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Financial Performance Of The NokiaCorporation Finance Essay
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Nokia Corporation is a Finnish multinational telecommunication corporation having
its headquarters' situated in Keilanieme, Espoo. It is one of the orld's leading
mo!ile phone suppliers and fi"ed telecom netorkers. Nokia's engaged in the
manufacture of mo!ile devices and in converging Internet and communication
industr#. It offers an e"traordinar# Internet services platform called as $vi hich
allos all its customers to !u# digital content, such as music and videos, get maps for
navigation services and manage contacts and photo files online. %he Compan#
operates in three !usiness segments& evices and (ervices) N*+%E, and Nokia
(iemens Netorks. It has over -/,000 emplo#ees spread over -0 countries. Its
su!sidiar# Nokia (iemens netorks produces telecommunications netork
equipment, solutions and services. It also provides free digital map information and
navigation services through its holl# oned su!sidiar# N*+%E.
Nokia !eing the orld's largest manufacturers of mo!ile telephone has a glo!aldevice market share of /01 in the latest financial report taken in the third quarter
0-0. 2ut hoever, it is still a disappointment to see a dip from an estimated /31 in
the third quarter of 004 and from an estimate of //1 in the second quarter in 0-0.
In this report, the financial performance and the marketing strategies of Nokia is
anal#5ed !ased on the various financial ratios. %he financial report of the past five
#ears from 004 6 007 is studied considering the change in the marketing strategiesimplemented in 007 and the glo!al recession hich has !een hitting the market
latel#..%he marketing strateg# of Nokia is studied in the light of 8E(%9E, (:$% and
2C; matri".
FINANCIAL PERFORMANCE OF NOKIA:
In the modern !usiness, the managers should have a good understanding of the
various !usiness functions in order to make effective decisions and plannings for thesuccessful operation of the !usiness. $ne of the ke# functions of the !usiness is
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!ringing together the financial information of the compan# hich is in the form of a
cash flo statement, profit and loss account and !alance sheets and carr#ing out the
necessar# calculations to determine the financial position of the compan#. %he sales
volume, and profita!ilit# generated from the shareholders' investment, the
compan#'s a!ilit# to pa# its de!tors and the compan#'s position compared to its
competitors help not onl# the management !ut also the investors in determining
hether to invest in the compan#'s share or not. arket
>easures. %hese ratios interpret the various items found in the compan#'s !alance
sheet and income statements. %his process not onl# revies the past results of Nokia
!ut also helps in evaluating the current situation of the compan#.
%he financial performance graph e"hi!ited !# Nokia in the past five #ears has !een a
fluctuating one.?cont
PROFITAILIT! ANAL!"I":
8rofita!ilit# anal#sis is an anal#sis that ena!les a compan# to evaluate the market
segments. It allos them to report the sales and profit data of a compan# using the
different customised characteristics and ke# figures. %his anal#sis can !e categorisedon the !asis of products, customers, orders or an# com!ination of these. Asing these
profita!ilit# calculations, the !usiness profits made in one #ear can !e compared ith
the other #ears and also the profita!ilit# of different !usiness can !e compared.
%he aim of this s#stem is to provide the various departments ithin the organisation
namel# marketing, product management and corporate planning departments ith
the necessar# information to support the internal accounting and decision making
process. It measures the management's capacit# to generate profits on sales and totalinvestment in the !usiness. In the case of Nokia.................?profita!ilit# anal#sis of
nokia
#$#%RO"" MAR%IN:
%he gross margin of a compan# is theB percent ofB total sales revenueB that the
compan# retains after incurring the direct costs associated ith producing the goods
and services sold !# the compan#. %he higher the percentage, the more the compan#
retains on each Euro of sales. %his shos the percentage of control that themanagement has over cost.
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%ross Mar&in '() * %ross Profit + OperationalProfit , #--
T.rno/er
?004 -/D33043G-00 /./D1
%he gross margin ?1 of Nokia is
!EAR
0--1
0--2
0--3
0--4
0--5
%ross Profit
#6047
#3636
#3033
#6631
##120
T.rno/er
7-127
5-3#-
5#-52
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7##0#
67#1#
%ross mar&in '()
60$64
67$04
66$27
60$5765$-7
?*ll the figures mentioned a!ove are in EAH millions
*s e can see from the ta!le a!ove, the gross margin 1 had a raising trend in the
00D 60 , here it increased from /.731 to /3.D1. 2ut hoever, in the #ear 004
the profits have come don from 70-0Eur m 6 3043Eur m resulting in a decrease
of -.401 in the gross margin.
