Sony Corporation Inc. and Its Financial Analysis Essay
In the last ten years, one of the things that has been changing the way the World works is technology - Sony Corporation Inc. and Its Financial Analysis Essay introduction. From the invention of new hybrid vehicles to small things like 3D cell phones and TVs, many companies have been competing in a huge market to release the best product with the best features for customer satisfaction. Among these organizations we can find “LG”, “General Electric”, “Samsung”, and “Sony”; the last one is one of the biggest manufacturer of electronic equipment in the world and a good competitor for other firms.
It was founded on 1946 on a partnership alliance (Masaru Ibuka and Akio Morita) with its headquarters in Japan. At the beginning the company was called “Tokyo Telecommunication Engineering Corporation” but changed its name years later to “Sony”. “The name of Sony comes from the combination of two Latin words: Sonnus which means sound and Sonny which denotes a small size”. They started the business with a low capital and with no more than “twenty employees” but soon after they began to grow at an unstoppable rate because of all the people that started to demand technology.
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The first device “Sony” released was the “recording tape”. This one was the first device of this kind released in the World, which came along with the “magnetic tape recording” one year later. After the successful achievement that they had in America when they released the tape, they started its “American branch under the name of SONAM (Sony Corporation of America)”. Then they took advantage again over other firms releasing the first TV screen called “TV8-301”.
Sony was the top producer of electronic devices between 1950 and 1970, what called the attention of many other similar companies which were looking for an alliance with Sony to make profits. By the time Sony was operating in America and part of Asia with two important devices released to the World, both owners decided to expand their business to the United Kingdom under the name of “Sony (U. K) Ltd. ” During this period, while the company was getting used to a new culture, two more important stages on the history of technology were achieved by Sony.
One of them was the developed of the “first color TV in 1968” which broke with all the expectation of the customers. This is the reason why in 1973 CBS Records and Sony began a “joint venture” or alliance that changed its name many times until Sony, which was the biggest and most powerful company, “became the whole owner of the venture setting the firm with the name of Sony Music Entertainment Inc. ”. The second one had to deal with the release of the first CD player on 1982 which replaced the old tape recorder and took the World into a new era of CD audio players.
Because the demand of technology and more especially of computers in the following years after Sony created all these devices, the company itself introduced a new market department called “Sony Computer Entertainment Inc. ”. This one was on charged of creating new software and hardware to be used in computers. Nowadays “Sony Corporation Inc. ” manufactures not only color TV screen, CD players and hardware, but it also possesses a broad market line that includes, computers, MP3 players, and video cameras. It also has stores and manufacturers located in each of the five continents in “more than 183 countries” including the U.
S, German, U. K, France and China which are other important headquarters. It started with a few number of employees and a small amount of capital, but it situated in the “number 3 of the world ranking of electronic equipment industries” with sales around the $84 billion. Even though these numbers changed a lot when the Earthquake and then Tsunami stroke in Japan, the firm still continues its progresses to higher its return on equity, liquidity, and operating profitability. Nobody is prepared for an unexpected natural disaster that can turn not only the affected country into a low trading area but also the World as a whole.
One month ago Japan suffered from a “massive Earthquake and then Tsunami” that caused a drop on sales and stocks of Sony Corporation in general because of some technical problems. As explained before, its headquarters are located in this country were some other companies were also financially affected because of the catastrophe. Two months before the Earthquake, on January 18th at the beginning of the year 2011, the “New York Stock Exchange” announced that Sony’s stocks (SNE) were valued at $35. 8 meaning that the company started on a good shape and that was the time for investors to buy stocks and invest in the company. The following weeks, the prices of the stocks started to decrease a little bit going from $35. 15 and 34. 67 by February 15th to $33. 45 on March 11th. After this point, the prices went down drastically because of the Japan crisis; starting on March 25th at $32. 21 which is very low for this company and going all the way down to $31. 45 and 29. 46 on April 4th and April 12th respectively. The drop in the stock values was caused by the Earthquake which hit in March 14th.
After that date, Sony Corporation has been “monitoring the status of each of its sites” and also trying to recover itself in terms of stock value, sales, and revenues. At the same time, it has been implementing some security measures for some other manufacturers in Japan and other countries which have some risk of being damaged by a natural disaster, to avoid such a loss of money for the company. One of the two prices recorded in different dates by the “NYSE” continued to be low at $29. 21 on April 18th, but according to the last stock price on April 21st which reached $30. 0 people can assume that many of the recovery plans implemented by Sony during the following dates after the Tsunami, are working right as the price is rising again. At this point, once the stock price is going up again, the owners of Sony are worried about how the crisis will affect the profits they generate with the money shareholders have invested, commonly called “return on equity”. `For every single company in the World to track its “losses and its profits over a specific period of time, usually 1 year, they have to work on what is called income statement (Figure no. ) and balance sheet (Figure no. 2)”. Not all the income statements and balance sheets for every company are the same. Usually bigger companies like Microsoft tend to have higher profits than a small company. In the case of Sony Corporation at this time, they are not only focused on how their sales and profits are doing but in how to increase the “return on equity” value first to be able to increase their revenues later on. As explained before, many shareholders stopped buying stocks for Sony after the Earthquake hit.
