Financial Analysis of NOKIA

Omar Issam Al Sharbati

Abu Dhabi University
Email: 1061338@students.adu.ac.ae

Supervised by:

Professor Haitham Nobanee

Abstract:

This analysis was done to assess Nokia’s financial data, including but not limited to its assets,

liabilities, and sales. This data was collected through extensive research on financial statements

from reliable sources. For instance, Yahoo Finance was the most prominent source used to

analyze the data. The purpose of the research was to examine the ratios of Nokia. Once the data

was assessed it became evident that throughout the years Nokia as a company experienced its

downfall in sales and revenue among other aspects. 

Introduction:

Since 1865, when Nokia was founded, it has been one of the world’s largest manufacturers for

different modes of technology (Kasi, 1). From initially being a paper and pulp corporation, it

expanded to manufacturing television sets, electronics, and rubber footwear (ibid, 2). These

changes occurred for the company to expand from Finland, the country of origin, to different

parts of the world (ibid). The expansion was made possible through the appointment of CEO
Kari Kairamo in 1975, who believed that the company had potential (ibid). The new focus of

Nokia was electronic sales, which can be seen through the rise in revenues from 10 percent to 60

in eight years (1990-1988) (Reference for Business, 4).

It was one of the first to produce digital phones and was the leading company in the production

of high-quality cellular devices (Kasi, 2). For example, they ensured that their products were

durable and offered in a large price range to allow consumers of all backgrounds to afford their

products (ibid, 3) Today Nokia is used as a telecommunications company whose most prominent

sector is that of mobile devices (ibid, 1). 

To analyze the financial data of Nokia, a ratio analysis will be used. A ratio analysis is a form of

analysis used to calculate the success of a business by assessing its “profitability, liquidity, and

solvency” by using its financial statements (Ratio Analysis Overview, 1). Ration analyses can be

used to compare a company to its competitors to assess their position and improve it (ibid, 2).

Alternatively, analysts can use previous statements to predict the future profits of a corporation

by analyzing certain trends (ibid). Lastly, ratio analysis can be used to determine whether there is

excessive spending which can be reduced to increase revenue (ibid, 3).

There are 6 different types of ratios that can be used: liquidity, solvency, profitability, efficiency,

coverage, and market prospect ratios. Liquidity ratios are an assessment of the company’s assets

to determine how to deal with any debt (ibid, 3). Solvency ratios are used to measure an

enterprise’s ability to meet its debt obligation. Profitability ratios assess the expenses of the

company compared to the profit it makes, to see how profitable the company is (ibid, 4).

Efficiency ratios are used to determine if the company is using its resources to gain a maximum
profit and where costs can be cut (ibid). Coverage ratios assess a company’s current debts and

expenses to determine its future financial trends used to predict future trends (ibid). Last, market

prospect ratios’ purpose is to determine a company’s position in the market and how many

investors and stocks the company can earn (ibid, 5). All of these types of ratio analysis can be

beneficial as they can predict future trends; in doing so, they can draw attention to problems with

the financial management of the company and where improvements can occur. 

While ratio analyses can have many strengths, as shown above, it has certain limitations as well.

Firstly, it is a purely objective analysis and does not take into account brand loyalty or qualitative

aspects (Ratio Analysis Meaning, 7). Second, there is no standard to what a ratio is, therefore,

some companies may include some assets while others may discard them (ibid). In doing so,

there may not be an accurate comparison to determine market position, for example. Third, while

ratio analysis does draw attention to problems in the company, it does not provide a solution

(ibid). Fourth, it does not take into account the inflation of the market, which can then affect the

analysis as the financial statements do not contain the correct price (Limitations of Ratio

Analysis, 2).

Table 1: Financial Data (NOKIA)

Item/ Year 2019 2018 2017 2016
Current Assets 16,808,000 18,271,000 19,864,000 20,719,000
Current Liabilities 12,055,000 14,104,000 12,744,000 12,605,000
Inventories 2,936,000 3,168,000 2,646,000 2,506,000
Cash 6,171,000 7,116,000 8,582,000 9,622,000
Receivables 5,025,000 4,856,000 6,880,000 6,972,000
Total Assets 39,128,000 39,517,000 41,024,000 44,901,000
Total Liabilities 23,727,000 24,146,000 24,806,000 23,926,000
Total Equity 15,325,000 15,289,000 16,138,000 20,094,000
Sales 23,315,000 22,563,000 23,147,000 23,614,000
Cost of Goods Sold 14,989,000 14,117,000 14,008,000 15,158,000
EBIT 2,124,000 1,377,000 1,590,000 542,000
Interest 308,000 282,000 509,000 317,000
Net Income 7,000 -340,000 -1,494,000 -766,000

