Oxford Brookes University

BSc (Hons) in Applied Accounting

Research and Analysis Project

CONTENTS OF THE DOCUMENT A. KEY SKILLS STATEMENT B. RESEARCH AND ANALYSIS PROJECT.

By: Muhammad Waqar Ali Registration Number. 0656390

 KEY SKILLS STATEMENT

By: Muhammad W Ali Registration Number. 0656390

Key Skills Statement

Total word count: 1478

1 PREPARING FOR MEETINGS

1.1 PLANNING

Definitions of planning * an act of formulating a program for a definite course of action; "the planning was more fun than the trip itself" * the act or process of drawing up plans or layouts for some project or enterprise * the cognitive process of thinking about what you will do in the event of something happening; "his planning for retirement was hindered by several uncertainties" (wordnet.princeton.edu/perl/webwn) Planning plays a very vital role in achieving success. It is like the foundation brick of the entire building and if this brick is not laid properly then the consequences faced are inevitable. The importance of planning can be judged from the famous proverb He who fails to plan, plans to fail Therefore knowing that good planning is the first step towards the success of my project, I carefully planned everything i.e. the timings, topic e.g. I initially went thoroughly through the ACCA guidelines to understand what was required and on gaining a through understanding I then processed towards the next important step which was to choose the topic. I went through all the topics and reduced the list by choosing a few that I wanted to pursue with. Then I started my research and narrowed down by choice even further until I reached the decision to go with the current topic. Following that I quickly formulated a strategy as to how I would do the work i.e. how to conduct the search? when to start?, what dates to plan for the meetings? e.t.c 1.2 PREPARATION Having found the answers to all the above questions, the next important question that needed answering was who to choose as a mentor? I gave a deep thought and then concluded that the mentor can be the person you have worked under his supervision, and for this reason I selected my line manager at ASDA STORES LTD STEVENAGE. Mr. Dean Shelton who is my line manager from August 2007, and would be my perfect mentor and who would be able to take me through the project successfully. As a result I approached my mentor who was very willing to help and we scheduled our first meeting. In the meeting I introduced my mentor to the topic I chose giving a brief background backed by reasoning and he was contented with my decision. I also informed him about the sources accompanied with the means and methods I planned to use. The first meeting was a successful one as my mentor was satisfied and I was confident that I had properly communicated the reasons and objectives of the topic I chose. Until the next meeting I just focused on gathering information from different resources Our second meeting was scheduled for 3rd March and in this I demonstrated all the information and knowledge that I had pooled in from various resources. I did not

encounter many problems in gathering the information even though it was a very time consuming process however, I had some issues that were pending as I needed some consultation from my mentor. I put them forward and got them resolved from my mentor. Our third and final meeting was held on 30th March. I was very confident about the presentation because I had a clear set of mind with transparent aims and objectives and was absolutely certain in what I had done and was doing. My mentors satisfaction in all the meetings was a clear reflection of this.

2. QUESTIONING
During the meetings, there were numerous questions that were raised by my mentor as well as by me from which I learned how important it is to select right type of questions. The questions, which are focused and properly directed, can lead to discussion, which ends in providing a broader perspective. On the contrary, erratic and unfocused dialogue leads to ore confusion. It is, therefore, necessary to follow different questioning techniques depending upon the subject matter. Ensuring a productive discussion required that I note down all the questions that I had faced concerning my project as well as the questions that my mentor might have raised. Those questions, which I had written down, helped me during the meeting. As mentioned above, the different questioning styles ensured a more productive discussion, enabling me to understand my mentors requirements. For example, during my second meeting, my mentor questioned my way of searching for source material. At first I was confused and thought that he meant to discourage my approach or disapprove of it but after afterwards I understood that what my mentor actually wanted was a more thorough reasoning for following that approach and wanted me to elucidate it more clearly.

3. LISTENING
Listening is an active process and an aspect of oral communication. Listening was important for me to ensure that my meetings with my mentor were beneficial to me. Therefore, I employed the following listening techniques to ensure that I clearly understood my mentors viewpoint and avoid any misunderstandings: Attentive listening Listening for content Critical listening Emphatic listening

There is often a strong tendency to pre-judge others before hearing what they have to say and to filter out difficult and undesirable messages. However following the above mentioned techniques allowed me to ensure that my mentor got enough opportunities to express his view points and that I was able to absorb their real meaning and purpose. I also

tried to maintain an eye contact so that I would not miss any subtle hints attached with the message. This eye contact also helped me in disregarding any noise that I could encounter and to avoid the law of least effort. Having chosen a calm environment for our meetings with the least possible physical and technical noises, my mind was actively engaged in receiving, interpreting and storing information. This happens when you trust the source of the message to be correct & objective and this encourages further communication.

