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Financial Management – EMBA Fall 2008 Page | 2
Research In Motion Limited
- Financial Analysis -
EMBA - Fall 2008
Prepared for: Prof. -
Prepared by : Frederic Vuong
Financial Management – EMBA Fall 2008 Page | 3
Executive Summary: Research In Motion
By Frederic Vuong
RIM is a leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, RIM provides platforms and solutions for seamless access to time-sensitive information including email, phone, SMS messaging, Internet and intranet-based applications. RIM technology also enables a broad array of third party developers and manufacturers to enhance their products and services with wireless connectivity to data.
STRATEGIC PROBLEM
The Company is engaged in an industry that is highly competitive and rapidly evolving, and has experienced, and expects to continue to experience, intense competition from a number of companies.
TECHNICAL PROBLEM
Even if the company is very profitable, its future is becoming uncertain due to the increasing competition. To be more competitive, the company relies more and more on its Current assets to ensure a Short-Term survival.
FACTS AND ISSUES
1. Increasing Average Collection Period : It takes more and more time for RIM to be paid for its sold products and thus affects RIM’s capability to invest into more profitable assets.
2. Increasing COGS : Raw material and the labor costs are increasing and affecting RIM’s gross profit margin. By doing some hedging, RIM’s capability to invest into more profitable assets is limited.
3. Increasing Retained Earnings : RIM is more and more profitable but does not pay cash dividends to its stockholders.
4. Reducing Owners’ Equity : Company relies more and more on external funds. 5. Important proportion of Cash : RIM has more than 21% of Cash that could be invested in more profitable
assets.
ALTERNATIVE SOLUTIONS
Solution 1: Increase Payment period
The average collection period is decreasing and thus reducing RIM’s cash. By increasing the payment period, this could increase cash that could be used for more profitable investments.
Solution 2: Purchase Fiduciary and Other Short-Term Investments
RIM should invest its Cash into Short-Term investments like purchasing fiduciary that are more profitable.
Solution 3: Purchase Company’s Own Stocks
RIM should purchase its own stock in order to reduce the Equity and borrow money to banks instead of as they have lower interests’ rates.
RECOMMENDATIONS
In the current situation, I would recommend the third solution to be followed. If RIM purchases its own stocks. it will reduce the Owners’ Equity and its associated high interests. By getting loans from banks, RIM will get better interests’ rates and thus saving more cash to invest into more profitable assets.
Financial Management – EMBA Fall 2008 Page | 4
Financial Management – EMBA Fall 2008 Page | 5
1 CONTENT
1 CONTENT ................................................................................................................ 5
1. COMPANY INFORMATION ................................................................................... 6
2. INDUSTRY INFORMATION .................................................................................. 6
3. COMPETITION INFORMATION ............................................................................ 7
4. STRATEGIC PROBLEM ..................................................................................... 10
5. TECHNICAL PROBLEM ..................................................................................... 11
6. FACTS AND ISSUES.......................................................................................... 13
1.1 Increasing Average Collection Period ................................................................. 13
1.2 Increasing COGS .............................................................................................. 14
1.3 Increasing Retained Earnings ........................................................................... 15
1.4 Reduction of Owners’ Equity ............................................................................. 16
1.5 Important proportion of Cash............................................................................ 17
2 ALTERNATIVES SOLUTIONS .................................................................................. 18
2.1 Solution 1: Increase Payment period ................................................................. 18
2.2 Solution 2: Purchase Fiduciary and other Short-Term Investments .................... 19
2.3 Solution 3: Purchase company’s own stocks ...................................................... 20
3 RECOMMENDATIONS ............................................................................................ 21
4 FInancial analysis .................................................................................................. 22
4.1 RIM’s Financial Strategy ................................................................................... 22
4.2 Nokia Financial Strategy ................................................................................... 24
4.3 Balance Sheet - Key Elements Analysis - ........................................................... 26
4.3.1 Short-Term Assets .................................................................................................. 26
4.3.2 Long-Term Assets ................................................................................................... 30
4.3.3 Short-Term Liabilities ............................................................................................. 33
4.3.4 Long-Term Liabilities .............................................................................................. 35
4.3.5 Owners’ Equity ....................................................................................................... 36
4.4 Income statement - Key Elements Analysis - ..................................................... 38
4.5 Cash flow - Key Elements Analysis -.................................................................. 45
4.6 Ratios .............................................................................................................. 46
4.6.1 Profitability Ratios .................................................................................................. 46
4.6.2 Liquidity Ratios....................................................................................................... 53
4.6.3 Leverage Ratios ....................................................................................................... 55
4.6.4 Activity Ratios ......................................................................................................... 60
4.6.5 Other Ratios ........................................................................................................... 65
5 ANNEXES .............................................................................................................. 71
5.1 Annex 1: RIM Balance Sheet (2005-2008, including vertical analysis) ................ 71
5.2 Annex 2: RIM Income Statement (2005-2008, including vertical analysis) .......... 73
5.3 Annex 3: RIM Cash Flow Statement (2005-2008, including vertical analysis) ..... 74
5.4 Annex 4: RIM Sources of Revenues (2005-2008, including vertical analysis)....... 75
5.5 Annex 5: RIM Number of subscribers ................................................................ 76
5.6 Annex 6: RIM Employee Growth ........................................................................ 77
5.7 Annex 7: Nokia Balance Sheet (Fiscal 2005-2008, including vertical analysis) .... 78
5.8 Annex 8: Nokia Income Statement (Fiscal 2005-2008, including vertical analysis)80
5.9 Annex 9: Nokia Cash Flow Statement (Fiscal 2005-2008, including vertical analysis) 81
5.10 Annex 10: Nokia Employee Growth ................................................................. 82
5.11 Annex 11: RIM Financial Report Fiscal 2008 ................................................... 83
7. Sources ............................................................................................................ 84
Financial Management – EMBA Fall 2008 Page | 6
1. COMPANY INFORMATION
RIM is a leading designer, manufacturer and marketer of innovative wireless solutions
for the worldwide mobile communications market. Through the development of integrated
hardware, software and services that support multiple wireless network standards, RIM
provides platforms and solutions for seamless access to time-sensitive information
including email, phone, SMS messaging, Internet and intranet-based applications. RIM
technology also enables a broad array of third party developers and manufacturers to
enhance their products and services with wireless connectivity to data.
RIM's portfolio of award-winning products, services and embedded technologies are
used by thousands of organizations around the world and include software development
tools, hardware, and the BlackBerry wireless solution which generates most of its revenue.
Founded in 1984 and based in Waterloo, Ontario, RIM operates offices in North America,
Europe and Asia Pacific. The common shares of RIM are listed on the NASDAQ Stock
Market (NASDAQ: RIMM) and the Toronto Stock Exchange (TSX: RIM).
2. INDUSTRY INFORMATION
Wireless Communications Industry Markets and Segments
The wireless communications industry is comprised of three distinct markets that are
organized based on who purchases the devices, services and software solutions. The
consumer market is characterized by end users who purchase devices themselves for
personal use, the prosumer market is characterized by end users who purchase devices
for business and some personal use, and the enterprise market is where solutions are
purchased by IT and line of business managers for deployment to employees.
Products designed for the enterprise market typically include a converged device that is
deployed in conjunction with a behind-the-firewall messaging server. Products designed
for the prosumer and consumer market are typically hosted by either the vendor or
wireless carrier and range in their depth of features from email only, to email, PIM and
other data services such as Instant Messaging.
RIM believes that the following factors will influence commercial success in the wireless
solutions and services market:
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• small size and light weight converged devices; • reasonable battery life; • intuitive interface and ease of use; • access to compelling applications; • integration with corporate PBX; • extensive geographic coverage; • competitive pricing; • flexible architecture; • end-to-end security; • trusted brand; • push-based outbound port architecture; • extensive customer care capabilities; • multi-network support; and • connectivity to enterprise and/or personal email and applications.
RIM believes that significant barriers to entry include the following:
• proprietary technology, including hardware and software expertise and
intellectual property rights; • existing strategic alliances and relationships; • access to components and established supplier relationships; • existing customer and channel relationships; • scarcity of highly qualified personnel; • significant development costs and time-to-market; • manufacturing expertise; • significant financial resources and capacity; • regulatory barriers such as Federal Communications Commission (“FCC”)
approval and network certification; and market recognition of industry leaders.
3. COMPETITION INFORMATION
The competitive environment for the wireless data communications industry is rapidly
evolving and, to date, no technology has been exclusively or commercially adopted as the
industry standard for wireless data communication. Accordingly, both the nature of
competition and the scope of the business opportunities afforded by this market are
currently uncertain. Strategic relationships in the wireless data communications industry
are also evolving. Specific infrastructure manufacturers, network operators and other
businesses within the industry may currently be customers of, suppliers to, strategic
partners with, or investors in other businesses. The Company is currently working with a
number of businesses, some of which are direct competitors with each other and others of
which are current or potential competitors of RIM. It is unclear to what extent network
infrastructure developers, enterprise software vendors, PC or PDA vendors, or key network
Financial Management – EMBA Fall 2008 Page | 8
operators will seek to provide integrated wireless solutions, including access devices
developed internally or through captive suppliers.
In the wireless data communications access market, the Company is aware of several
suppliers of access devices for public wireless data networks, including: Apple Inc.; Casio
Inc.; Danger, Inc.; Telefonaktiebolaget LM Ericsson; Fujitsu Limited; HandEra, Inc.;
Hewlett-Packard Company; Hitachi America, Ltd.; Intermec Technologies Corporation;
Itronix Corp; Kyocera Corp or Kyocera International Inc.; Microsoft Corporation;
Mitsubishi Corporation; Motorola, Inc.; NEC Corp.; Nokia Corp.; Novatel Wireless, Inc.;
NTT DoCoMo Inc.; Option NV, Palm, Inc.; Sanyo Electronic Co. Ltd.; Samsung Electronics
Co., Ltd.; Sendo Ltd.; Sharp Corporation; Sierra Wireless Inc.; Sony Corporation; and Sony
Ericsson Inc., among others. In addition, the Company may face competition from
companies focused on providing middleware to facilitate end-to-end wireless messaging
solutions. Companies in this category include Motorola Inc.; IBM Corporation; Microsoft
Corporation; Notify Technology Corporation; Openwave Systems Inc.; Seven Networks,
Inc.; Sybase, Inc.; and Visto Corporation, among others.
A variety of approaches are being pursued as diverse handset and handheld vendors
attempt to provide mobile access to corporate data. These approaches include
Smartphones, PDA’s, wireless PDA’s, phone/PDA hybrids, converged voice and data
devices, a variety of middleware offerings and other end-to-end integrated wireless
solutions.
Financial Management – EMBA Fall 2008 Page | 9
Case Study: Chosen Competition Nowadays, no company is providing an end to end service like RIM (hardware,
middleware, and software) for pushed email technologies. Some companies are proposing
one or two elements of the total solution but RIM is the only one that can provide all them
in a very integrated manner.
The three companies that are aggressively competing with RIM for providing companies
with mobile solutions are:
• Apple (Nasdaq: AAPL) • Microsoft (Nasdaq: MSFT) • Nokia (NYSE: NOK)
Apple’s iPhone is growing more and more on the mobile phone market but is not yet
accepted as a “professional” tool for corporate communication devices.
Microsoft is releasing stronger professional oriented software well integrated with the
corporate environment (Windows Mobile and Exchange Server) but still has some
difficulties to be considered as fully integrated corporate solution and still depends on
other manufacturers for the hardware part.
Nokia, as the biggest mobile phone supplier worldwide, is a good challenger to RIM’s
line of product and services as it is providing hardware, software and recently made a
partnership with Microsoft for integrating with its middleware and thus providing a full
solution for email push.
Financial Management – EMBA Fall 2008 Page | 10
4. STRATEGIC PROBLEM
RIM is engaged in an industry that is highly competitive and rapidly evolving, and has
experienced, and expects to continue to experience, intense competition from a number of
companies. No technology has been exclusively or commercially adopted as the industry
standard for wireless communication. Accordingly, both the nature of the competition and
the scope of the business opportunities afforded by the market in which the Company
competes is uncertain. The Company’s competitors, including many new market entrants,
may implement new technologies before the Company does. In addition, the Company’s
competitors may deliver new products and solutions earlier, or provide more attractively
priced, enhanced or better quality products and solutions than the Company does.
The Company also expects that additional competition will develop, both from existing
businesses in the wireless data communications industry and from new entrants, as
demand for wireless access products and services expands and as the market for these
products and services becomes more established. In addition, network infrastructure
developers, independent software vendors, smartphone vendors, PC or PDA vendors,
internet application vendors or key network operators may seek to provide integrated
wireless solutions that compete with the Company’s products. The impact of competition
could result in price reductions, fewer customer orders, lost market share and reduced
gross and operating margins. There can be no assurance that the Company will be able to
compete successfully and withstand competitive pressures.
Many of the Company’s competitors have greater name recognition, larger customer
bases and significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than the Company does. There can be no assurance that
the Company will be able to compete effectively with these companies in the future.
Financial Management – EMBA Fall 2008 Page | 11
5. TECHNICAL PROBLEM
Even if RIM is very profitable, its future is becoming uncertain due to the
increasing competition on the pushed email technologies.