Reference: Yahoo Finance

Table 2 : Liquidity Ratios of NOKIA

Ratio/Year 2019 2018 2017 2016

Current Ratio 1.39 1.29 1.55 1.64
Quick Ratio 1.15 1.07 1.35 1.44
Cash Ratio 0.51 0.50 0.67 0.76

Current Ratio
1.8
1.6
1.4
1.2
1 Current Ratio

0.8
0.6
0.4
0.2
0
2019 2018 2017 2016
The current ratio shows the capability of a company to produce enough cash to pay off all its

debts once they are due. It is used around the world to measure the financial health of a

company. The higher the current ratio the stronger and more stable the company is. (Seth, 2019)

Quick Ratio
1.6
1.4
1.2
1
Quick Ratio
0.8
0.6
0.4
0.2
0
2019 2018 2017 2016

The Quick Ratio assesses the capability of a company to pay short-term responsibilities, such as

bills, and debts by having assets that are quickly converted into cash, that’s why it’s called

“quick”. The Quick Ratio is also known as the Acid test or Liquidity ratio. (Kenton, 2020)
 Cash ratio
0.8
0.7
0.6
0.5
Cash Ratio
0.4
0.3
0.2
0.1
0
2019 2018 2017 2016

Cash Ratio is a liquidity metric that demonstrates a company’s ability to take care of short term

debt responsibilities with its cash and cash equivalents. The Cash Ratio is stricter and more

conservative when compared to the Current Ratio and Quick Ratio. (Kenton, 2019)

As the graph illustrates, there was a significant drop from the year 2016 to 2018, and from the

year 2018 to 2019 its more of a constant line with no notable changes.

Table 3 : Activity Ratio of NOKIA

Ratio/Year 2019 2018 2017 2016

Inventory Turnover 5.10 4.45 5.29 6.04
Receivable Turnover 4.63 4.64 8.74 9.42
Total Asset Turnover 0.59 0.57 0.56 0.52
 inventory turnover
7

4 inventory turnover

0
2019 2018 2017 2016

The Inventory Turnover Ratio is the amount of times a company has product turnover; this

means the amount of times it sells and replaces goods in a certain time frame (Hargave, 2020).

Receivable Turnover
10
9
8
7
6 receivable turnover
5
4
3
2
1
0
2019 2018 2017 2016
Receivable Turnover Ratio assesses a company’s efficiency by measuring how efficiently it

collects revenue and whether it uses its assets efficiently; thus, making it an efficiency ratio.

Receivable Turnover Ratio is also called Accounts Receivable Turnover Ratio or Debtor’s

Turnover Ratio. (Murphy, 2020)

total asset turnover

0.6

0.58

0.56
total asset turnover
0.54

0.52

0.5

0.48
2019 2018 2017 2016

The Total Asset Turnover Ratio calculates the organization by which a company uses its assets

to produce sales. The Total Asset Turnover Ratio calculates the net sales as a percentage of its

total assets. (Hayes, 2020)

Unlike the Inventory and Receivable Turnover Ratios, the Total Asset Turnover Ratio is the only

one that is always increasing.

Table 4: Debt Ratios of NOKIA

Ratio/Year 2019 2018 2017 2016

Debt Ratio 0.60 0.61 0.60 0.53
Times Interest Earned Ratio 6.89 4.88 3.12 1.70
 Debt Ratio
0.62

0.6

0.58

0.56 Debt Ratio

0.54

0.52

0.5

0.48
2019 2018 2017 2016

Debt Ratio is used to measure the extent of a company’s advantage by assessing it as a ratio of

total debts to total assets. The debt ratio is then expressed in either a percentage or decimal form

(Hayes, 2019).

Times Interest Earned Ratio

8
7
6
5
Times Interest Earned Ratio
4
3
2
1
0
2019 2018 2017 2016
The Times Interest Earned (TIE) ratio, also referred to as the Interest Coverage Ratio, analyzes

the capability of a company to pay off its debts by looking at its present income (Chen, 2019).

The graph shows an obvious increase from the year 2016 till 2019.

Table 5 : Profitability Ratios of NOKIA

Ratio/Year 2019 2018 2017 2016

Return on Equity 0.00045 -0.02 -0.09 -0.03
Return on Assets 0.00017 -0.0086 -0.03 -0.01
Profit Margin 0.00030 -0.01 -0.06 -0.03

Return on Equity
0.02

0
2019 2018 2017 2016
-0.02
Return on Equity
-0.04

-0.06

-0.08

-0.1

Return on Equity (ROE) can be calculated by dividing the company’s annual return “net income”

by the value of its total shareholders’ equity. ROE statistics are usually shown using percentages.

