The History of Apple and Nokia corporations and a Comparison of their Recent Financial Performance
The story mobile phone and communication industry in general cannot be complete without a review of three main players in the sector- Nokia, Samsung, and Apple corporations. With the development and evolution of mobile and internet communication, these corporations have greatly expanded their interests to cover a wide market area, technological development and income generation. Consequently, these corporations have dominated the world telecommunication market as the main players, competitors and technology developers. The purpose of this paper is to analyze Nokia and Apple Corporations, two leading organizations in mobile communication, consumer electronics and computers. The aim is to develop an in-depth comparison between the two companies, right from their history through financial history and to their current financial performances.
The history and Evolution of Nokia Corporation
Although not initially a telecommunication company, Nokia Corporation is one of the oldest telecommunication corporations in the modern world. The company evolved from three different companies- Nokia Aktiebolag, Finnish Cable works and Finnish Rubber works limited. The actual origin of Nokia Corporation goes back to the year 1865 after the establishment of a forest industry enterprise near Tammerkoski River at Tampere, South Western Finland, a company owned and operated by Fredrik Idestam, a mining engineer. In actual sense, this company had nothing to do with telecommunications, but was rather a ground wood pulp mill with an idea of manufacturing paper (Martti, 2002). With the rapid growth of Russian industry at the time, the demand for paper was on the rise, which made Idestam, an entrepreneur, to expand his company by building a second mill on the banks of river Nokianvirta near Nokia, a town located nine miles to the west of the initial site at Tampere. At Nokia, Idestam was assured of an adequate supply of hydropower. The foundation of the company by the name of Nokia came forth in 1871 when, with the help of Leo Mechelin, Idestam transformed his firm from a private to a share company. While Mechelin’s vision was to expand the company into power production business, Idestam saw this as a risky investment and initially was against the idea. However, after Idestam retired from the business in 1896, Mechelin assumed the role of the company chairperson. Between 1898 and 1914, Mechelin worked to realize his vision by selling his plans to the company’s shareholders. By 1902, just six years after the retirement of Idestam, Mechelin was already generating electricity for the regional grid.
The second company that gave birth to the evolution of Nokia was the Finnish Rubber Works Limited. Founded by Eduardo Polon in 1898, this company specialized in manufacturing of galoshes and a number of other rubber products for the Russian empire and Europe in general. At the break of the 20th century, this company was already operating a number of factories in and near the industrial town of Nokia, consequently using the name Nokia for its products, (Stradler, 2011)
Established in 1912 by Arvid Wickstrom, Finnish Cable Works limited set the foundation of Nokia’s communication and electronic business, thereby becoming the third company to contribute to the evolution of the modern Nokia Corporation. Wickstrom’s company specialized in production of telephones, electrical cables and telegraph, (Grabert, 2012)
Similar to a number of other European corporations, the three companies experienced financial, security and social difficulties during the First World War. By 1919, the Nokia Company was already on the verge of collapse due to the impact of the four years of war. In fact, it was headed toward bankruptcy. However, the managers at Finnish Rubber Works, which was heavily relying on the electricity production at Nokia, took steps to save the production by acquiring Nokia, saving it from insolvency. Finnish Rubber Works, now with its own power production system, went forth to acquire Finnish Cable Works in 1922. From this point in history, the three companies were jointly owned, although located in separate locations and still holding on to their different names. Now a conglomerate of three companies and a wide range of businesses, the company made fortunes from industrial development in the region, especially in Russia and Germany. However, the Second World War made significant impacts on its progress. During the war, most of the business was under the management of Verner Weckman, a renowned Finnish sportsman and Olympic Gold medallist. After the war and the defeat of Germany, Russia and Finland were in a critical condition, seeking to heal their economies from the effects of the war. Finnish Cable Works was given the critical role of supplying cables to Russia and the rest of the Soviet Union.
Although the three companies had been centrally managed since 1922, there were no attempts to merge them into a single corporation until 1967. With the merging, the three companies dropped their names and a common name, The Nokia Corporation, was born. This initiative is considered the actual event that paved the way for the establishment of the modern multinational corporation. However, the conglomerate continued with its wide range of specializations, dealing with paper, tyres, communication cables, footwear, military equipment, chemicals, robotics, aluminium, plastics, electricity generation and machinery and a number of other products. Moreover, each of the three companies continued under separate directors, but had to report to the central office to Bjorn Westerlund, the company’s president at the time.