In order to remain competitive, RIM is ensuring a Short-Term survival with the
increase of its Current assets and thus losing some profitability (Current Assets
having less maturity, and therefore being less risky and less profitable).
This increase of the Current assets is linked to two main reasons:
• Increase of Receivables
• Increase of Other Current Assets
The first reason of the increase of the Current Assets is linked to the
considerable increase of the Receivables (+7.67% between 2006 and 2008 - see
Figure 1). According to the Average Collection Period ratio, it takes more and more
days for RIM to collect the money for its sold products (+15.64 days between 2006
and 2008). This Cash, that is not collected rapidly, affects the capability of RIM to
invest into more profitable assets.
Figure 1: RIM's Receivables
2005 2006 2007 2008
Accounts Receivable 8,69% 13,62% 18,54% 21,31%
Other Receivables 0,50% 1,38% 1,30% 1,36%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
% T
ota
l A
sse
ts
Account Receivable and Other Receivable
Accounts Receivable
Other Receivables
Financial Management – EMBA Fall 2008 Page | 12
The second reason of the increase of the Current Assets is linked to the
considerable increase of the Other Current assets (+1.11% between 2007 and
2008). In order to reduce its COGS and the exposure to foreign currency anticipated
transactions, RIM is increasing the hedging of raw material and this increase is
reflected in the Other Current Assets line of the Balance Sheet (see Figure 2). This
impacts the Cash line of the Balance Sheet and also affects the capability of RIM to
invest into more profitable assets.
Figure 2: RIM's Other Current Assets
2005 2006 2007 2008
Other Current Assets 0,87% 1,97% 1,35% 2,46%
0,00%
0,50%
1,00%
1,50%
2,00%
2,50%
3,00%
% T
ota
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sse
ts
Other Current Assets
Other Current Assets
Financial Management – EMBA
6. FACTS AND ISSUES
1.1 Increasing Average Collection Period
It takes more and more time for RIM to be paid for its sold products
needed 71.35 days to get paid, whereas it used to be 55.71 d
This difference (15.64 days) means that RIM cannot get cash rapidly and cannot invest it
into more profitable assets.
Figure
2005
RIM 61,57
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
Average Collection Period
EMBA Fall 2008
asing Average Collection Period
It takes more and more time for RIM to be paid for its sold products
needed 71.35 days to get paid, whereas it used to be 55.71 days in 2006
15.64 days) means that RIM cannot get cash rapidly and cannot invest it
Figure 3: RIM's Average Collection Period
2006 2007 2008
55,71 68,82 71,35
Average Collection Period
Page | 13
It takes more and more time for RIM to be paid for its sold products. In 2008, RIM
ays in 2006 (see Figure 3).
15.64 days) means that RIM cannot get cash rapidly and cannot invest it
2008
71,35
RIM
Financial Management – EMBA
1.2 Increasing COGS
Since 2006, the raw material and the labor costs
between 2006 and 2008) and
RIM should ensure a good management of its fixed costs. Unfortunately, the fixed costs
cannot be reduced indefinitely and RIM should fin
order to increase its Gross profit margin and Net Income.
2005
RIM 46,99%
42,00%
43,00%
44,00%
45,00%
46,00%
47,00%
48,00%
49,00%
50,00%
% T
ota
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ts
EMBA Fall 2008
aw material and the labor costs have been increasing
and are affecting RIM’s gross profit. In order to stay competitive,
RIM should ensure a good management of its fixed costs. Unfortunately, the fixed costs
cannot be reduced indefinitely and RIM should find other suppliers with better prices in
order to increase its Gross profit margin and Net Income.
Figure 4: RIM's COGS Evolution
2006 2007
44,81% 45,42% 48,74%
COGS
Page | 14
increasing (+3.93%
. In order to stay competitive,
RIM should ensure a good management of its fixed costs. Unfortunately, the fixed costs
with better prices in
2008
48,74%
RIM
Financial Management – EMBA
1.3 Increasing Retained Earnings
Retained Earnings have been constantly increasing (+34.33% betwee
RIM’s has not paid a dividend in the previous ten fiscal years and has no expectation of
paying cash dividends on its Common Stock. RIM prefers to reinvest the Retained
Earnings in the company.
Figure
Retained Earnings
-10,00%
-5,00%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
% T
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EMBA Fall 2008
Retained Earnings
Retained Earnings have been constantly increasing (+34.33% betwee
RIM’s has not paid a dividend in the previous ten fiscal years and has no expectation of
paying cash dividends on its Common Stock. RIM prefers to reinvest the Retained
Figure 5: RIM Retained Earnings Evolution
2005 2006 2007 2008
Retained Earnings 3,59% -4,33% 11,63% 30,00%
10,00%
5,00%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
Retained Earnings
Page | 15
Retained Earnings have been constantly increasing (+34.33% between 2006 and 2008).
RIM’s has not paid a dividend in the previous ten fiscal years and has no expectation of
paying cash dividends on its Common Stock. RIM prefers to reinvest the Retained
Evolution
Retained Earnings
Financial Management – EMBA
1.4 Reduction of Owners’ Equity
RIM has been increasing its
2008).
The company has slightly increased its
but has mainly decreased its
14.85% between 2006 and 2008. In 2008, its still represents 71.37% of the total
Liabilities. It has also slightly decrease its Long
The company is relying more and more on foreign funds by
Equity in order to increase its S
Figure 6
TOTAL CURRENT LIABILITIES
TOTAL LT LIABILITIES
TOTAL EQUITY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% o
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EMBA Fall 2008
Equity
its Current Liabilities since 2006 (+14.48
The company has slightly increased its Long-Term debt (+0.37% for the same period)
its Owner’s Equity. RIM’s Owners’ Equity was decreased it by
14.85% between 2006 and 2008. In 2008, its still represents 71.37% of the total
Liabilities. It has also slightly decrease its Long-Term Debt (-0.03%) the same
ying more and more on foreign funds by decreasing its
in order to increase its Short-Term debt and to pay lower interests
6: RIM's Liabilities and Equity Evolution
2005 2006 2007 2008
24,07% 12,28% 17,70% 26,75%
0,25% 1,50% 1,90% 1,87%
75,68% 86,22% 80,40% 71,37%
TOTAL CURRENT LIABILITIES
TOTAL LT LIABILITIES
TOTAL EQUITY
Page | 16
48% between 2006 and
+0.37% for the same period)
Equity was decreased it by
14.85% between 2006 and 2008. In 2008, its still represents 71.37% of the total
0.03%) the same year.
decreasing its Owners’
interests’ rates.
Evolution
TOTAL CURRENT LIABILITIES
TOTAL LT LIABILITIES
TOTAL EQUITY
Financial Management – EMBA
1.5 Important proportion of Cash
In RIM’s Balance Sheet 2008, more than 1/5 of the total assets is composed of Cash
and Equivalent (21.49%). Even if the Cash and Equivalents was slightly decreased
between 2007 and 2008 (-0.43%), it was increased by (1.64%) between 2006 and 2008.
A part of this cash could be reinvested into more profitable assets such as Short
investments that are more profitable.
Figure 7
Cash and Equivalents
18,00%
19,00%
20,00%
21,00%
22,00%
23,00%
24,00%
% T
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EMBA Fall 2008
Important proportion of Cash
2008, more than 1/5 of the total assets is composed of Cash
and Equivalent (21.49%). Even if the Cash and Equivalents was slightly decreased
0.43%), it was increased by (1.64%) between 2006 and 2008.
of this cash could be reinvested into more profitable assets such as Short
that are more profitable.
7: RIM's Cash and Equivalents Evolution
2005 2006 2007 2008
Cash and Equivalents 23,29% 19,85% 21,92% 21,49%
Cash and Equivalents
Cash and Equivalents
Page | 17
2008, more than 1/5 of the total assets is composed of Cash
and Equivalent (21.49%). Even if the Cash and Equivalents was slightly decreased
0.43%), it was increased by (1.64%) between 2006 and 2008.
of this cash could be reinvested into more profitable assets such as Short-Term
: RIM's Cash and Equivalents Evolution
Cash and Equivalents
Financial Management – EMBA
2 ALTERNATIVES SOLUTIONS
2.1 Solution 1: Increase Payment period
In order to raise more cash, RIM could increase its payment period.
and 2008 RIM has decreased its payment period
was increasing it. Moreover
period (+9.78 days between 2005 and 2008
By having longer collection period and shorter payment period, RIM is reducing its
Cash. This cash could be then reinjected in
will be more profitable.
Average Account Payment Period =
AP/(COGS/365)
Average Collection Period = AR/(Net
sales / 365)
% T
ota
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sse
ts
Account Payable and Receivable Period
EMBA Fall 2008
NS
Increase Payment period
In order to raise more cash, RIM could increase its payment period.
RIM has decreased its payment period (-5.62 days) whereas the competition
Moreover, RIM is getting a longer and longer average collection
(+9.78 days between 2005 and 2008).
By having longer collection period and shorter payment period, RIM is reducing its
This cash could be then reinjected in the company to finance other assets that
Figure 8: RIM's AP & AR Period
2005 2006 2007 2008
Average Account Payment Period = 39,41 37,46 34,48 33,79
Average Collection Period = AR/(Net 61,57 55,71 68,82 71,35
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
Account Payable and Receivable Period
Average Account Payment
Period = AP/(COGS/365)
Average Collection Period =
AR/(Net sales / 365)
Page | 18
In order to raise more cash, RIM could increase its payment period. Between 2005
whereas the competition
longer and longer average collection
By having longer collection period and shorter payment period, RIM is reducing its
to finance other assets that
Account Payable and Receivable Period
Average Account Payment
Period = AP/(COGS/365)
Average Collection Period =
AR/(Net sales / 365)
Financial Management – EMBA
2.2 Solution 2: Purchase Fiduciary
With the amount of
2008, the company could purchase some fiduciaries in order to be
on a Short-Term period
and therefore non profitable.
Between 2007 and 2008
2.41%.
Having some well managed Cash could allow RIM to make
investments and to be more profitable.
Figure 9: RIM's
2005
Short-Term Investments 12,04%
Cash and Equivalents 23,29%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
% T
ota
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ts
Cash and ST Investments
EMBA Fall 2008
iduciary and other Short-Term Investments
amount of Cash and Equivalents (21.49%) of RIM’s Balance Sheet
, the company could purchase some fiduciaries in order to be
erm period instead of having more than 21% of the a
non profitable.
Between 2007 and 2008 RIM’ Short-Term investments of have been decreasing by
Having some well managed Cash could allow RIM to make
investments and to be more profitable.
: RIM's Cash and Short-Term Investments
2005 2006 2007 2008
12,04% 7,59% 10,04% 7,63%
23,29% 19,85% 21,92% 21,49%
Cash and ST Investments
Short
Cash and Equivalents
Page | 19
of RIM’s Balance Sheet in
, the company could purchase some fiduciaries in order to be more profitable
more than 21% of the assets available,
have been decreasing by
Having some well managed Cash could allow RIM to make more Short-Term
Term Investments
Short-Term Investments
Cash and Equivalents
Financial Management – EMBA
2.3 Solution 3: Purchase company’s
In 2008, the Owners’ Equity
With the Cash and Equivalents of RIM’s Balance Sheet, the company could
purchase some company’s own stock
Instead of paying higher interests to Stockholders, RIM could s
borrowing to banks with lower interest rates. With the Cash that is saved, the
company could buy more Stockholders’ shares and also increase some Long
Assets which carry more maturity and more profitability.
Figure
ST (<365 days)
LT (> 365 days)
Owners' Equity
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
90,00%
100,00%
% o
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EMBA Fall 2008
Purchase company’s own stocks
Equity of RIM represented 71.31% of the Liabilities.
ash and Equivalents of RIM’s Balance Sheet, the company could
company’s own stock in order to be more profitable.
Instead of paying higher interests to Stockholders, RIM could s
borrowing to banks with lower interest rates. With the Cash that is saved, the
company could buy more Stockholders’ shares and also increase some Long
Assets which carry more maturity and more profitability.
Figure 10: RIM's Financial Strategy - 2008
AssetsLiabilities +
Equity
ST (<365 days) 63,10% 26,75%
LT (> 365 days) 36,90% 1,87%
Owners' Equity 71,37%
ST (<365 days)
LT (> 365 days)
Owners' Equity
Page | 20
71.31% of the Liabilities.
ash and Equivalents of RIM’s Balance Sheet, the company could
order to be more profitable.
Instead of paying higher interests to Stockholders, RIM could save some money by
borrowing to banks with lower interest rates. With the Cash that is saved, the
company could buy more Stockholders’ shares and also increase some Long-Term
2008
ST (<365 days)
LT (> 365 days)
Owners' Equity
Financial Management – EMBA Fall 2008 Page | 21
3 RECOMMENDATIONS
In the current situation, I would recommend the third solution to be followed.
Purchasing the company’s own stocks will help to generate more Cash for RIM as
the debt’s interests are cheaper that the Owners’ Equity Interests. By saving some
Cash, it will allow RIM to invest it in:
• Purchasing more Stockholders’ Equity and increase its foreign funding
and thus reduce the interest rates
• Increase company’s Short-Term investments, to be more profitable than
current idle cash.
• And then increase company’s Long-Term investment, to be even more
profitable than Short-Term investments
By using the current Cash, RIM can increase its profitability in the Short and in the Long-Term.