ROE can also be expressed as a measurement of efficacy in that it analyzes whether the company

is using its assets well enough to make a large profit. ROE is considered to be the return on net

assets (Hargrave, 2020).

 Return on Assets
0

0
2019 2018 2017 2016
-0.01

-0.01 Return on Assets

-0.02

-0.02

-0.03

-0.03

-0.04

Return on Assets (ROA) is compares a company’s profits to its total assets to indicate whether

the company is indeed profitable. ROA can be calculated by dividing the net income by the total

assets. Much like the ROE, ROA is also usually expressed as a percentage (Hargrave, 2020).

Profit Margin
0.01

0
2019 2018 2017 2016
-0.01

-0.02 Profit Margin

-0.03

-0.04

-0.05

-0.06

-0.07

Profit Margin is a proportion of a company’s profits or earnings divided by its revenue. There are

three types of Profit Margin, the gross profit margin, net profit margin, and the operating profit
margin. In simple words, the Profit Margin represents what percentage of sales has turned into

profits. (Segal, 2020)

Conclusion:

After analyzing different aspects of Nokia’s revenue, sales, and profits, it becomes evident that

ratio analysis can be a very beneficial financial statement analysis (Kenton, 2019). For instance,

without such analysis, it would be difficult to determine their position in the stock market, how

much profit they were making, and whether they have excess costs which is worsening their

business (Kenton, 2019). Moreover, the ratio analysis makes it possible to gain investors,

especially when in financial trouble. 

However, it is also important to keep in mind the challenges that arise with such an analysis. For

example, this data- while objective- can often be interpreted in different ways depending on the

analyst. As such, different companies can understand the data differently depending on their

various analysis methods (Common Problems with Financial Analysis, 2016). Although this may

pose a challenge, it is still important to recognize that these financial statements are factual, and

while not perfect, are still incredibly useful in understanding a company’s finances (ibid).

It has been argued that engaging in sustainable practices can lead companies to have financial

growth as it will increase brand loyalty which in turn increases revenue and profit (Almansoori

and Nobanee: How sustainability Contributes to Shared Value Creation and Firms’ Value).

However, as evident by the analysis on Nokia, although they have adopted a more sustainable

model, their financial state has not improved. For instance, Nokia’s financial statements revealed

that the company was in a much worse state than when it first began; this can be seen through the
Liquidity ratios which illustrate that the company was at its peak in 2016. This analysis is stable

across all ratios. For instance, the current ratio in the year 2016 was 1.64 as opposed to 2019

where it was 1.39. Moreover, the quick ratio was 1.44 in 2016, while in 2019 it was 1.15. Lastly,

the cash ratio was 0.76 and it is currently 0.51. 

Similarly, for Activity ratios, Nokia was at a much stronger financial state than it currently is, as

of 2019. For example, in terms of both the inventory and the receivable turnovers, which are

currently at 5.10 (from 6.04) and 4.63 (from 9.42) respectively. However, their total asset

turnover has increased from 0.52 to 0.59. While being positive this increase is not statistically

significant, making it difficult for the company to bounce back, In other words, the current state

of the Nokia company has experienced a decrease in sales revenue. This can be seen, calculated,

and assessed through their financial statements.

On a more positive note, Nokia has recently implemented certain environmentally friendly

practices to “combat climate change” by reducing the carbon emissions emitted by their

production factories and their products themselves (Suri et al., 2019). It has been shown that the

lack of accountability from corporate companies, in this case technology corporations, worsens

the environment at a rapid pace (Almansoori, and Nobanee, 2019). Therefore, by acknowledging

their fiduciary duty by taking into account the environment during their production processes,

Nokia has seen some benefits. It has been argued that when engaging in sustainable practices,

companies will have higher benefits in the economic and performance sectors (ibid). However,

this is not the case for Nokia as the positive effects can be seen in regards to the environment

(Suri et al. 2019). Moreover, while Nokia may be lacking economic capital, it can be seen as
possessing a large amount of social capital as they have the resources to better the environment

and engage in community-oriented practices rather than economically oriented ones (Alkuwaiti

and Noabnee, 2020). Therefore, their company experiences economic profits at a low

environment cost (ibid), since they are taking precautions to reduce climate change (Suri et al.,

2019).

By engaging in sustainable practices, Nokia has gained a good reputation in comparison to other

companies who have not engaged in such practices and while they are facing an economic

downfall, their company is still progressing. This can be seen as a result of the assurance that

sustainable practices have such that sustainability ensures “that they maintain a good reputation

and survive in the long term” (AlKaabi and Nobanee, 2020).

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