Business and Financial Performance of Panasonic Corporation

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THE BUSINESS AND FINANCIAL PERFORMANCE OF PANASONIC CORPORATION AND ITS SUBSIDIARIES FOR PERIOD OF 1 APR 2008 TO 31 MAR 2011 Than Aung ACCA student reg: No. 1915848 Applied Research and Analysis Paper for B. Sc (Hons) in Applied Accounting Submission 23 (2011 November 1st to 21st) 6,479 words 18 November 2011 ACKNOLEDGMENT I wish to express my heartfelt thanks to my mentor, U Aung Naing Maung Maung, B. Com, CPA, DMA, ACCA, Principal, Excellent Choice Professional Accountancy Training Centre for care thought, encouragement, guidance and support from the initial to the final stage enable me to develop an understanding of the subject.

I also wish to express special acknowledgement to U Maw Than, B. Com, B. L, CPA, ACMA (London), MBA (Aston), M. Phil (Aston), Dipl. GEP (Turin), P-G DIM (New Delhi), Dip. In French, Retired Rector (Institute of Economic) who provided me with so much clear-sighted help and creative guidance at all parts during the preparing of this research and analysis paper. In addition, I also like to thank U Taw Okkgar, B. E (Electronic), B. Sc (Hons) in Applied Accounting, Oxford Brookes University, ACCA, Manager (internal Audit Dept: Blue Diamond Co, Ltd. for his thorough and invaluable professional support throughout this research and analysis paper. With fervor, I thank all of my precious members of my family for their patience and understanding, and encouragement during the preparing of this paper. Finally, I would also like to express my appreciation to the batch mates, colleagues and beloved friends who shared their knowledge to me throughout this research paper. This research report would not have been completed without their patient and kind understanding. DECLARATION

I here declared that the matter included in this RAPs report entitled “The business and financial performance of (Panasonic Corporation and its subsidiaries) for comparative three year period”, is the result of study and analysis by me. I further declare that this is my original work and has not been published anywhere before. This Project Work has been carried out for the sole purpose of submission in fulfillment of B. Sc (Hons) in Applied Accounting from Oxford Brookes University. The above is true to the best of my knowledge and understanding. I have read, understood and signed this paper under the ACCA and IFAC Code of Ethics.

Table of Contents Chapter 1. Introduction, Aim and Objectives of Research 1. 1 Introduction 6 1. 1. 1 Reasons for choosing the topic6 1. 1. 2 Reasons for choosing the organization7 1. 1. 3Historical background7 1. 2 Aim of Research Project7 1. 2. 1 Objective of Research Project7 1. 2. 2 Definition of Business and Financial Performance8 1. 2. 3 Meaning of Financial statements8 1. 2. 4 Requirement of Business and of Financial Performance8 1. 3 Research Approach9 Chapter 2. Information Gathering and Accounting/Business Techniques 2. 1 Gathering and collecting relevant and reliable data9 2. 1. 1 Conceptual Stage 9 2. Information gathering 9 2. 2. 1 Sources of information 9 2. 2. 2 Development Stage10 2. 2. 3 Data Collection Methods10 2. 3 Accounting and business techniques11 2. 3. 1 Financial and Accounting ratio Analysis 11 Profitability Ratios11 Liquidity Ratios11 Gearing (Solvency) Ratios12 Operating Cash Flow Efficiency12 Investor Investment Ratios12 Interrelationship of Financial Statements12 2. 3. 2 Business Analysis 13 2. 3. 2 (A) PESTEL Analysis 13 Political and Legal13 Economic 13 Technological 13 Social, Environmental and Ethical 14 2. 3. 2 (B) SWOT Analysis 14 2. 4 Ethical consideration 14 Chapter 3. Research and Analysis

Implementation Stage15 3. 1 Financial Performance Analysis 153. 1. 1 Profitability Ratios 15 3. 1. 2Liquidity and Efficiency Ratios19 3. 1. 3 Gearing (Solvency) Ratios 22 3. 1. 4Operating Cash flow and Investor Investment Ratios25 3. 1. 5 Changes in Owner’s equity 27 3. 2 Sales Growth Analysis 29 3. 2. 1 Sales growth rate movement 29 3. 2. 2 Seasonal sales trends29 3. 2. 3 Geographical sales (International operation)30 3. 3 Business Performance Analysis32 3. 3. 1 Business Strategies 32Recovery Plan for Business Growth strategy 32 New plan (recovery to growth) and Expansion32 3. . 2 PESTEL Analysis33 Political and Legal 33 Economic33 Technological 33 Social, Environmental and Ethical 33 3. 3. 3 SWOT Analysis 34 Strengths 34 Weaknesses 35 Opportunities35 Threats 35 3. 4 Conclusion and Recommendation 36 3. 5 Limitation37 Chapter 1. Introduction, Aim and Objectives of Research paper 1. 1 Introduction After considering all of twenty different approved project topics from Oxford Brookes University, I have chosen topic number eight, ‘The Business and Financial performance of an organization over a three year period. The analysis of business and financial performance of a business is essential and one of the most important aspects for the present day professional accountants and therefore, I decided to choose the topic is number (8). Also, by analyzing the performance of a real entity, I will get a practical assignment by using my theoretical knowledge and skill which I studied and learnt through ACCA exams and other applicable knowledge I gained throughout my professional career. I will be carrying my research and analysis on ‘Panasonic Corporation’, by interpreting its financial and business performance.

At the same time I will make the comparison analysis within the same industry in which Panasonic Corporation operates. The period on which my research would cover is from 1 Apr 2008 to 31 Mar 2011. Although, Panasonic Corporation plc is the one of the market leaders in terms of market share in Japan, I will benchmark its relative performance with ‘Sony Corporation’, which is also holding some extent of large market share in Japan’s home appliances and consumer electronic products market. 1. 1. 1 Reasons for choosing the topic It is vital to select the topic in which the student could submit his or her proficiency.

