Financial Statement Analysis of SONY

Saif Kulaib

Abu Dhabi University, Email: 1062269@students.adu.ac.ae

Supervised by:

Professor Haitham Nobanee

ABSTRACT

The following report states that the Sony Corporation is a brand in the electronics sector and

works as the trans-national media company, for producing and selling the goods according to the

demands of the customer. This shows that the strategies of a business and the culture of an

organization directly impact the individual who plays a major role in strategy development and

focuses on the mission of the business. Financial decisions of the organization are taken after

analyzing the financial statements and the financial ratios which will define the liquidity or

profitability position of the company. Sony has a great command over this business industry

because it is adapting itself to the changing business environment.

INTRODUCTION

Two Japanese men founded Sony in the year of 1946 7 th of May. Both invented new and unique

products by keeping in mind the needs and the demands of their customers. The company has

the caliber to complete the needs of the people by changing the technology according to the

change in environment. They worked in the sector of electronics for around 60 years. Sony

Corporation is a company that works in more than two countries so it is a transnational

corporation which means the company is based nationally. The product sold by Sony

Corporation is different from another transnational corporation because they sold information

and entertainment to customers. They sold and produced electronic items i.e. for entertainment

like movies, games, music, etc. Sony leads the market in terms of the sale of electronic items.

The organization follows the value that is based on the culture of Japan. The manufacturing of

Sony Corporation is mostly in Asia. The work comprises designing, manufacturing, marketing,

and selling electronic devices. They are also involved in providing services in the financial

sector including Insurance and also in banking operations with the help of a subsidiary in internet

banking within Japan. The major problem faced by Sony as they work in different countries so

they have to change their policy or adopt a new policy according to the business environment,

even though as they are working in this sector from previous years now they can easily identify

the problems and the needs of customers (AlFalahi and Nobanee, 2020).

The financial statement of the company is required for managing the performance of the

company. The financial analysis can be performed by using some ratios. The ratios related to

profitability are used as an instrument to calculate the effectiveness of an organization in earning

profit. If the ratios are higher than the other competitive firms or they are improving then it will

be an improvement for the company (AlMazrouie and Nobanee, 2020). The total sales or

revenue earned are compared with the different forms of expenses. The ratio indicates the
financial position of the company. The current ratio of Sony indicates that the corporation faces

difficulty while meeting the current liabilities. They are working for the perspective of the long

term so there is a need to borrow the fund from the outsider to meet the current business

obligation. Sony Company has made strategies to cope up with the society and to increase its

profits in every aspect of the business. The performance of the company can be measured by the

return on equity and the cumulative cash flow of the three-year operational activities. It has

planned its future growth by providing a corporate advantage to the company (Smith and

Nobanee, 2020). The market of the company is still not informed due to the light hold over the

capital market. Sony has the target of increased profitability and higher investment. It has made

policies by firstly analyzing the financial condition of the business by using financial ratios

which will focus on effective management and higher profitability.

LITERATURE REVIEW

We are avoiding problems and introducing new technologies that other large companies do not

require. The restructuring is performed only based on changing technology (Sony 1996, p. 24).

Akio Morita implemented new business skills that gave entry in the foreign market. Morita

worked in the market wherein the Sony product was easily accepted. In the year 1960 the first

phase of starting the Sony corporation in America.

New strategies are being used by the company to gain a competitive edge in the market and for

better planning and execution of goods and services (Rassenfosse, Jensen and Webster 2011).

The financial system of the Sony Company is governed by many rules and regulations and

changes in these regulations will affect the profit of the company (Sony, 2017).

The staff of the sales department of the Sony Company is well maintained and uses an advanced

form of technology to achieve the goals of the organization (Hamilton, 1997).

The analysis of the ratio of a company is a very important instrument to measure its performance

but they are difficult to understand because one ratio can conflict the result of another (Feroz &

et al. 2003).