The telecommunication boom of 1980s saw the company’s telecommunication sector grow rapidly, overtaking the non-telecommunication activities. It was at this time of its history that the company acquired a number of telecommunication companies, including Mobira, Swedish Luxor, Televa and Salora. Moreover, the company went on to acquire consumer electronic business and other components of German Standard Electric Lorenz and the Oceanic Corporation of France. As that not enough, the company’s aggression was witnessed further when it acquired Maillefer, the giant cable machinery of Switzerland in 1987. However, the acquisition of Ericsson Data Systems in 1989 is considered one of the greatest achievements of the company, which made the company the largest information technology corporation in northern Europe. Towards the end of 1980s, the company further sought to expand into continental Europe by acquiring NKF, the largest data cable company in Netherlands (Vaara, 2002).
With the advancement of telecommunication industry and the opportunities it provided, the company decided to do away with consumer products and concentrate solely on a few sections of telecommunication industry that were rapidly growing and indicating a good business future. In 1988, the company split into two, with Nokia Tyres forming an independent company. It was later followed by Nokia Footwear in 1990 to form another independent company. From this point in history, the Nokia Company became involved in telecommunication business after laying down other non-telecommunication activities in its business.
Nokia’s financial history
The company originally concentrated in the paper industry. It later diversified into a multi-sector institution. These two factors means that the company’s shares were first listed in Finland (country of origin) Helsinki Stock exchange in the 1915 (Steinbock, 2010). As the company grew and expanded during the 1980s, Nokia Corporation began introducing subsidiaries in other countries. For it to control a larger market share and having a large financial power, the company acquired and merged with about 20 companies. This was inline with the company moving away from power, pulp and paper manufacturing to solely place all its efforts on the electronics industry. As a result of the mergers and acquisitions, sales from the electronic segments grew from the original 10% of the total sales to more than 60% percent of the sales made of the company, (Nyberg and Vaihekoski, 2009)
To further grow its financial capability, in 1986 the company devised ways of reducing operation costs an increased its productivity. This was achieved through re-organization and simplification of the management structure. This as a result reduced the huge dependency on the Finnish lending system which was expensive. In the same year, as the company desire to compete openly with other world players grew, it produced the first phone under the Nokia brand name. Unfortunately, its entry to the market made its competitors from Asia such as Samsung drive its prices down leading to the reduced sales. However this did not deter the company from expanding worldwide. With the huge competition from Asian companies, the profits made by company declined. However, this did not deter Nokia from remaining a dedicated high tech phone producer, though financially, the company was not growing. To avoid collapse, Ollila, the then manager, was forced to a lay-off about forty-five percent of its workers. The company also centralized the company operations. Ollila also introduced other innovative measures such as concentrating on easy to make and use phones to attract a larger market. This was also contributed by the acquisition of UK technophone Company at 57$ million. This led to the company introducing to the market cellular phones in 1993. During Ollilas tenure, the company was transformed and grew from the loss making company in 1991, doubled its sales to become a profit making company in the yea 1995. During this period, the company’s capitalization also grew 10 times, (Doornik and Robert, 2001)
The company currently controls the largest market share in the world with its mobile phone production industry controlling at least 26% of the world market share. Majority of the Nokia Company sales are exclusively generated from the sales of handsets. Other contributors to the company’s financial muscle originate from the sale of Nokia Networks, which is also the leader in global supply of broadband and internet protocol networks. The company has expanded its market share with its products being found in over 130 countries.
One of the leading factors, which have led to the country’s financial growth, has been the production of superior products compared to its main rivals in the industry. This as a result has seen the company products respond well with the current market demands. If this trend continues, the company will continue to have a cutting edge over its competitors in the industry such as Samsung and Apple, which have emerged as other leading competitors in the information and communication sector.
The history of Apple Inc
When people think about Apple Inc, what comes to many people mind is Steven Jobs. However, he is not the sole founder of Apple Inc. In 1975, Steven Jobs a 16 years old boy met Steven Wozniak who was 21 years of age through a friend. The two were fondly interested in electronic stuffs ad most of their friends saw them as outsiders to the learning process. As fate would have it, the two friends ended up dropping out of high school and became employees of companies working in Silicon Valley. Wozniak was employed at Hewlett-Packard while a company called Atari employed Jobs. Wozniak specialized in computer design. In 1976, he designed Apple I, a model of the future Apple computers. During a conference, Wozniak met his former friend, Jobs and introduced him to the computer. Steven Jobs saw the market potential of the device and insisted they should sell the machine. The first Apple computer was thus born in April 1 1976. People did not take device seriously and it was not until1 1977 when the Apple II was introduced to the market that the sales began. Apple II was the first machine to come in plastic and came with added features since its graphics was also coloured. As a result of this, the demand for Apple II demand grew after its introduction to the market. When Apple Disk II was introduced to the market in the early 1978 (at the time Apple Disk II was described as the cheapest and easy to use floppy) the company sales grew further, (Allan, 2001).