4. THE PRESENTATION
In the last meeting I first showed him my report. He went through it and then asked me to give him a short oral presentation on the research. I delivered the whole presentation in twenty five minutes in which starting from the topic chosen I directly summarised the analysis and concluding section of the report. My research was based on the analysis of financial performance of the LM Ericsson Telephone Co. therefore I started with brief history about the company, then I explained about the financial analysis with comparative figures and the competition analysis with financial data of the key players in Telecommunication equipment industry and sector. My presentation was a successful one with my mentor being very pleased with it. My strengths for my presentation included having a strong grasp of knowledge and good presentation skills. However, I would say my weaknesses included, being a little nervous initially, and some sections of the report not being adequately presented whereby my mentor had to follow up with questions.

5. SELF ASSESSMENT OF INTERACTION

I have already mentioned above that I personally feel that all the meetings with my mentor went very well and resulted in a good understanding. Communication between my mentor and I was an example of horizontal communication, where information was exchanged more rapidly and effectively. In any communication, the message passes through perceptual filters such as words, paralanguage, and nonverbal behavior etc. I considered them as key elements of successful communication therefore I duly cared about the words and the language I used during my presentation. They were simple but comprehensive and easily understandable. Further I carefully considered the importance of voice while my presentation. It helped me convey enthusiasm, confidence, serenity and other state of mind and intent. The timings of speech, increasing and decreasing tone, varying pitch and other aspects of speech patterns increased my ability to influence my mentor. I also took good care of my facial expressions and gestures.

6. OUTLINE OF THE PRESENTATION

TOPIC CHOSEN: RESEARCH ON: REASON FOR CHOOSING THE TOPIC: An analysis of the financial situation of your choice of organisation LM Ericsson Telephone Company. Strong Interest in the finance sector Topic in line with educational competence i.e. also an accountancy/finance student Impressed by growth and technology in the mobile industry mobiles arent just simple phones these days Library databases Books Internet Financial reports of the company Newspaper reports and Journal articles Discussion with knowledgeable people Analyze and appraise the financial situation of L M Ericsson. Head office in Sweden. Net sales of 187.8 SEK billion 74,011 employees Sales in more than 130 countries Internal analysis Comparing performance of Ericsson against its previous years

SOURCES USED TO GATHER INFORMATION:

OBJECTIVE BRIEF DESCRIPTION OF Ericson (2007)

STRUCTURE OF REPORT: / TECHNIQUES USED

External Analysis Analyzing Ericssons performance relative to the sector/industry in which it operates in Comparing Ericssons performance against its biggest competitors

AN ANALYSIS OF THE

FINANCIAL SITUATION OF YOUR CHOICE OF ORGANISATION

By. Muhammad Waqar Ali Registration Number. 0656390

1. INTRODUCTION

1.1

TOPIC CHOSEN AND ITS CONTEXT

The topic chosen for my research and analysis project is:

An analysis of the financial situation of your choice of organization

An organization or a company is an amalgam of many stakeholder groups with its own interests with a common goal of profit and long term stability of the company. This essential factor can be adjudged by evaluating the financial situation of the organization which will help to make a judgment on the current and future position of the organisation. And the groups that would be particularly concerned with this analysis are the current and potential investors. The people or groups who invest in the organization are very sensitive towards the financial analysis of the companies and the figures that they produce, because accounts are open to fraud and deception, techniques like creative accounting, profit smoothing and window dressing can be used to deceive investors and these have brought disrepute to the profession of accountancy Further more, big corporate failures like WorldCom and Enron have brought investors to their knees and have drastically increased the need of such analysis with considerably more detail and transparency than it used to be . The most common and straightforward method of examining the financial situation of the company is simply to analyse the financial statements and compare the current financial year with the previous one and to analyse and rationalise any changes. This is known as horizontal analysis, but its formal title is hardly important as it amounts to the application of basic common sense in use since the begging of accounting. It is a form of inter temporal analysis, i.e. a comparison between accounting periods. The line by line comparison must be performed whist also considering: 1.2 The change in the annual turnover The relevance of anything else you may know about the company (FTC, 2007)