And also professional accountants and personnel who take senior level positions in Accounting and Finance area have the responsibility to evaluate, analyze and comment on business and financial information of their respective company. My chosen topic gives me challenge to value and improve myself of my understanding and knowledge in this specific major area of business and financial performance evaluation. The topic involves appraising and evaluating how a company has been performing over the specific period of times, within the industry and along with other competitors.

It leads to calculation of accounting ratios and interpreting them in the light of internal and external factors, which may affect the performance of the company. 1. 1. 2 Reasons for choosing the organization I have a high regard on the Mission Statement of Panasonic Corporation, Core Value, basic management philosophy and underlying concept behind them which give attention to corporate social responsibility because these concepts are extremely crucial for every responsible business in today’s modern organizational behavioral practice and environment.

The extract of Mission Statement in brief is “contributing to progress and development of society, well-being of people through its business activities and offering better quality of life throughout the world” and the company aims to become the No. 1 “Green Innovation Company” in the Electronics Industry, up to its 100th anniversary in 2018. 1. 1. 3 Historical background Panasonic was founded in March, 1918 and was incorporated in December, 1935, with current revenues of ? 8,692. 7 billion for the year ended 31 Mar 2011 financial year and 366,937 numbers of employees have been employed and serving millions of customers every year.

It has 634 numbers of consolidated companies including parent company and 114 associated companies under equity method. It is comprised of 14 business domain companies, from Digital AVC Networks to home appliances, to industrial solutions and other consumer electronic products. 1. 2 Aim of the Research Project The aim is to identify and analyze the various key factors which are relevant and needed to be emphasized to evaluate the performance of management personnel in the manner of operating the business efficiently and compete for scarce capital investment in business conduct effectively.

Based on such identified and analyzed key factors, it will be able to give the objective opinion to existing and potential investors and lenders whether they should invest or not in the organization analyzed. 1. 2. 1 The objective of research project In order to attain the above stated aim, the following objectives will be expected to achieve: * To maximize the effectiveness of use of the firm’s invested fund * To understand adequacy of operating cash flows To know the current position and composition of a firm’s resources * To distinguish between creditor and owner stakes against those resources * To evaluate changes in wealth and assets over time * To maintain effective controlling and monitoring the business operation 1. 2. 2 Definition of Business and Financial Performance According to www. investopedia. com, Business and Financial Performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues.

This term is also used as a general measure of a firm’s overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. 1. 2. 3 Meaning of Financial statements Financial statements are the written reports which quantitatively describe the financial health of a company. They include a Statement of Comprehensive income and Statement of Financial Position, and often also include a Statement of Cash Flow and Statement of Changes in Equities. They are usually compiled on a quarterly and annual basis. . 2. 4 Requirement of Business and of Financial Performance The measurement of business and financial performance of an entity is essential so that the users can know whether the annual financial report presents a balanced and understandable assessment and real reflection of the entity’s performance for a specific period and in the position as at a specific reporting date which are important to the economic decision of financial statements users (ACCA – P1, 2010). 1. 3 Research Approach This research paper mainly depends on secondary data published by the respective companies in their web-sites.

Therefore the main type of data source and medium that help me analyze financial statements is the electronic media. Possession of necessary appropriate information of sufficient quality is important to make sound judgments and conclusions. Chapter 2. Information Gathering and Accounting/ Business Techniques 2. 1 Gathering and collecting relevant and reliable data As discussed above, I would examine and identify the key factors which are needed to be emphasized for a business to be a successful one in short term and long term as well and the performance of business for investors’ decision.

The research requires collection of relevant, reliable and accurate data and information through secondary sources such as internet web sites, literature review and through primary sources (if possible) such as peer group, interviews and business result survey by using many research techniques. 2. 1. 1 Conceptual Stage At conceptual stage of the research, the research problem and scope of my research was defined. Later on an information gathering and Accounting and usiness techniques (literature review) were conducted to develop an in-depth understanding of the concept of business and financial performance in order to prove future direction to the research. The main elements included in the Consolidated Financial Statements and Annual Reports of selected corporations were indentified to understand their impact or them on the current business condition and future trend, and interrelation among each other to finalize the range of elements which I would focus on during my research. 2. 2 Information gathering 2. 2. 1 Sources of information Annual report of Panasonic Corporation – this is official dialogue about the company position to shareholders and other stakeholders and includes various type of information. * Letter from Chairman and President to Shareholders and Stakeholders – this is official commitment of BOD for shareholder information and stakeholder’s engagement. * Annual report of Sony Corporation – official published dialogue about all information of Sony Corporation. * Audit report of both companies – independent option and objective judgment for management’s assertion for financial reporting information. Financial review of each company – comprehensive explanation about the financial results of the company for current period and future projection. * Student Account magazines – official media for the continuous development with practices, legislation and knowledge related to business and financial issues. And it can give information about the real situation of what is happening in the business world. * Library/ Academic references and records – ACCA books, other business and financial books, Google books etc. Financial News – Bloomberg, Google finance etc. * Other websites – http://www. japaninc. com/japan_news_economy, http://panasonic. net/news/ and etc. 2. 2. 2 Development Stage In this stage, classifying data and classification of information characteristics are made. Successful forecasts and the assessment of past operations depend on valid data, which consists of common information characteristics. Especially financial disclosure should be relevant and reliable. These two qualitative characteristics also pertain to information sources.

