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Sony Corporation, 2011-2014: A Financial Analysis 1

Sony Corporation, 2011-2014: A Financial Analysis


Seton Hill University
Zachary Kravits & Cooper Deller
Sony Corporation, 2011-2014: A Financial Analysis 2

Corporation History- Sony Corporation


Sony Corporation, commonly just referred to as Sony, is a multinational conglomerate
corporation with its headquarters located in Tokyo, Japan. Currently, Kazuo Hirai is the
established President and CEO and Kenichiro Yoshida is the established Executive Deputy
President and CFO. Sony Corporation is the parent company of four divisions: electronics,
motion pictures, music and financial services. Sony primarily focuses on the manufacturing of
electronic products, and is considered a leading manufacturer. Some of their major products
include LCD televisions, interchangeable single-lens cameras, compact digital cameras, video
cameras, home audio, Blu-ray Disc players and recorders, batteries, data recording systems,
medical-related equipment and broadcast and professional-use equipment (Corporate Info.)
Sony Corporation was born after the conclusion of the Second World War in order to
supply people with electronics that were in demand. Masaru Ibuka begin a facility, which was
called Tokyo Telecommunications Research Institute. The small business made a profit by
supplying something that was in demand for Japan post World War II: radios. Ibuka and his
employees began repairing radios and making shortwave converters or adapters, which made the
radio into an all-wave receiver. After discovering Ibuka success, Akio Morita returned to Tokyo
and joined him. On May 7, 1946, the two had officially started the new company, Tokyo
Telecommunication Engineering Corporation (Totsuko), which would be later renamed Sony
Corporation (Chapter 1 Rebuilding from the Ashes).
In years past, Sony Corporation has made large leaps in technology with several products,
which made them very competitive in the market. For example, one of Sonys biggest successes
was the Sony Walkman, a portable audio cassette player. In addition, Sony made another product,
which is still used today, the compact disc. Moving forward in time, Sony also hit the market
with the original PlayStation (PS One), which caused new competition for Nintendo. Then, Sony
introduced a HD version of the DVD player, Blu-ray.
Today, Sony is continuing to try and make leaps in electronic products and promising
ventures in different divisions; however, they seem to be having some difficulty. According to
Statista, in 2014 the largest part of Sonys share of sales came from its mobile products and
communications (21.34%) (Sony, 2015). It is probable that mobile products and communications
will be their largest part of their share of sales in 2015 as well. However, there are other
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potentially profitable products, projects and investments that Sony is currently in also. For
example, Sony is attempting to bring back an updated version of the once widely popular, Sony
Walkman. In addition, Sony is continuing to fight competitors, like Microsoft, in the gaming
industry with the new PlayStation 4. This seems to be one of Sonys more profitable projects
since video games made up 12.82% of shares of Sonys sales in 2014 (Sony, 2015). In other
divisions of the company such as Sony Music, the company is trying to appeal to different genres
with various artists like Kelly Clarkson, The Piano Guys and Calvin Harris. Music is the lowest
share of sales in the 2014 fiscal year at only 6.59%; however, this could still be a promising
venture for Sony.

Financial Analysis
Sony went through a tough turn of events after the first decade of the 21st century. It
suffered net losses and possessed many liabilities and the end of each period. These financial
ratios will be better portray Sonys losses.
Profitability Ratios
The first set of financial ratios are the Profitability Ratios. These portray were a company
stands in its investments.

Profitability Ratios 2011 2012 2013 2014

Profit Margin (-.035) (-.072) (-.018) (-.010)

Return on Assets (-.57) (-.11) (-.007) (-.004)

Return on Equity (-.75) (-.16) (-.038) (-.024)

Profit Margin
Profit margin was very low for Sony. As a matter of fact Sony never made a profit
throughout these periods. They suffered from income losses and its sales were down for the years
of 2011 and 2012. In 2013, Sony returned to some profitability, however, the following year
Sony was suffering from income losses despite the fact that their net sales were increasing each
year. Sony experienced sales increases in certain branches of their company, whether it was
Music, PlayStation, MP&C, or cellular. Unfortunately each branch of Sony never saw such a
significant rise in sales that it would counteracting the other failing branches.
Sony Corporation, 2011-2014: A Financial Analysis 4