REASONS FOR CHOOSING THE TOPIC

Being a finance and accountancy student and one who has always been fascinated by figures and numbers, it would not be much of a surprise for me to choose this topic. I have always been enamored by the business sector which is one of the main reasons I chose it as my profession. The strong affinity and interest in the finance sector is what enabled me to work on this topic. I am very much impressed by the impact of technology on broadcasting and telecommunication. This means no physical presence is required for communication these days. We are thus freed from space in our interpersonal communications. This freedom from space did not begin with the facsimiles and long-distance phone calls of the twentieth century; it really began to evolve with the invention of mass communication. We have the technologies of Samuel F.B. Morses telegraph, Alexander Graham Bells telephone, Guglielmo Marconis radio, and Philo Fransworths television, added them to

the technology of the computer, and come up with a whole new way of communication with each other. (Kethryn A. Marold & Gwynne Larsen) The first ever mobile phone that was made was launched in April 1973 in New York and the technology was incorporated by Motorola. In Britain the first call on a mobile phone was made in January 1985 and within 20 years mobile phone has become an integral part of life and almost 90% of the Britons now own a handset and many prefer it as their only phone rarely using a landline. (www.bbc.co.uk) Today we can see that mobile technology has impacted the business world profoundly over the last few years at a rapid pace with colour phones, cameras, radios e.t.c , smart phones like blackberry are an integral part of a savvy business man , These reasons allowed me to take greater interest in analysing the accounts of a mobile producer/manufacturer to appraise its financial situation over the years and how it has been affected. This is why I chose this topic and the organisation that I focused upon is LM Ericsson Telephone Company, the market leader in the mobile industry. 1.3 AIMS AND OBJECTIVES OF THE REPORT

My main aim and objective of the report is to analyse the financial situation of the company/organization. This usually includes interpreting the financial statements to give a comparison of the turnover and other factors no only with in the company but that of its competitors over a period of years to examine performance and trends of the industry. Other comparisons may include those on an interim basis, with published industry average figures. Users of accounting information are interested in a number of concepts, which include: Profitability Liquidity Management efficiency Risk Shareholder interest

(Student accountant, Jan 01 issue)

My research and analysis is based on LM Ericsson a world leader in mobile communications network, contributing to the growth and sustainability of the broader mobility industry. So therefore I would examine and compare the financial statements of Ericsson over the years to determine its past performance and trend and would also demonstrate a competitor analysis to judge how well has Ericsson done relative to its next biggest competitor. Lastly I would inspect the future forecasts laid down by Ericsson to judge the performance and stability of the company in the future. And these comparisons therefore would focus and take into account all the stakeholder interests stated as above.

2. INFORMATION GATHERING

2.1

SOURCES USED AND REASONS FOR THEIR USE

Information gathered from different sources can be divided into two categories: Primary data: Data which is collected specifically by, or for the user e.g. directly by means of interview, questions forms, surveys etc. Secondary data: Data which is neither collected specifically for or by the user e.g. newspapers, research of other and third party information. (BPP, 2008) Primary data is more reliable than secondary data but being more time consuming as I am bound by time constrictions; my report mainly comprises of secondary data. The sources I used to gather information are as follows: My main source of information was books and reports comprising of a vast amount of research made by financial experts who have a greater understanding of the field. I also had a lot of research conducted on the internet as with the passage of time everything is getting electronically modified this was a great help. I also went thoroughly through the past and current financial accounts of the company and its competitors as a major part of my project is based on their analysis. I also conducted a market research on the industry itself so as to know about Ericssons more relative to the market in which it operates. My next targets were the newspapers and journal articles to keep myself updated with the ongoing events. Lastly I had some questioning done with the people in general who are familiar with the field to get a grasp of any knowledge that would be helpful and to give me a clear understanding.

2.2

METHODS USED TO GATHER INFORMATION

LIBRARY VISITS

As soon as I selected my topic my first priority was to visit the libraries as they are the trough of knowledge. I chose to visit the Hertfordshire Library Stevenage. I spent hours there conducting research on my topic. I found quite a few important researches made by famous investment analysts which were very useful for me. The library had all the annual reports for all the UK and overseas companies which helped me to gain all the annual reports and financial statements for Ericsson. There were other books, newspaper and journal articles over there that were very constructive and handy. The library helped me to get hold a few books that were very essential and helped me to have a deeper understanding of the topic so that I could apply it to the case/organisation. Also my ACCA 2.5 and P2 text books (Financial Reporting and Corporate Reporting) gave me a lot of insight that was very constructive for me. The internet is a very powerful and helpful tool and can give you access to a pool of information. I browsed a few sites and extracted the relevant information that was required. Newspaper and journals are the best form of information to keep oneself in touch with the environment and current events. Previous searches helped me to have an insight of the past performance of Ericsson however, in order to know the future stability and prospects of Ericsson, the analysis columns in various newspapers and journals helped me fill the gaps , especially The Financial Times. The companys (i.e. Ericsson in my case) financial statements were probably the most vital information because the entire analysis was depended upon them. They provided me with a lot of information for me to reach considerable conclusions and I thoroughly went through all the statements to achieve a sound analysis for Ericsson.