The liquidity position of a company and the profit margin are related to each other. If there is

some increase in the liquidity ratio this will impact the profits, efficiency, and effectiveness of

the company (Adolphus, 2008).

DATA AND METHODOLOGY

Item/Year 2020 2019 2018 2017

Current Assets 5,735,145,000 5,246,612,000 5,176,096,000 4,355,722,000
Current Liabilities 6,240,443,000 6,079,815,000 5,620,541,000 5,221,739,000
Inventories 589,969,000 653,278,000 692,937,000 640,835,000

Cash 3,360,129,000 2,794,611,000 2,762,930,000 2,011,583,000

Receivables 1,002,920,000 1,065,802,000 1,012,779,000 953,811,000

Total Assets 23,039,343,000 20,981,586,000 19,065,538,000 17,660,556,000

Total Liabilities 18,249,808,000 16,544,896,000 15,418,381,000 14,525,134,000

Total Equity 4,125,306,000 3,746,377,000 2,967,366,000 2,497,246,000

Sales 8,259,885,000 8,665,687,000 8,543,982,000 7,603,250,000

Cost of Goods Sold 5,925,049,000 6,263,196,000 6,230,422,000 5,663,154,000

EBIT 835,822,000 825,666,000 730,363,000 434,140,000

Interest 11,090,000 12,467,000 13,566,000 14,544,000

Net Income 582,191,000 916,271,000 490,794,000 73,289,000

Source : Yahoo Finance

RESULTS AND DISCUSSION

Table 2: Liquidity Ratios of (SONY)

Ratio/Year 2020 2019 2018 2017 2021
Current Ratio 0.92 0.86 0.92 0.83 0.64
Quick Ratio 0.82 0.76 0.80 0.71 0.55
Cash Ratio 0.54 0.46 0.49 0.39

Figure 1: Current Ratio of (SONY)

Current Ratio
0.94
0.92
0.9
0.88
0.86
0.84
0.82
0.8
0.78
2020 2019 2018 2017

The current ratio is termed as the relationship between current assets and current liabilities of the

company. It tells us whether the amount of current assets is sufficient to me the current liabilities.

In the above, we can see that it in 2017 current ratio was 0.83, where else it increased in 2018 to
0.92, where is again it decreases in 2019 to 0.86, and then it increases in 2020 to 0.92.

Figure 2: Quick Ratio of (SONY)

The quick ratio is a financial ratio that helps in checking the company’s liquidity. It helps in
comparing the quick assets with that of the current liabilities. In the figure we can see that in
2017 the quick ratio was 0.71, then it increases in 2018, further, it decreases in 2019 to 0.76 and
in 2020 it increases up to 0.82.
 Quick Ratio
0.84
0.82
0.8
0.78
0.76
0.74
0.72
0.7
0.68
0.66
0.64
2020 2019 2018 2017

Figure 3: Cash Ratio of (SONY)

The cash ratio helps in evaluating the amount of cash that a corporation has concerning the
current liabilities. In 2017, it was 0.39 and then in 2018 it increases to 0.49 and in 2019 it
decreases to 0.46 therefore in the last it rises to 0.54.

Cash Ratio
0.6

0.5

0.4

0.3

0.2

0.1

0
2020 2019 2018 2017

Table 3: Activity Ratios Ratios of (SONY)

Ratio/Year 2020 2019 2018 2017

Inventory Turnover 10.04 9.59 8.99 8.84
Receivable Turnover 8.24 8.13 8.44 7.97
Total Asset Turnover 0.36 0.41 0.45 0.43

Figure 4: Inventory Turnover of (SONY)

This ratio measures how many times a company sells its stock in a given year which shows from

2017 till 2020.

Inventory Turnover
10.2
10
9.8
9.6
9.4
9.2
9
8.8
8.6
8.4
8.2
2020 2019 2018 2017

Figure 5: Receivables Turnover of (SONY)

Receivable Turnover
8.5
8.4
8.3
8.2
8.1
8
7.9
7.8
7.7
2020 2019 2018 2017

The receivables ratio is calculated to check the relationship between net credit sales and average
accounts receivable. In 2017, it was 7.97, then increases in 2018, further makes a decrement of
8.13 in 2019, and increases in 2020.

