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Paper 1
Paper 1
Question: Select a company of your choice and research the working capital of that company
(i.e. GE Capital, Wal-Mart, Apple, Google, Yahoo, IBM, Boeing, Target ...etc) and explain their
Working Capital is also known as the operating capital. Formal definition of the term is
suggested by Ganesan (2007) as “The working capital meets the short-term financial
requirements of a business enterprise”. It indicates the ability of company to run its daily
business requirements via the help of liquid assets available. As a general rule, it is believed
that the more the operating capital available, the easier will be for the company to run its daily
This statement, in literal terms informs about the amount of assets available for the company,
above and beyond the liabilities (short term) to fulfill the basic daily operational needs.
Applications
To measure the company’s short term financial health and operations efficiency, it is pertinent
to know about its working capital ratio (Rasheed, 2012). The working capital can be both
positive or negative, which means in the case of positive working capital, the company has
enough liquid assets to meet its requirements however, in case of a negative working capital it
Working Capital of Samsung
is very essential for the company to manage its resources in order to meet the requirements
This ratio gives the over view of the companies short term health and is used by many investors
and managers (Janeczko, 2017). Investors try to get an idea from this financial calculation
regarding the ability of the company to face difficult times and get through them. Whereas, the
managers they can predict or speculate if any difficult in the daily requirements might arise and
Samsung
Samsung is a world known brand which does not only operate in the home appliances but also
work as one of a leading firm in electronics. It makes appliances such as televisions, washing
machines, DVD players, digital cameras, mobile phones, computers, digital TVs, LCD panels and
what not in the electronics industry. Samsung competes with other electronic giants such as
Apple, Panasonic, Sony and LG electronics. Samsung is based in South Korea and has made its
Working capital
The working capital, as per the calculations above is worker out below. For reference, the
The working capital calculation suggests that the working capital has increased by roughly 4 %.
This means that the current assets have increased at a higher rate and the liabilities have fallen.
Analysis
Samsung existing comparative balance sheet, confirms that the Net working capital has risen.
This is due to the fact that the current assets have significantly increased and simultaneously
In more details, the balance sheet shows that the liquid assets are sufficient to meet the needs
worth noting that the certain assets have decreased in the current section of the balance sheet.
The cash amount is fallen as compared to the closing account of 2018. Moreover, the short
term financial instruments have also fallen. It is to draw attention that the receivables have
increased. This suggests that the company has been selling the products on credit which are yet
to be recovered. Also, the company has paid for a couple of activities before hand (pre-paid
expense) which will now to accrued over the period of time, this maybe one of the reason as to
why the cash amount has fallen. Another reason for decrease in cash amount can also be that
the company is paying dividends to the shareholders. The details of cash can be checked from
Working Capital of Samsung
cash flow statement which can describe the investing and financing activities happening
Moreover, on the other hand, the increase in the net working capital has been due to the fall in
the current liabilities. The liabilities in March 2019 were reported to be USD 59,902,251 as
compared to USD 61,438,554 at the end of 2018. This is because of the fact that the short term
borrowing has fallen. Going back to the assets, we can see the rise in prepaid expense and fall
in cash, it suggests that the company is trying to utilize its own sources rather than borrowing
and increasing its liability. Similarly the companies accrued expenses have also fallen which also
indicate that Samsung is focusing reducing its liabilities by using its own assets.
Conclusion
Samsung just like every other company which does not want to be bankrupt focuses on its net
working capital ratio and calculations. This ratio and calculation can help Samsung to avoid
pitfalls. By the help of the analysis above, it can be clearly said that the working capital of the
company has risen. But this statement might not be entirely a positive one. Sometimes, high
working capitals may indicate that the company is not using its assets effectively. In other
words, investors may conclude that the company is not effectively reinvesting and allowing its
cash flows to sit idle in the company. However, in the case of Samsung, one cannot easily
conclude this as their needs to be a proper financial analysis with liquidity ratios and cash flow
Bibliography
Rasheed, R., Nawaz, R., & Abbas, Y. (2012). Samsung Electronics and Apple, Inc.: A Study in
Appendix
1. Details of Assets
2. Details of Liabilities
Working Capital of Samsung