Financial Management – EMBA
4 FINANCIAL ANALYSIS
4.1 RIM’s Financial Strategy
As of 01st March 2008, t
$5,511 million (see Annex
The analysis of the repartition (
Assets and Liabilities +
on Equity (71,37%) and
Figure 11
Having mainly Current
survival rather than high maturity assets with
company is using mainly
in 2008).
ST (<365 days)
LT (> 365 days)
Owners' Equity
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
90,00%
100,00%
% o
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EMBA Fall 2008
March 2008, the total value of RIM’s Balance Sheet
(see Annex 1).
he analysis of the repartition (see Figure 11) between Short-
iabilities + Equity reveals that the company funding is
%) and that its assets are mainly Short-Term (63.10%)
11: RIM 2008 Balance Sheet - Repartition
aving mainly Current Assets shows that the company is ensuring a S
rather than high maturity assets with more risk and profitability.
company is using mainly its own funds to finance its assets (Equity being 71.37%
AssetsLiabilities +
Equity
ST (<365 days) 63,10% 26,75%
LT (> 365 days) 36,90% 1,87%
Owners' Equity 71,37%
ST (<365 days)
LT (> 365 days)
Owners' Equity
Page | 22
Balance Sheet total value is
-Term and Long-Term
funding is mainly relying
(63.10%).
Repartition
at the company is ensuring a Short-Term
more risk and profitability. The
own funds to finance its assets (Equity being 71.37%
ST (<365 days)
LT (> 365 days)
Owners' Equity
Financial Management – EMBA
Looking at the previous years (2006
company tends to increase its
increase its Current Liabilities by reducing
Equity (see Figure 12).
Figure 12: RIM
TOTAL CURRENT LIABILITIES
TOTAL LT LIABILITIES
TOTAL EQUITY
TOTAL CURRENT ASSETS
TOTAL LT ASSET
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% o
f T
ota
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Sh
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EMBA Fall 2008
Looking at the previous years (2006 onwards) the Balance Sheet reveals that the
company tends to increase its Current Assets (Long-Term assets reduction)
urrent Liabilities by reducing Long-Term Liabilities and Common
: RIM Fiscal 2005-2008 Balance Sheet - Repartition
2005 2006 2007 2008
TOTAL CURRENT LIABILITIES 24,07% 12,28% 17,70% 26,75%
0,25% 1,50% 1,90% 1,87%
75,68% 86,22% 80,40% 71,37%
58,92% 54,39% 62,14% 63,10%
41,08% 45,61% 37,87% 36,90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Page | 23
) the Balance Sheet reveals that the
assets reduction) and to
Liabilities and Common
Repartition
TOTAL CURRENT LIABILITIES
TOTAL LT LIABILITIES
TOTAL EQUITY
TOTAL CURRENT ASSETS
TOTAL LT ASSET
Financial Management – EMBA
4.2 Nokia Financial Strategy
As of 31st December 2007, the total value of Nokia’s
$47,375 million (see Annex
The analysis of the repartition (
Assets and Liabilities + Equity reveals that the company funding is mainly relying
on Short-Term Liabilities (50,47%) and that its assets are mainly
(77.91%).
Figure 13
By having mainly Short
Term survival rather than high maturity assets with more risk and profitability. The
company is using mainly foreign
the Total Liabilities in 2008).
ST (<365 days)
LT (> 365 days)
Owners' Equity
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
90,00%
100,00%
% o
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EMBA Fall 2008
December 2007, the total value of Nokia’s Balance Sheet total value
million (see Annex 7).
The analysis of the repartition (see Figure 13) between Short-Term and Long
Assets and Liabilities + Equity reveals that the company funding is mainly relying
Liabilities (50,47%) and that its assets are mainly
13: Nokia 2008 Balance Sheet - Repartition
hort-Term assets shows that the company is ensuring a
survival rather than high maturity assets with more risk and profitability. The
foreign funds to finance its assets (Equity being
in 2008).
AssetsLiabilities +
Equity
77,91% 50,47%
22,09% 10,24%
39,29%
ST (<365 days)
LT (> 365 days)
Owners' Equity
Page | 24
Balance Sheet total value is
Term and Long-Term
Assets and Liabilities + Equity reveals that the company funding is mainly relying
Liabilities (50,47%) and that its assets are mainly Short-Term
Repartition
assets shows that the company is ensuring a Short-
survival rather than high maturity assets with more risk and profitability. The
funds to finance its assets (Equity being 39.28% of
ST (<365 days)
LT (> 365 days)
Owners' Equity
Financial Management – EMBA
Looking at the previous years (2006 onwards) the Balance Sheet reveals that the
company tends to increase its
increase its current Liabilities
Equity (see Figure 14).
Figure 14: Nokia
2004
TOTAL CURRENT LIABILITIES 35,18%
TOTAL LT LIABILITIES 2,04%
TOTAL EQUITY 62,78%
TOTAL CURRENT ASSETS 86,06%
TOTAL LT ASSET 13,94%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% o
f T
ota
l B
ala
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Sh
ee
t V
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e
EMBA Fall 2008
Looking at the previous years (2006 onwards) the Balance Sheet reveals that the
company tends to increase its Long-Term Assets (Short-Term assets reduction) and to
increase its current Liabilities and Long-Term Liabilities Equity by reducing its
: Nokia Fiscal 2005-2008 Balance Sheet - Repartition
2004 2005 2006 2007
35,18% 43,07% 44,93% 50,47%
2,04% 2,11% 2,16% 10,24%
62,78% 53,30% 52,92% 39,29%
86,06% 84,41% 82,18% 77,91%
13,94% 15,59% 17,82% 22,09%
Page | 25
Looking at the previous years (2006 onwards) the Balance Sheet reveals that the
assets reduction) and to
Equity by reducing its Owners’
Repartition
TOTAL CURRENT
LIABILITIES
TOTAL LT LIABILITIES
TOTAL EQUITY
TOTAL CURRENT
ASSETS
TOTAL LT ASSET
Financial Management – EMBA Fall 2008 Page | 26
4.3 Balance Sheet - Key Elements Analysis -
4.3.1 Short-Term Assets
a) Cash and Equivalents
The Cash and Equivalents represents more than 1/5 of RIM’s Total Assets in 2008.
It has been fluctuating between 19% and 24% the last five years and seems quite
stable since 2007.
Nokia has been constantly increasing its Cash and Equivalent (+7.38%) since 2005,
but still remains below RIM (delta 3.27% in 2008). If Nokia, keeps increasing it at
this pace, it should be in RIM's average proportion of Cash and Equivalents by next
fiscal year.
On one hand, having an important amount of Cash and Equivalent on a company's
Balance Sheet is very important as it shows that the company can reimburse the
debts and related interests without difficulties (and thus increase the trust of
investors and bankers to get new loans) and it also allows the company to be more
flexible on deciding if it should be converted in Short-Term investments or Long-
Term investments. On the other hand, having too much Cash and Equivalents is
generally a Short-Term strategy as it could be invested in more mature assets with
higher risk but higher profitability.
Figure 15: Cash and Equivalent evolution
2005 2006 2007 2008
RIM 23,29% 19,85% 21,92% 21,49%
Nokia 10,84% 13,62% 15,59% 18,22%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
% T
ota
l A
sse
ts
Cash and Equivalents
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 27
b) Short-Term investments
Both RIM and Nokia have reduced their Short-Term investments between 2007 and
2008 (-2.41% for RIM / -8.97% for Nokia). As the competition is strongly increasing
(Apple's iPhone came on the market in June 2007), Nokia and RIM decided to
reduce their Short-Term investments to have more Cash and be ready to take a new
strategy depending on the evolution of the market.
It is important to note that Nokia has been aggressively decreasing its Short-Term
investments since 2005 (-30.15%) mainly in order to increase its Cash and
Equivalents.
It seems that RIM has reduced its Short-Term investments in other to increase the
Current deferred Tax and the Other Current Assets (hedging on exposure to foreign
currency anticipated transactions) (see Annex 1).
The Short-Term investments are generally used by companies that have too much
Cash and Equivalents to gain interests but still want to remain flexible to free some
Cash in less than a year if necessary.
Figure 16: Short-Term Investments evolution
2005 2006 2007 2008
RIM 12,04% 7,59% 10,04% 7,63%
Nokia 43,83% 30,91% 22,65% 13,68%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
40,00%
45,00%
50,00%
% T
ota
l A
sse
ts
ST Investments
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 28
c) Account Receivables (AR)
Due to the constant increase of sales, Account Receivables are in constant progress
for both companies. RIM has increased its Account Receivables by 12.62% since
between 2005 and 2008, and Nokia has increased its Account Receivables by
10.46% for the same period. The AR increase is also linked to the increasing
average collection period of both companies (see Activity Ratio – Average Collection
Period).
Figure 17: AR & OR evolution
2005 2006 2007 2008
RIM 8,69% 13,62% 18,54% 21,31%
Nokia 19,33% 23,81% 26,03% 29,79%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
% T
ota
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sse
ts
Account Receivable
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 29
d) Inventory
RIM has slight decrease in the inventory (-1.09% between 2007 and 2008) whereas
Nokia has increased its inventory by +0.78% during the last fiscal year.
As mentioned in the Total Revenue section RIM has increased its sales by +98% and
Nokia by +24%, this should explain the important decrease in RIM's inventory. On top
of that RIM released 8 new models of smartphones in 2008, whereas Nokia released
only 5 new models the same year.
Note that both companies are using a first-in-first-out basis to evaluate their
inventories.
Figure 18: Inventory evolution
2005 2006 2007 2008
RIM 3,53% 5,81% 8,28% 7,19%
Nokia 5,76% 7,43% 6,87% 7,65%
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
8,00%
9,00%
% T
ota
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sse
ts
Inventory
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 30
4.3.2 Long-Term Assets
e) Gross Property Plant and Equipment (PPE)
After peaking at 25.47% of the Total Assets in 2007, RIM’s PPE value has been
decreasing by 4.84% last fiscal year. It seems to be a tendency in the industry as
Nokia has also reduced its PPE by 7.32% last fiscal year.
Figure 19: PPE evolution
2005 2006 2007 2008
RIM 13,53% 22,96% 25,47% 20,63%
Nokia 19,30% 20,93% 20,92% 13,60%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
% T
ota
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sse
ts
PPE
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 31
f) Long-Term Investments
RIM constantly reduced its Long-Term investments since 2005 with an
aggressive reduction of 12.76% between 2006 and 2007 (see Figure 20). It seems to
be linked to the financial strategy of increasing the current assets.
Nokia’s Long-Term investments were stable for the same period (between 1.63% and
2.26% between 2005 and 2008).
Figure 20:Long-Term Investments evolution
2005 2006 2007 2008
RIM 28,76% 26,54% 13,78% 13,41%
Nokia 1,63% 1,96% 2,26% 1,77%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
% T
ota
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sse
ts
LT Investments
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 32
g) Other Intangibles
The other intangible assets are composed of:
- Acquired Technology
- Licenses
- Patents
Other intangible assets have been increasing for both companies especially between
2007 and 2008 (+4.06% for RIM and +4.95 for Nokia). Companies in this sector
generally purchase a lot of patents, licenses and new technology to remain
competitive. The increase is probably linked to the release of the Apple’s iPhone in
June 2007.
Figure 21: Other Intangibles evolution
2005 2006 2007 2008
RIM 3,19% 3,71% 4,47% 8,53%
Nokia 0,92% 0,94% 1,32% 6,27%
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
8,00%
9,00%
% T
ota
l A
sse
ts
Other Intangibles
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 33
4.3.3 Short-Term Liabilities
a) Account Payable (AP)
The Account Payables have been constantly increasing since 2005 for both
companies. It seems to be linked to their increasing production and need of raw
material. The increase is less important for RIM (+0.70%) between 2007 and 2008 than
Nokia (+2.31%) for the same period.
Figure 22: AP evolution
2005 39511 2006 39510
RIM 2,61% 4,10% 4,22% 4,92%
Nokia 11,77% 15,56% 16,50% 18,81%
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
18,00%
20,00%
% T
ota
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ab
ilit
ies
Account Payable
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 34
b) Accrued Expenses
The Accrued Expenses have been constantly increasing for both companies since 2005.
Accrued Expenses include:
• Marketing Costs (RIM only)
• Warranty (RIM only)
• Royalties (RIM only)
• Other
o Salaries
o Payroll withholding taxed
o Advance Payments
As companies are producing more and more, all these expenses are increasing
(+9.47% for RIM) and (+7.39% for Nokia) between 2005 and 2008.
Figure 23: Accrued Expenses evolution
2005 2006 2007 2008
RIM 3,06% 6,50% 9,31% 12,53%
Nokia 10,19% 13,59% 15,44% 17,58%
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
18,00%
20,00%
% T
ota
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ab
ilit
ies
Accrued Expenses
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 35
4.3.4 Long-Term Liabilities
a) Long-Term Debt
RIM's Long-Term debt has been decreasing (-0.12%) between 2006 and 2008.
The company does not want to rely on Long-Term debt but more on Short-Term
debt and Owners’ Equity.
Nokia is taking a different approach by increasing its Long-Term debt (+0.45%
between 2006 and 2008) by reducing the Owners’ Equity in order to pay less
interests.
In both cases, the Long-Term debt is a very small part of the liabilities (0.13% for
RIM and 0.54% for Nokia).