BOOKS

INTERNET

NEWSPAPER AND JOURNAL ARTICLES

COMPANY FINANCIAL STATEMENTS

3. ANALYSIS

3.1 THE VISION, HISTORY AND ACTIVITIES OF ERICSON.

3.1.1 THE VISION. To be the prime driver in an all communicating world. A world in which all people can use voice, text, images and video to share ideas and information whenever and wherever they want. As leading supplier of communication networks and services, Ericson plays a vital role in making such a world a reality. 3.1.2 THE HISTORY. Ericsson is a leading Swedish-based provider of telecommunication and data communication systems, and related services covering a range of technologies, including mobile phones. Founded in 1876 as a telegraph equipment repair shop by Lars Magnus Ericson, it was incorporated on August 18, 1918. Headquartered in Kista, Stockholm, since 2003. Since the mid 1990s, Ericsson's extensive presence in Stockholm helped transform the capital into one of Europe's hubs of Information Technology (IT) research. In the early 20th century, Ericsson dominated the world market for manual telephone exchanges but was late to introduce automatic equipment. The world's largest ever manual telephone exchange, serving 60,000 lines, was installed by Ericsson in Moscow in 1916. Throughout the 1990s, Ericsson has held a 3540% market share of installed cellular telephone systems. Like most of the telecommunications industry, LM Ericsson suffered heavy losses after the telecommunications crash in the early years of the 2000s, and had to retrench tens of thousands of staff worldwide in an attempt to staunch the losses. The handsets division got a fresh start in 2001 in the form of a joint venture with Sony called Sony Ericson. LM Ericsson is a major provider of handsets and an infrastructure supplier for all major wireless technologies. It has played an important global role in modernizing existing copper lines to offer broadband services and has actively grown a new line of business in the professional services area. (Source. Wikipedia, www.datamonitor.com, Ericsson Annual; report 2007).

3.1.3 ACTIVITIES. Ericson divided its operation in four segments. NETWORKS. Provides network infrastructure, communications and network service platforms. This is the largest business segment of Ericson. Network sales are 69% of total sales in 2006/7. PROFESSIONAL SERVICES. Services portfolio includes capability in consulting, education, systems integration, managed services, network rollout, deployment and optimization and technical/customer support services for more than 800 networks. MULTIMEDIA. This segment develops the multimedia solutions (IPTV, mobile TV, music, SMS & MMS), and acts as a facilitator to match operators and service providers with the right tools to distribute media and internet content to their customers. PHONES. Sony Ericson Mobile Communications is a 50/50 joint venture between Ericson and Sony Corporation. In 2007 SonyEricson sold over 100 million handsets, 18 percent more than previous year. (Ericsson Financial Reports 2007)

3.2 INTERPRETATION OF THE FINANCIAL STATEMENTS FOR LM ERICSSON TELEPHONE CO.

One of the best ways and in fact the main indicator of the companys financial situation and its performance is to carry an interpretation of its financial statements, also known as ratio analysis and to compare its performance . I would therefore initially conduct the analysis with relation to Ericson and give a comparison with its previous year. FOUR MAIN GROUPS OF RATIOS AND ITS SUMMARY, PROFITABILITY. Reflects on the Performance of companies and its managers i.e., ROCE, Gross and NET profit as percentage of sales revenue. MANAGEMENT EFFICIENCY. Reflects on the efficiency of asset usage i.e., Inventory turnover, Debtors collection period, Creditors payment period. FINANCIAL. It reflects on financial structure and stability of the company i.e., Equity to assets ratio, Currant and liquid ratio. INVESTMENT. Relationship of the number of ordinary shares and their price to the profits, dividends and assets of the company i.e., EPS, P/E ratio, Dividend yield, Dividend cover, Net Assets per share.

We would therefore look at the key ratios that are vital for the financial analysis of Ericson. 3.2.1
KEY RATIO
Return on capital employed (ROCE) = Profit before taxes + interest and other net financial expenses Average capital and reserves attributable to equity holders of the parent + short-term borrowings + long-term interestbearing liabilities (including the current portion thereof) + minority shareholders interests

PROFITABILITY RATIOS
2007 2006 CHANGE COMMENTS Return on capital employed is the key business objective and is also known as the primary ratio because it is often the most important measure of profitability. It reflects the earnings power of the business operations and shows how efficiently a business is using its resources. We can see that there is an downward change of 6.5% in the ROCE for Ericson, results from increased borrowings and provisions (used for funding new acquisitions during the year). Return on shareholders equity is a key measure of success from the shareholders point of view. It therefore demonstrates how successful the company is in using the funds provided by shareholders to generate profit. There has been a negative -6.5% change from the previous year which shows not good accumulation of funds to generate profits for the shareholders. Operating profit margin reflects the degree of competitiveness in the market, the economic situation, the ability to differentiate products and the ability to control expenses. We can see that there has been a 3.6% decrease in the operating profit margin which is reflected by the increase in expenses such as research and development and selling and distribution.