With the growing market demands, the company had to expand so as to meet its customer needs. By the time of the introduction of Apple II in 1980, the company had employed several thousand employees and the computer sales were being made outside the United States. During this period, the company recruited experience managers and investors in order to make the company area one. As the demand for the computers grew, the company increased its production rate but as market, conditions dictate, the market became stagnant and in the year 1981, the sale of computers became hard. This resulted to the company laying-off some of its employees. In the same year, Wozniak was involved in a plane crash he returned briefly but later left due to health conditions. As a result, Seven Jobs became the chairman of Apple Computer. The company concentrated on computer productions. While this was ongoing, there was a separate group, which was focused on introducing a computer, which would change the way people though about computers. While Apple III as text based, the new computer would introduce new words and terms such as the mouse, desktop and icons among others. This is what led t the inception of Apple Lisa. Steven Jobs however proved to be a poor project manager. Mark Markkula, who owned more that Jobs, took over the leadership. Due to this predicament, Jobs also decided to take another person’s project and took over on Macintosh. When IBM introduced its first Personal Computer (PC as commonly referred), the product began to dominate the markets; as a result, Jobs had to engage his team faster if he was to compete with IBM. This made Jobs discover that Apple as a company needed grow and he could not do it alone. Consequently, in 1983 he stared courting John Schulley who at that time was the president of Pepsi-Cola. Schulley agreed to become Apple’s new CEO. Jobs saw this as an opportunity for the company to grow little did he know it would in future cost him his job. Although Schulley businesswise was a successful person, he understood very little about the computer industry. Due to his little knowledge, he began having differences with Steven Jobs. Before the introduction, Macintosh Jobs worked hard with his software engineers in writing and developing programs that would make Macintosh a success (Schermerhorn, 2009).
In 1984, during a super bowl match, the Macintosh was aired. Initially, the Macintosh computers sold well, competing with the IBM computers. However, by the end of the same year, people were becoming fed up with the computers small RAM and the hard disk lack of connectivity was another major problem. In 1985, Jobs and Schulley were at loggerheads. Schulley believed Steven jobs was dangerous and incontrollable while Jobs believed Schulley knew nothing and even made no efforts and understanding how the industry operated. As a result of this, Schulley decided to play a game on Schulley, enticing him to have a schedule in china and during his absence, jobs would take over. However, this information was leaked to Schulley before he could leave. Schulley confronted Jobs on the issue. When the board of directors met, they voted unanimously in favour of Schulley, forcing Steve Jobs to resign. This made Schulley the de-facto leader of Apple Company. During the several months, which followed, the company was forced to lay-off some employees. The company recorded losses. For the first time, Apple incurred losses. This led to the perception that Schulley did not have the capabilities as the CEO of Apple Company. At the same time, another battle was looming with the introduction of Windows 1 that had similarities with Macintosh Graphical User Inter-phase.Bill Gates was compelled not to use Mac technology on windows one. It did not interfere with Widows in its future versions. As a result, Apple lost all the exclusive rights for designing (West, 2007)
In 1987, Mac II was introduced. with its new features; the company became a darling to many people. It in fact sold more that 50000Macs in one month. In 1989, this made Windows appears as if it would be a flop while Mac was a success. However, this did not happen as the markets became saturated with PC clones and apple was the only company making sales. In 1990, with the market being saturated, Microsoft introduced a new version, Windows 3.0 that was also running on PC clones. As a result, Apple Company was sensing trouble as this old affect the company sales.
In 1991, Apple Company released the ‘PowerBooks’, immediately becoming an instant success. There were also ongoing works to introduce a newer version of the Persona Digital Assistant called ‘Newton’. It was introduced in1993, but the device had several problems such as poor hand recognition and therefore the sales were very poor. Schulley as the company CEO was becoming disinterested in the company; this led to the directors’ decision that they have done enough of him. As a result, in June 1993, he was relieved off his duties. Spindler became the new CEO, while Schulley remained as the chairperson but resigned several months later (Apple, 2009).
