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Siemens Company: Financial Statement Analysis Report

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Updated: Apr 24th, 2022

Siemens is a profitable company. The research focuses on the financial statement ratios of Siemens Company’s 2008 t0 2010 accounting period. The research includes comparing the financial statement ratios and financial data between Nokia Company and Siemens Company. Siemens Company is an excellent investment choice.

Table 1 (Income statement) shows the financial performance of Siemens Company from 2008 to 2010. The above financial statement analysis shows that the 2008 Seimens Company revenue, amounting to € 77,327, had unfavorably declined to only € 76,651 during 2009. In the same manner, the 2009 Seimens revenue negatively declined to only € 75,978 during 2010. In addition, the company’s gross profit (profit margin) for 2008, amounting to € 21,043, had favorably declined € 20,710 during 2009. The 2009 amount had unfavorably increased to € 21,647. The company’s 2008 income from continuing operations amounting to € 1,859 had favorably increased to € 2,457 during the 2009 accounting period. The company’s 2009 figure had further increased € 4,112 during 2010. The Seimens Company’s net income amounted to € 5,886 during 2008. The amount had negatively dropped to only € 2,497 during 2009. The 2009 amount favorably rose to € 4,068 in 2010 (West 2003).

In terms of the balance sheet accounts, Table 2 (Balance Sheet) Siemens Company did fairly well. According to Ronald Hilton (2007), the company’s 2008 current assets amount € 43,015 unfavorably decreased to € 42,634 during 2009. On the other hand, the Siemens Company’s 2008 current assets amount € 42,634 favorably increased to € 49,648 during 2010. Siemens Company’s 2008 current liabilities amount € 42,117 favorably decreased to € 36,486 during 2009. On the other hand, the Siemens Company’s 2009 current liabilities amount € 42,117 unfavorably increased to € 40,591 during 2010. Siemens Company’s 2008 equity portion of the balance sheet amount € 27,380 unfavorably decreased to € 27,387 during 2009. On the other hand, the Siemens Company’s 2008 equity amount € 27,287 favorably increased to € 29,096 during 2010. Siemens Company’s 2008 Total assets amount € 94,463 unfavorably decreased to € 94,926 during 2009. On the other hand, the Siemens Company’s 2008 total assets amount € 67,639 favorably increased to € 74,731 during 2010. Siemens Company’s 2008 current liabilities section amount € 67,083 unfavorably increased to € 67,639 during 2009. In the same manner, the Siemens Company’s 2009 total assets section amount € 67,639 unfavorably increased to € 74,731 during 2010. Based on Table 3 (Financial Statement Ratios), Harold Sollenberger (2007) reiterated Siemens Company’s return in investment figure shows how much net income contributed to the early return of the investors’ asset inflows. The company 2008 return in investment ratio of 0.06 had unfavorably decreased to only 0.03 during 2009. On the other hand, the company’s 2009 return in investment ratio favorably increased to 0.04 during the 2010 accounting period. Also, the company’s Earnings before interests and taxes amount is better understood when compared to the company’s revenues. The company 2008 EBIT to Revenues ratio of 0.04 had unfavorably decreased to only 0.05 during 2009. On the other hand, the company’s 2009 profit margin favorably increased to 0.08 during the 2010 accounting period. The Siemens Company’s profit margin shows how much profit was generated from the actual revenues. The company 2008 profit margin of 0.06 had unfavorably decreased to only 0.05 during 2009. On the other hand, the company’s 2009 profit margin favorably increased to 0.05 during the 2010 accounting period. Also, the company’s cash flow ratio shows the availability of the Siemens Company’s operating cash needed to pay the company’s current liabilities. The company’s cash flow ratio shows that an increasing trend. The company’s 2008 ratio 0.22 unfavorably decreased to only 0.17 in 2009. The company’s 2009 ratio favorably increased to 0.23 in 2010. The ratio shows the availability of the company’s operating cash. Further, the company’s cash to current assets ratio shows the availability of company’s operating cash in relation to the current assets. The company’s cash flow ratio shows an increasing trend. The company’s 2008 ratio 0.60 increased to 0.62 in 2009. The company’s 2009 ratio increased to 0.64 in 2010. The cash to current ratio shows a favorable picture of the company from 2008 to 2010. The company’s quick ratio shows that the 2010 cash, receivables and financial assets amount € 31,935 is 0.79 lower than the company’s 2010 current liabilities amount € 49,648. The Siemens Company’s 2009 quick assets amount € 27,185 is 0.61 lower than the company’s 2009 current liabilities amount € 43,634. Similarly, the Siemens Company’s 2008 quick assets amount € 25,946 is 0.61 lower than the company’s 2008 current liabilities amount € 43,242. The quick ratio shows the availability of quick assets allocated for the payment of the company’s currently maturing current liabilities (Horngren, 2009). For the year 2010, the above financial statement analysis shows the company’s total debt to total equity ratio includes the Siemens Company’s total debt amounting to only € 73,731. The figure is 2.53 times the company’s total equity amounting to €29,096. The shows the company’s total debt figure is higher than the company’s total equity amount. For the year 2009, the same financial statement analysis shows the company’s total debt amounts to only €67,639. The figure is 2.48 times the company’s total equity amounting to €27,287. The ratio indicates the company’s total debt is higher than the company’s total equity. For the year 2008, the company’s total debt amounts to only 67,083. The figure is 2.45 times the company’s total equity amounting to €27,380. The ratio indicates the company’s total debt is higher than the company’s total equity. The best debt to equity ratio is defined as a one to one relationship. Thus, the company must generate loan amounts equal to the amount invested by the stockholders of Pfizer Company. Comparing the two accounting periods’ audited financial statements, the year 2009 debt to equity ratio of 2.48 is financially better because the 2010 financial statement liquidity performance ratio 2.53 is higher when compared to the prior year’s debt to equity ratio. Comparing Siemens Company 2009 and 2008 accounting periods’ audited financial statements, the year 2008 debt to equity ratio of 2.45 is financially better than the 2009 debt to equity ratio because it 2009 debt to equity ratio 2.48 is higher when compared to the prior year’s debt to equity ratio (Khan, 2006). In addition, the 2010 financial statement analysis’ current ratio shows the company’s current assets amount €49,648 is 1.22 times higher than the company’s current liabilities of €40,591. The ratio indicates the company has enough current assets to pay its currently maturing current liabilities during the year. For the year 2009, Pfizer Company’s current ratio analysis shows the company’s current assets portion amounting to €43,634 is 1.20 times higher than the company’s €36,486 current liabilities portion. The Siemens Company’s current ratio analysis shows the company’s 2008 current assets portion amounting to €43,242 is 1.02 times higher than the company’s €42,451 current liabilities portion (Brigham 2001). Further, the financial statement’s current ratio indicates the company has enough current assets available for the payment of its currently maturing current liabilities during the year. Comparing the two accounting audited financial statements’ accounting periods, the year 2010 current ratio of 1.22 shows a better financial statement liquidity performance compared to the lower 1.20 current ratio financial statement performance for the year 2009. Next, the year 2009 current ratio of 1.20 shows a better financial statement liquidity performance compared to the lower 1.02 current ratio financial statement performance for the prior year 2008.