#$0 NET MAR%IN:
%he net margin ratio of a compan# is the ratio that allos an e"ternal person to make
an overall assessment of the profita!ilit# of the compan# over a given period of time
!# comparing the level of net trading profit to the sales volume.
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T.rno/er
Net Mar&in '()
0--1
140
7-127
0$65
0--2713-
5-3#-
1$2
0--3
2042
5#-52
#4$#1
0--4
5306
7##0#
#6$1#
0--5
713#
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67#1#
#7$56
'All the fi&.res in the tale ao/e are in E.ro m)
*s the figures sho, there has !een a significant fall in the net profit 1 from the #ear
00 6004) the net profit 1 in the #ear 00 as 4.1 hich then decreased to
./31 in the #ear 004. Joever, the #ears 007 6 00 have !een good ith the
profit 1 !eing -3.7/, -/.-4 and -D.-4 respectivel#. %his shos that the operating
e"penses of nokia have increased and the cost of must !e controlled. %he cost have
increased drasticall# resulting in a decrease in the net profits.
#$6 RET;RN ON E ann.al report)
!ear
Ret.rn on E=.ity '()
0--1
4$5
0--2
03$5
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0--3
56$1
0--4
65$5
0--5
03$#
'All the fi&.res in the tale ha/e een taken fromthe nokia?s official @esite) 5B
%he return on equit# 1 shoed stead# groth in the #ears 007 and 00D and then
reached the peak value in 00 ith a H$E 1 of 7/.4 !ut the H$E has decreased to a
great e"tend in the #ears 00 and 004. *s a result of the decrease in the profits
after ta", the profits of the ta" in #ear 00 ere /4 Eur m hich decreased to D0
Eur m in 004.
#$7 RET;RN ON CAPITAL EMPLO!E:
Heturn $n Capital Emplo#ed is the ratio that indicates the efficienc# and profita!ilit#
of a compan#'s capital investments. %he Heturn $n Capital Emplo#ed should ala#s
!e higher than the rateB at hichB the compan# !orros, otherise an# increase in
!orroing ill reduce shareholders' earnings.
Ret.rn on Capital Employe> * Earnin&s efore
Interest an> Ta8 , #--Net Assets
'it is &i/en in > ann.al report)
!ear
Ret.rn on capital employe> '()
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0--1
4$3
0--2
03$0
0--3
57$2
0--474$#
0--5
64$5
ACTIDIT! ANAL!"I":
*ctivit# anal#sis measures the compan#'s efficient utili5ation of resources. %he
greater the efficienc# in the use of its assets to generate sales, the higher is the
potential profita!ilit#. Jence, the anal#sis compares the level of sales ith the
investments in selected assets. %he activit# anal#ses that are considered here to stud#
a!out Nokia are&
%urnover of *ssets
%urnover of Fi"ed *ssets
(tock %urnover
a#s of (tock Jeld
0$# T;RNODER OF A""ET":
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%urnover of assets is the efficient use of assets for the profita!le operation of the
!usiness. It is a consistent relia!le indicator of managerial skills in generating sales
volume on a !ase of the total assets emplo#ed !# the compan#.
T.rno/er assets * T.rno/er
Assets
'0--1 * 7-127+65362 * #$#7)
!ear
T.rno/er Assets
T.rno/er of Assets
0--1
7-127
65362
#$#7
0--2
5-3#-
61520
#$02
0--3
5#-52
63511
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#$65
0--4
7##0#
004#3
#$2#
0--5
67#1#00750
#$50
'All the fi&.res in the tale ao/e are in E.ro m)
0$0 T;RNODER OF FI,E A""ET":
%he turnover of fi"ed assets is the measure of a compan#'s a!ilit# to generate net
sales from fi"ed6asset investments 6B specificall# ith regard to propert#, plant and
equipment etc. %he higher the fi"ed6asset turnover ratio the more effective the
compan# has !een using the investment in fi"ed assets to generate revenues.
T.rno/er of Fi8e> Assets * T.rno/er
Fi8e> Assets
'0--1 * 7-127+#0#05 * 6$62)
!ear
T.rno/er
Fi8e> Assets
T.rno/er of Fi8e> Assets
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0--1
7-127
#0#05
6$62
0--2
5-3#-
#5##06$65
0--3
5#-52
26-5
4$#7
0--4
7##0#
7-6#
#-$0-
0--5
67#1#
6673
#-0#$57
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'All the fi&.res in the tale ao/e are in E.ro m)
0$6 "TOCK T;RNODER:
%he (tock %urnover is the total value of stock sold in a #ear divided !# the average value of goods held in stock. %his makes sure that the cash is not tied up in stock for
too long, so as to lose its value over time. It measures sales turnover as a ratio of
stocks, and is intended to sho ho fast stock is moved. %he higher the score, the
more liquid is the position and loer the investment in stock the !etter it is.