Figure 24: Long-Term Debt evolution
2005 2006 2007 2008
RIM 0,25% 0,30% 0,20% 0,13%
Nokia 0,08% 0,09% 0,31% 0,54%
0,00%
0,10%
0,20%
0,30%
0,40%
0,50%
0,60%
% T
ota
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ab
ilit
ies
LT Debt
RIM
Nokia
Financial Management – EMBA
4.3.5 Owners’ Equity
a) Common Stock
In proportion to the Total
value has been decreasing since 2006 by 50%. In 2008,
39.37% of the Total Liabilities
After some losses in 2006, the Retained Earnings have been increased a lot
(+18.37% between 2007 and 2008). As a reminder, RIM has never given any cash
dividends to its stockholders
reinvest money in the busi
Figure 25: RIM:
2005
Retained Earnings 3,59%
Common Stock 72,20%
-20,00%
0,00%
20,00%
40,00%
60,00%
80,00%
100,00%
% T
ota
l Li
ab
ilit
ies
RIM: Common Stock and Retained Earnings
EMBA Fall 2008
Common Stock and Retained Earnings
In proportion to the Total Liabilities in the Balance Sheet, RIM’s Common Stock
value has been decreasing since 2006 by 50%. In 2008, the Common Stock
Liabilities.
After some losses in 2006, the Retained Earnings have been increased a lot
(+18.37% between 2007 and 2008). As a reminder, RIM has never given any cash
dividends to its stockholders for the last 10 years as the company prefers to
reinvest money in the business.
RIM: Common Stock and Retained Earnings
2005 2006 2007 2008
3,59% -4,33% 11,63% 30,00%
72,20% 89,40% 67,98% 39,37%
RIM: Common Stock and Retained Earnings
Page | 36
in the Balance Sheet, RIM’s Common Stock
the Common Stock reaches
After some losses in 2006, the Retained Earnings have been increased a lot
(+18.37% between 2007 and 2008). As a reminder, RIM has never given any cash
the last 10 years as the company prefers to
and Retained Earnings evolution
RIM: Common Stock and Retained Earnings
Retained Earnings
Common Stock
Financial Management – EMBA
Nokia has always kept a
2008). It is important to
Earnings (from 60.52% t
the company’s assets.
Figure 26: Nokia: Common Stock and Re
2005
Retained Earnings 60,52%
Common Stock 1,24%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
% T
ota
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ab
ilit
ies
Nokia: Common Stock and Retained Earnings
EMBA Fall 2008
Nokia has always kept a very low Common Stock (0.65% of the Total Assets in
It is important to note that Nokia is constantly decreasing its Retained
Earnings (from 60.52% to 45.66% between 2005 and 2008) in order to reinvest it in
: Nokia: Common Stock and Retained Earnings
2005 2006 2007 2008
60,52% 49,54% 49,18% 45,66%
1,24% 1,10% 1,09% 0,65%
Nokia: Common Stock and Retained Earnings
Page | 37
low Common Stock (0.65% of the Total Assets in
that Nokia is constantly decreasing its Retained
o 45.66% between 2005 and 2008) in order to reinvest it in
tained Earnings
Nokia: Common Stock and Retained Earnings
Retained Earnings
Common Stock
Financial Management – EMBA
4.4 Income statement - Key Elements
a) Revenues (Net Sales)
RIM's revenues have been multiplied by
especially between 2007 and 2008 (+98%). Nokia has also increase its revenue
(+173% between 2005 and 2008) and also with a good increase between 2007 and
2008 (+124%).
It is important to note that Nokia's
than RIM's Total Revenues
Figure
2005
Nokia 37 007,5
RIM 1 350,40
0,00
10 000,00
20 000,00
30 000,00
40 000,00
50 000,00
60 000,00
70 000,00
80 000,00
mil
lio
n $
EMBA Fall 2008
Key Elements Analysis -
Revenues (Net Sales)
venues have been multiplied by 445% between 2005 and 2008 and
especially between 2007 and 2008 (+98%). Nokia has also increase its revenue
(+173% between 2005 and 2008) and also with a good increase between 2007 and
It is important to note that Nokia's Total Revenue is 10.71 times
Total Revenues.
Figure 27: Total Revenues evolution
2005 2006 2007 2008
37 007,5 43 080,7 51 812,5 64 333,1
1 350,40 2 065,80 3 037,10 6 009,40
Total Revenues
Page | 38
445% between 2005 and 2008 and
especially between 2007 and 2008 (+98%). Nokia has also increase its revenue
(+173% between 2005 and 2008) and also with a good increase between 2007 and
times more important
2008
64 333,1
6 009,40
Nokia
RIM
Financial Management – EMBA Fall 2008 Page | 39
b) Gross Profit (Net Sales – COGS)
RIM’s COGS have been increasing since 2006 (+3.93% between 2006 and 2008)
and thus reducing the company's Gross Profit Margin of the company (-3.32%
between 2007 and 2008).
Nokia’s has a better management of its COGS and thus could increase its Gross
Profit Margin (+1.97% between 2007 and 2008).
RIM's Gross Profit Margin is 16.75% more important than Nokia's Gross Profit
Margin.
Figure 28: Gross Margin evolution
2005 2006 2007 2008
RIM 53,01% 55,19% 54,58% 51,26%
Nokia 38,11% 35,04% 32,54% 34,51%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
% o
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ev
en
ue
s
Gross Margin
RIM
Nokia
Financial Management – EMBA
c) Selling General & Admin Expenses,
In order to remain profitable and even if the COGS were increasing RIM
managed to reduce its SGA (
2008.
Figure
R&D Expenses
Selling General & Admin Expenses,
Total
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
% o
f T
ota
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ev
en
ue
s
EMBA Fall 2008
Selling General & Admin Expenses, and R&D Expenses
In order to remain profitable and even if the COGS were increasing RIM
managed to reduce its SGA (-3.04%) and its RD (-1.79%) costs between 2007 and
Figure 29: RIM: SGA & RD evolution
2005 2006 2007 2008
7,61% 7,69% 7,78% 5,99%
Selling General & Admin Expenses, 14,35% 15,21% 17,71% 14,67%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
RIM: SGA & RD
R&D Expenses
Selling General & Admin
Expenses, Total
Page | 40
and R&D Expenses (SGA)
In order to remain profitable and even if the COGS were increasing RIM
1.79%) costs between 2007 and
R&D Expenses
Selling General & Admin
Expenses, Total
Financial Management – EMBA
Nokia’s SGA has been slightly incr
between 2007 and 2008.
Nokia’s management did not manage to be more efficient than RIM’s to
fixed costs and decided to increase its
products. As RIM made some effort in RD in 2007 (+2.5%), it decided to invest less in
RD in 2008.
R&D Expenses
Selling General & Admin Expenses,
Total
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
% o
f T
ota
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ev
en
ue
s
EMBA Fall 2008
Nokia’s SGA has been slightly increasing its SGA (+0.63%) and its RD (+0.72%) costs
Figure 30: Nokia: SGA & RD
Nokia’s management did not manage to be more efficient than RIM’s to
fixed costs and decided to increase its Research and Development costs to develop new
products. As RIM made some effort in RD in 2007 (+2.5%), it decided to invest less in
2005 2006 2007 2008
12,46% 11,14% 9,48% 10,20%
Selling General & Admin Expenses, 10,81% 10,44% 9,68% 10,31%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
Nokia: SGA & RD
R&D Expenses
Selling General & Admin
Expenses, Total
Page | 41
easing its SGA (+0.63%) and its RD (+0.72%) costs
Nokia’s management did not manage to be more efficient than RIM’s to decrease its
Research and Development costs to develop new
products. As RIM made some effort in RD in 2007 (+2.5%), it decided to invest less in
R&D Expenses
Selling General & Admin
Expenses, Total
Financial Management – EMBA Fall 2008 Page | 42
d) Operating Income (EBIDTA = Gross Margin - GSA)
RIM's Operating Income is 16.70% more important than Nokia's in 2008.
Even if COGS were more expensive, by decreasing its SGA is 2008, RIM manages to get
a better Operating Income (+1.51%) between 2007 and 2008 than Nokia which
increased its Operating Income by +0.87% for the same period.
Figure 31: EBITDA evolution
2005 2006 2007 2008
RIM 31,06% 32,29% 29,10% 30,61%
Nokia 14,98% 13,33% 13,04% 13,91%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
% o
f T
ota
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ev
en
ue
s
EBITDA
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 43
e) Earnings Before Taxes (EBT = EBIT – I)
The EBT shows how the Interests are affecting the Net Income of the company. In other
words, the more the company has debt (Long-Term & Short-Term), the more the
interests will decrease its Net Income.
Between 2007 and 2008, both companies’ interests decreased (-1.85% for RIM and
-2.27% for Nokia).
In 2008 RIM’s EBT is 13.94% higher than Nokia’s EBT.
Figure 32: EBT evolution
2005 2006 2007 2008
RIM 5,22% 23,30% 28,28% 30,13%
Nokia 16,02% 14,54% 13,92% 16,19%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
% o
f T
ota
l R
ev
en
ue
s
EBT
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 44
f) Net Income (EAT = EBT – T)
RIM's net income has been constantly increasing between 2005 and 2008 (+5.99%).
Nokia's net income has been fluctuating around 10.6% till 2007 and got an increase
of 3.64% between 2007 and 2008.
RIM's net income is 7.42% above Nokia's but the growth seems to slow down
compared to Nokia’s.
Figure 33: Net Income evolution
2005 2006 2007 2008
RIM 15,54% 18,13% 20,79% 21,53%
Nokia 10,87% 10,58% 10,47% 14,11%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
% o
f T
ota
l R
ev
en
ue
s
Net Income
RIM
Nokia
Financial Management – EMBA Fall 2008 Page | 45
4.5 Cash flow - Key Elements Analysis -
a) Cash Flow
By adding the depreciation and the amortization to the Net Income we can get the
cash flow information.
Both RIM (+5.38%) and Nokia (+5.41%) have increased their Cash Flow between
2007 and 2008.
By looking at the figures, we can see that in 2008, even if Nokia’s Cash Flow
(109.40% of EAT) had a more important increase than RIM, this latter is more
performant with its Cash Flow (121.86% of EAT).
The difference between both companies is 12.46%.
Figure 34: Cash Flow
2005 2006 2007 2008
RIM 135,21% 40,06% 116,48% 121,86%
Nokia 136,06% 114,60% 103,99% 109,40%
0,00%
20,00%
40,00%
60,00%
80,00%
100,00%
120,00%
140,00%
160,00%
% T
ota
l R
ev
en
ue
Cash Flow
RIM
Nokia
Financial Management – EMBA
4.6 Ratios
4.6.1 Profitability Ratios
a) Gross Profit Margin = (Net Sales
The gross profit margin ratio indicates how efficiently a business is using its materials and labor in the production process
the percentage of net sales remaining after subtracting cos
make a reasonable profit on sales, as long as it keeps overhead costs in control.
Since 2006, RIM’s gross profit margin has slowly decreased, due to the increasing
costs of COGS (labor costs and raw material)
Nokia managed to change this trend with a Gross Profit Margin
between 2007 and 2008.
RIM and Nokia are above the industry average (38.57% average over 5 years) by
respectively 12.69% and 4.06% in 2008.
Industry average (5yrs av.)
S&P (5yrs av.): 36.80%
Figure
2005
RIM 53,01%
Nokia 38,11%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
EMBA Fall 2008
Gross Profit Margin = (Net Sales – COGS) / Net Sales
The gross profit margin ratio indicates how efficiently a business is using its materials and labor in the production process
the percentage of net sales remaining after subtracting cost of goods sold. A high gross profit margin indicates that a business can
make a reasonable profit on sales, as long as it keeps overhead costs in control.
gross profit margin has slowly decreased, due to the increasing
bor costs and raw material).
ged to change this trend with a Gross Profit Margin
between 2007 and 2008.
RIM and Nokia are above the industry average (38.57% average over 5 years) by
respectively 12.69% and 4.06% in 2008.
av.): 38.57%
Figure 35: Gross Profit Margin evolution
2006 2007 2008
55,19% 54,58% 51,26%
35,04% 32,54% 34,51%
Gross Profit Margin
Page | 46
The gross profit margin ratio indicates how efficiently a business is using its materials and labor in the production process. It shows
t of goods sold. A high gross profit margin indicates that a business can
gross profit margin has slowly decreased, due to the increasing
ged to change this trend with a Gross Profit Margin increase of 1.97%
RIM and Nokia are above the industry average (38.57% average over 5 years) by
2008
51,26%
34,51%
RIM
Nokia
Financial Management – EMBA
b) Operating Profit Margin = EBIT / Net Sales
The operating profit margin ratio indicates how efficiently a
costs. A high operating profit margin indicates that a business can make a reasonable profit on sales
Since 2007, the operating profit margin has
(2.25% for RIM and 0.87% for Nokia).
RIM had some increase in COGS but managed to reduce its SGA and RD, whereas
it is the contrary for Nokia.
The greatest difference between the two companies was in 2006 (16.54%), b
to the decrease of RIM Operating Profit Margin in 2007 and 2008, the difference in
2008 is only 14.90%.
RIM and Nokia are above the industry average (12.38% average over 5 years) by
respectively 16.43% and 1.53% in 2008.