Return On Assets
Return on assets hit a serious turn for the worse after the year of 2011. In 2011 Sonys
return on Assets was already low, but their total assets saw a drop after 2011. In 2013 and 2014,
Sony continued to see a steady decrease in return on assets. This could be attributed to their lack
of sales and surmounting debt. Sony did see a slight increase in sales which could explain the
difference for the last three periods. Sony attributed its best sales to their MP&C branch.
Return on Equity
Sonys return on Equity showed the same symptoms as what their return on assets did.
After the serious decline in 2011 sony never was able to increase their equity. Once Sony started
reporting losses during Americas recession, many investors stopped buying stock which
impacted their equity, which can be see in their continuing decrease in return through 2013 and
2014.

Asset Utilization Ratios


The next assessment will be on Sonys asset utilization. Being Self explanatory, this
shows how Sony used its assets, and how well (if at all) they were able to create revenue. As
mentioned previously Sony suffered losses in its income, which made for a long road to haul in
generating revenue from its assets.

Financial Ratios 2011 2012 2013 2014

Receivable Turnover 8.50 7.19 6.74 7.05

Average Collection Period 13.63 Days 7.60 Days 53.39 Days 50.99 Days

Inventory Turnover 8.95 7.82 8.01 9.10

Fixed Asset Turnover 24.85 14.44 17.4 23.57

Total Asset Turnover .49 .42 .40 .43

Receivable Turnover
For the years of 2011-2013 Sony displayed a very slow rate of receivables turnover. In
2011 Sony had a good rate of turnover but due to its decreasing sales over the next two years its
Sony Corporation, 2011-2014: A Financial Analysis 5

rate started to fall. In 2013, Sony had its lowest receivable turnover, but it had a slight increase in
2014.
Average Collection Period
Sony had a quick collection period was holding at a steady number, showing that they
had good accounts receivable. Yet as their sales fell their accounts receivable went down, as a
result Sonys collection period got slower and slower. In 2013, there was a large jump for their
average collection period from 7.82 to 53.39 days. In 2014, there was only a slight decline in
comparison to 2013.
Inventory Turnover
Sony saw a steady amount of inventory turnover for 2011-2013. Until their increase in
sales in 2014 they flatlined and didn't see a lot of progress.
Fixed Asset Turnover
The fixed asset turnover saw some fluctuation in between 2011-14. After 2012, Sonys
fixed asset turnover began to pick back up, and in 2014 it almost returned to its turnover back in
2011.
Total Asset Turnover
Sony had very poor Asset turnover for the years of 2011-14. This can primarily be
attributed to their lack of assets and sales. With Higher sales and assets, Sony would be able to
pull out of this hole. Only in early 2015 did Sony start to see an increase in sales and a profit.
This slightly increased the turnover, but for these four years, little to nothing helped this
category. Sony needed to take out loans to compensate for its lack of revenue.

Liquidity
The next section shows Sonys liquidity. These ratios portray how well the company was
able to pay off its loans.

Financial Ratio 2011 2012 2013 2014

Current Ratio 1.30 1.20 .84 .87

Quick Ratio 1.22 .88 .68 .72


Sony Corporation, 2011-2014: A Financial Analysis 6

Current Ratio
Sonys current ratio was low and saw a decrease from 2011-2013 with a slight rebound in
2014. This was due to Sonys loss in income. Without revenue, paying off loans quickly became
a challenge for Sony. As mentioned previously, Sony started to make money in 2014 which is
why the ratio started to climb.
Quick Ratio
Sony had a very low quick ratio after the year of 2011. Due to a lack of sales in the
electronic department ( lower assets), their leverage kept decreasing. Sony struggled with
keeping up their sales revenues. One year would become different from the rest. This could be
because they would invest in different areas of their company and in other companies trying to
find something that would produce income.

