Nokia Financial Position and Performance 2011

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Accounting

Index:

Company Profile 3

Reclassified Financial Statements 4

Financial Performance 6

Financial Position 8

Company Profile:

Nokia Corporation is a Finnish multinational company specialized in communications and information technology, which is headquartered in Espoo, Finland. Their products are known worldwide and they consist mainly of mobile phones, smartphones and other portable IT devices.

From its foundation in 1871, Nokia has never feared change and adaptation, making it possible for them to exploit new opportunities. They started as manufacturers of paper, which is one of the most influential communications technologies in history. Later, they added electricity generation and rubber manufacturing to their set of activities. In the late 60’s, Nokia was involved in the production of paper products, car and bicycle tires, footwear, communications cables, consumer electronics, and many other products. However, in the 90’s Nokia decided to drop many of their products in order to focus solely on the fast growing segment of telecommunications. This strategic decision proved successful, as Nokia gradually became the world leader in mobile phones. Between 1996 and 2001, Nokia’s turnover increased from EUR 6.5 billion to EUR 31 billion. However, as the smartphone market began to develop with Apple’s new iPhone and other Android-based devices, Nokia started to gradually lose market share. They suffered losses in profitability and their share price has fallen from USD 40 in 2007 to USD 3 in 2012.

In 2011, Nokia and Microsoft formed a strategic partnership for them to manufacture Nokia devices and ship them with a built-in Windows Phone OS, creating a new platform on which consumers can view their content, browse apps and enhance their productivity.

This dissertation will try to examine whether this new partnership has reversed Nokia’s recent negative trends in profitability or if Nokia’s position in the market is gradually getting weaker and weaker.

Reclassified Financial Statements:

The following is a presentation of Nokia’s reclassified consolidated financial statements.

Reclassified Balance Sheet – Financial Approach:

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*items are presented in millions of Euro.

Reclassified Balance Sheet – Functional Approach

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Reclassified Income Statement

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*items are presented in millions of Euro

Financial Performance:

Nokia Inc. has had the greatest market share in the mobile phone industry for many years. In 2007, they reached 40% market share, sold 437 million devices and had annual sales equal to €51 billion. However, in the last few years things have changed for the Finnish company. Fierce competition and the growth of the new market of smartphones has significantly shifted the balance of power and negatively affected Nokia’s financial performance. In 2009, Nokia suffered an outstanding 19.2% drop in sales which brought their annual sales down to €40.9 billion.

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This negative trend has continued over the years as other companies such as Apple Inc. and Samsung Group slowly increased their market share in the smartphone industry. In 2011, Sales dropped by 8.9% while other expenses such as Cost of Sales had a less than proportional drop, and this led to a Gross Margin decrease of 11.7%. The Gross Margin/Sales ratio shows this negative trend. However, what is probably the most significant margin is the Operating Profit, which for Nokia in 2011...
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