Industry average (5yrs av.): 12.38%
S&P (5yrs av.): 18.29%
Figure
2005
RIM 28,58%
Nokia 14,65%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
Operating Profit Margin
EMBA Fall 2008
Operating Profit Margin = EBIT / Net Sales
profit margin ratio indicates how efficiently a business is using its materials, labor, general, selling and administration
profit margin indicates that a business can make a reasonable profit on sales after paying
Since 2007, the operating profit margin has slightly increased for both companies
(2.25% for RIM and 0.87% for Nokia).
RIM had some increase in COGS but managed to reduce its SGA and RD, whereas
it is the contrary for Nokia.
The greatest difference between the two companies was in 2006 (16.54%), b
to the decrease of RIM Operating Profit Margin in 2007 and 2008, the difference in
RIM and Nokia are above the industry average (12.38% average over 5 years) by
respectively 16.43% and 1.53% in 2008.
): 12.38%
Figure 36: Operation Profit Margin evolution
2006 2007 2008
29,87% 26,56% 28,81%
13,33% 13,04% 13,91%
Operating Profit Margin
Page | 47
, general, selling and administration
after paying its COGS and SGA.
slightly increased for both companies
RIM had some increase in COGS but managed to reduce its SGA and RD, whereas
The greatest difference between the two companies was in 2006 (16.54%), but due
to the decrease of RIM Operating Profit Margin in 2007 and 2008, the difference in
RIM and Nokia are above the industry average (12.38% average over 5 years) by
evolution
2008
28,81%
13,91%
RIM
Nokia
Financial Management – EMBA
c) Net Profit Margin = EAT / Net Sales
The Net profit margin ratio indicates how efficiently a business is using its materials, labor, general,
high operating profit margin indicates that a business can make a reasonable profit on sales after paying COGS and SGA.
Even if slowing down between 2
increasing their net profit margin
2005 and 2008).
The greatest difference between the two companies was in 2007 (10.32%), but Nokia
had a better increase between 2007 and 2008, and thus reducing
7.42%.
RIM and Nokia are above the industry average (9.47% average over 5 years) by
respectively 12.06% and 4.64% in 2008.
Industry average (5yrs av.):
S&P (5yrs av.): 12.69%
2005
RIM 15,54%
Nokia 10,87%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
EMBA Fall 2008
Net Profit Margin = EAT / Net Sales
The Net profit margin ratio indicates how efficiently a business is using its materials, labor, general, selling and administration costs. A
high operating profit margin indicates that a business can make a reasonable profit on sales after paying COGS and SGA.
Even if slowing down between 2007 and 2008, both companies have
increasing their net profit margins (+5.99% for RIM and +3.24% for Nokia between
The greatest difference between the two companies was in 2007 (10.32%), but Nokia
had a better increase between 2007 and 2008, and thus reducing
RIM and Nokia are above the industry average (9.47% average over 5 years) by
respectively 12.06% and 4.64% in 2008.
Industry average (5yrs av.): 9.47%
Figure 37: Net Profit Margin
2006 2007 2008
18,13% 20,79% 21,53%
10,58% 10,47% 14,11%
Net Profit Margin
Page | 48
selling and administration costs. A
high operating profit margin indicates that a business can make a reasonable profit on sales after paying COGS and SGA.
007 and 2008, both companies have always been
(+5.99% for RIM and +3.24% for Nokia between
The greatest difference between the two companies was in 2007 (10.32%), but Nokia
had a better increase between 2007 and 2008, and thus reducing the difference to
RIM and Nokia are above the industry average (9.47% average over 5 years) by
2008
21,53%
14,11%
RIM
Nokia
Financial Management – EMBA
d) Return on Total Asset = EAT / Total Assets
The Return on total asset (ROA) indicates how efficiently a business is
using efficiently its assets, in other words, how many dollars
Since 2005 both companies have an increasing ROA. RIM's ROA has been
increasing more rapidly than Nokia. RIM's ROA was 6.07% less than Nokia's in
2005 and it is +4.32% in 2008. In 2006, RIM and Nokia
RIM and Nokia are above the industry average (8.30% average over 5 years) by
respectively 15.18% and 10.86% in 2008.
Industry average (5yrs av.):
S&P average (5yrs av.): 7.54%
2005
RIM 8,01%
Nokia 14,08%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
EMBA Fall 2008
Return on Total Asset = EAT / Total Assets
indicates how efficiently a business is using its assets to sell. A high ROA
using efficiently its assets, in other words, how many dollars are generated by the company for each dollar of Assets.
Since 2005 both companies have an increasing ROA. RIM's ROA has been
increasing more rapidly than Nokia. RIM's ROA was 6.07% less than Nokia's in
2005 and it is +4.32% in 2008. In 2006, RIM and Nokia had almost the same ROA.
RIM and Nokia are above the industry average (8.30% average over 5 years) by
respectively 15.18% and 10.86% in 2008.
Industry average (5yrs av.): 8.30%
7.54%
Figure 38: ROA evolution
2006 2007 2008
16,18% 20,44% 23,48%
16,11% 19,04% 19,16%
ROA
Page | 49
ROA indicates that a business is
are generated by the company for each dollar of Assets.
Since 2005 both companies have an increasing ROA. RIM's ROA has been
increasing more rapidly than Nokia. RIM's ROA was 6.07% less than Nokia's in
had almost the same ROA.
RIM and Nokia are above the industry average (8.30% average over 5 years) by
2008
23,48%
19,16%
RIM
Nokia
Financial Management – EMBA
e) Return on Investment
The Return on Investment (ROI) indicates how efficiently a business is
owned. A high ROI indicates that a business is
Even if slowing down between 2
increasing their ROI (+15.45% for RIM and +5.62% for Nokia between 2005 and
2008).
RIM's ROI has been increasing more rapidly than Nokia's. RIM's ROA
less than Nokia's in 2005 and it is +3.66% in 2008. In 2007, RIM and Nokia had
almost the same ROA (18.14% for Nokia and 18.76% for RIM)
RIM and Nokia are above the industry average (11.92% average over 5 years) by
respectively 10.12% and 6.46
Industry average (5yrs av.):
S&P average (5yrs av.): 10.06%
Note: The Interest and Investment income were removed from the EAT of both companies
has they appeared as positive in their Income Statements
2005
RIM 6,59%
Nokia 12,76%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
EMBA Fall 2008
Investment = (EAT + Interest) / Total Assets
The Return on Investment (ROI) indicates how efficiently a business is using its assets to sell without taking into account the interests
owned. A high ROI indicates that a business is using efficiently its assets.
Even if slowing down between 2007 and 2008, both companies have
increasing their ROI (+15.45% for RIM and +5.62% for Nokia between 2005 and
RIM's ROI has been increasing more rapidly than Nokia's. RIM's ROA
less than Nokia's in 2005 and it is +3.66% in 2008. In 2007, RIM and Nokia had
(18.14% for Nokia and 18.76% for RIM).
RIM and Nokia are above the industry average (11.92% average over 5 years) by
respectively 10.12% and 6.46% in 2008.
Industry average (5yrs av.): 11.92%
10.06%
Note: The Interest and Investment income were removed from the EAT of both companies
has they appeared as positive in their Income Statements.
Figure 39: ROI evolution
2006 2007 2008
13,32% 18,76% 22,04%
14,86% 18,14% 18,38%
ROI
Page | 50
= (EAT + Interest) / Total Assets
its assets to sell without taking into account the interests
007 and 2008, both companies have always been
increasing their ROI (+15.45% for RIM and +5.62% for Nokia between 2005 and
RIM's ROI has been increasing more rapidly than Nokia's. RIM's ROA was 6.17%
less than Nokia's in 2005 and it is +3.66% in 2008. In 2007, RIM and Nokia had
RIM and Nokia are above the industry average (11.92% average over 5 years) by
Note: The Interest and Investment income were removed from the EAT of both companies
2008
22,04%
18,38%
RIM
Nokia
Financial Management – EMBA
f) Return on Stockholders’
The Return on Stockholders’ Equity (RUE) indicates the relationship between the Net Income of the company and the Stockholders’
Equity. In other words, the RUE shows how many dollars are generated by the company for each dollar of the Stockholders’ Equity.
Both Nokia and RIM have increasing RUE. As RIM has been increasing its RUE by
7.46% between 2007 and 2008, Nokia increased it by 12.79%.
Nokia's Equity is 39.29% of the Total Liabilities whereas RIM's Equity is 71.37% of
the Total Liabilities; it is therefore obvious
RIM and Nokia are above the industry average (13.50% average over 5 years) by
respectively 19.39% and 35.27% in 2008.
Industry average (5yrs av.): 1
S&P average (5yrs av.): 20.43%
2005
RIM 10,58%
Nokia 22,43%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
EMBA Fall 2008
Stockholders’ Equity = EAT / Total Stockholders’
) indicates the relationship between the Net Income of the company and the Stockholders’
words, the RUE shows how many dollars are generated by the company for each dollar of the Stockholders’ Equity.
Both Nokia and RIM have increasing RUE. As RIM has been increasing its RUE by
7.46% between 2007 and 2008, Nokia increased it by 12.79%.
Nokia's Equity is 39.29% of the Total Liabilities whereas RIM's Equity is 71.37% of
it is therefore obvious that Nokia's RUE is higher than RIM's.
RIM and Nokia are above the industry average (13.50% average over 5 years) by
ively 19.39% and 35.27% in 2008.
Industry average (5yrs av.): 13.50%
20.43%
Figure 40: RUE evolution
2006 2007 2008
18,77% 25,43% 32,89%
30,21% 35,98% 48,77%
RUE
Page | 51
Stockholders’ Equity
) indicates the relationship between the Net Income of the company and the Stockholders’
words, the RUE shows how many dollars are generated by the company for each dollar of the Stockholders’ Equity.
Both Nokia and RIM have increasing RUE. As RIM has been increasing its RUE by
7.46% between 2007 and 2008, Nokia increased it by 12.79%.
Nokia's Equity is 39.29% of the Total Liabilities whereas RIM's Equity is 71.37% of
Nokia's RUE is higher than RIM's.
RIM and Nokia are above the industry average (13.50% average over 5 years) by
2008
32,89%
48,77%
RIM
Nokia
Financial Management – EMBA
g) Earnings Per Share
The Earnings per Share (EPS) indicates the relationship between the company’s total net income and the number of Common Stocks
issued to get a figure for the amount of wealth created per share by the company.
Both Nokia and RIM have increasing EPS. As RIM has been increasing its EPS b
1.16 dollars between 2007 and 2008, Nokia increased it by 0.89 dollar.
In 2008, Nokia and RIM have almost the same EPS (2.26 for RIM vs. 2.23 for
Nokia).
RIM and Nokia are above the industry average (
respectively 205.45% and
Industry average growth rate S&P average growth rate (5yrs
RIM # shares (in millions
Nokia # shares (in millions)
2005
RIM 1,14
Nokia 0,88
0,00
0,50
1,00
1,50
2,00
2,50
EMBA Fall 2008
Per Share = (EAT-PS div)/ Nb share CS outstanding
indicates the relationship between the company’s total net income and the number of Common Stocks
issued to get a figure for the amount of wealth created per share by the company.
Both Nokia and RIM have increasing EPS. As RIM has been increasing its EPS b
1.16 dollars between 2007 and 2008, Nokia increased it by 0.89 dollar.
In 2008, Nokia and RIM have almost the same EPS (2.26 for RIM vs. 2.23 for
RIM and Nokia are above the industry average (9.49% average over 5 years) by
and 166.41% in 2008.
growth rate (5yrs av.): 9.49% (5yrs av.): 19.05%
2005 2006 2007
shares (in millions) 184.8 588.5 571.8
Nokia # shares (in millions) 4593 4366 4063
Figure 41: EPS evolution
2006 2007 2008
0,64 1,10 2,26
1,04 1,34 2,23
EPS
Page | 52
PS div)/ Nb share CS outstanding
indicates the relationship between the company’s total net income and the number of Common Stocks
Both Nokia and RIM have increasing EPS. As RIM has been increasing its EPS by
1.16 dollars between 2007 and 2008, Nokia increased it by 0.89 dollar.
In 2008, Nokia and RIM have almost the same EPS (2.26 for RIM vs. 2.23 for
% average over 5 years) by
2008
572.8
4063
2008
2,26
2,23
RIM
Nokia
Financial Management – EMBA
4.6.2 Liquidity Ratios
a) Current ratio = total
The current ratio shows the relationship of current assets to current liabilities. In particular, it shows the ability of
meet Short-Term debts with current assets (cash, equivalents, inventory...). A current ratio of 2 is considered as good and should
within the industry average.
Both Nokia and RIM have Current Ratios over 1
and thus don't have any liquidity issue.
In 2008, RIM has a Current R
reimburse its current liabilities
Current Ratio is 1.54 in 2008 (
RIM is within the industry average (2.31 average over 5 years) by 0.05 in 2008 and
Nokia is below the industry average by
Industry average (5yrs av.):
S&P average (5yrs av.): 1.27
Figure
2005
RIM 2,45
Nokia 2,45
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
5,00
EMBA Fall 2008
Current ratio = total Short-Term asset / total Short-Term
The current ratio shows the relationship of current assets to current liabilities. In particular, it shows the ability of
debts with current assets (cash, equivalents, inventory...). A current ratio of 2 is considered as good and should
Both Nokia and RIM have Current Ratios over 1 (and within the industry avera
and thus don't have any liquidity issue.