Debt Utilization
The next set of ratios cover how well Sony was able to use its debt leverage. With the
debt that Sony was acquiring they needed to use their leverage wisely.

Financial Ratio 2011 2012 2013 2014

Debt to Total Assets (-.77) (-.81) (-.81) (-.82)

Times Interest Earned 8.57 3.55 9.08 1.09

Debt to Total Assets


As mentioned in all other financial ratios, Sony did not have a sufficient amount of assets.
This explains why their debt to total assets kept getting higher. While it wasn't increasing in huge
amounts, it still was increasing. A reason for its slow increase may be that in 2014 Sony started
to pull in revenue, allowing them the opportunity to start paying off their debt.
Times Interest Earned
Sonys interest rate saw extreme fluctuations. This was due to their compensating for lack
of income and other expenses. In the years it increased, Sony was not losing as much money. Yet
in 2014 they started to make more money their low interest may have been a result of
compensating for their previous years of loss.
Sony Corporation, 2011-2014: A Financial Analysis 7

Leverage Analysis
There was not enough in Sonys financial records to report their degree of operating
leverage and degree of combined leverage. However, there was enough to report the degree of
financial leverage.

Leverage 2011 2012 2013 2014

Degree of Financial Leverage 1.17 1.29 1.13 8.73

Degree Of Financial Leverage


The degree of the financial leverage examines the debt-equity level. In 2011, 2012, 2013,
Sonys EPS (earnings per share) did not vary all that much. However, with a large drop in
operating income in 2014, it caused financial leverage to jump and EPS to become very
inconsistent.

Investments
The following graph shows Sonys Major investment areas from 2011-2014. The figures
below are in presented in millions of U.S. dollars.

Investments 2011 2012 2013 2014

Japanese Bonds $1.6 $1.7 $1.8 $1.7


Sony Corporation, 2011-2014: A Financial Analysis 8

Foreign Bonds $3.2 $3.4 $3.9 $3.9

Marketable Equitable Securities $646 $680 $697 $832

Foreign Securities $55 $50 $56 $58

Olympus $320 $320

Sony Invested a tremendous amount of money in different areas of its own business and
other companies over the years of 2011-2014. Sony is a Global Company, they have locations all
of the planet specializing in games, music, entertainment, and technological devices. Sony also
partners with various companies around the world. As seen in the previous financial analysis,
Sony as a whole is struggling financially. Their investments both at home, and in their foreign
companies are an attempt to jump start their company back on the road to success. First looking
at Japanese Bonds. Sony was founded and currently operates out of Japan. Sonys greatest
market and highest sales revenue currently comes out of Japan. Their primary investment in
japan was in their music department. Yet their numbers are low because their wasn't as great of a
need to boost the industry in Japan as their was in the rest of the world. However their foreign
bonds grew throughout 2011-2014. Sony gave the most money to its U.S. department. A
suggestion for why Sonys United States industry was so needy, could be a result of the amount
of competition in the U.S. Sony wanted to jump start the music industry in the United States to
keep up with other companies such as Apple.
While Sony invested highly in its own company, they invested in others that produced
Tvs, cell phones, and cameras. While some of their investments in the Tv and Cell phone
industry, Sony struck gold with their investment in Olympus. We added Olympus in the mix of
investments for Sony because it became Sonys greatest investment. Sony invested 640 million
dollars into olympus over the years of 2012 and 2013. Olympus is a camera manufacturing
company, and Sony decided that both companies could benefit from the partnership. Sony had
just developed a laser sensor for cameras that would fit perfectly into Olympuss cameras. As I
mentioned previously, Sony struck gold with Olympus, they pulled in millions of dollars in sales
revenues, and Olympus benefited greatly. Yet it is important to note, that Sony has yet to see all
of their money come back to them. While the cameras were hot sellers, the 640 million dollars is
still slowly being repaid. Again, this seems to be the issue Sony has been experiencing. Sony is
Sony Corporation, 2011-2014: A Financial Analysis 9

constantly searching for the latest and greatest product and investing millions of dollars into it.
While making money in that area, the other areas of the company would still be suffering. Our
suggestion would be that Sony would focus on a few areas of the company and let them grow,
while dropping the other money sucking departments.