Figure 6: Total Asset Turnover of (SONY)

 Total Asset Turnover
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2020 2019 2018 2017

It discusses the company's financial leverage. It indicates the percentage of total assets that are
gained to the creditors. In 2017 it was 0.43, and in 2018 it increases, then there is a decrease in
2019 to 0.41 and further decreases in 2020.

Table 4: Debt Ratios of (SONY)

Ratio/Year 2020 2019 2018 2017

Debt Ratio 1.26 1.27 1.24 1.22
Times Interest Earned Ratio 75.4 66.2 53.8 29.9

Figure 7: Debt Ratio of (SONY)

This ratio is termed as a financial ratio that helps in knowing the composition of the companies
assets that has been financed by the debt.
In 2017 the composition of debt Financing was 1,22, it increases in both years of 2018 and 2019
and then it declines by a 0.01 margin in 2020

Debt Ratio
1.28
1.27
1.26
1.25
1.24
1.23
1.22
1.21
1.2
1.19
2020 2019 2018 2017

Figure 8: Times Interest Earned Ratio of (SONY)

 Times Interest Earned Ratio
80
70
60
50
40
30
20
10
0
2020 2019 2018 2017

Through the time interest ratio, it increases among all the years from 2017 up to 2020.

Table 5: Profitability Ratios of (SONY)

Ratio/Year 2020 2019 2018 2017

Return on Equity 0.14 0.24 0.17 0.03
Return on Assets 0.025 0.044 0.026 0.004
Profit Margin 0.070 0.106 0.057 0.010

Figure 9: Return on Equity of (SONY)

Return on Equity
0.3

0.25

0.2

0.15

0.1

0.05

0
2020 2019 2018 2017

It refers to the amount which has been earned by the equity shareholder on 1 share. In 2017 it
was 0.03 where else it rises in 2017 to 0.17 and then decreases in the year after and by 2020 it
decreases to 0.14.

Figure 10: Return on Total Assets of (SONY)

 Return on Assets
0.05
0.05
0.04
0.04
0.03
0.03
0.02
0.02
0.01
0.01
0
2020 2019 2018 2017

It refers to the return that is received on the number of assets purchased. This shows the rise from

2017 up to 2019 and then decreases in the year 2020 to 0.025

Figure 11: Profit Margin of (SONY)

Profit Margin
0.12

0.1

0.08

0.06

0.04

0.02

0
2020 2019 2018 2017

It refers to the total profit on within the year by the company. The Higher the net profit margin

better is the position of the company. The graph and the statistics of the years show that there is

an increase in 2017 up to 2019 and then falls to 0.070.

CONCLUSION
Sony corporation is considered a trans-national media company, having its operations in the

electronics sector. The financial statement of four years I e. 2020,2019, 2018, 2017 have been

considered in this study. Various trends such as current ratio, quick ratio, inventory turnover, net

profit margin have been considered for the study.

The study shows different trends in different years. Like the ideal current ratio is considered

between 0.8 to 0.92, which shows that the company does not have enough current assets when it

is compared to the current liabilities. In case of quick ratio, it has been 0.82 where else the ideal

ratio shows that the company does not have enough of the liquidity. The debt ratio of the

company is currently 0.92, which shows the company the proportion of debt in the capital

structure of the company. The higher the debt composition, the higher would be the fixed

expenses for the company. Debt raises the fixed interest expenses for the company. The net

profit margin of the company has increased from 2017 to 2019, which shows a strong financial

position for the company. The profit helps in determining the financial strength of the company.

The higher the profit, the higher the strength of Sony. The Company is providing sufficient

return to its equity holders, which helps in fulfilling the wealth maximization objective of the

firm along with profit maximization objective.

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