Stock Code : NOK1V (NASDAQ OMX); NOK (NYSE)
Homepage : www.nokia.com
Nokia is well known telecommunication company. Nokia’s mission is simple: Connecting People. Nokia’s goal is to build great mobile products that enables billions of people worldwide to enjoy more of what life has to offer. Nokia is about ideas, energy, excitement and opportunities. Nokia believes that everything is possible and that’s what continues to inspire the company.
Nokia gave up its symbian mobile platnform in favour of a cooperation with Microsoft, Inc which is trying to take a foothold onto the mobile platform. Nokia adopted the new windows 8 for its latest mobile phone the Lumia 920. Nokia underwent restructuring in 2011-2012 so as to concentrate in its core competency to regain leadership status in the smartphone space.
The information below is a snapshot of the health of the company based on financial statements publicly available.
|earnings per share ($)||-0.15||-0.04||0.04||0.01|
|earnings per share to equity holders ($)||-0.12||-0.03||0.05||0.02|
|Test of Investment Utilization|
|Invested capital turnover||2.10||2.75||1.97||1.99|
|(cash cost per day mil)||104||116||118||117|
|Days’ receviables (collection period)||67||51||65||71|
|Cash Conversion cycle||28.8||20.7||21.0||30.5|
|Working Capital turnover||6.6||8.7||4.4||4.9|
|Acid test (quick) ratio||NA||0.93||1.16||1.13|
|Test of Financial Condition|
|Financial leverage ratio||3.246||2.602||2.410||2.423|
|Debt / equity ratio||0.531||0.348||0.330||0.393|
|Debt / capitalization||0.347||0.258||0.248||0.282|
|Times interest earned (interest cover)||-11.007||-11.520||6.263||3.517|
na – not available for estimation
The above ratios are snapshot of the compay from financial year 2009 to financial year 2012.
The financial statement for financial year 2012 is adjust by me to reflect the full year. Nokia recently reported its results for financial year 2012 up to the 3rd quarter only.
The company business is facing headwind as its gross margin is in decline over the past 4 years. This is confirmed by the drop in profit margin. The current year and previous year profit margin entered the negative territory…blahblah, well known,.
The Million Dollar Question (and probably its answer from the financial statement)
The most important question is whether Nokia will mount a successful turnaround after the paperwork reported confirmed that the company is facing headwind. Does it has the sufficient financial strength to support the promised of its vision?
The results for Test of Investment Utilization showed that Nokia has opportunity to squeeze out excess fat from its balance sheet to support its innovative ideas. The more important issue is to squeeze more mileage on working capital by shortening its cash conversion cycle. It appears that it has an average cash conversion cycle of 25 days. Push it down, check your inventory, push your suppliers and entice your customers.
The benchmark company on cash conversion cycle could be Apple, Inc. Its cash conversion cycle is negative. That means customers and suppliers are paying for Apple’s inventory holdings and work in progress etc. This explains why the company does carry long term debt.
The results for Test of Financial Condition showed that Nokia has levered up financially over the 4 years. The latest financial leverage ratio stands at 3.246, which is the all time high of the 4 years. It is partly due to the decreasing total equity that the company is suffering. The loss in equity is due to accumulated losses the wiped valuation off its retained earnings. However, Nokia might have items of value in the assets to be pledged for secured lending to fund its turnaround.
In my humble opinion, barring the market’s sudden change in sentiment, I believe that Nokia could hold out as this is the only year that Nokia might make a negative return on cash for operations. Nokia has a cash hoard of EUR8.6Billion. The estimated cash cost per day is EUR104million.
Share with us your views of Nokia.