Retirement
Sony is located in several different countries, so this plan is only for Sony Corporation of
America. The Sony Corporation of America Pension Value Plan is really a defined benefit cash
balance plan. A Defined benefit cash balance plan has properties of a 401k plan; however, they
do differ.
Sonys pension plan is a point based plan in which credit points are given to an employee
each year for their performance. The number of points that the employee receives is based on the
salary of the employee. For this plan, interest is set and does not change once it is set. Payment is
based on the accumulated points from past service and the interest points the employee earned.
There are disadvantages that come with this plan for the employee. One is that the
employee must retire in order to receive the accumulated earnings. If they do not retire then the
employee does not receive anything. A second disadvantage to this plan is that if the employee
has a joint and survivor annuity, then upon the death of him/her the ex-spouse of the employee
could receive a share of the benefits instead of the preceding spouse. Lastly, if the employee has
a joint and survivor annuity, then there will be a deduction in the total amount of earnings
received. In addition, this plan does not allow for the employee to decide the way in which the
funds will are invested (Sony Corporation of America Pension Value Plan, n.d.; Defined Benefit
Plans (ERISA), n.d.).

Earnings Per Share


Earnings Per Share is crucial to a company and any potential investor. Earnings Per Share
shows how much money each share of a company's stock is worth on the market. As seen in the
table below, Sonys EPS fluctuated astronomically over the years of 2011-2014.

2011 2012 2013 2014

Earnings Per Share 2.23 5.55 1.49 .096


Sony Corporation, 2011-2014: A Financial Analysis 10

Percent Change 248% Increase 372% Decrease 64% Decrease

In 2011 Sony had a low EPS number. This could be because Sony had nothing new to
present the market with, and was not showing any increase in sales, or even a slight window of
hope that there would be hope for and increase in the year of 2011. 2012 saw a major spike. EPS
grew 248% ! This can be attributed to two major happenings within Sony. The first as mentioned
in the investments table, Sony invested a tremendous amount of money in Olympus cameras.
Investors and photographers were elated with this partnership. Sony was showing great promise
to pull itself out of the slump it was in since the American recession. People started investing in
Sony and many started purchasing Sony products.
The second major event in 2012 to help boost Sonys EPS was their announcement of the
PS4, The newest gaming console to hit the market for almost a decade. The PS4 showed great
promise that it would bring in revenue for Sony. Yet one thing stood in their way on the road to
success.
In 2013 Sony experienced a 372% decrease, this was a fatal blow to the future hopes of
the company. What proved to be an EPS booster proved to be the killer as well. In 2013 the PS4
was launched with great promise, needless to say the grand revealing turned out to be
troublesome. Just seven days after releasing the PS4, Microsoft released its newest console the
Xbox One. Microsoft's Xbox sales soared, while PS4 slowly grew. This could be attributed to a
few overlooked things. A decade earlier the PS3 and Xbox 360 were released. The PS3 was the
better seller and Sony ran away with the profits. Yet failure to land contracts with companies that
produced games like Halo and Gears of War saw the PS3 take a back seat to Xbox. So when the
new versions came out, the previous idling years of the PS3 came back and haunted Sony. Along
with poor marketing, the PS4s promise was a thing of the past. Many stockholders withdrew and
Sony lost its edge. This is why 2014 saw a continual decrease in EPS, many stockholders
withdrew, and Sony showed no sign of potential. Even almost halfway through the year of 2015,
Sonys market decreases while their debt increases.