Relevant information contributes to and makes a difference in decisions. It helps to predict future events and provides feedback about past ones. Reliable information declares events accurately. To get the qualities of information stated above, the following information collection methods and relevant accounting and business techniques will be used. 2. 2. 3 Data Collection Methods * Website visits – visiting to respective companies’ websites and other websites, it is the easiest and cheapest way to collect useful information from online access. Media – reading media news, BBC news, students accounts, financial times etc. * Library – visiting to Excellent Choice library, British Embassy library and searching academic references and records and other books. 2. 3 Accounting and business techniques 2. 3. 1 Financial and Accounting ratio Analysis Profitability Ratio It is a ratio for the measurement which indicates how well a business is performing in terms of its ability to generate economic benefit for a particular period by using its scare resources.

It mainly includes ROCE, ROE, Gross profit margin, net profit margin, and net assets turnover and other ratios. It is useful to measure the percentage of profit increment based on invested investor’s equity. Liquidity Ratio According to Brigham, Eugene F. and Houston, Joel F. (2009), ‘It is the firm’s ability to pay its debt as it comes to its due date’. And alternatively, (Matz, M. Leonard and Neu, Peter (2007) ), ‘Liquidity is ability to efficiently meet present and anticipated cash flow needs without adversely effecting on daily operation’.

Perhaps the most common liquidity ratio is the current ratio, or current assets/current liabilities. Because current assets are expected to be converted to cash within one year, this liquidity ratio includes assets and liabilities of equal longevity. There are two ratios to measure the liquidity of a company’s assets relative to its liabilities: the current ratio and the acid test ratio. Thus a more conservative liquidity ratio is the acid test ratio which excludes relatively illiquid inventories. Gearing (Solvency) Ratio

As per Ogilvie, John (2009), ‘The gearing ratio expresses the relationship between fixed debt capital and shareholders’ funds. ’ Normally the shareholder will prefer to acquire some extent of amount of debt because loan financing will be cheaper than equity financing, provider of loan, such as pension funds, other financial institutions, will not have chance to receive any benefit from any capital growth of the company. Their return is only limited to the interest agreed when the loan agreement was initially made. But the interest must be paid in bad year of operation and as well as good year.

Therefore the ratio is important to monitor over time as the higher ratio of the debt to the equity, the higher gearing and the higher risk of the company is exposed to in the event of downturn in trade and going concern. Operating Cash Flow Efficiency As per Bergevin, M. Peter (2002), if cash flow adequacy ratio provides one or more times, it evidences that the firm’s operating cash flows were sufficient to replace outdated assets, meet contractual obligation to creditors, and return to investor for their investment. Investor Investment Ratio Bergevin, M.

Peter (2002) defined as equity investors’ ratios are often stated in term of minimum acceptable rates of return on equity funds. They also often specific a minimum acceptable current yield. They indicate the relationship between current year cash flow to the equity investors and amount of equity funds invested. Interrelationship of Financial Statements Bergevin, M. Peter (2002) noted as all of financial statements are related to one another through the process of articulation, Statement of comprehensive income shows the financial performance for respective period whereas the Statement of cash flow explains the history of cash.

Owners’ equity movement can be found in Statement of Changes in Equity and the Statement of Financial Position conveys the end result of resource’s history, its worth at one point in time. 2. 3. 2 Business Analysis 2. 3. 2 (A) PESTEL Analysis Political and Legal According to ACCA – P1 (2010), the companies which operate globally will have to face different political, legal, regulatory and ethical environments and recognize the diversity of culture that exists. Their ability to operate across boundaries is a key part of their commercial success.

Political unrest and strict legislation of specific country will have significant effect on business operation. Economic Bergevin, M. Peter (2002) stated that general Price level will influence the revenue and income of home appliances, electric and consumer products. When business cycle stage is prosperity, such as when unemployment, inflation, interest rate are low and exchange rate is stable, home appliances, electric and consumer goods sales and profits are soar. Technology Advance technological changes such as new design initiative, innovation and etc will be comparative and competitive advantages for business success.

Social, Environmental and Ethical Social is about consumer behaviors, values, family pattern and life style. And they are all depended on individual incomes. Changing consumer preference time by time is one of the concerns. According to ACCA – P1 (2010), “An ethical business is an honest and transparent business that meets the morel requirement of society and operates in a socially and environmentally acceptable way” and “Companies recognizing that they have social and environmental purpose as well as economic purpose” (ACCA – P1, 2010), CSR report). 2. 3. 2 (B) SWOT Analysis SWOT analysis provides a structure for analyzing either your own strengths and weaknesses, and the opportunities and threats you face, or in a work context for analyzing the strengths, weaknesses, opportunities and threats a business or event faces” (Kneale, Pauline and Aspinall, Sam, 2003) As such, the business will have to choose its strategy that will be able to apply its internal strengths to fit with opportunities arising outside the organization (business environment) and try to transform its weaknesses into strengths and avoid threats in outside word (ACCA – P3, 2010). . 4 Ethical consideration 2. 4. 1 Ethical consideration The information collected from most of the independent sources is unlikely to involve confidentiality, because they were from the sources such as the news from those who are collecting for electric industry from time to time, market analysis from financing sources and the companies’ own websites for annual reports, business information, news, operating and etc. However if I face any ethical dilemmas during my research, I would follow the “Professional code of ethic” of ACCA and IFAC. Chapter3.

