust issues

18. 17
IV. Conclusion
 Regarding the solvency ratio, the company has difficulty to pay back to debtholders.
The company could turn more to equity in order to finance its activity. At the
moment, the leverage of the company is fairly balanced between debt and equity and
and financing its activity through equity a bit more would not be a problem.
 Most indicators show a positive trend in Ericsson's profitability. The returns of the
company are going up. Their liquidity remains in good condition. The company
cannot receive money from debtors very quickly while their payment terms are
getting better.
 The company can notice a change in the past few years which impacts its activity: in
fact, cash keeps falling down nowadays. However, Ericsson operates and generates a
small amount of cash due to its heavy investment expenditures.
 High return over capital ratio, which means assets deprecated at a quick rate.
 The company’s working capital is positive and increasing, it could indicate that they
have too much inventory or they are not investing their excess cash.
 The declining trend in sales is somewhat mitigated by the cost cutting programs
supporting the profitability, but we see a clear pressure on the margins especially in
the networks.
 The network-equipment industry has consolidated as phone carriers have curbed
spending amid saturating markets
V. Recommendations
 To match the growth caused due the merger of Nokia-Alcatel, Ericsson needs to
acquire Cisco to match with competition caused due Nokia’s merger.
 Needs to expand into services as well as TV and media technology to counter the
slowing growth of the wireless-equipment market.
 Improving its access to other industries such as the automotive, banking, automation
and health-care segments.
 Reduce spending on developing its-own Internet-routing products.
 Invest in developing countries like Iran to differentiate themselves.
 Increase the price-earning ratio, to reduce the market risk.

19. 18
VI. References
Source: http://www.ericsson.com/res/investors/docs/2012/ericsson-ar-2012-en.pdf
http://www.ericsson.com/res/investors/docs/2013/ericsson-annual-report-2013-en.pdf
http://www.ericsson.com/res/investors/docs/2014/ericsson-annual-report-2014-en.pdf

20. 19
VII. Appendices
Income Statement

21. 20

22. 21
Balance Sheet

23. 22

24. 23
Cash Flow Statement

25. 24

26. 25
Enterprise Value

27. 26
Shareholders’ Equity
Graph 1
White bar: Key business Matrix / Revenue by segment / networks
Yellow Bar: Key business Matrix /Revenue bysegment/Global services
Yellow Bar:: Key business Matrix / Revenue bysegment/ Supportsolution
Revenue Growthof the company

28. 27
Operations overview of the company
Graph 2
Blue Bar: Key business Matrix /operatingincome /networks
Yellow Bar: Key business Matrix /operatingincome /Global services
Yellow Bar:: Key business Matrix / operatingincome /Supportsolution
Operating Margin by segment
Graph 3
White Bar: Key business Matrix /operatingmargin/networks
BrownBar: Key business Matrix /operatingmargin/Global services
Yellow Bar:: Key business Matrix / operatingmargin/Supportsolution

29. 28
Graph 4
White Bar: Key business Matrix /operatingincome /networks
BrownBar: Key business Matrix /operatingincome/ Global services
Yellow Bar:: Key business Matrix / operatingincome /Supportsolution
Complementarygeographicpresence strengtheningglobal footprint(eurobn)
Graph 5
0.
4.
8.
12.
16.
20.
North-America Greter China
Combined
Alcatel-Lucent
Nokia