BUS 650 Week 6 Final Paper

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LG1BUS 650 Week 6 Final PaperConduct a comprehensive evaluation of LG Electronics’ financial performanceusing the company’s 2012 annual report. Your analysis should include:1.An introduction to the company and its background.2.A thorough review of the company's financial statements, comparing datafrom 2012 to 2011.3.Pro Forma financial statements (Balance Sheet and Income Statement) forthe next two fiscal years, assuming a 10% growth rate in sales and Cost ofGoods Sold (COGS).4.Ratio analysis, including at least two ratios from each of the followingcategories: liquidity, financial leverage, asset management, profitability, andmarket value.5.Calculation of Return on Equity (ROE) using the DuPont system.6.Evaluation of the company’s management performance using EconomicValue Added (EVA).7.Assessment of the soundness of LG's financial policies, including capitalstructure, debt, leverage, and dividend policies.8.A conclusion with a recommendation regarding whether or not to purchaseLG Electronics' stock based on your analysis.Ensure your report follows APA 6th edition formatting guidelines, is between 15 to20 pages long (excluding the title page and reference page), and includes at leastfive scholarly sources in addition to the annual report.

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LG2Focus of the Final PaperEvaluation of Corporate PerformanceThe Final Project will involve applying the concepts learned in class to an analysisof a company using data from its annual report. Using the concepts from thiscourse, you will analyze the strengths and weaknesses of the company and write areport either recommending or not recommending purchase of the company stock.The completed report should include:An introduction to the company, including background information.A complete and thorough financial statement review.Pro Forma financial statements (Balance Sheet and Income Statement) for the nexttwo fiscal years, assuming a 10% growth rate in sales and Cost of Goods Sold(COGS) for each of the next two years.Complete ratio analysis for the last fiscal year using at least two ratios from each ofthe following categories:a. Liquidityb. Financial leveragec. Asset managementd. Profitabilitye. Market valueCalculate Return on Equity (ROE) using the DuPont system.Assess management performance by calculating Economic Value Added (EVA).Review of the soundness of the company’s financial policies (e.g. capital structure,debt, leverage, dividend policy, etc.) based on the material covered during class.A synopsis of your findings, including your recommendations and rationale forwhether or not to purchase stock from this company.This report should be 15–20 pages long excluding title page and reference page(s)using APA 6th edition formatting guidelines. Support your findings andrecommendations with evidence from at least five scholarly sources in addition tothe annual report; such as the textbook, industry reports, and articles from theAshford library. Be sure to include links to websites that were used as references orto access company information.LGBUS650

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LG3LGFinancial Analysis:The LG groupThe LG group is the largest global manufacturer of electronics. It is the third largest producerof mobile phones. It was begun in 1947 under the Lak Hui trading name. It was a cosmeticsand trading concern (Lee, 2010). In the 1960s, the electronics division of the company, thennamed Goldstar, expanded into the current LG electronics. LG stood for Luk Hai Goldstar; itwas changed to stand for Lucky Godlstar.Financial statement overviewThese statements in review constitute the financial position of the Korean Firm LGElectronics as of September 3oth 2012. The statements under review are those of financialposition, cash flow, owner’s equity, and the relevant financial reports. The statements relateto the company and its subsidiaries, referred to as the group. The statements review theperformance of the company in 2012 as contrasted with 2011.The first item that catches theeye in the financial statements is the decline in cash held by the group. This is in effectcontrasted by the significant increase in trade receivables. This represents an unfavorablestate of affairs because it predisposes the company to default on debts. It compensates for theability to meet short-term obligations. Inventories held have decreased markedly as theprepaid tax also decreases (Baker, 2011). This represents a favorable shift because electronicgoods are subject to steep depreciation curves. Holding fewer items in stock as compared tothe former year represents a shift in policy.Overall, there is a sharp decline in current assets in the latter year. In liabilities, there is amarked decline in trade payables. Further, there is a large increase in borrowings. This is nota favorable situation regarding the fact that there have been difficult credit terms during theperiod in question.Commendable, the group has managed to maintain a healthy gap between

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LG4current liabilities and current assets. This shows that the group is in a competent position toaddress the needs of short-term liabilities. This relates to the ability to meet obligations thatmay fall due to a short time relative to the trading period. The gap between the currentliabilities and the current assets has reduced sharply in a worrying twist. This perhaps goes toshow that the company faced difficult trading times during the current year as opposed to theyears prior. The fixed assets of the group are almost the same in value as the current liabilitiesof the same. This represents an unfavorable situation as far as strategic plans are concerned. Itpoints to a lack of formidable capital investment in operations that would make it difficult toinstitute expansionary measures. As far as the assets are concerned, the company couldpursue a more aggressive growth strategy than the current conservative set up. Further, thenon-current liabilities are significantly higher than the owners’ equity. This presents aprecarious situation because the gearing ratio will be very high. This opens an assortment ofproblems for the company, as it is going to be quite costly to secure financing. Further, it israther difficult for the company to fond guarantors in cases of borrowing loans. Creditors arelikely to attach some of the property of the group in cases of default and the goodwill may belost. In other sections, the assets may be subjected to restrictive contracts that may severelyaffect the manner in which the company transacts business. The restrictive covenants maycause the group to miss lucrative business opportunities.The fact that company assets are as low as current assets is another avenue for trouble. Thecompany may have to seek other sources of financing that do not increase the gearing. Thismay include issuing of new share capital subject to legislative restrictions. In essence, theowners may have to cede ownership. This further complicates the issue because the companymay be subject to a significant shift in policy, control and decision-making. This is notfavorable for a group that is in financial turmoil to the extent that LG is. At the end of theday, the company faces tough choices to make. The group has further problems in securing

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