Research and Analysis Implementation Stage In this stage, the financial ratios, trends were calculated, and putting them in graphs for visible presentation and compare them with results of competitors in the industry for making definite conclusion. And the micro and macro factors are analyzed to assess business opportunities, threats, strengths and weaknesses which have effect on business performance over time. 3. 1 Financial Performance Analysis 3. 1. 1 Profitability Ratio Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements)

Gross profit of Panasonic, except for 2009, was decreased greater than Sony; due to higher proportion of cost of sales as sales increased by 17% but COS increased by 20% in 2011. And Panasonic’s net profit (loss) for 2009 and 2010 were negative, due to increase of business restructuring expenses under “Green Transformation 2012 (GT12)”. It returns back to profitability for the first time since 2008, with net positive profit for 2011, due to reduction of operating cost 3. 42% in 2010 and 5. 54% in 2011 while Sony is still facing net loss.

Sony has significant negative effect of deferred tax liability on its net profit for the year ended 31 Mar 2011. It shows that Panasonic’s business restructuring under GT12 was effective and its performance from 2011 onward seems to be favorable. It can conclude that Panasonic is going well and created good return to its investors for 2011. Panasonic| 2009| 2010| 2011| Gross Profit Margin| 27. 02%| 28. 00%| 26. 50%| GP to Cost of Sales| 37. 02%| 38. 89%| 36. 05%| Sony| 2009| 2010| 2011| Gross Profit Margin| 26. 77%| 32. 18%| 32. 72%| GP to Cost of Sales| 36. 56%| 47. 45%| 48. 64%|

Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Gross profit margin is the proportion of gross profit to revenues. Although gross profit margin of Panasonic in 2009 was higher by 0. 25% than Sony, it decreased to 26. 50% in 2011 from 27. 02% in 2009 whereas the ratio of Sony increased to 32. 72% in 2011 from 26. 77% in 2009. It was due to increase in cost of goods sold, Panasonic’s cost of good sold to sales proportion were between 72. 98% to 73. 50% for three years period. Those of Sony decreased to 67. 28 % in 2011 from 73. 23 % in 2009.

Alternatively, Panasonic’s gross profit to cost of sales ratio was higher by 0. 46% than Sony in 2009; it has been decreased by 8. 56% and 12. 59 % in 2010 and 2011 than those of Sony. Panasonic might have weaknesses in its cost of goods sold for 2010 and 2011. Panasonic| 2009| 2010| 2011| Profit Margin| -4. 68%| -0. 05%| 2. 37%| Operating Cost to Sales| 31. 70%| 28. 05%| 24. 13%| Sony| 2009| 2010| 2011| Profit Margin| -1. 62%| 1. 10%| 2. 99%| Operating Cost to Sales| 28. 40%| 31. 08%| 29. 73%| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements)

The ratio of Panasonic was less than Sony throughout the period analyzed because of increasing in selling, general and administrative expenses and other deduction expenses which includes new business restructuring expenses. Panasonic started its new business restructuring in 2009 under GT12 which might incur more operating cost. And also Panasonic spent more expenditure for research and development to ? 527. 8 billion in 2011 from ? 517. 9 billion in 2009, when Sony decreased to ? 426. 8 billion in 2011 from ? 497. 3 billion in 2009. Its operating cost was more by 2. 84 % than Sony in 2009; however the significant comparable amount of 3. 3% for 2010 and 5. 6% for 2011 can be reduced. Therefore, it can be concluded that Panasonic was able to control its operating cost more effectively than its competitor in later years. ROCE Year | 2009| 2010| 2011| Panasonic | -8. 25%| -0. 06%| 4. 15%| Sony| -1. 53%| 0. 90%| 2. 44%| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) ROCE of both companies has been increased. The reasons are that of, in 2010 PBIT and Capital Employed of both company increased but the rate of PBIT trend was higher than that of Capital Employed and in 2011 Capital employed of both companies decreased but PBIT increased.

Panasonic’s ROCE for 2011 dramatically increased and was higher than that of Sony. Therefore the ratio was satisfactory for management and investors. Asset Turnover Panasonic| 1. 76 times| 1. 34 times| 1. 75 times| Sony| 0. 94 times| 0. 82 times| 0. 82 times| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Panasonic is likely to manage more effectively its assets than its competitors as its asset turnover were relatively improved and higher by the net of 0. 82 times, 0. 2 times and 0. 93 times. This was due mainly to lesser amount of Panasonic’ capital employed than Sony’s capital employed. In accordance with these basic findings, Panasonic’s profitability performance is recovered and enhanced compared with Sony. 3. 1. 2 Liquidity and Efficiency Ratio Working capital Year (millions of yen)| 2009| 2010| 2011| Panasonic| ? 1,194,266| ? 990,185| ? 642,799| Sony| (? 190,265)| ? 72,947| (? 282,933)| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements)

Panasonic’s current assets exceed its current liabilities throughout the period analyzed while that of Sony had been deficit in 2009 and 2011. The reason is that, for example, Panasonic’s current assets are 45% of its total assets when those of Sony are 30% only in 2011. It can be seen in the following assets composition. Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Current ratio Year | 2009| 2010| 2011| Panasonic | 1. 60:1| 1. 35:1| 1. 23:1| Sony| 0. 95:1| 1. 02:1| 0. 93:1| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements)

Although normal position of current ratio of the company should be 2:1, the ratios of both companies do not meet such standard. However Panasonic’s ratios have been above Sony’s during the whole period analyzed. This could be the main reason that Panasonic’s long-term debt financing increased to ? 1,162. 2 billion in 2011 form ? 651. 3 billion in 2009. Quick ratio Year | 2009| 2010| 2011| Panasonic | 1. 21:1| 1. 03:1| 0. 91:1| Sony | 0. 74:1| 0. 86:1| 0. 76:1| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) This ratio should be 1:1 normally. Panasonic produced 1. 21:1, 1. 3:1 and 0. 91:1 whereas those of competitor’s ratio were 0. 74:1, 0. 86:1 and 0. 76:1 as Panasonic current assets consist of more liquid elements other than inventory compared to Sony’s current assets. Panasonic Year | 2009| 2010| 2011| Inventory day| 50 days| 62 days| 51 days| Inventory conversion cycle| 86 days| 120 days| 95 days| Source: Annual report 2009 – 2011 of Panasonic: (Consolidated Financial Statements) Sony Year | 2009| 2010| 2011| Inventory day| 52 days| 48 days| 53 days| Inventory conversion cycle| 93 days| 93 days| 91 days| Source: Annual report 2009 – 2011 of Sony: (Consolidated Financial Statements)

