Bus 650 – Financial ManagementThe LG GroupBUS650 – Financial ManagementInstructor: xxxxxJune 3, 2013Financial Analysis: The LG group:The LG group is the largest global manufacturer of electronics. It is the third largest producer of mobile phones. It was begun in 1947 under the Lak Hui trading name. It was a cosmetics and trading concern (Lee, 2010). In the 1960s, the electronics division of the company, then named Goldstar, expanded into the current LG electronics. LG stood for Luk Hai Goldstar; it was changed to stand for Lucky Goldstar.
Financial statement overview:These statements in review constitute the financial position of the Korean Firm LG Electronics as of September 3oth 2012. The statements under review are those of financial position, cash flow, owner’s equity, and the relevant financial reports. The statements relate to the company and its subsidiaries, referred to as the group. The statements review the performance of the company in 2012 as contrasted with 2011.The first item that catches the eye in the financial statements is the decline in cash held by the group. This is in effect contrasted by the significant increase in trade receivables. This represents an unfavorable state of affairs because it predisposes the company to default on debts. It compensates for the ability to meet short-term obligations. Inventories held have decreased markedly as the prepaid tax also decreases (Baker, 2011). This represents a favorable shift because electronic goods are subject to steep depreciation curves. Holding fewer items in stock as compared to the former year represents a shift in policy.
Overall, there is a sharp decline in current assets in the latter year. In liabilities, there is a marked decline in trade payables. Further, there is a large increase in borrowings. This is not a favorable situation regarding the fact that there have been difficult credit terms during the period in question. Commendable, the group has managed to maintain a healthy gap between current liabilities and current assets. This shows that the group is in a competent position to address the needs of short-term liabilities. This relates to the ability to meet obligations that may fall due to a short time relative to the trading period. The gap between the current liabilities and the current assets has reduced sharply in a worrying twist. This perhaps goes to show that the company faced difficult trading times during the current year as opposed to the years prior. The fixed assets of the group are almost the same in value as the current liabilities of the same. This represents an unfavorable
to the company because the company doesn’t want to cause the public to see the market move. The fact that there is an increased lacklustre value on the market indicates to buyers and the general public that the investors do not understand the value of investments. It also goes to show the extent to which the company has failed. However, because it is under the control of one person, at least it remains to be seen if such management is the best when dealing with a large group of very small short-term liabilities. The other important factor for the investors to consider in terms of short-term asset protection is the quality and quantity of the investment, which can be highly variable. The fact that there is a lack of a strong stock market, low interest rates and good trading positions have made short-term assets the prime target. On the other hand, as the demand for these assets increases, they will make short-term assets less attractive to other investors, which has further cost the company’s ability to sell. The investors want to make the investment in such short-term assets, which is why they are investing against a higher return since there is no obvious basis for short-term investments. The investment in short-term projects is very important as long as the future will not follow predictable, and the ability of investors is also important for long-term decisions. The ability to predict the impact of a particular project without any expectation of future returns may be the key consideration. It must also be viewed with caution if a decision to invest against a particular asset is made based purely on short-term assets. There do exist ways around this. For instance, many of the investors who are actively engaged in an investment in the same company have already started to use the same investment strategy at one time. These investees are often in the same position and therefore are able to make the kind of good investment in the same project that most short-term assets are looking at. Therefore, they have a lot of financial flexibility to put forward a strategy that is both positive and negative. The risk of losses in short-term projects as a general rule is considered by some investors. At this point, there is no need to buy short, but with long-term projects, the cost of borrowing from the fund usually goes up, and the investor may end up paying higher interest than he would normally pay on a longer-term fund. Moreover, the interest rate on short-term projects can increase due to the higher returns that the short-term investors bring. If investors use the money from the Fund mainly to buy short-term investments, that price can be very high. For this reason, some are reluctant to take on more than they would normally pay for a longer-term investment. When such a person has the funds, all bets are off if the short-term investors who are still investing are the ones taking on the high returns. The investors in this case may have decided to take on higher return if it makes sense to do so. The lack of a strong stock market and positive expectations can not affect the fact that such investments are also very risky for the company. Finally, they are certainly not enough to be able to guarantee their long-term investments. For example, some investors use a short-term portfolio strategy to keep track of short-term assets. This strategy is not only extremely risky, but it can also lead to a large loss in financial assets due to the risk that they will make a large return, as it turns out. As long as it is well regulated and has a good track record of success, it has not been very risky. However, it is important to keep an eye out for any developments that might happen to the company if there are any risks to the long-term assets it has.