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Prospectus - Essay Example

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Prospectus

Fess and Warren (2004) observed that maximizing shareholders’ wealth is a complex task. This is because the financial manager cannot control the company’s stock price directly, but can only act in a way which is consistent with the shareholders’ desires. Economically, rational buyers and sellers of shares use the assessment of an asset risk and return to determine its value. In a competitive market with many active participants, the interaction of demanders and suppliers of shares results in equilibrium price or market value for its security. As new information becomes available, buyers and sellers are assumed to utilize such information, and through purchase and sales activities they create new market equilibrium price. Company profile This paper has used Samsung and its financial statements retrieved from http://www.samsung.com/us/aboutsamsung/ir/financialinformation/financialhighlights/IR_Financial2006.html. Samsung is an international company that deals in electronics and is one of the largest makers of semi conductors in the world. Some of the consumer devices that the company makes include digital still cameras, digital TVs and DVD players. It also manufactures computers, printers, LCD panels and colour monitors. Most of its sales come from the pacific region. Samsung is also in the personal computer industry, which is very dynamic mainly because of changes in technology. Financial management of the company In a for-profit business, the goal of financial management is to make decisions

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that increase the stock value, or generally, increase the equity value. For the purpose of financial statement analysis of Samsung, concern will mainly be on the company’s balance sheet. This financial statement states the company’s assets, liabilities and stockholders’ equity at a particular date. This review is based on the company’s financial position as at 2011, 2010 and 2009. The table below shows financial data extracted from some of the annual reports of the company: Year 2011 KRW ‘000,000,000’ Year 2010 KRW ‘000,000,000’ Total Assets 155,631 134,289 Current Assets 71,502 61,403 Total Liabilities 53,786 44,940 Current Liabilities 44,319 39,944 Debt 14,647 10,775 Shareholders’ equity 101,846 89,349 A summary of key financial ratios for the company Ratio Calculation Year 2011 Year 2010 Current ratio Current assets/current liabilities 1.61 1.54 Debt to equity ratio Debt/stockholders’ equity 0.14 0.12 A current ratio of 1.61 indicates that the company is capable of meeting its short-term obligations out of its current assets. This ratio, as noted by Fess and Warren (2004), implies that the company has a superior financial health. Samsung’s Current Ratio has increased from 1.54 in 2010 to 1.61 in 2011. This indicates that there has been an improvement in the company’s ability to meet short-term liabilities. A debt-equity ratio of 0.14 shows the degree to which the company has borrowed fixed charge sources of capital in an attempt to finance its assets. The ratio shows an upward trend, which means the financial leverage of the company is improving. The company should use an appropriate mix of debt and equity when making its financing decisions. Use of debt financing helps the company take advantage of tax deductibility since the interest expense paid on debt capital is an allowable expense for tax purposes. The table below

Summary

Financial Prospectus of Samsung Name of Institution Introduction The theory of investment covers the decision making process when considering investing in various investment opportunities. It comprises of capital asset pricing model, portfolio theory, efficient market hypothesis and arbitrage pricing theory…
Author : littlemarcus
Prospectus essay example
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