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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009
Motorola’s lower Return on capital employed will disappoint its shareholders that will bring negative influence to Motorola’s development.
The mainly reason for it may be Motorola repurchased more its shares than Nokia. During the year ended December 31, 2008, Motorola repurchased 9 million of its common shares at an aggregate cost of $138 million, or an average cost of $15.32 per share, all of which were repurchased during the three months ended March 29, 2008. During year ended December 31, 2007, the Company repurchased 171.2 million of its common shares at an aggregate cost of $3.0 billion, or an average cost of $17.74 per share. During the year ended December 31, 2006, the company repurchased a total of 171.7 million of its common shares at an aggregate cost of $3.8 billion, or an average cost of $22.29 per share.
On the Nokia side: in 2008, Nokia repurchased 86 300 000 Nokia shares
On the basis of this authorization. The authorization expired on May 8, 2008. In 2007, Nokia repurchased a total of 71 090 000 shares under this buy-back authorization, as a result of which the unused authorization amounted to 298 910 000 shares on December 31, 2008.
The purpose of repurchase its own shares is to reduces the number of shares outstanding and to increases earnings per share then to curb stock price plummeted, stimulate the stock price rebounded. That showed Motorola’s shortage and weakness in its capital. Then lose its shareholders’ trust.
Motorola is far behind Nokia in all of the three sides. In 2008 the gap of Motorola to Nokia in Gross profit percentage, Net profit percentage and Return on capital employed are respectively: 6 percent, 10 percent and 35 percent.
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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009
That is a very unfavorable situation for Motorola, through the comparison the shareholders of Motorola will found the worse position of Motorola in the industry and feel disappoint. The shareholders may give up invest to Motorola in the future. The reasons for Motorola can’t catch up with Nokia are: lesser market shares, lower productivity and higher repurchased own shares.
4. Conclusion
Motorola’s profitability position shows decline trend during 2006 to 2008 and it mainly reflected in the company’s absolute numbers trend, conventional profitability ratios trend and the gap with its major competitor Nokia.
Firstly, Net sales, Gross margin and Net profit before tax, the three of most important Absolute numbers are all decreased in the 3 three years. The Net sales down lowed 33% during 2006 to 2008, Gross Margin in 2008 have a 54% decreasement compare it in 2006 and the Net profit before tax plunged to $-2637 million in 2008. That shows Motorola is in a perilous stage. The poor performance was mainly coursed by dropped trend in Net sales which had influenced by the economic crisis in 2008 and the company’s increase experiences also aggravated the company’s negative performance.
Then, by the influence of its decrease absolute numbers Motorola’s profitability ratios also can’t satisfy its shareholders. In 2006 its Gross profit percentages, Net profit percentage and Return on capital employed percentage separately was: 30%, 11% and 27%, but in 2008 all of the three percentages are had a significant decrease which presented as: 28%, -9% and -28%. That is an unhealthy sign, the possible reasons for the poor performance are
Lastly, when compare with Nokia, its major competitor the position of Motorola in the industry become more dangerous. In Gross Profit Percentage Motorola had 5
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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009
percent lower than Nokia in 2008. For the Net profit percentage Motorola in 2008 was -9% compare to 0.9% of Nokia in 2008. The deepest gap of two companies was showed in Return on capital employed percentage, in 2008 Motorola was minus 28 but Nokia presented 7% of it. That tells Motorola is in a negative position of the industry. The main reasons for it is Motorola has fewer market shares, lower productivity and higher repurchase shares than Nokia.
5 Recommendations:
?
Through the analysis shareholders will found out that Motorola is in a dangerous position right now, it has drop ability in making profit, has little market share and high expenses. That is not a good choice to invest, I suggest shareholders of Motorola should think carefully before continue their investment to Motorola and the potential shareholders should consider more choices. ?
Even though Motorola is in a hard period but it still worth shareholders pay more attention and look it as a invest choice, because Motorola has a long history it was the most successful Company in the industry that shows Motorola has lots of experiences and they will over the hard time. Otherwise, Motorola has already realized their problems and they started solve the problems by take some of measures like: control the expenses by optimize their organizational structure, pay more attention on design and deliver differentiated and innovative products and services to expand their market share.
6 Reference
“Motorola Completes Sale of 25 Million of Its 108 Million Shares of Nextel”, (2008, November 30) Available:
http://biz.yahoo.com/prnews/030304/cgtu025_1.html (Accessed: 2008, November
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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009
30).
“Motorola Sells $325M of Nextel Stock”, (2009, may 1) Available:
http//biz.yahoo.com/ap/030305/Motorola_Nextel_1.html (Accessed: 2009, may 8).
“Nokia Unveils New Phones to Crack CDMA Market”, (2009, November 2). Available:
http://biz.yahoo.com/rc/030317_tech_nokia_handsets_2.html (Accessed: 2009, November 20).
“Nokia, Motorola Lose China Market Share to Domestic Companies”, (2009, November 2). Available:
http://biz.yahoo.com/djus/030314/0020000011_1.html (Accessed: 2009, November 2).
“Reiter, Chris. Mobile Phone Sales Rose 6% to 423 Million Units Last Year, Dow Jones Business New”, (2009, November 28) Available:
http://biz.yahoo.com/djus/030309/2037000327_3.html (Accessed: 2009, November 30)
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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009
1. Meeting the objectives 1.1 S(specific)
I set specific objectives when I start my report writing, the Objectives are: I will try to use Motorola’s annual report during 2004 to 2008 to raise the veil of its financial situation by analyze Motorola’s cash flow position and profitability ratios. Then to help the shareholders of Motorola to have a clear see of this company’s advantages, disadvantages and the risk in the future then do the best invest. The main objective of the project should be achieved within 17 weeks in 30, December.
1.2 M(measurable)
The objectives I set were also measurable, I set two criteria for my analysis that are: ?
I will indicate the company’s cash flow position by analyze the company’s cash flow trend. ?
I will show the shareholders Motorola’s position by compare with its major competitor, Nokia.
1.3 A(attainable)
I had problems in this side. Originally, I am going to set two Criteria to analyze Motorola’s profitability position that's: the company’s cash flow trend during 2005 to 2008 analysis and comparison of its profitability ratios during 2005 to 2008 with its major competitor Nokia’s profitability ratios.
But I found the Objectives are not achievable when I practice. ?
Firstly, it is hard for me, the beginner to analyze Motorola’s cash flow trend. The Cash flow analysis on Motorola is very complex and it involves much knowledge which I still do not learned in class. If I persist to analyze Motorola’s cash flow trend then I have to learn more professional knowledge, that will not only spend much more time may can’t fish at deadline but also will face much more risk like: can not pass the examination.
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