Current Ratio of 2.36 (-2.07 since 2006), meaning that he can
reimburse its current liabilities more than twice with its current assets.
Current Ratio is 1.54 in 2008 (-0.42 since 2006).
RIM is within the industry average (2.31 average over 5 years) by 0.05 in 2008 and
Nokia is below the industry average by -0.77 in 2008.
Industry average (5yrs av.): 2.31
1.27
Figure 42: Current Ratio evolution
2006 2007 2008
4,43 3,51 2,36
1,96 1,83 1,54
Current Ratio
Page | 53
Term liabilities
The current ratio shows the relationship of current assets to current liabilities. In particular, it shows the ability of your business to
debts with current assets (cash, equivalents, inventory...). A current ratio of 2 is considered as good and should be
(and within the industry average)
, meaning that he can
twice with its current assets. Nokia’s
RIM is within the industry average (2.31 average over 5 years) by 0.05 in 2008 and
2008
2,36
1,54
RIM
Nokia
Financial Management – EMBA
b) Quick ratio (Acid Test)
Short-Term liabilities
The quick ratio is a stricter test of liquidity than the Current Ratio. The inventory is removed from the total
be difficult to liquidate it rapidly. The quick ratio should be superior than 1 and within the industry average.
Both Nokia and RIM have Quick Ratios over 1
thus don't have any liquidity issue.
In 2008, RIM has a quick ratio of 2.09
reimburse its current liabilities twice with its current assets without taking into
account the inventory. Nokia
As the Quick Ratio of both companies are not so different from the Current Ratio
(see Liquidity Ratios - Current Ratio), we can assume that their inventories
too important in their Assets.
RIM is within the industry average (
Nokia is below the industry average by
Industry average (5yrs av.):
S&P average (5yrs av.): 1.03
2005
RIM 2,30
Nokia 2,28
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
EMBA Fall 2008
(Acid Test) = (total Short-Term asset -
liabilities
test of liquidity than the Current Ratio. The inventory is removed from the total
be difficult to liquidate it rapidly. The quick ratio should be superior than 1 and within the industry average.
Both Nokia and RIM have Quick Ratios over 1 (and within the industry average)
thus don't have any liquidity issue.
008, RIM has a quick ratio of 2.09 (-1.87 since 2006), meaning that
reimburse its current liabilities twice with its current assets without taking into
account the inventory. Nokia’s Quick Ratio is 1.39 in 2008 (-0.40
io of both companies are not so different from the Current Ratio
Current Ratio), we can assume that their inventories
too important in their Assets.
RIM is within the industry average (1.90 average over 5 years) by 0.
Nokia is below the industry average by -0.36 in 2008.
Industry average (5yrs av.): 1.90
1.03
Figure 43: Quick Ratio evolution
2006 2007 2008
3,96 3,04 2,09
1,79 1,68 1,39
Quick Ratio (Acid Test)
Page | 54
- inventory) / total
test of liquidity than the Current Ratio. The inventory is removed from the total Short-Term assets as it may
be difficult to liquidate it rapidly. The quick ratio should be superior than 1 and within the industry average.
(and within the industry average) and
, meaning that it can
reimburse its current liabilities twice with its current assets without taking into
40 since 2006).
io of both companies are not so different from the Current Ratio
Current Ratio), we can assume that their inventories are not
average over 5 years) by 0.19 in 2008 and
2008
2,09
1,39
RIM
Nokia
Financial Management – EMBA
4.6.3 Leverage Ratios
a) Debt to asset ratio = Total Debt / Total Assets
The Debt to asset ratio shows the relationship of debts to assets. In other words, the proportion of the total assets that
are financed with debt. If the ratio is lower than 0.5, then the company is mainly finance by Equity, if the ratio is greater
than 0.5, then the company is mainly financed through debt.
RIM has a small debt compared to their Assets as it is using mainly its own funds
whereas Nokia is relying more on foreign funds.
In 2008, RIM has a debt
to-asset ratio is 0.61 in 2008 (+0.24 since 2006).
Industry average (5yrs av.):
S&P average (5yrs av.): Not Available
Figure
2005
RIM 0,24
Nokia 0,37
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
EMBA Fall 2008
Debt to asset ratio = Total Debt / Total Assets
The Debt to asset ratio shows the relationship of debts to assets. In other words, the proportion of the total assets that
are financed with debt. If the ratio is lower than 0.5, then the company is mainly finance by Equity, if the ratio is greater
0.5, then the company is mainly financed through debt.
l debt compared to their Assets as it is using mainly its own funds
whereas Nokia is relying more on foreign funds.
In 2008, RIM has a debt-to-asset ratio of 0.29 (+0.15 since 2006), and Nokia’s debt
asset ratio is 0.61 in 2008 (+0.24 since 2006).
Industry average (5yrs av.): Not Available
Not Available
Figure 44: Debt to Asset Ratio evolution
2006 2007 2008
0,14 0,20 0,29
0,45 0,47 0,61
Debt to Asset
Page | 55
The Debt to asset ratio shows the relationship of debts to assets. In other words, the proportion of the total assets that
are financed with debt. If the ratio is lower than 0.5, then the company is mainly finance by Equity, if the ratio is greater
l debt compared to their Assets as it is using mainly its own funds
asset ratio of 0.29 (+0.15 since 2006), and Nokia’s debt-
2008
0,29
0,61
RIM
Nokia
Financial Management – EMBA
b) Long-Term Debt to asset ratio = Total
The Long-Term Debt to asset ratio shows the relationship of
assets that are financed with Long-Term debt. If the ratio is lower than 0.5, then the company is mainly finance by Equity or
Term debt, if the ratio is greater than 0.5, then the company is mainly financed through
As stated in RIM’s financial strategy
Total Liabilities in 2008), therefore this ratio is almost nil. RIM is mainly financing
its assets through Short
(71.37% of Total Liabilities
Nokia is also mainly funded by
and by Owners’ Equity (39.29% of Total Liabilities in 2008).
In 2008 Nokia’s Long-
debt to asset ratio is 0.02.
Industry average (5yrs av.):
S&P average (5yrs av.): Not Available
Figure 45
2005
RIM 0,00
Nokia 0,02
0,00
0,02
0,04
0,06
0,08
0,10
0,12
EMBA Fall 2008
Debt to asset ratio = Total Long-Term Debt / Total Assets
Debt to asset ratio shows the relationship of Long-Term debts to assets. In other words, the proportion of the total
debt. If the ratio is lower than 0.5, then the company is mainly finance by Equity or
debt, if the ratio is greater than 0.5, then the company is mainly financed through Long-Term debt.
RIM’s financial strategy, the Long-Term debt is very small (1.87%
in 2008), therefore this ratio is almost nil. RIM is mainly financing
Short-Term debt (26.75% of Total Liabilities
of Total Liabilities in 2008).
Nokia is also mainly funded by Short-Term debt (50.47% of Total Liabilities in 2008)
and by Owners’ Equity (39.29% of Total Liabilities in 2008).
-Term debt to asset ratio is 0.10 whereas RIM’s
debt to asset ratio is 0.02.
Industry average (5yrs av.): Not Available
Not Available
45: Long-Term Debt to Asset Ratio evolution
2006 2007 2008
0,02 0,02 0,02
0,02 0,02 0,10
LT Debt to Asset
Page | 56
Debt / Total Assets
debts to assets. In other words, the proportion of the total
debt. If the ratio is lower than 0.5, then the company is mainly finance by Equity or Short-
debt.
debt is very small (1.87% of
in 2008), therefore this ratio is almost nil. RIM is mainly financing
of Total Liabilities in 2008) and Equity
debt (50.47% of Total Liabilities in 2008)
debt to asset ratio is 0.10 whereas RIM’s Long-Term
evolution
2008
0,02
0,10
RIM
Nokia
Financial Management – EMBA
c) Debt to equity ratio (D/E) = Total Debt / Total stockholders' equity
The Debt to Equity ratio shows the relationship of debts to equity. In other words, what is the proportion of the total debt compared
to the Equity. If the ratio is lower than 1, then the company is mainly finance by Equity, if the ratio is greater than 1, th
is mainly financed through debts.
As stated in RIM’s financial strategy
the Liabilities (28.63%
assets through Equity (71.37%
Nokia is mainly funded
Nokia’s debt to equity
1.55.
RIM is below the industry average (0.63 average over 5 years) by 0.23 in
Nokia is above the industry average by 0.92 in 2008.
Industry average (5yrs av.):
S&P average (5yrs av.): 152.47
Figure
2005
RIM 0,32
Nokia 0,59
0,00
0,20
0,40
0,60
0,80
1,00
1,20
1,40
1,60
1,80
EMBA Fall 2008
Debt to equity ratio (D/E) = Total Debt / Total stockholders' equity
ratio shows the relationship of debts to equity. In other words, what is the proportion of the total debt compared
to the Equity. If the ratio is lower than 1, then the company is mainly finance by Equity, if the ratio is greater than 1, th
RIM’s financial strategy, the Total debt is not the biggest proportion of
% of Total Liabilities in 2008). RIM is mainly financing its
assets through Equity (71.37% of Total Liabilities in 2008).
Nokia is mainly funded its assets by debt (60.71% of Total Liabilities in 2008).
equity ratio is 0.40 in 2008 whereas RIM’s debt to
RIM is below the industry average (0.63 average over 5 years) by 0.23 in
Nokia is above the industry average by 0.92 in 2008.
Industry average (5yrs av.): 60.34%
152.47%
Figure 46: Debt to Equity Ratio evolution
2006 2007 2008
0,16 0,24 0,40
0,85 0,89 1,55
Debt to Equity
Page | 57
Debt to equity ratio (D/E) = Total Debt / Total stockholders' equity
ratio shows the relationship of debts to equity. In other words, what is the proportion of the total debt compared
to the Equity. If the ratio is lower than 1, then the company is mainly finance by Equity, if the ratio is greater than 1, then the company
not the biggest proportion of
in 2008). RIM is mainly financing its
% of Total Liabilities in 2008).
0 in 2008 whereas RIM’s debt to equity ratio is
RIM is below the industry average (0.63 average over 5 years) by 0.23 in 2008 and
2008
0,40
1,55
RIM
Nokia
Financial Management – EMBA
d) Long-Term Debt to equity ratio = Total
stockholders' equity
The Long-Term Debt to Equity ratio shows the relationship of
Long-Term debt compared to the Equity. If the ratio is lower than 1, then the company is m
greater than 1, then the company is mainly financed through
As stated in RIM’s financial strategy
proportion of the Liabilities
financing its assets through
and Short-Term debt (26.75
Nokia is mainly funded
2008) and by Owners’ Equity
In 2008 Nokia’s Long-Term
ratio is 0.03.
RIM is below the industry average (0.31 average over 5 years) by 0.28 in 2008 and
Nokia is within the industry average by 0.05 in 2008.
Industry average (5yrs av.):
S&P average (5yrs av.): 107.05
Figure
2005
RIM 0,00
Nokia 0,03
0,00
0,05
0,10
0,15
0,20
0,25
0,30
EMBA Fall 2008
Debt to equity ratio = Total Long-Term Debt / Total stockholders' equity
Debt to Equity ratio shows the relationship of Long-Term debts to equity. In other words, what is the proportion of
debt compared to the Equity. If the ratio is lower than 1, then the company is mainly finance by Equity, if the ratio is
greater than 1, then the company is mainly financed through Long-Term debt.
RIM’s financial strategy, the Long-Term debt is
proportion of the Liabilities (1.87% of Total Liabilities in 2008). RIM is mainly
financing its assets through Owners’ Equity (71.37% of Total Liabilities
debt (26.75% of Total Liabilities in 2008).
Nokia is mainly funded its assets by Short-Term debt (10.24% of Total Liabilities in
and by Owners’ Equity (39.29% of Total Liabilities in 2008)
Term debt to equity ratio is 0.26 whereas RIM’s debt to
RIM is below the industry average (0.31 average over 5 years) by 0.28 in 2008 and
the industry average by 0.05 in 2008.
Industry average (5yrs av.): 30.97%
107.05%
Figure 47: Long-Term Debt to Equity Ratio
2006 2007 2008
0,02 0,02 0,03
0,04 0,04 0,26
LT Debt to Equity
Page | 58
Debt / Total
debts to equity. In other words, what is the proportion of
ainly finance by Equity, if the ratio is
debt is not the biggest
in 2008). RIM is mainly
of Total Liabilities in 2008)
% of Total Liabilities in
in 2008)
whereas RIM’s debt to equity
RIM is below the industry average (0.31 average over 5 years) by 0.28 in 2008 and
Debt to Equity Ratio
2008
0,03
0,26
RIM
Nokia
Financial Management – EMBA
e) Times-interest earned =
The Times Interest earned ratio shows the relationship of Earnings Before Interests and Taxes (EBIT) to the Interest. In othe
how many times the company earnings can cover the interests due.
Both Nokia and RIM have TIE over 1 and thus don't have a
their interests.
In 2008, RIM has a TIE of 21.80 (+12.48 since 2006), meaning that it can reimburse
its interests 21.80 times. Nokia’s TIE is 23.99 in 2008 (+7.65 since 2006).