"tock T.rno/er * Cost of "ales
A/era&e "tock '0--1 * 0330-+0#11 * #0$4-)
!ear
Cost of "ales
A/era&e "tock
"tock T.rno/er
0--1
0330-
0#11
#0$4-
0--2
66663
03-7$5
#0$60
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0--3
6632#
00#5
#5$05
0--4
03370
#4###3$00
0--5
000-1
#724$5
#7$17
'All the fi&.res in the tale ao/e are in E.ro m)
0$7 A!" OF "TOCK EL:
%he num!er of da#s the stock is held is the ratio that measures the average num!er
of da#s' stock held !# an organi5ation.
ays of "tock hel> * A/era&e "tock , 645
Cost of sales
'0--1 * 0#11+++00330-9645 * 02$15)
!ear
A/era&e "tock
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Cost of sales
ays of "tock el>
0--1
0#11
0330-
02$15
0--203-7$5
66663
01$4#
0--3
00#5
6632#
06$16
0--4
#4##
03370
0#$#15
0--5
#724$5
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000-1
07$76
'All the fi&.res in the tale ao/e are in E.ro m)
"OLDENC! ANAL!"I":
(olvenc# ratios is the ratio that measures the relationship !eteen de!ts and oners
equit# and e"amine the proportion of de!t the compan# is using i.e.) toB measure a
compan#'s a!ilit# to meet long6term o!ligations. It measuresB the si5e ofB a
compan#'s after6ta" income, e"cluding non6cash depreciation e"penses, as compared
to the firm's total de!t o!ligations. It provides a measurement of ho likel# acompan# ill !e a!le to continue meeting its de!t o!ligations. *ccepta!le solvenc#
ratios ill var# from industr# to industr#, !ut as a general rule of thum!, a solvenc#
ratio of greater than 01 is considered financiall# health#. ;enerall# speaking, the
loer a compan#'s solvenc# ratio, the greater the pro!a!ilit#B that the compan# ill
default on its de!t o!ligations. %he different solvenc# ratios are&
Current Hatio
uick *ssets
e!tors Collection 8eriod
Creditors 8a#ment 8eriod
(peed of cash flo
6$# C;RRENT RATIO:
Current ratio is the most popular measure of short term solvenc#. It indicates the
e"tend to hich the claims of short6term creditors are covered !# comparative liquid
assets.
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'0--1 * 064#6+#5#22 * #$55)
!ear
C.rrent Assets
C.rrent Liaility
C.rrent Ratio
0--1
064#6#5#22
#$55
0--2
0773-
0-655
#$0
0--3
01017
#2134
#$57
0--4
#2524
#-#4#
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#$20
0--5
#215#
143-
#$14
Nokia Corp.'s current ratio deteriorated from 00 to 00 !ut then improved from
00 to 004 !ut hoever the ratios still remain !elo the 00 levels.
6$0
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0--1
064#6
#245
#5#22
#$76
0--2
0773-0566
0-655
#$-3
0--3
01017
0234
#2134
#$61
0--4
#2524
#557
#-#4#
#$43
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0--5
#215#
#442
143-
#$32
%he Nokia Corp.'s quick ratio deteriorated from 00 to 00 !ut then improved
from 00 to 004.
6$6 ETOR" COLLECTION PERIO'note>ite> )
%he period, on average, that a !usiness takes to collect the mone# oed to it !# its
trade de!tors. If a compan# gives one month's credit then, on average, it should
collect its de!ts ithin 37 da#s. %he de!tor. he term e!tor Collection 8eriod
indicates the average time taken to collect trade de!ts. In other ords, a reducing
period of time is an indicator of increasing efficienc#. it ena!les the enterprise to
compare the real collection period ith the grantedtheoretical credit period.
e!tor Collection 8eriod ?*verage e!tors Credit (ales " /D7 ? No. of da#s
?average de!tors de!tors at the !eginning of the #ear L de!tors at the end of the
#ear, divided !#
etors Collection Perio> * etors , 645
"ales
'0--1 * 312#+7-1279645 * 3#$-2)
!ear
etor
"ales
etors Collection Perio>
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0--1
312#
7-127
3#$-2
0--2
1777
5-3#-43$13
0--3
##0--
5#-52
2-$-4
0--4
5222
7##0#
50$04
0--5
5674
67#1#
53$-3
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'All the fi&.res in the tale ao/e are in E.ro m)
6$7 CREITOR" PA!MENT PERIO:
Creditors 8a#ment 8eriod is the ratio that relates the amount oed to trade creditors !# a compan# at the end of a specified period in relation to the cost of purchases
!ought on credit during that period i.e.) it is the total num!er of da#s that a compan#
ill take to settle the amounts it oes to its creditors.