Statistics suggest that Spindler was not the right man for the job. Although His office was inaccessible, he foresaw some accomplishments. In 1994, the company introduced the PowerMac family. It was the first computer to be based on a power PC chip that was faster than even other Intel devices introduced by rival companies later. Spindler also decided to license the MAC operating system to several companies. This was so, but due to strict regulations in licensing agreements, few companies were able to use the company’s operating system. The company had no problem with selling computers; however making them was the major problem. By the year 1995, Apple Company had back orders of 1$billion but did not have the parts to build them. The company misjudged the market conditions in winter of 1995-1996 and introduced low cost performers over the mid range power Macs. This made the company incur losses to the tune of 68$ million. Spindler was asked to resign and was replaced by Gil Amelio, (Hormby, 2005)
Amelio made efforts to bring back the company to profitability but his efforts were not a success. He introduced new changes and even kept the developers informed about the day-to-day activities. Although the company announced losses of 740$ million, during the following quarter, losses reduced to 33 million. In the third quarter, the company made profits of about 30$milion but made losses lost in the final quarter. In 1996, Apple announced it would acquire NeXTstep and Steven Jobs would be returning. In 1997, the resignation of Gil Amelio was announced following the losses incurred. The company felt Amelio had done enough for his tenure. Fred Anderson was in charge of day-to-day operations while Jobs was made the interim CEO. Key changes were made to make Apple a profit making company again. The company also noted that Clones were also an obstacle to the company success as they were seen to pull the customers away from Apple products. In 1997, the company announced its intention to acquire Power computing Mac Operating System license. IN November 1997, Jobs also indicated that the company would begin selling PCs direct over the phone and web. They opened Apple Store that was a success, within a week; it had become the third largest ecommerce site. In 1998, the company made profits to a tune of 101$ million leading to the rise of Apple stock prices in a year. In 1999, Jobs announced fifth successive profitable quarter, (Linzmayer, 1999).
In 2000, Jobs announced a new internet strategy, a suite that used Mac only internet based applications and they came to be known as ‘iTools’. He also dropped the title interim and became the permanent CEO. July of the same year, Apple introduced PowerMac G4Cube which was an answer on those who wanted Imacs without a monitor. Although it was the biggest gamble, it turned out to be a failure. The second half of 2000 recorded slower growth for both the company and the industry as whole. This resulted in the company reporting its first quarterly losses in three years. G4Cube sold poorly due to its high prices. The company rectified the problem, this saw the introduction of newline of PowerMacs (Higson, 2008).
The year 2001 saw Steven jobs announce that Apple would be opening new retail shops all over the US.
By the falloff 2001, Apple introduced revisions of PowerBooks G4 and ibook lines. In October of the same year, the company launched iPod, its first non-computer product after several years the iPod: the digital music player. In 2002, Apple reinvented desktop again and released the flat panel iMac. It also announced iPhoto that improved the digital camera use. This increased profits. However, due to macroeconomic problems sales were generally low. In 2007, the company changed its name from Apple Computer Inc to Apple Inc. With the introduction of iPhones, iOS and iPads, Jobs said the company was not just a computer company but company which was seeking to change the whole world especially with the introduction of iPhones with the 1st of its version being introduced in 2007(Siegel, 2009).
Financial History
The Apple company stock started trading in the NASDAQ in December 1982. During the initial public offer, the company shares were offered at 22$. Since then, the stock at the company was split in three different times- in 1987, 2000 and 2005. The company has also been paying its shareholders dividend fromtheear1987 to the year 1995 when the company stopped. However, the company began paying its shareholders again in the year 2012.
The company financial problems continued in 2002 and due to the poor sales, this led to the company announcing a 45$million loss. However, the company recovered and made some positive progress since 2005. Since then, the company’s profits and stock prices have grown significantly. At some time in the year 2010, we saw the Apple stock prices surpass those of Microsoft, (Bielak, Henriquez, McNeil, Ogozaly, Rubino and Sulivan, 2010)
According to Dyson (2007), financial analysis is an important task in management accounting and it helps in establishing the relationship between a number of elements of the financial statements. These statements can then be compared with a number of critical information about the company and its business to determine its performance at a given time and financial period. In addition, these tasks also help in determining the future prospects of the business and the company in general, where areas that need improvement and strengthened. Dydson (2007), the primary aim of developing an in-depth analysis of an organization’s financial performance over a given fiscal period is to analyze the its current financial position as well as performance and form a basis on which judgments are made regarding to the its future performances.