As both companies have high TIE ratios, they can borrow
without any problem.
Industry average (5yrs av.):
S&P average (5yrs av.): Not Available
2005
RIM 10,40
Nokia 14,39
0,00
5,00
10,00
15,00
20,00
25,00
30,00
EMBA Fall 2008
interest earned = EBIT/Interest
The Times Interest earned ratio shows the relationship of Earnings Before Interests and Taxes (EBIT) to the Interest. In othe
how many times the company earnings can cover the interests due.
Both Nokia and RIM have TIE over 1 and thus don't have any issue to reimburse
In 2008, RIM has a TIE of 21.80 (+12.48 since 2006), meaning that it can reimburse
its interests 21.80 times. Nokia’s TIE is 23.99 in 2008 (+7.65 since 2006).
As both companies have high TIE ratios, they can borrow more money from banks
Industry average (5yrs av.): Not Available
Not Available
Figure 48: TIE Ratio evolution
2006 2007 2008
9,32 15,49 21,80
16,34 26,41 23,99
TIE
Page | 59
The Times Interest earned ratio shows the relationship of Earnings Before Interests and Taxes (EBIT) to the Interest. In other words,
ny issue to reimburse
In 2008, RIM has a TIE of 21.80 (+12.48 since 2006), meaning that it can reimburse
its interests 21.80 times. Nokia’s TIE is 23.99 in 2008 (+7.65 since 2006).
more money from banks
2008
21,80
23,99
RIM
Nokia
Financial Management – EMBA
4.6.4 Activity Ratios
a) Inventory Turnover = Net Sales / Inventory
The Inventory Turnover indicates the relationship between the Net Sales and the value of the Inventory. It gives information about
how many times the inventory is sold per year.
In 2008, RIM has an Inventory Turnover of 15.16 (+3.29 since 2007), meaning that
it sells all its inventory 15.16 times per year. Nokia’s inventory
times per year.
We can assume that RIM is clearing its inventory every 24 days (365/15.16) in
2008 and Nokia every 21 days
RIM’s Inventory Turnover
over 5 years) by 10.94
5.53 times in 2008.
Industry average: 26.1 times
S&P average: 10.3 times
Figure
2005
RIM 14,60
Nokia 22,51
0,00
5,00
10,00
15,00
20,00
25,00
30,00
EMBA Fall 2008
Inventory Turnover = Net Sales / Inventory
indicates the relationship between the Net Sales and the value of the Inventory. It gives information about
how many times the inventory is sold per year.
In 2008, RIM has an Inventory Turnover of 15.16 (+3.29 since 2007), meaning that
it sells all its inventory 15.16 times per year. Nokia’s inventory
We can assume that RIM is clearing its inventory every 24 days (365/15.16) in
21 days (365/17.75) for the same year.
Inventory Turnover is higher than the industry average (26.10
over 5 years) by 10.94 times in 2008 and Nokia is lower the industry average by
times
Figure 49: Inventory Turnover Ratio evolution
2006 2007 2008
15,36 11,87 15,16
20,50 26,46 17,75
Inventory Turnover
Page | 60
indicates the relationship between the Net Sales and the value of the Inventory. It gives information about
In 2008, RIM has an Inventory Turnover of 15.16 (+3.29 since 2007), meaning that
it sells all its inventory 15.16 times per year. Nokia’s inventory turnover is 17.75
We can assume that RIM is clearing its inventory every 24 days (365/15.16) in
the industry average (26.10 days average
the industry average by
evolution
2008
15,16
17,75
RIM
Nokia
Financial Management – EMBA
b) Fixed Assets Turnover = Net Sales /
The Long-Term Assets turnover ratio shows the relationship of Net Sales to
company's Long-Term assets to generate some sales.
Both Nokia and RIM have
Long-Term assets are well used.
In 2008, RIM has a Long
that each dollar of Long
whereas Nokia’s Long-Term
Even is Nokia is generating more revenue from its
decreasing (-34% since 2007) where as RIM has a constantly increasing
Term asset turnover.
Industry average: Not Available
S&P average: Not Available
Figure 50
2005
RIM 1,25
Nokia 9,29
0,00
2,00
4,00
6,00
8,00
10,00
12,00
EMBA Fall 2008
Fixed Assets Turnover = Net Sales / Long-Term Assets
Assets turnover ratio shows the relationship of Net Sales to Long-Term Assets. In other words, how performant are the
assets to generate some sales.
Both Nokia and RIM have Long-Term Assets Turnover over 1 meaning that their
assets are well used.
Long-Term assets turnover of 2.95 (+0.99 since 2006), meaning
Long-Term assets owned by the company generates
Term assets turnover is 6.15 in 2008 (-3.62 since 2006).
Even is Nokia is generating more revenue from its Long
34% since 2007) where as RIM has a constantly increasing
Not Available
Not Available
50: Fixed Assets Turnover Ratio evolution
2006 2007 2008
1,96 2,60 2,95
9,77 10,20 6,15
Fixed Assets Turnover
Page | 61
Assets. In other words, how performant are the
Assets Turnover over 1 meaning that their
2.95 (+0.99 since 2006), meaning
generates 2.95 dollars
3.62 since 2006).
Long-Term assets, it is
34% since 2007) where as RIM has a constantly increasing its Long-
evolution
2008
2,95
6,15
RIM
Nokia
Financial Management – EMBA
c) Total Assets Turnover = Net Sales / Total Assets
The Total Assets turnover ratio shows the relationship of Net Sales to the Total Assets. In other words, how performant are t
company's assets to generate some sales.
Both Nokia and RIM have
assets are well used.
In 2008, RIM has a total
each dollar of assets owned by the company generate
turnover is 1.36 in 2008 (
Even is Nokia is generating more revenue from its assets, it is decreasing (
since 2007) where as RIM has a constantly increasing asset turnover.
RIM is above the industry average (0.
above the industry average by 0.71 in 2008.
Industry average: 0.65
S&P average: 0.80
Figure
2005
RIM 0,52
Nokia 1,30
0,00
0,20
0,40
0,60
0,80
1,00
1,20
1,40
1,60
1,80
2,00
EMBA Fall 2008
Total Assets Turnover = Net Sales / Total Assets
The Total Assets turnover ratio shows the relationship of Net Sales to the Total Assets. In other words, how performant are t
Both Nokia and RIM have Total Asset turnover over 1 meaning that their
total assets turnover of 1.09 (+0.11 since 200
each dollar of assets owned by the company generate 1.09 dollar
in 2008 (-0.46 since 2007).
Even is Nokia is generating more revenue from its assets, it is decreasing (
since 2007) where as RIM has a constantly increasing asset turnover.
RIM is above the industry average (0.65 average) by 0.44 in 2008 and Nokia is
industry average by 0.71 in 2008.
Figure 51: Total Assets Turnover evolution
2006 2007 2008
0,89 0,98 1,09
1,52 1,82 1,36
Total Assets Turnover
Page | 62
The Total Assets turnover ratio shows the relationship of Net Sales to the Total Assets. In other words, how performant are the
1 meaning that their total
since 2007), meaning that
dollars. Nokia’s assets
Even is Nokia is generating more revenue from its assets, it is decreasing (-25%
since 2007) where as RIM has a constantly increasing asset turnover.
in 2008 and Nokia is
evolution
2008
1,09
1,36
RIM
Nokia
Financial Management – EMBA
d) Average Account Payment Period = AP/(COGS/365)
The average account payment ratio shows the number of
RIM’s Average Account Payment Period is
meaning that the company takes less an
Nokia as highly increased its ratio (+28.12 days
days more than RIM to pay its COGS.
We can note from Nokia’s
been increasing by 2.31
have been increase only
reduce its COGS between 2007 and 2008, the increasing
impacting this ratio.
Industry average: Not Available
S&P average: Not Available
Figure 52: Average Account Payment Period
2005
RIM 39,41
Nokia 53,59
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
90,00
Average Account Payment Period
EMBA Fall 2008
Payment Period = AP/(COGS/365)
The average account payment ratio shows the number of days taken by the company to pay for its COGS.
RIM’s Average Account Payment Period is decreasing slowly (-0.69 day since 2007)
meaning that the company takes less and less days to pay its supplier whereas
Nokia as highly increased its ratio (+28.12 days since 2007). Nokia is taking 43.43
days more than RIM to pay its COGS.
Nokia’s Balance Sheet (see Annex 7) that Account payable have
31% between 2007 and 2008 whereas RIM’s
only by 0.70% for the same period. Even if Nokia manage to
reduce its COGS between 2007 and 2008, the increasing amount of AP is
Not Available
Not Available
: Average Account Payment Period evolution
2006 2007 2008
37,46 34,48 33,79
57,42 49,10 77,22
Average Account Payment Period
Page | 63
days taken by the company to pay for its COGS.
0.69 day since 2007),
d less days to pay its supplier whereas
. Nokia is taking 43.43
that Account payable have
and 2008 whereas RIM’s Account Payable
Even if Nokia manage to
amount of AP is highly
evolution
2008
33,79
77,22
RIM
Nokia
Financial Management – EMBA
e) Average Collection Period = AR/(Net sales / 365)
The average collection period ratio shows the number of days taken by the customers to pay for products purchased
RIM’s Average Collection Period is increasing (+2.53 days since 2007), meaning that
it takes to the company more and more days to get the money from its customers.
Nokia has also an increasing ratio (+27.81 days since 2007). Nokia is having 8.72
days more than RIM to be paid.
Industry average: Not Available
S&P average: Not Available
Figure
2005
RIM 61,57
Nokia 54,46
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
90,00
Average Collection Period
EMBA Fall 2008
Average Collection Period = AR/(Net sales / 365)
The average collection period ratio shows the number of days taken by the customers to pay for products purchased
RIM’s Average Collection Period is increasing (+2.53 days since 2007), meaning that
it takes to the company more and more days to get the money from its customers.
Nokia has also an increasing ratio (+27.81 days since 2007). Nokia is having 8.72
e than RIM to be paid.
Not Available
Not Available
Figure 53: Average Collection Period evolution
2006 2007 2008
55,71 68,82 71,35
57,07 52,26 80,07
Average Collection Period
Page | 64
The average collection period ratio shows the number of days taken by the customers to pay for products purchased to companies.
RIM’s Average Collection Period is increasing (+2.53 days since 2007), meaning that
it takes to the company more and more days to get the money from its customers.
Nokia has also an increasing ratio (+27.81 days since 2007). Nokia is having 8.72
evolution
2008
71,35
80,07
RIM
Nokia
Financial Management – EMBA
4.6.5 Other Ratios
a) Dividend Yield on CS = Annual Dividend per share / Current Market Price
per share
The Dividend Yield on Common Stock ratio shows the relationship of Annual Dividends per Share to the Current Market Price per
share. In other words, how important is the annual dividend compared to the current price per share of the stock.
As mentioned in RIM's
dividends in the previous ten fiscal
for RIM.
RIM #shares (millions)
RIM Current Market Price ($ per share)
RIM Dividend per Share
Nokia # shares (millions)
Nokia Current Market Price ($ per share)
Nokia Dividend per Share
Figure
2005
RIM 0,00
Nokia 0,02
0,00
0,01
0,01
0,02
0,02
0,03
0,03
EMBA Fall 2008
Dividend Yield on CS = Annual Dividend per share / Current Market Price
The Dividend Yield on Common Stock ratio shows the relationship of Annual Dividends per Share to the Current Market Price per
share. In other words, how important is the annual dividend compared to the current price per share of the stock.
in RIM's financial report 2008, the company has not paid any cash
in the previous ten fiscal years and therefore this ratio is not applicable
2005 2006 2007
184.8 588.5 571.8
Market Price ($ per share) 21.78 23.97 45.32
Dividend per Share - -
Nokia # shares (millions) 4593 4366 4063
Nokia Current Market Price ($ per share) 15.67 18.30 20.32
Nokia Dividend per Share 0.39 0.42
Figure 54: Dividend Yield on CS evolution
2006 2007 2008
0,00 0,00 0,00
0,02 0,02 0,01
Dividend Yield on CS
Page | 65
Dividend Yield on CS = Annual Dividend per share / Current Market Price
The Dividend Yield on Common Stock ratio shows the relationship of Annual Dividends per Share to the Current Market Price per
share. In other words, how important is the annual dividend compared to the current price per share of the stock.
report 2008, the company has not paid any cash
his ratio is not applicable
2007 2008
571.8 572.8
45.32 100.15
- -
4063 4063
20.32 38.74
0.47 0.52
evolution
2008
0,00
0,01
RIM
Nokia
Financial Management – EMBA
b) Price Earnings Ratio
share
The Price Earnings Ratio (PER) indicates the relationship between the current market price per share and
per share. In other words, how much investors are willing to pay per dollar of earnings.
RIM has been constantly increasing its PER ratio (+2
2008) whereas Nokia has been decreasing its PER ratio (
period).
If we compare RIM’s PER to the industry average, the company is very expensive to
invest (389.63% in 2008) and thus investors may
Even if Nokia has a lower PER, it is still above the industry average (+
Industry average: 11.38 $
S&P average: 26.67 $
RIM #shares (millions)
RIM Current Market Price ($ per share)
Nokia # shares (millions)
Nokia Current Market Price
Figure
2005
RIM 19,18
Nokia 17,90
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
40,00
45,00
50,00
EMBA Fall 2008
Price Earnings Ratio (PER) = Current Market price per share /
atio (PER) indicates the relationship between the current market price per share and
per share. In other words, how much investors are willing to pay per dollar of earnings.