In terms of clarification, the company’s current assets portion of the financial statements is composed of cash, cash equivalents, short term investments, accounts receivable, short term loans, inventories, taxes, other current assets and assets held for sale during 2010 and 2009. The company’s current liabilities portion of the financial statements include the company’s short term borrowings, accounts payable, dividends payable, income taxes payable, accrued compensation, related items, and other current liabilities (Hansen, 2006).

Table 4 (Comparison Between Nokia and Siemens 2010 Financial Statements) shows that Siemens fared better than Nokia during the 2010 accounting period. Siemens Company’s 2.53 debt to equity ratio is higher than Nokia’s 1.41 debt to equity ratio. Siemens Company’s 0.79 quick ratio result is higher than Nokia’s 0.60 quick ratio result. Siemens Company’s 0.64 cash to current ratio is higher than Nokia’s 0.39 cash to current assets ratio. Siemens Company’s 0.23 cash flow ratio is higher than Nokia’s 0.19 cash flow ratio. Siemens Company’s 0.08 EBIT to Net Revenues ratio is higher than Nokia’s 0.06 EBIT to Net Revenues ratio.

On the other hand, Nokia Company fared better than Siemens Company in two financial statement analysis areas during the same year. Nokia Company’s 1.55 current ratio is higher than Siemens Company’s 1.22 current ratio. Nokia Company’s 0.06 profit margin ratio is higher than Siemens Company’s 0.05 profit margin ratio (Helfert, 1997).

Table 5 (Comparison Between Siemens and Nokia 2010 Income Statement Amounts) shows that Siemens Company fared better Nokia. Siemens Company’s € 75,978 sales is higher than Nokia’s € 42,446 sales by as much as € 33,532. Siemens Company’s € 75,978 gross profit is higher than Nokia’s € 12,995 gross profit amount as much as € 8,652. Siemens Company’s € 4,068 net profit is higher than Nokia’s € 2,070 net profit by as much as € 1,998.

On the other hand, table 5 shows that Nokia fared better than Siemens Company in other financial statement ratio areas. Nokia Company’s 0.30 gross profit margin ratio is higher than Siemens Company’s 0.28 gross profit margin. Nokia Company’s 0.05 nets profit margin is higher than Siemens Company’s 0.05 net profit margin ratio

Financial statement ratio analysis has its values. First, the financial statement ratios serve as additional scientific information to improve the decision making activities of interested parties, including the investors. Second, it is easier to compare the financial statements of two companies of different sizes and amounts. Third, the ratios help simplify trend analysis. Fourth, the ratios help the readers focus on the more important aspects in a simpler manner. Fifth, the ratios aid management to compare financial data between two accounting periods. Last, the ratios help the busy reader by zeroing on fewer more significant financial data instead of reading the entire financial statements (Besley, 2008).