From an investor’s perception, financial analysis is primarily concerned with the organization’s ability to meet its profitability levels and its ability to make returns to its shareholders in form of shares, rights or dividends. In addition, it is concerned with the company’s ability to increase its share value.
When performing financial analysis of a given company, it is important to carefully look at the annual accounts as well as the annual growth trend in terms of profits, revenues and market share.
In the case of Nokia Inc, the analysis will focus on the company’s consolidated accounts- balance sheet, income statement and cash flow statement for the period 2008 to 2011.
First, a focus on the company’s consolidated income statement will reveal a number of key issues and facts regarding to the company’s performance. It is worth noting that
2008 2009 2010 2011
Net Sales/ Revenues 51,058 50,710 40,984 42,446
Cost of Sales 33,781 33,337 27,720 29,629
Gross Profit 17,277 17,373 13,264 12,817
Res & Dev 5,636 5,968 5,909 5,288
Sell& Ad Exp 5,544 5,664 5,078 4,529
Other Inc 2,312 420 338 507
Other Exp 424 1,195 510 56
Op Profit 7,985 4,966 1,197 2,070
Profit Bef Tax 8,268 4,970 962 1,786
Tax 1,522 1,081 702 443
Net Profit 6,746 3,889 260 1,343
From the above income statement obtained from the company’s website, it is clear that the company’s sales decreased significantly between 2008 and 2010, but increased significantly between 2010 and 2011. In addition, the cost of sales, earnings per share and operating and net profits had similar trends as the sales. This indicates that Nokia’s profitability was healthy in 2008 (at 6.7 billion euros) compared to 260 million euros in 2010. However, from 2010, the profitability started to improve significantly, reaching 1.3 billion euros in 2011.
Consolidated Balance Sheet for Nokia Inc. between 2008 and 2011
2008 2009 2010 2011
Assets
Cash & Eqv 11,992 7,854 9,202 12,653
A/Rec 11,356 9,545 7,995 7,609
Inventory 2,876 2,533 1,865 2,523
Other C/A 3,070 4,444 4,551 4,360
Tot C/A 29,294 24,470 23,613 27,145
Plant P&E 1,758 1,985 1,822 1,856
Goodwill 1,384 6,257 5,171 5,723
Tot Assets 37,599 39,582 35,738 39,123
Liabilities
A/Pay 7,074 5,225 4,950 6,101
Tot C/L 18,976 20,355 15,188 17,540
Oth/L 1,285 2,717 5,801 5,352
Tot/Liab 20,261 23,072 20,989 22,892
Equity 17,338 16,510 14,749 16,231
Tot Lib & Eq 37,599 39,582 35,738 39,123
According to Dyson (2007), a balance sheet provides an investor with an idea on how much a shareholder invests and how much debt a company owes its investors. From the balance sheets obtained from Nokia Inc, it is depicted that about 445% of the company’s business is financed by its equity in 2008. However, for the years 2009 to 2011, the figure reduced by 4%. This is an indication that the company was owing larger amounts of debt in 2011 than in 2008. This is a further indication that the company’s financial position was much healthier in 2008 than in 2011.
Nokia Inc Cash Flow Statements of Nokia for the fiscal years 2008 to 2011
2007 2008 2009 2010
Net Income 6,746 3,889 260 1,343
Depreciation 1,206 1,617 1,784 1,771
Cash from Op Act 7,882 3,197 3,247 4,774
Cash from Invest -710 -2,905 -2,148 -2,421
Cash from Finance -3,832 -1,545 -696 -911
Net Change in Cash 3,325 -1,302 378 1,666
The above cash flow statement provides an investor with a true set of information regarding to the company and its dependence on cash transactions. According to Dydson (2007), it is advisable not to over rely on income statements as it may mislead due to lack of sufficient figures of the cash flow shown on the statements. Accordingly, investors tend to focus on the company’s cash flow statements prior to making any decision to consider the actual performance of the company’s transactions in a given fiscal period.