Inventory conversion cycle Inventory day = 50 days Account receivable day = 36 days + Inventory conversion Cycle day = 86 days = Although Panasonic inventory conversion cycle was increased to 120 days in 2010 from 86 days in 2009, it can be maintained to the nearly same level with Sony in 2011. Therefore it can be ignored. Panasonic Year | 2009| 2010| 2011| Trade receivable day| 36 days| 58 days| 44 days| Trade payable day| 44 days| 73 days| 57 days| Working capital cycle| 42 days| 47 days| 38 days| Source: Annual report 2009 – 2011 of Panasonic (Consolidated Financial Statements)

Sony Year | 2009| 2010| 2011| Trade receivable day| 40 days| 45 days| 38 days| Trade payable day| 36 days| 61 days| 60 days| Working capital cycle| 57 days| 32 days| 31 days| Source: Annual report 2009 – 2011 of Sony: (Consolidated Financial Statements) There is no significant difference for inventory days between two companies except for there was 12 days in 2010 more than 2009 by Panasonic, but it could be controlled to same level with its competitor in 2011. Trade receivable day for both companies increased in 2010, but they decreased to nearly the same level in 2011.

It is not material item to be concerned. Trade payable days of Panasonic was increased to 73 days in 2010 from 44 days in 2009. However it could be maintained to decline to 57 days in 2011. But Sony was not able to manage to shorten. It could have carried a bad impression as “payment-delay-customer” which can result to become the last priority in supplier’s point of view. Working capital or Cash conversion cycle Account receivable day = 36 days Inventory day = 50 days Account payable day = 44 days ++ – Working capital or Cash Conversion Cycle = 42 days =

Working capital cycle of Panasonic could reduce only to 38 days in 2011 form 42 days whereas its competitor could reduce to 31 days from 57 days. The difference is more likely to be due to unequal duration of trade payable day of two companies. For those reasons aforementioned, Panasonic was able to control its working capital level under the more favorable condition. 3. 1. 3 Gearing (Solvency) Ratio Panasonic Year | 2009| 2010| 2011| Debt to Debt + Equity| 16. 86%| 21. 85%| 28. 29%| Debt to Equity| 20. 27%| 27. 96%| 39. 45%| Source: Annual report 2009 – 2011 of Panasonic: (Consolidated Financial Statements)

Sony Year | 2009| 2010| 2011| Debt to Debt + Equity| 17. 03%| 21. 95%| 21. 67%| Debt to Equity| 20. 52%| 28. 13%| 27. 66%| Source: Annual report 2009 – 2011 of Sony: (Consolidated Financial Statements) According to my study the Financial Management (F 9 paper, ACCA), the company has optimal capital structure if the company can maintain the proportion of 49. 9% for debt to debt plus equity or 99. 9% for debt to equity. Debt (Long term) to Debt (Long term) plus Equity Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements)

These ratios of Panasonic for 2009 and 2010 were lower than Sony. But it increased to 28. 29% in 2011, above the ratio of Sony; it was due primarily to new long acquired in 2011 for purchase of NCI shares and capital investment in production capacity for strategic business units under GT12. . Panasonic Sony Total Debt to Total Equity (2011) Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) According to above graphs from 2011 report, Panasonic has owed ? 35 for every ?100 used to acquire assets. Sony owed only ? 25 for every ? 100 invested in the business. Long term) Debt to Equity Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Panasonic’s Long term Debt to equity ratio has reached to 39. 45% in 2011, but it could be controlled under the standard optimal level. Therefore Panasonic appears to obtain more benefit from its capital structures and financing approach for investment decision, because debt financing has tax saving effect if interest cover ratio is also favorable. Interest cover Year | 2009| 2010| 2011| Panasonic | -18. 74 times| -0. 14 times| 7. 50 times| Sony| -5. 15 times| 3. 54 times| 8. 99 times|

Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Panasonic’s Interest expense continuously increased to ? 27. 5 billion in 2011 from ? 19. 4 billion in 2009, by 42%. However Interest cover ratios was dramatically improved to 7. 50 times in 2011 from (-18. 74) times in 2009, a significant year-on-year improvement of 26. 24 times. Sony’s interest ratio was also improved to 8. 99 times in 2011 from (-5. 15) times in 2009, a year-on-year 14. 13 times. But Interest expenses decreased to ? 23. 9 billion in 2011 from ? 24. 4 billion in 2009 due to decrease in debt capital.