Cre>itors Payment Perio> * Cre>itors
P.rchase
!ear
Cre>itors
P.rchase
Cre>itors Payment Perio>
0--1
715-
0--2
5005
0--3
3-37
0--4
6360
0--5
6717
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6$5 "PEE OF CA" FLOG:
"pee> of Cash Flo@ * T.rno/er etors
645
'0--1 * 7-127312#+645 * 1-$70)
!ear
T.rno/er
etors"pee> of Cash Flo@
0--1
7-127
312#
1-$70
0--2
5-3#-
1777
##6$-5
0--3
5#-52
##0--
#-1$0
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0--4
7##0#
5222
14$50
0--5
67#1#
567431$-0
FINANCIAL "TR;CT;RE: 'not e>ite>)
Financial (tructure is the frameork of the various t#pes of financings emplo#ed !# a
firm to acquire and support resources necessar# for its operations. Commonl#, it
comprises of stockholders' ?shareholders', investments ?equit# capital, long6term
loans ?loan capital, short6term loans ?such as overdraft, and short6term lia!ilities?such as trade credit as reflected on the right6hand side of the firm's !alance sheet.
Capital structure, in comparison, does not include short6term lia!ilities.
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et
E=.ity
Capital %earin&
0--1
0-121
65362
-$510--2
06-30
61520
-$52
0--3
0-04#
63511
-$57
0--4
#-553
004#3
-$73
0--5
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1162
00750
-$77
'All the fi&.res in the tale ao/e are in E.ro m)
7$0 INTERE"T CODER: 'not e>ite>)
Interest cover is a measure of the adequac# of a compan#'s profits relative to interest
pa#ments on its de!t. %he loer the interest cover, the greater the risk that profit
?!efore interest ill !ecome insufficient to cover interest pa#ments. It is&
E2I% Mnet interest paid
* value of more than is normall# considered reasona!l# safe, !ut companies ith
ver# volatile earnings ma# require an even higher level, hereas companies that have
ver# sta!le earnings, such as utilities, ma# ell !e ver# safe at a loer level. (imilarl#,
c#clical companies at the !ottom of their c#cle ma# ell have a lo interest cover !ut
investors ho are confident of recover# ma# not !e overl# concerned !# the apparent
risk.
Interest Co/er * %ross Profit 'Operationalprofit)
Interest Payale
'0--1 * #6047+#44# * 3$11)
!ear
%ross Profit
Interest Payale
Interest Co/er
0--1
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#6047
#44#
3$11
0--2
#3636
06-0
3$570--3
#3033
0545
4$36
0--4
#6631
10
#75$70
0--5
##120
0-5
52$75
'All the fi&.res in the tale ao/e are in E.ro m)
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5 "TOCK MARKET MEA";RE":
5$# PRICE PER EARNIN%":
It is the valuation ratio of a compan#'s current share price compared to its per6shareearnings.
Price Per Earnin&s Ratio * Market Price of"hares
Earnin&s per "hare
'0--1 * 2$22+-$07 * 63) !ear
Market Price of "hare
Earnin&s Per "hare
Price Per Earnin&s
0--1
2$22
-$07
63
0--2
0-$-7
#$-3
#2$36
0--3
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#4$12
#$25
1$#2
0--4
#3$-2
#$-4
#4$##0--5
##$14
-$26
#7$7#
'All the share prices mentione> ao/e has eencalc.late> takin& the >ate as 6#st Mar for e/eryfi/e years)
5$0 EARNIN%" PER "ARE:
It is the portion of a compan#'s profit allocated to each outstanding share of common
stock.B Earnings per shareB serve as an indicator ofB a compan#'s profita!ilit#.
Earnin&s Per "hare: Profit after Ta8
No: of "hares
'it is &i/en in > ann.al report)
!ear
Earnin&s Per "hare
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0--1
-$07
0--2
#$-3
0--3
#$25
0--4#$-4
0--5
-$26
5$6 IDIEN !IEL
i/i>en> yiel> * i/i>en> per share
Market /al.e per share
'0--1 * -$7-+2$22 * -$-75)
!ear
i/i>en> Per "hare
Market Dal.e Per "hare
i/i>en> !iel>
0--$1
-$7-
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2$22
-$-75
0--2
-$7-
0-$-7
-$-#11
0--3-$56
#4$12
-$-6#
0--4
-$76
#3$-2
-$-05
0--5
-$63
##$14
-$-6#
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