The above cash flow statements indicate that Nokia Inc had a good position in regards to its cash flow during fiscal year 2008, but in the consequent years, the position deteriorated as it reached to a negative figure due to loss of investments as well as finances. However, it is evident from the cash flow statement that the company recovered in 2010 and made between progress in 2011, indicating that the investments and finances were actually recovering. This is an indication that although the company was suffering from massive loss of investments in 208 and 2009, it actually picked again in the subsequent years, indicating a better time ahead for the company’s financial health.
Analysis of financial Ratios for Nokia Inc
Theoretically and practically, calculating financial ratios provides an in-depth overview of the company’s financial health for a given period and a prospectus of its future performance. Some rations regard to the company’s profitability, short term and long term liquidity and asset turnovers. These calculations are obtained based on the income statements and the balance sheet. In this case, the purpose is to analyze the ratios of Nokia Inc based on its income statement and balance sheets between 2008 and 2011.
Profitability rations
From the company’s annual reports, gross profit margins, Operating profit margins and net profit margins made significant changes between 2008 and 2011 as shown below;
Gross Profit Margin 33.84% 34.26% 32.36% 30.20%
Op Profit Margin 16.19% 9.80% 2.34% 4.21%
Net Profit Margin 13.24% 7.63% 0.63% 3.21%
According to Dyson (2007), profitability ratios are important to an investor and the company management as they provide a basis for comparing the components of sales and income. In addition, they tend to provide the investors and the management with an idea of what comprise of the business income as expressed as a portion of the company’s sales. In case of Nokia Inc, this is given in terms of Euros. The ratios further provide an explanation of the company’s ability to generate earnings as well as cover its expenses as well as other costs for a given fiscal period.
In case of Nokia Inc, the company’s gross profit margin did not experience significant changes between 2008 and 2010 as observed from the company’s statements. However, the operating profit and the net profit margins experienced significant fluctuations for the same period. For instance, the company’s operating profit changed from 2.3% to 16.1% within the four years, while its net profit changed from 0.6% to 13.2% in the same fiscal period. This is an indication that the company’s operating expenses were more, especially in terms of selling, research and development, marketing as well as administration. In addition, the difference between net profit and gross profit is less when the same ratios are compared vertically. In this case, the differences between the net profit and gross profit were given by (33.8%- 13.24%= 20.6%). In 2009, the same difference was 32.63%- 0.63% = 31.73. Theoretically and practically, this is an indication that the company’s operating expenses increased significantly in the year 2009 and compared to the fiscal year 2008. However, it is clear that the situation improved significantly in 2010 and 2011, reaching a difference of 3.21% in 2011.
Return Ratios
Return Ratios:
Return on Assets 17.94% 9.82% 1.00% 3.90%
Return on Capital 54.8% 27.2% 6.7% 7.02%
Return on Equity 53.9% 27.5% 6.5% 8.67%
The above ratios provide an indication that the company’s assets were efficiently employed in a better manner in the year 2008, but started decreasing until 2010. However, they indicate that the ratios were healthier in 2011 as compared to 2010 and 2011.
According to Dydson (2007), return rations provide a better way of analyzing the company’s performance in a given period. They aim ay measuring the efficiency of the company in terms of the efficiency with which it has employed its capital, assets and equity for enhancing its profitability in relation to the amounts used in investments.
Activity Ratios
From an analysis of Nokia Inc in 2008-2011, the following results were obtained for total asset, fixed asset and inventory:
Total Asset TO 1.4x 1.3x 1.1x 1.1 xs
Fixed Asst TO 29.0x 25.5x 22.5x 23.1 xs
Inventory TO 17.8x 20.0x 22.0x 16.8 xs
This analysis of the activity rations provides a convenient way of measuring how well Nokia’s business assets were used between 2008 and 2011. The rate of turnover observed in 2011 provides an indication that the company was using its assets more efficiently that it had been using in 2008 and 2009.
Liquidity ratios
Current Ratio
From the analysis of Nokia Inc, it is clear that the company’s current ratio increasingly deteriorated from 2008 to 2010 and from 2010 to 2011. The current ratio as at 31 December 2008 stood at 0.39, but increased significantly to 0.61 in 2009 before reaching 0.72 by the end of fiscal year 2010. However, it decreased significantly to hit 0.65 in 2011.
Quick ratio
Practically, liquidity ratio is the ratio of cash and short-term investments and receivables to the current liabilities. In the case of Nokia Inc, the quick ratio deteriorated in 2008, but improved significantly from 2009 to 2011. For instance, the quick ratio as at 31 December 2008 stood at 0.85, but increased significantly in the following year, reaching 1.13 by the end of December 2009. In addition, it increased to 1.16 in 2010 but reduced again to 1.07 in 2011.