Other deductions should be scrutinized which includes impairment ? 314 billion for NCA, 53 billion for restructuring charges and 92 billion for written down of investment for 2009 and ? 79 billion for NCA impairment and ? 39 billion for early retirement program for 2010. It would have significant effect on PBIT. But these expenses could be controlled in later years; therefore interest cover ratio has noticeably improved for 2010 and 2011. As a result of the above-mentioned strengths, Panasonic’s capital structure and solvency ratio is positively and effectively reflecting underlying operating performance compared with Sony. . 1. 4 Operating Cash flow and Investor Investment Ratio Cash flow adequacy ratio Year | 2009| 2010| 2011| Panasonic| 0. 16:1| 1. 11:1| 0. 72:1| Sony| 0. 51:1| 1. 80:1| 1. 24:1| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) In 2010, Panasonic’s ratio had 1. 11:1; it indicates cash flow has been adequate for operating the business. However the ratio 0. 16:1 in 2009 was apparently worse and 0. 72:1 for 2011 also showed opposite meaning. Panasonic’s Net cash flow from operating activates in 2011 decreased to ? 469 billion compared with ? 22 billion in 2010, due mainly to an increase in inventories and decrease in trade payables, accrued expenses and other current liabilities. It shows Panasonic generated less sustainable operating cash flow adequacy ratio than Sony as Panasonic invested more in investing activities while Sony investment has been decreased throughout the three years. Sony reported as 0. 51:1, 1. 80:1 and 1. 24:1 respectively. The more detailed comparison as percentage can be seen as follows: Cash inflow from operation and outflow for payments Description (Panasonic)| 2009| 2010| 2011| Cash Inflow from Operation | 1. 00| 1. 0| 1. 00| Capital expenditure| 4. 47| 0. 72| 0. 90| Long-term debt repayment | 0. 71| 0. 10| 0. 43| Cash dividend paid| 0. 89| 0. 08| 0. 07| Total Cash Outflow | 6. 08| 0. 90| 1. 40| Balance surplus (deficit)| -5. 08| 0. 01| -0. 40| Source: Annual report 2009 – 2011 of Panasonic: (Consolidated Financial Statements) Description (Sony)| 2009| 2010| 2010| Cash flow from Operation| 1. 00| 1. 00| 11. 000| Capital expenditure| 1. 22| 0. 37| 0. 41| Long-term debt repayment | 0. 65| 0. 16| 0. 35| Cash dividend paid| 0. 10| 0. 03| 0. 04| Total Cash outflow| 1. 97| 0. 6| 0. 80| Balance surplus (deficit)| -0. 97| 0. 44| 0. 20| Source: Annual report 2009 – 2011 of Sony: (Consolidated Financial Statements) If Panasonic has not current operating problem due to cash shortage, more future cash flows could be expected from investment in NCA. EPS per share Year | 2009| 2010| 2011| Panasonic | (? 182. 25)| (? 49. 97)| ? 35. 75| Sony| (? 98. 59)| (? 40. 66)| (? 258. 66)| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) According to above table, Panasonic’s EPS is getting well and going to upward trend to ? 35. 75 in 2011 from (? 182. 5) in 2009, whereas it competitor ratio is going to more downtrend to (? 258. 66) from (? 98. 59). Therefore Panasonic has proactively and comprehensively returned profits to its shareholders. Dividend per share Year | 2009| 2010| 2011| Panasonic | ? 30. 00| ? 10. 00| ? 10. 00| Sony| ? 42. 50| ? 25. 00| ? 25. 00| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) As level of dividend of both companies decreased, Panasonic paid lower level of dividend to investors compared to Sony throughout 3 years period. However it is not a concern thing since Panasonic’s operating is going well in 2011.

Panasonic retains much of the profit in 2011, probably for future reinvestment. Sony paid more dividends to investors without positive operating return. Therefore its prior year retained earning had negative effect by ? 220. 3 billion for the year (loss) and ? 31. 6 billion for dividend payment in SOCIE of 2011 compared to 2010. Dividends cover (Parent + NCI) Year | 2009| 2010| 2011| Panasonic| -6. 08 times| -5. 00 times| 3. 58 times| Sony| -2. 32 times| -1. 63 times| -10. 35 times| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements)

Panasonic’s dividend cover has increased throughout the period analyzed and directed to growing movement in 2011. Sony’s dividend cover ratio was inferior in 2011 compared to previous two years. Therefore it directed to negative trend. 3. 1. 5 Changes in Owner’s equity (Based year) Year | 2008| 2009| 2010| 2011| Panasonic| 100%| 75. 47%| 86. 44%| 69. 21%| Sony| 100%| 85. 96%| 87. 80%| 78. 48%| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Changes in Owner’s Equity (Anchoring)

Year | 2009| 2010| 2011| Panasonic| -24. 53%| 14. 54%| -19. 93%| Sony| -14. 04%| 2. 14%| -10. 62%| Source: Annual report 2009 – 2011 of Panasonic and Sony: (Consolidated Financial Statements) Source: Annual report 2009 – 2011 of Panasonic and Sony: Panasonic total shareholders’ equity decreased to ? 2,946. 3 billion compared with ? 3,679. 8 billion of previous year, due to foreign currency translation (loss) by ? 100. 5 billion and a decrease in capital surplus by ? 109. 3 billion and in NCI by ? 500 billion due mainly to acquisition of other NCI shares and PEW and SANYO. Sony’s total shareholders’ equity decreased to ? ,936. 6 compared with ? 3,285. 6 of previous year, it is seem to be negative movement due mainly to net (loss), dividend payment and exchange loss for the year. 3. 2 Sales Growth Analysis 3. 2. 1 Sales growth rate movement Source: Annual report 2009 – 2011 of Panasonic and Sony: (Segment information) Due to worldwide economic recession and financial crisis in the late of 2008, sales growth rate of both corporations have been constantly declined throughout the two year periods of 2009 and 2010. In 2011, Panasonic’s sales have been considerably improved by 17% compared with 2010 to ? ,692. 7 billion. It was due mainly to consolidation of SANYO and its subsidiaries and increase in overseas sales. It can be seen that it leads to upward trend. Sony’s sales for 2010 rose than 2009, but slightly declined in 2011 (eg 0. 5%) than 2010 and leads to only recovery trend. 3. 2. 2 Seasonal sales trend Source: Annual report 2009 – 2011 of Panasonic and Sony: (Quarterly Financial Results) Panasonic’s seasonal sales were steadily improved up to 3th quarter of 2011 from 1st quarter of 2010. Sony’s seasonal sales were constantly fluctuated during the said period.