On the other hand, financial statement ratio analysis has its limitations. First, different companies operate on different market segments. The financial statement ratios give the false impression two different companies are engaging in the same financial environment. The financial statements ratios focus on the past events whereas readers of the financial statements are interested on what will happen financial occur in the current and future accounting periods. Third, erroneous financial data translates to misleading financial statement ratios. The application of different accounting concepts and principles by different companies will generate misleading financial statement ratios (Gibson, 2010).

There are other data that affirm or disprove the financial statement ratio results. For example, the industry’s average financial statement results will affirm or disprove the reliability of Siemens Company’s financial statement ratios. Information leaking to the public that the Siemens Company’s accountant does not comply with international accounting standards casts doubt on the reliability of the financial statements. Audit reports stating that the financial statements do not truly present the actual financial statement figures will cast doubt on the truthfulness of the financial statement ratios. The economic data, including GDP and average household consumption, will temper the favorable prediction of financial statement ratios (Drury, 2005).

The best recommendation is for Siemens Company will continue its current course. In terms of accounting issues, the company’s profitable financial performance persuades the company to go on with its current business programs. The financial statement ratios prove that the Siemens Company is doing better than Nokia Company in most financial aspects, under the going concern accounting concept. Trend analysis shows that the past profitable activities will continue its profitable course in 2011 and future years, in the absence of adverse indicators under the comparability accounting concept. The understandability concept shows that the financial statements indicate Siemens Company will continue its current profitable business venture in 2011 and beyond.

There is should be additional research in related areas to improve the quality of the recommendations. The research should focus on macroeconomic effects on the reliability of the recommendations. Additional research should include microeconomic factors that will influence the recommendations. Lastly, feasibility studies would affirm or discourage the recommendations.

Based on the above discussion, Siemens Company is a profitable business entity. Siemens Company’s financial statement ratios indicate the company did profitably well during the 2008 t0 2010 accounting period. The financial statement ratios and financial data show Siemens Company did financially better than Nokia Company during the 2010 accounting period. Indeed, the financial statement ratios show Siemens Company is an excellent investment preference.

References

Brigham, E. Fundamentals of Financial Management. Sydney, Harcourt 2001.

Drury, C. (2005) Management Accounting For Business. Sydney, Thompson Press.

Gibson, C. (2010) Financial Statement Analysis. New York, Cengage Press.

Hansen, D. (2006) Management Accounting. Sydney, Thomson Press.

Helfert, E. (1997) Techniques of Financial Analysis. Sydney, Irwin Press.

Hilton, R. (2007) Managerial Accounting. London, McGraw Hill Press.

Horngren, C. (2009) Accounting. London, Prentice Hall.

Khan, M. (2006) Management Accounting. New York, McGraw Hill Press.

Sollenberger, H. (2007) Managerial Accounting. London, Western Press.

West, B. (2003) Professionalism and Accounting Rules. London, Routledge Press.

Appendix

Table 1: Income Statement (In millions of European €)

Description 2010 2009 2008
Revenue 75,978 76,651 77,327
Gross Profit 21,647 20,710 21,043
Income from Continuing Operations 4,112 2,457 1,859
Net Income 4,068 2,497 5,886

Table 2: Balance sheet (In millions of European €)

Description 2010 2009 2008
Current Assets 49,648 42,634 43,015
Current Liabilities 40,591 36,486 42,117
Equity 29,096 27,287 27,380
Total Assets 103,827 94,926 94,463
Total Liabilities 74731 67,639 67,083

Table 3: Financial Statement Ratios

Description 2010 2009 2008
Current Ratio 1.22 1.20 1.02
Debt to Equity Ratio 2.53 2.48 2.45
Quick Ratio 0.79 0.75 0.61
Cash to current Assets 0.64 0.62 0.60
Cash Flow Ratio 0.23 0.17 0.22
Profit Margin 0.05 0.03 0.08
EBIT to Net Revenues 0.08 0.05 0.04
Return in Investment 0.04 0.03 0.06

Table 4: Comparison Between Nokia and Siemens 2010 Financial Statements

Description Siemens 2010 Nokia 2010 Variance
Current Ratio 1.22 1.55 -0.33
Debt to Equity Ratio 2.53 1.41 1.12
Quick Ratio 0.79 0.60 0.19
Cash to current Assets 0.64 0.39 0.25
Cash Flow Ratio 0.23 0.19 0.04
Profit Margin 0.05 0.06 -0.01
EBIT to Net Revenues 0.08 0.02 0.06
Return on Investment 0.04 0.06 -0.02

Table 5: Comparison Between Siemens and Nokia 2010 Income Statement Amounts

Description Siemens 2010 Nokia 2010 Variance
Sales 75,978 42,446 33,532
Gross Profit 21,647 12,995 8,652
Gross Profit Margin 0.28 .30 -0.02
Operating Profit 4,068 2070 1998
Operating Profit Margin 0.05 .08 – 0.03
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