20.9%

27.4%

- 6.5%

Return on shareholders equity = Profit attributable to equity holders of the parent Average capital and reserves attributable to equity holders of the parent during the year

17.2%

23.7%

- 6.5%

Operating profit margin = Operating profit (i.e. profit before interest, taxes and investment income) Sales revenue

16.3%

19.9%

-3.6%

3.2.2
KEY RATIO

FINANCIAL RATIOS
2005 2004 CHANGE COMMENTS Equity to assets ratio tells us what proportion of total assets is financed by equity and hence what proportion if financed by loans and non equity shares. A low equity ratio indicates that much of the business is financed by loans and a high one indicates that most or all of the long term capital is equity. Ericson still has a high equity ratio indicating that more than 50% of its total assets is financed by equity, however, there is a decline of 1.1% indicating that more proportion of the assets are being financed by loans or non equity shares. Current ratio measures the adequacy of current assets to meet short term liabilities so as to know whether the company is in a position to meet these liabilities when they fall due. The current ratio of Ericsson is still very high and shows enough adequacy even though there has been a fall of 5.58%.

Equity ratio = Capital and reserves attributable to the equity holders of the parent + minority shareholders interests Total assets advance payments received

55.1%

56.2%

- 1.1%

2.03:1
Current ratio Current assets Current liabilities

2.15:1

-5.58%

3.2.3
KEY RATIO

EFFICIENCY RATIOS
2005 2004 CHANGE COMMENTS This presents the credit period taken by the company from its suppliers. It is like a source of free finance so generally the higher it is the better The credit period for Ericson has increased by 5.5% which indicates that they can pay slightly later than before This ratio measure the average period of credit allowed to customers. An increase in this measure might indicate that the company is building up cash flow problems. The increased 20% credit period to customers is due to increased growth in turnkey projects and markets with longer payment terms. This measures the average period during which stock of goods are held before being sold or used in operations of the business. The unchanged inventory turnover period is a good sign in the year of growth and expansion.

Accounts payable payment period = Accounts payable ______________ X 365 days Credit purchases.

57 days

54 days

+5.5%

Accounts receivable collection period= Trade receivables 365 days Credit sales revenue

102 days

85 days

+20%

Inventory days = Average stock held 365 Cost of sales

5.2 days

5.2 days

0%

3.2.4

INVESTMENT RATIOS

KEY RATIO
Dividend per share = Nominal dividend per share The adjustment coefficients of the share issues that have taken place during or after year in question *Board proposal

2007

2006

CHANGE

COMMENTS Dividend per share is one of the key measures announced by the company at the end of the financial year so the shareholders immediately know what to expect in total dividend depending on the shares held. Dividends are thought to carry a signal to the market of the strength and stability of the company. The unchanged dividend per share in the year when decreases in share prices were observed is a good sign. This is the most frequently quoted measure of company performance and progress. It is used primilarily as a measure of profitability, therefore increasing EPS is seen as a good sign. The EPS for Ericson has fallen by 16.9% which is because of increased number of shares and reduced profits in 2007. This is the relationship between available profits and the dividends payable out of the profits. It shows the number of times the dividend has been covered by the profits of this year. An increase is observed in dividend cover, which suggest that the dividend is safe and it is likely that the current level of dividend will be sustained in the future. The P/E ratio (also known as earnings multiple) compares the amount invested in one share with the earnings per share. It represents the markets consensus of the future prospects of the company. The higher the ratio, the faster the growth the market is expecting in the companys future EPS and longer the earnings sustained We can see that Ericsons P/E ratio has decrease by 6% which is because of lower share prices and reduced EPS. The dividend yield is an indicator of the relationship between what the investor can expect to receive from the shares and amount invested in them The yield for Ericsson has increased by 82.77% resulted from decrease in share price in 2007.

0.50*

0.50

0%

Earnings per share (EPS) = Profit attributable to equity holders of the parent Average of adjusted number of shares during the year

1.37

1.65

-16.9%

Payout ratio / Dividend Cover = Dividend per share Earnings per share

37 Times

30 Times

+7%

Price earning ratio = Share price Earnings per share

11
* Based on the current and most latest share price i.e. 17.12 (www.reuters.com)

17

-6%

Dividend yield = Dividend per share Share price

3.29%

1.8%

+82.77%

(www.reuters.com), (www.morningstar.com), (Ericsson financial reports 2007), (ACCA BPP TEXT P2).