In 4th quarter of 2011, Panasonic’s sales dropped by 10. 77% whereas Sony’s sales dropped by 28. 35% compared with 3rd quarter of 2011. Both companies could have effect from Japan earthquake. However Panasonic’s position was more favorable than Sony. 3. 2. 3 Geographical sales (International operation) Source: Annual report 2009 – 2011 of Panasonic and Sony: (Sales by Region) According to geographical sales review, Panasonic seems it sold most (52% of its sales) of its products in local market and it may have result in cost saving and low associated risk than selling in overseas markets. 0% of the Sony products were sold in the overseas market; this may pose challenges to operation in the form of exchange risk, natural disaster risk in shipping and transportation. In addition, the time for supplying its products to overseas market from manufacturing and producing country may be one of the concerns. During the 2010-2011 financial there were many fluctuations in foreign currency exchange rate worldwide, especially Euro ad US$. Sony’s accumulated exchange translation loss has reached to ? 700. 8 billion in 2011. 3. 3 Business Performance Analysis 3. 3. 1 Business Strategies

Recovery Plan for Business Growth strategy * Panasonic started its ‘Green Transformation 2012 (GT12)’ plan which will run from 2011 to 2013 which was overlap with (GP3) plan from 2008 to 2010. * The key point in this recovery plan was “increased sales” and growth by 17% by the end of 2010-2011. * 3,600 merchandise stores handled Panasonic’s products in 2011 and this number is projected to increase to around 5,000 stores for 2012. * For new products development, Panasonic will be expanding its range of 3D and LED LCD televisions to include 12 different 3D and 10 LED LCD models for discerning consumers to select from.

These new models include Panasonic’s VT30, GT30, and ST30 NeoPlasma 3D TVs, but also the new DT30 series 3D LED LCD TVs. * For new designs initiatives, Panasonic developed its unique products with “super link”, “super energy saving” and “through universal design” such as 3D TV’s sophisticated, innovative design, Simplified air conditioner, premium value in refrigerators, drum type washing machine and so no. New plan (recovery to growth) and Expansion * On January 10, 2008, the company announced that (Effective on October 1, 2008) and phase out the brand “National” in Japan, replacing it with the global brand “Panasonic” (by March 2010). Panasonic introduced refrigerators and washing machines under the banner of its “European Market-Entry of White Goods Project” in March 2009. * In financial year 2011, Panasonic released several new products with enhanced energy-saving performance, and as a result, sales of refrigerators and washing machines were favorable. * Panasonic acquired 50. 2% of the controlling interest of SANYO during December 2009. * On 1 Apr 2011, Panasonic Electric Works Co. , Ltd. (PEW) and SANYO Electric Co. , Ltd. (SANYO) became wholly owned subsidiaries of the company. To accelerate recovery of growth, the plans made to mobilize the collective strengths of the Group to embark on a new phase of the growth, together with PEW and SANYO to maximize the group synergy benefit. * New strategy under “zero cost, zero time, zero inventory + zero emission. 3. 3. 2 PESTEL Analysis Political and legal The sky-high corporate tax rates may be one reason for an economic dead end. Japan’s individual income tax rates including local taxes are among the highest tax rates in the world. The effective top marginal tax rate is around 50%.

On December 24 the Japanese cabinet headed by Prime Minister Naoto Kan agreed to a budget including a cut in the corporate tax rate, effective April 1, 2011, from 39. 5% to 35%. Panasonic will save significant amount of tax expenses. The government plans to extend up to ? 36,000 worth of “eco-points” to buyers of large TVs capable of receiving terrestrial digital broadcasts under a subsidy program aimed at promoting environmentally friendly household appliances. It will lead to sales growth of industry which Panasonic and Sony operate. Economy

The largest earthquake on record struck Japan and generated a thirty-foot tsunami that inundated the country’s northeast coast. The nationwide average residential land prices went down 3. 2 percent from a year before. Inflation rate were -0. 6977% (2009) and -1. 3520% (2010). Employment rate was 4. 3% in August 2011, the persistent appreciation of the Japan yen is one of the major economic dilemma for the industry Panasonic operates. The year end exchange rate changed to ? 82. 76 (2011) from ? 99. 15 (per US$) (2009). Panasonic and Sony had some negative cumulative translation adjustments.

Technological Nature of Panasonic’s operation is generally related to change in technology. Panasonic stepped up its development of environmental-and energy-related technologies in new growth business fields in 2011. For environmental challenges that factories faced today, water purification system proposals that leverage filtration membrane technologies were originally developed by SANYO. Sony’s The 2011 BRAVIA LCD TV line-up delivers instant access to online entertainment and services through BRAVIA Internet Video, Sony’s IPTV service. Social, Environmental and Ethical

Behavior and perception of consumer has changed to encourage environmentally friendly business practice, Panasonic’s midterm management plan was able to accelerate environment sustainability management such as high energy-saving, recycling-oriented products in the term of CO2 emissions reductions in their manufacturing activities. Panasonic contributed to society and environmental improvement with many program as follows: * Donation of 1,000 solar lanterns to people living without access to electricity in Mbola Millennium Village, under management of UNDP. Panasonic became Asia’s first Corporate Supporter for WWF (World Wide Fund for Nature) which identified the Yellow Sea as a high-priority conservation region. The Yellow Sea Eco-region Support Project aims to protect both marine biodiversity and the livelihood of residents along the Yellow Sea coasts of China and Korean peninsula. * Panasonic NPO Support Fund for Africa. * PT. Panasonic lighting Indonesia (PLI) offer environmental education activities based on the “Eco Learning Program (ELP)”. Participating in a campaign to prevent women’s hart diseases in America. * Nationwide environmental education activities in China. * The commencement of the ‘kids school-eco leaning’ Program in Europe in 2010. * Panasonic has built 75 schools in Thailand over the course of twelve years. All the above stated social, environmental contribution will lead to good reputation, shareholders’ confidence and positive stakeholders’ perception as well as future growth and successful business prosperity. 3. 3. 3 SWOT Analysis