Cash ratio
Cash ratio is the liquidity ratio calculated as cash plus receivable and investments divided by the current liabilities. In the case of Nokia Inc, the company’s cash ratio had deteriorated in 2008, but between 2009 and 2011, it provided an indication of a recovering business, with an improved performance in these three years. Nokia’s cash ratio stood at 0.39 in 2008, but increased to 0.61 in 2009 before increasing again to 0.72 by the end of 2010. However, there was a reduction in 2011, with the cash ratio standing at 0.65 as at 31 December 2011.
Financial analysis of Apple Inc
From an analysis of the company’s financial statements, it is clear that the sales increased steeply by about 52% between 2009 and 2010 before increasing again by 66% between 2010 and 2012. Secondly, there was an increase of 54% in the cost of sales between 2009 and 2010. This is due to the launching of the iPad smart phone products. In 2011, the company’s gross margin improved from 52% to 63%, overtaking that of Nokia Inc. it is also worth noting that the company’s current assets grew by 32% between financial years 2009 and 2010, but reduced significantly to 8% between 2010 and 2011. From the analysis, it is clear that the company, unlike Nokia Inc, maintained a low level of inventory as a means of mitigating its risks to obsolescence. The company’s assets performed generally well. For instance, it experienced an increase of 61% between 2009 and 2010 and by 63% between 2010 and 2011. The long-term investment was one of the areas that experienced the largest growth, with a investment jump of 141% between 2009 and 2010, but recued significantly to 119% by 2011.
Unlike Nokia, Apple did not have short term and long-term debt by the end of financial year 2011. In addition, there was an increase in the company’s total liabilities, which increased by 73% in 2010 and by 45% in 2011. Moreover, the total equity experienced an increase of 58% in 2009-2010 and by 69% in 2010-2011 fiscal years.
Apple Inc, unlike Nokia, had its absolute liquidity ratios increasing significantly each year between 2009 and 2011. For instance, there was an increase in absolute current ratio, which changed to 2.74 in 2009 to 2.87 in 2011. In addition, the absolute quick ratio increased from 2.60 to 2.70 between 2009 and 2010. However, like Nokia Inc, the company’s ratio decreased from 2.70 to 1.94 in 2011, indicating similar business environment to that of Nokia Inc. Similarly, cash ratios, like that of Nokia, experienced significant changes for the same period. For instance, there was an increase in cash ratio from 1.95 to 2.02 in 2009 before reducing to 1.24 in 2011.
Conclusion
A focus on the two corporations reveals a number of facts about them, their industry and the trend of telecommunication and computer based technologies in the world market. Secondly, the history of the two corporations provides an easy way of describing the telecommunication and computer business in the world, its trend and opportunities developed by the presence of technological dynamism in these two industries.
First, an analysis of the histories of the two corporations shows a number of differences. While Nokia began as a conglomerate of three different companies with different specializations, Apple Inc began as a simple experiment in a university setting before rolling out as a real business. While Apple began as a computer production unit, Nokia began as companies producing different products, including electricity, tyres, paper and domestic products. In addition, the history of Nokia is quite long, proving the need for investors to take the advantage of the prevailing business opportunities and changing to other forms of business with market dynamism. For instance, when Nokia was producing electricity and tires, the European region was undergoing rapid develop in industries and locomotion, with the need for electricity and vehicles increasing every year in early and mid 20th century. In addition, the company was producing domestic products, which were in high demand during the 20th century. The company later switched to telecommunication and computer business when these industries proved to be more important in profits because the products were in high demand. Similarly, Apple Inc has been dynamic since it was established in the late 1970s. For instance, the computer business was extremely profitable during the intent boom of 1990s, which forced the company to focus on this industry to maintain growth. This is quite similar to the case of Nokia Inc, which switched to the production of mobile phones and internet gadgets in the 1990s to improve its business and competitive advantage.
Unlike Nokia that has existed over two decades as a large multinational corporation, Apple Inc just emerged as a world player in mobile phone and computer production businesses. In fact, the company was a small and little known business enterprise, which was more of a laboratory trial than a real investment project. However, within a matter of less than 20 years, the company has emerged successful, and in fact has become a major competitor to Nokia, Samsung and other multinational corporations in this sector.
References
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