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For the current report two companies, Nokia and Motorola have been selected from the mobile phone industry. Both companies are considered as leading mobile phone manufacturers which have global operations and have major business groups other mobile phones such as multimedia and enterprise solutions and devices (Nokia). These companies have experienced tremendous growth over the years however with new competition arising from Chinese and Taiwanese manufacturers is surely putting up greater challenges for both companies and poor economic conditions have even led to negative returns in the case of Motorola (Motorola Inc.). The following table provides important financial ratios which would form the basis of conclusions regarding both companies.
Figures used from Nokia and Motorola Annual Reports 2008.
The above table presents an important insight into the liquidity, profitability and solvency of both companies. Based on various important ratios and data regarding the company’s share price we could suggest important findings regarding the financial position of both companies under the identified categories of ratios. Liquidity ratios determine a company’s ability to meet its current obligations. Ratios under this category include a current ratio of 1.20 and 1.63 for Nokia and Motorola respective. A current ratio of more than 1 suggests a healthy sign for both companies to pay off the current liabilities from current assets.
A lower quick ratio that ignores the inventory of Nokia as compared to Motorola suggests that Nokia was holding a larger inventory in 2008. The average collection period of Nokia is 68 days as compared to 42 days for Motorola which implies that Nokia may be offering longer credit duration or having problems with receivables collection. However, inventory age is lower for Nokia than Motorola which suggests Nokia has an efficient operation and is more quickly converting into sales as indicated by the inventory turnover ratio.
Solvency ratios calculated for this report assert companies’ capital structure. The debt ratio suggests debts are 58% of total assets lower than 66% of Motorola. Furthermore, Nokia is earning almost 27 times its interest payments while Motorola posted a loss in its income statement.
For both companies, fixed asset turnover and asset turnover ratios remain quite high however Nokia has better results as compared to Motorola for both ratios. The EPS of Nokia is EUR1.07 whereas Motorola has a negative EPS of $1.87 indicating an operating loss. Du Pont Analysis presents findings such as that ROI of Nokia is 10.08% which is quite low compared to total assets turnover. While on the other hand, Motorola has a negative return.
Furthermore, the ROE of Nokia is 24.15% and that of Motorola is negative 44.64%. Nokia shares are trading at a high P/E multiple of 8.06x which could attract investment whereas Motorola P/E is negative because of negative EPS. The Market/Book Ratio of Motorola is higher than Nokia which suggests that stocks of Motorola are overpriced, and it’s suggested to sell the stock to benefit from capital gain which could be depleted under the current economic conditions. Nokia does not have a par share value therefore figure of share capital given in the financial statement is used for calculating MVA of €32,018 that is much higher than that of Motorola which is only $12,591 in comparison.
Overall, Nokia is performing better than Motorola and it has been involved in capital expenditure to improve its operations, logistics, and innovation processes.
Works Cited
Motorola Inc. Motorola Inc Annual Report 2008. New York: Motorola.
Nokia. Annual Report 2008. Finland: Nokia, 2008.
Yahoo! Finance. Motorola Inc. (MOT). 2009. Web.
Yahoo! Finance. Nokia. 2009. Web.
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