Use an extended example to critically discuss how a company’s annual report and accounts are useful in understanding and analyzing its market, productive and financial performance. Annual report and accounts like the income statement, the cash flow statement and the balance sheet, are financial accounting statement. They comprise numerical data over the past year and indicate the company’s prospect for future financial performance. The information would allow user groups to understand and analyse the company’s performance and to make decisions of their own interests.
Through looking at the annual reports and accounts of Nokia, I’ll explain how the report can be useful in understanding and analyzing its market, productive and financial performances. There are two ways to measure the market performance of a company; physically and financially. By analyzing the sales of the company in different regions that shows in its annual report, we can determine its market performance physically. 5 major markets, net sales; EUR m| 2007| 2008| 2009| 2010| China| 5898| 5916| 5990| 7149| India| 3684| 3719| 2809| 2952| Germany| 2641| 2294| 1733| 2019| Russia| 2012| 2083| 1528| 1744|
USA| 2124| 1907| 1731| 1630| (Table 1. 1, source from http://i. nokia. com/blob/view/-/263824/data/1/-/Request-Nokia-in-2010-pdf. pdf http://i. nokia. com/blob/view/-/264254/data/1/-/Request-Nokia-in-2008-pdf. pdf) Table 1. 1 shows the net sales of 5 of their major markets from 2007 to 2010. Simply by comparing the figures throughout the 4 years, we can see that sales have generally had a decreasing trend except for China. (Table 1. 2, Source from http://mobithinking. com/mobile-marketing-tools/latest-mobile-stats) Table 1. 2 shows the market share and annual sales growth of the mobile phone market (2G) in 2010.
Although Nokia had a 4. 9% annual sales growth and leading market share, its market share had been decreasing for a few years already. Base on this information, I think Nokia should expand their market geographically and technologically. Except for China, India is also a fast growing economy which has a rapid growth of population. On the other hand, there is an increasing of the use of smartphones, which Nokia is facing huge competitions from other smartphone vendors. If they’re willing to invest money into these two aspects, their market performance will improve.
To financially measure its market performance, we could compare their total turnover, turnover by division and geographic breakdown. (Chart 1. 3) (Chart 1. 4) (Source from Nokia 10/11 annual report p. 79) On chart 1. 4, it shows that after the global economical crisis, their return of sales decreased significantly until the small bounce back in 2010. From their increasing sales and decreasing return on sales, we could analyse that they have lowered the prices of their products in order to reduce the loss from the recession. (Chart 1. ) (Source from 07/08, 08/09, 09/10 annual reports) 35. 1% On chart 1. 5, we can see the net sales of the 3 segments shown on the financial statements. The annual report describes: “Devices & Services segment is responsible for developing and managing the Group’s portfolio of mobile devices and consumer Internet services. NAVTEQ is a leading provider of comprehensive digital map information for automotive systems, mobile navigation devices, etc. Nokia Siemens Networks provides mobile and fixed network solutions and services to operators and service providers. The devices & services segment has a decreasing trend on sales due to the increasing demand of smartphone. While NAVTEQ is still building its foundation, the Simens Networks is struggling to bounce back from the recession. (Chart1. 6) (Chart 1. 7) (Source from http://www. slideshare. net/joehy/china-mobile-phone-market-dashboard-dec09 & http://img. cellular-news. com/story/27723/Nokia_Motorola_and_Samsung_Lead_the_Chinese_Mobile_Phone_Market_1. jpg) As indicated in table 1. 1, China is the biggest market of Nokia’s businesses.
Let’s compare the figures in chart 1. 6 and 1. 7; in 2007, Nokia’s had a market share of 35. 1% in the China mobile phone market (2G) which dominated the market. But in 2009, its market share dropped by 7% to 28. 4%. Although Nokia’s sales in China have increased, but the rate of increase of its sales is slower than the market itself, hence the decrease on market shares. Like the CEO of Nokia, Olli-Pekka Kallasvuo said in 2010, “the global market has continued to grow at a healthy pace; the only problem for Kallasvuo is that while the market might be growing at a healthy pace, Nokia’s sales aren’t.