3.3 INDUSTRY AND SECTOR COMPARISON FOR ERICSON.

After analysing the company internally i.e. comparing accounting periods, the next step is to analyse its financial situation externally i.e. relative to the industry and sector that it operates in. The table below gives a comparison of Ericsson relative to the industry, demonstrating us how well or bad does Ericsson do against the sector and industry in which it operates:
1-Day Price Description*1 Change % -0.603 -0.212 3.46 2.57 2.66 -0.54 -0.76 Market Capitalisation 5130.66B 357.49B 12.83B 30.42B 22.59B 120.84B 65.28B P/E 19.764 19.3 NA 8.427 NA 10.986 19.965 ROE % 13.731 17.1 -22.518 17.178 -0.644 53.887 22.978 Dividend Yield % 2.209 1.74 6.3 0 2 2.5 1.6 Debt to Equity 0.656 0.192 0.368 0.203 0.28 0.086 0.006 Price to Book 6.349 5.78 0.588 1.368 1.468 5.245 4.225 Net Profit Margin (mrq)*2 8.48 10.3 -7.931 10.36 1.037 11.675 31.434 Price to Free Cashflow (mrq) 25.772 118.7 -70.905 15.4 42.618 56.116 125.844

Sector Industry Alcatel-Lucnt Ericsson Motorola Inc. Nokia Corp. QUALCOMM

1.
2.

All figures are in US $ mrq = Most recent quarter

(finance.yahoo.com)

3.4 COMPETITOR ANALYSIS We also need to analyse the financial situation for Ericsson relative to competitors to judge its performance comparatively. This can be done so with the help of following tables. Telecommunications Equipment Makers Ranked By Sales. Company Nokia Corp. Motorola Inc. Cisco Systems Inc. L M Ericsson Alcatel-Lucent Nortel Networks QUALCOMM Inc. (www.finance.yahoo.com) Price 30.91 9.50 24.18 18.81 5.61 6.53 39.72 Change 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Market Cap. 118.88B 21.42B 144.14B 29.91B 12.67B 2.85B 64.04B P/E 10.66 N/A 18.80 08.18 N/A N/A 19.59

Direct Competitor Comparison

Description
Market Cap. Employees Qrtly Rev Growth Revenue Gross Margin EBITDA* Oper Margin Net Income EPS P/E P/S

Ericsson
29.91B 74,011 0.50% 31.57B 39.15% 5.30B 12.23% 3.67B 2.3 8.18 0.96

Alcatel
12.67B 89,370 50.40% 25.98B 32.67% 1.31B -3.06% -3.62B -1.167 N/A 0.49

Motorola
21.42B 66,000 -18.20% 36.62B 28.22% 1.35B 1.21% -105.00M -0.021 N/A 0.58

Nokia
118.88B 65,324 34.30% 80.75B 34.51% 13.14B 13.91% 11.39B 2.9 10.66 1.49

Industry
76.31M 267 13.30% 71.99B 38.06% 1.41M 0.39% -1.54 N/A 20.91 1.16

Source. www.finance.yahoo.com.

4. CONCLUSION

4. SWOT ANALYSIS

I would like to conclude my report by performing a SWOT analysis on the Ericson thus identifying its strengths which it can build on to further improve its performance, its weakness which need improvisation so that they dont effect the company, its opportunities which it can exploit in order to further enhance its market share and profits and its threats which it needs to monitor in order to reduce its business and financial risk.

4.1 Strengths
Strong Revenue Growths. Ericsson has recorded a strong revenue growth over the past three years. The company recorded revenues of SEK187,780 million ($30,674.8 million) during the fiscal year ended December 2007, an increase of 22.5% over 2005. This is a result of expansion in new markets, which considerably increased its market share. Diversified operation. The company conducts business in more than 175 countries, with a significant proportion of business in emerging markets like Asia Pacific, Latin America, Eastern Europe, the Middle East and Africa. Western Europe, the company's largest geographic market, accounted for 52.7% of the total revenues for the fiscal year 2007.The company derived 48.7% from Central and Eastern Europe, Middle East and Africa in the same period. The company recorded 54.6% sales in

Asia Pacific which is 14% more than last year. There is also considerable increases in revenue recorded from sales in Latin and North America. The company also has a diversified customer base. Ericsson serves a broad base of more than 600 customers in over 175 countries, including the largest mobile operators in Europe, North America, Latin America, Asia, Middle East and Africa. The company has a customer base of more than 425 network operators. Diversified geographic presence and diversified customer base reduces the business risk of the company. (Figure: Sales by Countries)

4.2 Weaknesses
Decline in Share Price. While this year was a dynamic and eventful one for Ericsson, it was a disappointing time for investors, suffered from the significant share price decline. The price of Class A shares at the last day of trading in 2007 was recorded 15.36 SEK as compared to SEK 27.60 in 2006, a 44% decrease. If this situation continues it will break the investors confidence and may result in financial and operational difficulties in future. Decline in research and development expenditure. The companys research and development expenses declined in the recent four years. Research and development expenses as a percentage of sales were 17.7%, 16.1%, 15.3% and 15.3% for the years 2004, 2005, 2006 and 2007 respectively. Decline in research and development expense may adversely affect the product development efforts of the company, which, in turn, has negative implications for revenue growth.