RIM has been constantly increasing its PER ratio (+231.18%
2008) whereas Nokia has been decreasing its PER ratio (-
If we compare RIM’s PER to the industry average, the company is very expensive to
in 2008) and thus investors may refrain investing in this company.
Even if Nokia has a lower PER, it is still above the industry average (+
2005 2006 2007
184.8 588.5 571.8
RIM Current Market Price ($ per share) 21.78 23.97 45.32
(millions) 4593 4366 4063
Current Market Price ($ per share) 15.67 18.30 20.32
Figure 55: Price Earnings ratio evolution
2006 2007 2008
37,67 41,04 44,34
17,54 15,22 17,34
PER
Page | 66
= Current Market price per share / EAT per
atio (PER) indicates the relationship between the current market price per share and the company’s net income
% between 2005 and
-0.97% for the same
If we compare RIM’s PER to the industry average, the company is very expensive to
investing in this company.
Even if Nokia has a lower PER, it is still above the industry average (+65.63 above).
2007 2008
571.8 572.8
45.32 100.15
4063 4063
20.32 38.74
2008
44,34
17,34
RIM
Nokia
Financial Management – EMBA
c) Dividend payout ratio = Annual dividend per share / EAT per share
The Dividend Payout Ratio indicates the relationship
word, for each dollar of net income per share, what are the dividends received.
As mentioned in RIM's financial report 2008, the company has not paid any cash
dividends in the previous ten fiscal
for RIM.
Industry Average: 16.50 $ S&P average: 52.04 $
RIM # shares (millions)
RIM Current Market Price ($ per share)
RIM Dividend per Share
Nokia # shares (millions)
Nokia Current Market Price ($ per share)
Nokia Dividend per Share
Figure
2005
RIM 0,00
Nokia 0,42
0,00
0,05
0,10
0,15
0,20
0,25
0,30
0,35
0,40
0,45
EMBA Fall 2008
Dividend payout ratio = Annual dividend per share / EAT per share
Dividend Payout Ratio indicates the relationship between the Annual Divided per Share and the Net Income per Share. In other
word, for each dollar of net income per share, what are the dividends received.
As mentioned in RIM's financial report 2008, the company has not paid any cash
vious ten fiscal years and therefore this ratio is not applicable
2005 2006 2007
184.8 588.5 571.8
RIM Current Market Price ($ per share) 21.78 23.97 45.32
Dividend per Share - -
Nokia # shares (millions) 4593 4366 4063
Nokia Current Market Price ($ per share) 15.67 18.30 20.32
Nokia Dividend per Share 0.39 0.42
Figure 56: Dividend Payout ratio evolution
2006 2007 2008
0,00 0,00 0,00
0,41 0,43 0,24
Dividend Payout
Page | 67
Dividend payout ratio = Annual dividend per share / EAT per share
between the Annual Divided per Share and the Net Income per Share. In other
As mentioned in RIM's financial report 2008, the company has not paid any cash
his ratio is not applicable
2007 2008
571.8 572.8
45.32 100.15
- -
4063 4063
20.32 38.74
0.47 0.52
evolution
2008
0,00
0,24
RIM
Nokia
Financial Management – EMBA
d) Cash Flow per share = (EAT + Depreciation) / nb of common shares
outstanding
The Cash Flow per Share indicates the relationship between the cash flow generated by the company and the number of outstanding
shares.
Since 2006, both RIM and Nokia have more and more Cash Flow compared to the
number of outstanding shares. In 2008, both companies have almost the same ratio
(2.57% for RIM and 2.61% for Nokia).
more than 2.5 dollar of Cash F
Industry Average: Not AvailableS&P average: Not Available
RIM # shares (in millions
Nokia # shares (in millions)
Figure
2005
RIM 1,47
Nokia 1,11
0,00
0,50
1,00
1,50
2,00
2,50
3,00
EMBA Fall 2008
Cash Flow per share = (EAT + Depreciation) / nb of common shares
Cash Flow per Share indicates the relationship between the cash flow generated by the company and the number of outstanding
th RIM and Nokia have more and more Cash Flow compared to the
number of outstanding shares. In 2008, both companies have almost the same ratio
(2.57% for RIM and 2.61% for Nokia). It means that for each stock, the company has
more than 2.5 dollar of Cash Flow.
Not Available Not Available
2005 2006 2007
shares (in millions) 184.8 588.5 571.8
Nokia # shares (in millions) 4593 4366 4063
Figure 57: Cash Flow per Share evolution
2006 2007 2008
0,78 1,33 2,57
1,25 1,56 2,61
Cash Flow per Share
Page | 68
Cash Flow per share = (EAT + Depreciation) / nb of common shares
Cash Flow per Share indicates the relationship between the cash flow generated by the company and the number of outstanding
th RIM and Nokia have more and more Cash Flow compared to the
number of outstanding shares. In 2008, both companies have almost the same ratio
It means that for each stock, the company has
2008
572.8
4063
2008
2,57
2,61
RIM
Nokia
Financial Management – EMBA
e) Operating Income per
The Operating Income per Employee indicates the relationship between the
number of employees. In other words, it shows the
In 2008, RIM has increased its Operating Income per employee (+0.10% between 2007
and 2008). Nokia had a stable Operating Income per employee between 2005 and 2007
(0.10%) and had this ratio de
to the increase in employees (+63.92%) for Nokia between 2007 and 2008. RIM from its
side had an increase of 33.06%.
Industry Average: Not AvailableS&P average: Not Available
RIM average employee #
Nokia average employee #
Figure
2005
RIM 0,19
Nokia 0,10
0,00
0,05
0,10
0,15
0,20
0,25
0,30
0,35
mil
lio
n $
Operating Income per Employee
EMBA Fall 2008
per employee = Operating Income / nb of
indicates the relationship between the Operating Income generated by the company and the
employees. In other words, it shows the performance of each employee to generate the Operating Income.
In 2008, RIM has increased its Operating Income per employee (+0.10% between 2007
Nokia had a stable Operating Income per employee between 2005 and 2007
(0.10%) and had this ratio decreased in 2008 (-0.2%). This decrease is probably linked
to the increase in employees (+63.92%) for Nokia between 2007 and 2008. RIM from its
side had an increase of 33.06%.
Not Available Not Available
2005 2006 2007
RIM average employee # 2223 3555 4700
Nokia average employee # 55500 58874 68483 112262
Figure 58: Operating Income per Employee
2006 2007 2008
0,19 0,19 0,29
0,10 0,10 0,08
Operating Income per Employee
Page | 69
/ nb of employee
generated by the company and the
performance of each employee to generate the Operating Income.
In 2008, RIM has increased its Operating Income per employee (+0.10% between 2007
Nokia had a stable Operating Income per employee between 2005 and 2007
This decrease is probably linked
to the increase in employees (+63.92%) for Nokia between 2007 and 2008. RIM from its
2008
6254
112262
g Income per Employee
2008
0,29
0,08
RIM
Nokia
Financial Management – EMBA
f) Revenue per employee
The Revenue per Employee indicates the relationship between the
employees. In other words, it shows the performance of each employee to generate the total revenue.
In 2008, RIM has increased its Revenue per employee (+0.08%
2008). Nokia had a stable Operating Income per employee between 2006 and 2008
(0.08%).
Industry Average: Not AvailableS&P average: Not Available
RIM average employee #
Nokia average employee
Figure
.
2005
RIM 0,09
Nokia 0,07
0,00
0,05
0,10
0,15
0,20
0,25
mil
lio
n $
Revenue per Employee
EMBA Fall 2008
employee = EAT / nb of employee
indicates the relationship between the total revenue generated by the company and the number of
employees. In other words, it shows the performance of each employee to generate the total revenue.
In 2008, RIM has increased its Revenue per employee (+0.08% between 2007 and
2008). Nokia had a stable Operating Income per employee between 2006 and 2008
Not Available Not Available
2005 2006 2007
RIM average employee # 2223 3555 4700
Nokia average employee # 55500 58874 68483 112262
Figure 59: Revenue per Employee
2006 2007 2008
0,11 0,13 0,21
0,08 0,08 0,08
Revenue per Employee
Page | 70
generated by the company and the number of
between 2007 and
2008). Nokia had a stable Operating Income per employee between 2006 and 2008
2008
6254
112262
2008
0,21
0,08
RIM
Nokia
5 ANNEXES
5.1 Annex 1: RIM Balance Sheet (2005-2008, including vertical analysis)
Financial Management – EMBA Fall 2008 Page | 72
Financial Management – EMBA Fall 2008 Page | 73
5.2 Annex 2: RIM Income Statement (2005-2008, including vertical analysis)
5.3 Annex 3: RIM Cash Flow Statement (2005-2008, including vertical analysis)
Financial Management – EMBA
5.4 Annex 4: RIM Sources of Revenues
Figure
Other 2,80%
Software 7,71%
Service 18,81%
Devices 70,68%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% o
f R
ev
en
ue
s
EMBA Fall 2008
4: RIM Sources of Revenues (2005-2008, including vertical analysis)
Figure 60: RIM Source of Revenues evolution
2006 2007 2008
2,80% 2,87% 2,41%
7,71% 5,70% 3,90%
18,81% 18,45% 14,32%
70,68% 72,98% 79,37%
Other
Software
Service
Devices
Page | 75
2008, including vertical analysis)
evolution
Other
Software
Service
Devices
Financial Management – EMBA
5.5 Annex 5: RIM Number of subscribers
Figure 61
Number of subscribers
0
2
4
6
8
10
12
14
16m
illi
on
s
EMBA Fall 2008
: RIM Number of subscribers
61:RIM's Number of Subscribers evolution
2003 2004 2005 2006 2007 2008
Number of subscribers 0,5 1,1 2,5 4,9 8
Number of subscribers
Page | 76
:RIM's Number of Subscribers evolution
2008
14
Number of
subscribers
Financial Management – EMBA
5.6 Annex 6: RIM Employee Growth
Figure
2000 2001
Number of employees 512 1 256
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
mil
lio
ns
EMBA Fall 2008
Growth
Figure 62: RIM's Employees Growth
2001 2002 2003 2004 2005 2006 2007
1 256 1 950 1 847 2 223 3 555 4 700 6 254
Number of employees
Page | 77
Number of employees
5.7 Annex 7: Nokia Balance Sheet (Fiscal 2005-2008, including vertical analysis)
Financial Management – EMBA Fall 2008 Page | 79
5.8 Annex 8: Nokia Income Statement (Fiscal 2005-2008, including vertical analysis)
Financial Management – EMBA Fall 2008 Page | 81
5.9 Annex 9: Nokia Cash Flow Statement (Fiscal 2005-2008, including vertical analysis)
Financial Management – EMBA
5.10 Annex 10: Nokia Employee Growth
2000 2001
Number of employees 23 508 27 320
0
20 000
40 000
60 000
80 000
100 000
120 000
mil
lio
ns
EMBA Fall 2008
: Nokia Employee Growth
2001 2002 2003 2004 2005 2006 2007
27 320 26 090 27 196 55 500 58 874 68 483 112 26
Number of employees
Page | 82
Number of employees
Financial Management – EMBA Fall 2008 Page | 83
5.11 Annex 11: RIM Financial Report Fiscal 2008
Financial Management – EMBA Fall 2008 Page | 84
7. SOURCES
This document has been created with some background information from the following
sources: • Business Week RIM
http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?symbol=RIM.TO Nokia http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?symbol=NOK
• SEC (EDGAR) RIM http://www.sec.gov/cgi-bin/browse-
edgar?action=getcompany&CIK=0001070235&owner=include&count=40 Nokia http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000924613&owner=include&count=40
• SEDAR RIM http://www.sedar.com/issuers/company_issuers_r_en.htm
• Reuters RIM
http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=RIMM.O Nokia http://www.reuters.com/finance/stocks/overview?symbol=NOK.N
• Wikipedia RIM http://en.wikipedia.org/wiki/Research_In_Motion
Nokia http://en.wikipedia.org/wiki/Nokia
• Yahoo! Finance RIM http://finance.yahoo.com/q/ks?s=rimm
Nokia http://finance.yahoo.com/q?s=nok
• RIM http://www.rim.com/
http://www.blackberry.com/
• Nokia http://www.nokia.com/
Financial Management – EMBA Fall 2008 Page | 85
• RIM Financial Reports 2008, 2007, 2006, 2005
• Nokia Financial Reports 2007, 2006, 2005, 2004 • RIM Circular for the Annual Meeting of Shareholders (15 July 2008)
• RIM Annual Information Form for the fiscal year ended (01 March 2008)
• HBR (May 2008) "Research In Motion: Managing Explosive Growth"
• Business Week (September 2008) "Research In Motion's Costs are on the Rise" (September 2008) "Blackberry vs. iPhone: RIM Takes It Up a Notch" (August 2008) "Nokia Retains Crown in Smartphones" (April 2008) "Blackberry: Innovation Behind the Icon" (February 2008) "RIM: Growth Rules the Day" (December 2007) "Research In Motion: What Slowdown?"
Financial Management – EMBA Fall 2008 Page | 86