It is very important for any company to establish an understanding of its financial position in order to be able to make strategic short and long-term goals. The evaluation of the financial performance of a company can be done by comparing its financial statements for a trading period with those of the prior years and also comparing them with those of competitors or other companies in the industry. This is to provide a competitive advantage and a clear gauge of the market share. This is possible also in the understanding of the weaknesses and strengths of the company and industry as well as the risks to be taken together with improvements. This report presents the comparative financial analysis of the financial statements of Eastman Kodak and Nikon companies for the period ended 31st December, 2009.
Comparative analysis of financial statements
Eastman Kodak is in the business of production and printing of pictures incorporated in 1901 with headquarters in New York. Nikon company was incepted in 1917 and deals with optical technology while based in Japan.
Comparative analysis of Balance Sheets
Vertical analysis of Balance sheets
|Total Assets Percentage||Eastman Kodak||Nikon Company|
|Cash and cash equivalents||26.3%||10.6%|
|Notes and accounts receivable- Trade||18.1%||16.0%|
|Net property, plant and equipment||16.3%||16.8%|
|Notes and Accounts payable- Trade||36.5%||15.9%|
|Total Equity||– 0.46%||50.6%|
|Liquidity Ratios||Eastman Kodak||Nikon Company|
|Current Ratio:= Current Assets/ Current Liabilities||1.50||1.80|
|Quick Ratio:= Current assets- Inventory/ Current liabilities||1.25||0.88|
|Debt to Equity ratio: Total liabilities/ Equity||– 233||0.98|
|Debt to equity ratio||– 233||0.98|
|Debt to assets ratio||1.00||0.49|
|Financial Flexibility ratios|
|Debt ratio:= Total debt/total assets||100%||49%|
|Equity ratio: = Equity/capital employed||– 0.43%||50.5%|
|Debt to equity ratio:= Total Liabilities/ Equity||– 233||2.02|
The liquidity levels of the two companies are relatively the same and preferable although the level of debt for Eastman Kodak Company is high while the equity so minimal thus limiting the liquidity. The solvency level of Nikon Company is favorable while Eastman has much of the assets, equity covered by debt and low-interest coverage that limits the ability of the company to pay interest. Nikon Company is relatively financially flexible as compared to Eastman whose financial flexibility is very limited. The classes of assets for Nikon include the investment assets (Nikon Company 28) that have increased the levels of solvency, liquidity and financial flexibility while Eastman Kodak has the long-term assets inclusive of the total assets (Eastman Kodak 56).
Income statement analysis
Eastman Kodak Company and Nikon Company have adopted a multi-step approach in the presentation of the income statement evident in Eastman Kodak Company (55) and Nikon Company (30). The irregular items as reported in the income statement are evident for Eastman Kodak Company while Nikon Company does not have any irregular items for the financial period under consideration.
The irregular items reported by Eastman Kodak Company are the continuing, discontinuing and extraordinary item. The continuing operations increase the value of the net income while the discontinuing and the extraordinary items are deducted hence reducing the value of the net income. The value of the continuing operations increases the value of the net income while in this case there was a profit from the discontinued operations which has lowered the net loss of the Eastman Kodak Company (Eastman Kodak Company 55).
Vertical analysis of the income statements
|Sales Revenue as the average percentage||Eastman Kodak Company||Nikon Company|
|Cost of sales||76.8%||63.8%|
|Selling and administrative expenses||17.1%||30.7%|
|Research and development costs||4.68%|
|Interest and dividend income||0.25%|
|Write down of inventories||0.50%|
|Loss on disposal of property, plant and equipment||0.22%|
|Loss on impairment of fixed assets||0.08%|
|Loss on valuation of investment securities||0.67%|
|Gain on sales of property, plant and equipment||0.008%|
|Equity in earnings of unconsolidated subsidiaries and associated companies||0.12%|
|Other net incomes||0.39%||0.20%|
|Other net expenses||1.16%||1.02%|
|Income from taxes||1.51%|
|Total income taxes||1.26%|
|Net income/(loss from continuing operations)||(3.05%)||3.19%|
|Earnings from discontinued operations||0.22%|
|Extra ordinary item||0.08%|
|Net earnings attributable to non-controlling interests||0.01%|
Analysis of statements of cash flows
Comparison of cash flows from operating activities to net income
|Operating Activities||Eastman Kodak Company||Nikon Company|
|Net income before taxes||100%||100%|
|Income taxes paid||136%|
|Loss on impairment of fixed assets||1.84%|
|Provision of doubtful receivables||11%|
|Depreciation and amortization||204%||84%|
|Provision for employees retirement benefits||2.61%|
|Provision for retirement allowances for directors and corporate auditors||0.16%|
|Earnings from discontinued operations||8.13%|
|Earnings from extraordinary item||2.07%|
|Loss or gain on sale of property, plant and equipment or other assets||47.8%||0.08%|
|Loss or gain on disposal of property, plant and equipment||4.83%|
|Loss on valuation of investment securities||15.1%|
|Provision for deferred income taxes||47.4%|
|Non-cash restructuring and rationalization costs, asset impairments and other charges||13.4%|
|Increases or decreases in notes and accounts receivable||173.7%||68.1%|
|Increases in inventories||132%||20%|
|Increase or decrease in notes and accounts payable||392%||145%|
|Net cash flow from operating activities||(65.1%)||25.8%|
Key cash flow ratios
The key cash flow statement ratios assess the ability of a firm to meet its obligations and pay dividends. They include cash dividend coverage, cash debt coverage and cash interest coverage as shown in the table below.
|Cash flow ratios||Eastman Kodak Company||Nikon Company|
|Cash dividend coverage:= cash flow from operations/total dividends||0||0.98|
|Cash debt coverage:= cash flow from operations – dividend payments||(136)||(2300)|
|Cash interest coverage||– 1.76||25.7|
|Operating cash flow ratio: = Cash flow from operating activities/ current liabilities||– 0.05||0.03|
|Capital Acquisition Ratio = (cash flow from operations – dividends) / cash paid for acquisitions||0||0|
|Investment ratio:= Stock price per share/ operating cash flow per share||– 17463||6.67|
|Cash flow per share: = Cash flow from operations/ no of shares||– 0.0014||0.10|
|Return on investment: = net profits before tax / shareholders equity.||6.36||0.106|
|Quality of income ratio: = cash flow from operations before interest and tax/ EBIT||– 0.65||1.57|
The ratio that is used to assess the ability of a firm to generate positive cash flows in the future is usually the operating cash flow ratio as provided in the table above. The cash debt coverage shows the need for external financing while the cash dividend coverage shows the ability to pay dividends. The quality of income ratio shows the ability of a firm to generate positive income cash flows in the future.
The analysis shows that Nikon Company has positive cash flow ratios hence it can be able to meet its obligations, pay dividends, manage debt and have future positive cash flows (Nikon Company 32). This is not so for Eastman Kodak whose cash flows is negative hence the probability of not being able to meet future obligations (Eastman Kodak Company 60). The differences in the analysis could be influenced by the environment of operation.
This report has analyzed the financial statements of Nikon and Eastman Kodak companies. The analysis has involved the balance sheet, income statement and statements of cash flows for comparative purposes and effective decision making.
Eastman Kodak Company. Eastman Kodak Company 2009 Annual Report on Form 10-K and Notice of 2010 Annual Meeting and Proxy Statement. New York: Rochester, 2009.
Nikon Company. Annual Report 2009. Hong Kong: Nikon Corporation, 2009.