4.3 Opportunities.
Expansion in emerging markets. The company is expanding in the growth markets. In 2007 Ericson was entered in agreements with Warid telecommunications Limited Pakistan, Personal, a leading Argentinean operator, China Unicom, BSNL India, CMPak Pakistan, Telecom Egypt the largest fixed operator in Middle East and Africa, and IDEA cellular India. This will result in growth of market share and revenue. . New opportunities. Television-internet protocol, IPTV is expected to illustrate the largest growth and by 2012 is expected to be in approximately 19.3 million households. As a whole, it is expected that around 53% of all households in the regions will have some form of pay-TV service by 2012. In this context, the recent acquisitions of Entrisphere and Redback Networks, that of Marconi in 2006 and the public offer to acquire Tandberg Television, have special relevance. They round out Ericsson's product portfolio with worldleading solutions in the fields of IPTV, optical broadband access and IP routing. The company also upgraded its high-performance Gigabit Passive Optical Network system in 2007, the EDA 1500, an important part of the company's broadband offering. The upgraded version of EDA 1500 can switch bandwidth up to 320Gbps for commercial and residential next-generation multimedia services.

Ericsson manages networks covering 100 million subscribers. Ericsson with the recent acquisitions is well positioned to tap the full potential of these opportunities . Ericsson and Texas Instruments strategic technology engagement. Ericsson and Texas Instruments (TI), the provider of silicon solutions for wireless communications, formed the strategic technology engagement to develop custom solutions for new Open OS enabled 3G devices. The collaboration between Ericsson and TI would enable handset manufacturers to deliver the exciting mobile entertainment and multimedia experiences that more and more consumers around the world are demanding. Ericsson's access technology leadership would continue to push the performance boundaries of mobile devices and mobile entertainment features. The result of the joint effort would bring to market an evolving portfolio of wireless technology platforms with Open OS support to reduce complexity, investment and time-tomarket for device manufacturers. The collaboration enhances the product portfolio of the company that addresses the requirements of the rapidly evolving mobile device market.

4.4 Threats
Consolidation among network operators. The market for mobile network equipment is highly concentrated, with the 10 largest operators representing more than 40% of the total market. Network operators have undergone significant consolidation, especially among companies operating in different countries. This trend is expected to continue, while also intra-country consolidation is likely to accelerate as a result of competitive pressure. A market with fewer and larger operators will increase the companys reliance on key customers and, the increased size of these companies, may negatively impact the companys bargaining position and profit margins. Moreover, if the combined companies operate in the same geographic market, less network equipment and associated services may be required. Another possible consequence of customer consolidation is that it could cause a delay in their network investments while they negotiate merger and acquisition agreements, secure necessary approvals, or are constrained by efforts to integrate businesses. Consolidation among network operators may increase the companys dependence on a limited number of key customers and impact its bargaining power as well as profit margins. Intense competition. The company operates in a very competitive environment. In systems segment, it competes mainly with large and well-established communication equipment suppliers. Ericssons most significant competitors in mobile communication include Alcatel/Lucent, Nortel, Huawei, and Nokia/Siemens. With respect to fixed communications equipment, the competition is highly concentrated and includes, among others, Alcatel/Lucent, Cisco, Huawei, Nokia/Siemens and Nortel. The company also competes with numerous local and regional manufacturers and providers of communication equipment and services. Competition in professional services not only includes many traditional systems competitors but also a number of large companies from other industry sectors, such as IS/IT, for example IBM, EDS, Accenture and electronics manufacturing

services companies as well as a large number of smaller but specialized companies operating on a local or regional basis. Within the segment phones, the primary competitors include Nokia, Motorola, Samsung and a number of other companies such as LG Electronics, NEC and Sharp. Intense competition would negatively affect the market share of the company. Currency risks. With the majority of its cost base being Swedish Krona denominated and a large share of sales in currencies other than Swedish Krona and many subsidiaries outside Sweden, the companys foreign exchange exposure is significant. Currency exchange rate fluctuations affect the companys consolidated balance sheet, cash flows and income statement when foreign currencies are exchanged or translated to Swedish Krona. The companys attempts to reduce the effect of exchange rate fluctuations through a variety of hedging activities may not be sufficient or successful, resulting in an adverse impact on its results.

