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 1.5) (Source from 07/08, 08/09, 09/10 annual reports)
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 &...