The reason was because they realized they were investing, and at the same time risking their money, in a company that for an undetermined period of time was not going to give them any profit. The question now is how these shareholders were able to determine that their investments were not going to be worth what they wanted? The answer is simple, by looking at Sony’s income statement and balance sheet. First, the shareholders take a look on the income statement where the “net income” is located. In this case, by the time of the Tsunami, “the net income for this company was $535million on a 12 month period”.
This means “less than half of what they were expecting”. The second step for the shareholders is to go to Sony’s balance sheet and see the value of the “common equity” which is this case “was $30,608M and had decreased 9% because of the Earthquake”. With these two values, the shareholders were able to determine that it was too risky to invest at this time for Sony Corporation. Even though this company has made everything that is possible to restore the normal course of action of it, there are still some other issues that they have to solve first to be able to bring their investors back.
When people talk about “the ability for a company to pay its bills on time” or how risky it is for that company to buy or invest in something else, they are talking about “liquidity”. Nowadays, this concept can be very difficult to explain since the World is suffering from a global recession and not too many companies are taking risks. Not only Sony, but for all the rest of the companies know, that for them to take any risk and see if they can pay its bills on time, they have to take a look once again at the income statement and balance sheet.
Terms like current ratio, acid-test ratio, inventory turnover, accounts receivable turnover, and average collection period can determine the liquidity of a firm. If we take a look at “Figure no. 2”, we will see that on December of 2010, Sony’s current ratio was 1. 00 (52. 2B / 51. 7B). After getting this result, the owner of this company have to make an analysis and see how the average of the rest of the other similar companies did on this subject to be able to determine whether or not they are being liquid and can take some risks or not.
Then Sony can start repeating the same process with the other four concepts left and make an analysis of the four to take the final decision. Usually in this case the value for the inventory turnover is going to be a little bit lower because “all the inventory needs to be sold out first before being collected again” so it tends to last longer than any other calculation in the liquidity of the firm. If it is true for Sony to take care about its liquidity all the time and mostly during this date, it is also important for them to know how their assets are being treated for them to produce profits.
One of the ways that Sony uses to know “how well their revenues are being generated and costs are being controlled” is by the term of operating profitability. In this case, the owners of Sony Corporation will be basically based on the sales and operating profit (EBIT) to be able to determine some of the values. The most accurate percentage value in this section will be a branch of the operating profit called “operating profit margin”. For Sony, this value will be 0. 86% (Figure no. 1).
This percentage is low for this company but as we said before, its managers should look at the average percentage of the market to see if they are good at managing its cost of goods sold and operating expenses or not. On the other hand, this company can not only see its performance in terms of costs but also how it is doing with its assets. In this second case the value is 0. 54X (87. 319 B / 161B) what indicates that Sony Corporation is poorly managing its assets even though the peer group is not shown.
However, these calculations should not stopped in these two values; Sony’s owners have to calculate other turnover values like accounts receivable, inventory, fixed assets, etc. to see the overall performance of Sony in terms of costs and assets development. Some of the reasons why this firm has such a low numbers on this category could be directly related to the World recession. Since the U. S Sony stores are not having the same profits 5 years from now because of this crisis, the whole business, even the headquarters are affected in some way. Conclusion
In conclusion we could say that Sony Corporation Inc. suffered a lot from the Earthquake of March 14th, 2011. Its stock price decreased $8 in just one month which means more risk for investors. Also because of that many preferred stockholders have not invested as much money as they did before and future investors are also afraid of putting some money on the company because they do not know what is going to be the future for Sony. On the other hand, before the crisis in Japan, this corporation seemed to be liquid which brings satisfaction to its owners and investors because the risk of losing money is lower.
Even though some of the profit that Sony was making before the Tsunami had to be spent in regenerating the headquarters and some other manufacturers in Japan, Sony is still enough liquid to produce satisfaction to its investors in some other ways. In Sony’s balance sheet and income statement, the numbers show that this company is one of the top in profits and sales all around the World. This is the reason why the return on equity before the situation in Japan was favorable for its investors.
As we can see, Sony net income for March 31st, 2010 was around $500 million which means that the company was in a good track. At the same time by looking mostly at the balance sheet and the results from what the investors were going to receive, we can conclude that Sony did a good job controlling its costs and generating its revenues because the results were high numbers in the net income. One last thing about this company is that it is the second largest music company in the World and the first one in developing audio-visual devices.