5. ANNEXURE

5.1

Consolidated Income Statement

Years ended December 31, SEK million Net sales Cost of sales Gross margin 2007 187,780 114,059 73,721 20061) 179,821 104,875 74,946 2005 153,222 -82,764 70,458 1)

Research and development expenses Selling and administrative expenses Operating expenses Other operating income and expenses Share in earnings of joint ventures and associated companies Operating income Financial income Financial expenses Income after financial items Taxes Net income Net income attributable to: Stockholders of the Parent Company Minority interest Other information Average number of shares, basic (million) Earnings per share attributable to stockholders of the Parent Company, basic (SEK ) Earnings per share attributable to stockholders of the Parent Company, diluted (SEK )

-28,842 -23,199 -52,041 1,734 7,232 30,646 1,778 -1,695 30,729 -8,594 22,135 21,836 299 15,891 1.37 1.37

-27,533 -21,422 -48,955 3,903 5,934 35,828 1,954 -1,789 35,993 -9,557 26,436 26,251 185 15,871 1.65 1.65

-24,059 -16,800 -40,859 1,090 2,395 33,084 2,653 -2,402 33,335 -8,875 24,460 24,315 145 15,843 1.53 1.53

5.2

Consolidated Balance Sheet

December 31, SEK million ASSETS Non-current assets Intangible assets Capitalized development expenses 3,661 4,995 2007 2006

Goodwill Intellectual property rights, brands and other intangible assets Property, plant and equipment Financial assets Equity in joint ventures and associated companies Other investments in shares and participations Customer financing, non-current Other financial assets, non-current Deferred tax assets Current assets Inventories Trade receivables Customer financing, current Other current receivables Short-term investments Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity Stockholders equity Minority interest in equity of subsidiaries Non-current liabilities Post-employment benefits Provisions, non-current Deferred tax liabilities Borrowings, non-current Other non-current liabilities Current liabilities Provisions, current Borrowings, current Trade payables Other current liabilities Total equity and liabilities 1)

22,826 23,958 9,304 10,903 738 1,012 2,918 11,690 87,010 22,475 60,492 2,362 15,062 29,406 28,310 158,107 245,117

6,824 15,649 7,881 9,409 721 1,921 2,409 13,564 63,373 21,470 51,070 1,735 15,012 32,311 29,969 151,567 214,940

134,112 940 135,052 6,188 368 2,799 21,320 1,714 32,389 9,358 5,896 17,427 44,995 77,676 245,117

120,113 782 120,895 6,968 602 382 12,904 2,868 23,724 13,280 1,680 18,183 37,178 70,321 214,940

5.3

Consolidated Statement of Cash Flows

Years ended December 31, SEK million Operating activities 2007 2006 2005

Net income Adjustments to reconcile net income to cash Changes in operating net assets Inventories Customer financing, current and non-current Trade receivables Provisions and post-employment benefits Other operating assets and liabilities, net

22,135 7,172 29,307 -445 365 -7,467 -4,401 1,851 10,097 19,210 -4,319 152 26,292 84 -1,053 396 3,499 27,533 -8,323 15,587 -1,291 94 -8,132 6,258 406 -1,659 29,969 28,310

26,436 6,060 32,496 -2,553 1,186 10,563 -3,729 1,652 14,007 18,489 -3,827 185 18,078 3,086 -1,353 -1,070 6,180 14,877 3,612 1,290 -9,510 124 -7,343 15,439 58 11,769 41,738 29,969

24,460 10,700 35,160 -3,668 -641 -5,874 15,574 7,266 18,491 16,669 -3,365 362 -1,210 30 -1,174 13 6,375 1,031 17,700 657 -2,784 174 -4,133 -6,086 -288 11,326 30,412 41,738

Cash flow from operating activities Investing activities Investments in property, plant and equipment Sales of property, plant and equipment Acquisitions of subsidiaries and other operations Divestments of subsidiaries and other operations Product development Other investing activities Short-term Investments Cash flow from investing activities Cash flow before financing activities Financing activities Proceeds from issuance of borrowings Repayment of borrowings Sale of own stock and options exercised Dividends paid Cash flow from financing activities Effect of exchange rate changes on cash Net change in cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period

6. BIBLIOGRAPHY

BPP (2008) P2 STUDY TEXT Wheetman, P (2003) Financial And Management Accounting, 3rd edition, England, Pearson Education Limited Annual reports of LM Ericsson Telephone Co. (2007) Marketline Business Information Centre Database/Datamonitor Database Hertfordshire Library, Stevenage.

 ACCA Student Accountant January 2001 issue Interpretation of accounts Ericsson website Morningstar.com Key ratios page Yahoofinance.com Ericsson page Reuters.com Ericsson Stock price page