Improvements and Recommendations


Sony Corporation, 2011-2014: A Financial Analysis 11

According to the profitability ratios, Sony Corporation has not been making a profit since
for the last four years. Although the figures seem to be improving, Sony Corporation is still
suffering and needs to make some significant changes in a few areas.
One of Sonys major downfalls is something that was highly respect and popular: its
brand. The problem is that Sony puts its name on every product it produces. Sony puts its name
on its most expensive and sought after products to its cheapest and unpopular products. As a
result the Sony brand has lost its meaning, and now most consumers just see it as an electronics
company. One of the few products Sony produces that has a strong brand is the PlayStation
(Sonys Branding Problem, 2012). If Sony wants to stick with selling electronic products, then
they must create product lines with more distinct branding, like they have done with the
PlayStation. This could create more meaning to brands and popularity for Sony as a whole. In
addition to creating a stronger brand name, Sony needs to be more innovative with the products
they are developing. After the Walkman, Sony has not come up with anything very original.
What once made Sony well known to its customers is now fading. That is electronics
(Tabuchi, 2013). However, one product that Sony that they can focus on is their gaming console,
the PlayStation, which is one of their most profitable products The sales and operating revenue
from the PlayStation 4 were a great help for Sony because they went up 14.3% from the previous
year, which was $75.4 billion. This said to be one of Sonys best products since the Walkman.
One reason way the PlayStation is a success for Sony is because of the great brand that Sony has
established for the PlayStation (Griffiths, 2014). Sony should drop some of their current
products, and focus more of their attention on helping increase the success of the PlayStation 4
with new technology and games in order to compete with Microsofts Xbox One.
Another aspect that they should give more of their attention to is the selling insurance.
Sony Corporation is known for selling electronic products; however, most probably do not know
that they sell insurance in Japan. Surprisingly, Sony makes a lot of money from in financial
services. Sonys financial division is made up of insurance and banking services (Yarow &
Terbush, 2011; Tabuchi, 2013). Again, Sony should consider stepping away from several of their
electronic products looking into other profitable areas to invest more of their energy. Sonys
financial division is definitely one of those areas.
Sony Corporation, 2011-2014: A Financial Analysis 12

References
Corporate Info. (n.d.). Retrieved April 11, 2015, from
http://www.sony.net/sonyInfo/CorporateInfo/
Chapter 1 Rebuilding from the Ashes. (n.d.). Retrieved April 11, 2015, from
http://www.sony.net/SonyInfo/CorporateInfo/History/SonyHistory/1-01.html
Sony Corporation, 2011-2014: A Financial Analysis 13

Defined Benefit Plans (ERISA). (n.d.). Retrieved May 11, 2015, from
http://www.qdrodesk.com/qdro/Defined-benefit-Plans-ERISA--9.shtml
Griffiths, D. (2014). Sony FY 2014 Earnings: Winning The Console Battle, Losing The Profits
War? Retrieved May 11, 2015, from
http://www.forbes.com/sites/danielnyegriffiths/2014/05/14/sony-fy-2014-earnings-
winning-the-console-battle-losing-the-profits-war/
Sony. Share of Sonys sales by segment in the 2014 fiscal year. In Statista The Statistics
Portal. Retrieved April 11, 205, from http://statista.com/statistics/279272/proportion-of-
sonys-sales-by-business/
Sony Corporation. (2015). Investor Relations. Retrieved April 1, 2015, from
http://www.sony.net/SonyIR/library/
Sonys Branding Problem. (2012). Retrieved May 11, 2015, from http://timcalkins.com/crisis-
management/sonys-branding-problem
Sony Corporation of America Pension Value Plan. (n.d.). Retrieved May 11, 2015, from
https://www.qdrodesk.com/plans/SONY-CORPORATION-OF-AMERICA-PENSION-
VALUE-PLAN-84956.shtml
Tabuchi, H. (2013). Sonys bread and Butter? Its Not Electronics. Retrieved May 11, 2015, from
http://www. Nytimes.com/2013/05/28/business/global/sonys-bread-and-butter-its-not-
electronics.html?_r=0
Yarow, J., & Terbush, J. (2011). CHART OF THE DAY: How Sony Actually Makes Money Is
Very Surprising. Retrieved May 11, 2015, from http://www.businessinsider.com/chart-of-
the-day-sony-operating-income-september-2011-2011-11

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