Since resources are limited, it is vital to maximize output using the least amount of labour and capital. Like measuring market performance, we can use data on the annual report to measure a company’s productive performance physically and financially. | Finished Good (EUR m)| Employees| Finished Goods per Employee (EUR)| 12/2010| 1119| 132427| 8450 | 12/2009| 775| 123553| 6273 | 12/2008| 1270| 125829| 10093 | 12/2007| 1225| 112262| 10912 | (Table 2. 1) (Source from 08/09, 09/10 Nokia annual report) | Value Added EUR m)| Employees| Value Added per Employee (EUR)| 2010| 12817| 132427| 96785 | 2009| 13264| 123553| 107355 | 2008| 17373| 125829| 138068 | 2007| 17277| 112262| 153899 | (Table 2. 2)(Source from 08/09, 09/10 Nokia annual report) In table 2. 1, it shows that with the least amount of employees, the productivity of their employees was the highest; contrarily, productivity had been lowered since 2009. This could indicate that employees were less trained, technological assistant was not sufficient or the production line was not efficient enough.
To financially measure its productive performance, we could calculate the value added per employee and compare throughout a period of time. In table 2. 2, the value added to its products had been decreasing while the number of employees had increased, resulting a declining value added per employee; which means lower productivity as I analyzed before. Lastly on using annual reports and accounts to measure a company’s financial performance. Financial performance is about how well a firm can make revenue using the assets they own and its financial health over a period of time.
This allows investors to compare firms in the same industry using the data that measures ones financial performance. To compare companies in different industries, we could calculate the labor’s share of value added. (Table 3. 1) (Source from 07/08, 08/09, 09/10 annual reports) In table 3. 1, the labor’s share of value added of Nokia and Marks & Spencer (M&S) is shown. Throughout the 4 years period, M&S had had a steady percentage of labor’s share of value added, while figures of Nokia had been increasing.
This allows us to compare how these two companies are doing in their own industries; a high labour share of value added indicates that a firm is vulnerable to market downswings. (Lecture notes) M&S had been emerging new markets during the period of recession, which secured a place in the market for them; on the other hand, Nokia had been falling in the mobile phone market due to lack of innovation, low productivity and huge competition in the market. Therefore base on the data in table 3. , we can conclude that M&S had a better financial performance than Nokia in that period of time. To conclude, annual reports and accounts of companies provide huge amount of information that allows us to measure different aspects of performances using different methods. By understanding and analyzing the data, we can use the conclusion to help making financial decisions and investing money into companies. Bibliography: Financials – Nokia – Nokia. com. 2011. [ONLINE] Available at:http://www. nokia. com/global/about-nokia/investors/financials/financials/. Accessed 07 December 2011]. Investopedia. com – Your Source For Investing Education . 2011. [ONLINE] Available at:http://www. investopedia. com/#axzz1eftoyZGu. [Accessed 07 December 2011] NOK – NOKIA CORP Balance Sheet – Forbes. com. 2011. [ONLINE] Available at:http://finapps. forbes. com/finapps/jsp/finance/compinfo/FinancialIndustrial. jsp? tkr=NOK. [Accessed 07 December 2011] Global mobile statistics 2011: all quality mobile marketing research, mobile Web stats, subscribers, ad revenue, usage, trends… | mobiThinking. 011. Global mobile statistics 2011: [ONLINE] Available at: http://mobithinking. com/mobile-marketing-tools/latest-mobile-stats. [Accessed 07 December 2011] Nokia Posts Q1 2009 Financial Results – Softpedia. 2011. [ONLINE] Available at: http://news. softpedia. com/news/Nokia-Posts-Q1-2009-Financial-Results-109588. shtml. [Accessed 07 December 2011]. Nokia annual report. 2010/11. . [ONLINE] Available at: http://i. nokia. com/blob/view/-/263824/data/1/-/Request-Nokia-in-2010-pdf. pdf. [Accessed 07 December 2011]