Strengths * Strong domestic sales, e. g. selling over 50% of its products within domestic with saving of shipping and transportation cost to overseas market and other associated risk. * There is less effect of foreign currency exchange losses due to minor sales in overseas markets contrary to Sony which sold 70% of its products outside Japan market. * Unlike Sony, It has stepped to the first time for three years to secure a return to net income attributable to investors, when Sony is still making operating loss. Distinctive strengths for comprehensive solutions, including security, lighting and air-conditioning system for entire homes and building which other companies do not have. * To maximize the synergy effect from consolidation with PEW and SANYO. * Having robust market shares in (BRICS+V) Brazil, Russian, India, China and Vietnam and (MINTS+B) Mexico, Indonesia, Nigeria, Turkey, Saudi Arabia and the Balkans. * New midterm management plan under (GT12), 2011 is only first stage out of three years plan. * Good control over its operating cost. Weaknesses Due to bigger portion of domestic market share, Constraint to share new overseas market for existing products under product market strategy * Facing challenge for commoditization of products * Increasing cost competitiveness for its products. Opportunities * To capture new opportunities from substantially increasing electric power consumption, Panasonic is participating in the Sino-Singapore Tianjin Eco-City Project, construction of eco-cities, * In Japan, there is high demand for Solar Photovoltaic System that provided energy conversion efficiency which is a major pillar of the Panasonic Home Energy solution. Japan Government’s ‘eco-points’ subsidy program to digital TV buyers and to encourage purchases of energy-efficient home electronics. * Having superior design initiatives for many products. Threats * The risk associated with persistent appreciation of the Japan yen which may effect on material cost buying locally and on its direct contract with customers in such emerging countries as BRICs+V MINTS+B. * Latest innovation by other rival company in the same industry -e. g (Samsung’s 8000 series 3D LED TVs 2011, Samsung Smart TV, series 7 LCD, LNB750 Series, 2010), Eco storm technology by Samsung. e. g (Sony Bravia Technology) – (Sony Bravia HX925 series The Definitive Internet TV, Sony Bravia KDL-40EX524 a decent-enough LED TV, Sony Alpha SLT-A35, NX720, HX925, EX720), (BRAVIA HX Series (HX925 and HX820) * Economic declining is one of the considerable factors to be concerned. * Natures disaster effect, the negative impact of the Japan Earthquake that occurred in four quarter of 2011 on net sales, operating profit after (selling and admin expenses), profit before income taxes and net profit after tax are estimated at ? 0. 0 billion, ? 21. 0 billion, ? 30. 2 billion and ? 19. 0 billion respectively. 3. 4 Conclusion and Recommendation Panasonic’s new GT12 plan was to fit into the basic of operation by increasing in sales growth and net profit in 2011. The cost reduction under such new plan was also successful, because selling, general and administrative expense and operating cost were deceased in first year of plan.

The second future strategy is also acceptable and suitable, it states that “Panasonic will contribute to the environment and business growth over the next three years” as highlighted by two central themes of the plan: ‘Paradigm shift for growth’, ‘Laying a foundation to be a Green Innovation Company’. Panasonic will shift its business through the paradigm shift for growth and laying a foundation under the following facets such as: * From existing business to new business such as energy, * From Japan-oriented to globally-oriented From individual products-oriented to solutions and system business-oriented * Increase profitability based on growth and * Enhance contribution to the environment One of the another future directions of Panasonic is that the company will shift to post reorganization (2012) which includes (BtoC Consumer), (BtoB Component and devices) and (BtoB Solutions) based existing structure of five business segments such Digital AVC Networks, Home appliances, Components and devices, SANYO and PEW and Pana Home. Panasonic has long developed a broad range of living and lifestyle-related products in electronics business.

SANYO, meanwhile, is a leader in solar cells and rechargeable batteries as well as commercial equipments and devices. PEW owned its unique strength for electrical construction materials, home appliances and devices and its system solution as well. According to finding and analysis, Panasonic has created sustainable business plans, achieving sales growth, ROCE and NP has increased and EPS, dividend cover are also attractive for investors. Capital structures changing and new loan acquired are effective. Investment in NCA is also well-built.

Having strong own products and leading to continuously innovation. It has good corporate image and robust commitment of Management and its subordinates. Business plans are also overlap and current technology is also feasible for future goals and the investor’s judgment for decision making is also supported by financial reporting information. Therefore Panasonic is a good growing company for existing and potential investors. 3. 5 Limitation This research has been limited by constraints of time and data collection.

In order to get a more accurate picture of business and financial performance of a particular organization, a large amount of sample is required which is drawn from a wide array of sources. It is also imperative that the data collection is done over a period of time and more than one data collection methods are used. Due to paucity of resources and time, I limited myself to investigation based data collected. Financial ratios have some inherent limitations such as past information, emphasized on short-term view, relative measures. And information available from annual report was received when it has been issued since long time before.

Business natures of two companies are not exactly the same. Auditor report also has inherent limitation because it could give just true and fair view. The reports of chairman and president are also not completely reliable tools as they can present preferable and favorable situation more than the current condition of the company. Internet websites also cannot supply all information required eg: Neither of the total market share holding by each corporation for the whole industry nor Industrial average data for the comparison could be searched.

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