Rim Financial Analysis

Financial Management – EMBA Fall 2008 Page | 2

Research In Motion Limited

- Financial Analysis -

EMBA - Fall 2008

Prepared for: Prof. -

Prepared by : Frederic Vuong


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.


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


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:


• 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


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.


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.


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.


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


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

l A

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


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


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

l A

sse

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,


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,


with better prices in

2008

48,74%

RIM


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

ota

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sse

ts

EMBA Fall 2008

Retained Earnings

Retained Earnings have been constantly increasing (+34.33% betwee



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).



Evolution

Retained Earnings


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


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 EQUITY

Page | 16

48% between 2006 and

+0.37% for the same period)

Equity was decreased it by


0.03%) the same year.

decreasing its Owners’

interests’ rates.

Evolution



TOTAL EQUITY


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

ota

l A

sse

ts

EMBA Fall 2008

Important proportion of Cash

2008, more than 1/5 of the total assets is composed of Cash


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%



Page | 17

2008, more than 1/5 of the total assets is composed of Cash


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



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

l A

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).


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


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


to finance other assets that


Average Account Payment

Period = AP/(COGS/365)

Average Collection Period =

AR/(Net sales / 365)


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

l A

sse

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


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



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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Sh

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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


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


company could buy more Stockholders’ shares and also increase some Long-Term

2008

ST (<365 days)

LT (> 365 days)

Owners' Equity


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.


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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Sh

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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


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 EQUITY

TOTAL CURRENT ASSETS

TOTAL LT ASSET

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% o

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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 EQUITY

TOTAL CURRENT ASSETS

TOTAL LT ASSET


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

f T

ota

l B

ala

nce

Sh

ee

t V

alu

e

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


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


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



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

nce

Sh

ee

t V

alu

e

EMBA Fall 2008


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


assets reduction) and to

Equity by reducing its Owners’

Repartition

TOTAL CURRENT

LIABILITIES


TOTAL EQUITY

TOTAL CURRENT

ASSETS

TOTAL LT ASSET


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


RIM

Nokia


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


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

l A

sse

ts

Account Receivable

RIM

Nokia


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

l A

sse

ts

Inventory

RIM

Nokia


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

l A

sse

ts

PPE

RIM

Nokia


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

l A

sse

ts

LT Investments

RIM

Nokia


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


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

l Li

ab

ilit

ies

Account Payable

RIM

Nokia


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

l Li

ab

ilit

ies

Accrued Expenses

RIM

Nokia


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

l Li

ab

ilit

ies

LT Debt

RIM

Nokia


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.



dividends to its stockholders for the last 10 years as the company prefers to

reinvest money in the business.


2005 2006 2007 2008

3,59% -4,33% 11,63% 30,00%

72,20% 89,40% 67,98% 39,37%


Page | 36

in the Balance Sheet, RIM’s Common Stock

the Common Stock reaches



the last 10 years as the company prefers to

and Retained Earnings evolution


Retained Earnings

Common Stock


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

l Li

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%


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


Retained Earnings

Common Stock


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



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



times more important

2008

64 333,1

6 009,40

Nokia

RIM


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

f T

ota

l R

ev

en

ue

s

Gross Margin

RIM

Nokia


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

l R

ev

en

ue

s

EMBA Fall 2008

Selling General & Admin Expenses, and R&D Expenses


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)


1.79%) costs between 2007 and

R&D Expenses


Expenses, Total


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

l R

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


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


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


R&D Expenses


Expenses, Total


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

l R

ev

en

ue

s

EBITDA

RIM

Nokia


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


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


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


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


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




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%


2008

51,26%

34,51%

RIM

Nokia


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%.



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



it is the contrary for Nokia.

The greatest difference between the two companies was in 2006 (16.54%), b




): 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


The greatest difference between the two companies was in 2006 (16.54%), but due



evolution

2008

28,81%

13,91%

RIM

Nokia


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%.



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


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


had a better increase between 2007 and 2008, and thus reducing




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


007 and 2008, both companies have always been

(+5.99% for RIM and +3.24% for Nokia between


had a better increase between 2007 and 2008, and thus reducing the difference to


2008

21,53%

14,11%

RIM

Nokia


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




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.



2005 and it is +4.32% in 2008. In 2006, RIM and Nokia had almost the same ROA.




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.



had almost the same ROA.


2008

23,48%

19,16%

RIM

Nokia


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)


respectively 10.12% and 6.46



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


RIM's ROI has been increasing more rapidly than Nokia's. RIM's ROA


(18.14% for Nokia and 18.76% for RIM).




10.06%


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


RIM's ROI has been increasing more rapidly than Nokia's. RIM's ROA was 6.17%




2008

22,04%

18,38%

RIM

Nokia


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



Industry average (5yrs av.): 1


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.




it is therefore obvious that Nokia's RUE is higher than RIM's.


ively 19.39% and 35.27% in 2008.


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.




Nokia's RUE is higher than RIM's.


2008

32,89%

48,77%

RIM

Nokia


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




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



% average over 5 years) by

2008

572.8

4063

2008

2,26

2,23

RIM

Nokia


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


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).


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


2008

2,36

1,54

RIM

Nokia


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



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


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


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


(and within the industry average) and

, meaning that it can


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


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).


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



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



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


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.



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.


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


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.


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.



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.


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


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


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.


Nokia is within the industry average by 0.05 in 2008.



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


the industry average by 0.05 in 2008.


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


Debt to Equity Ratio

2008

0,03

0,26

RIM

Nokia


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.



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



As both companies have high TIE ratios, they can borrow more money from banks


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



more money from banks

2008

21,80

23,99

RIM

Nokia


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.


it sells all its inventory 15.16 times per year. Nokia’s inventory


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


it sells all its inventory 15.16 times per year. Nokia’s inventory turnover is 17.75


the industry average (26.10 days average

the industry average by

evolution

2008

15,16

17,75

RIM

Nokia


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


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 (


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%


in 2008 and Nokia is

evolution

2008

1,09

1,36

RIM

Nokia


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.



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


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.



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


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




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


Page | 64

The average collection period ratio shows the number of days taken by the customers to pay for products purchased to companies.




evolution

2008

71,35

80,07

RIM

Nokia


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



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



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


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)



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 (-


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


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


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 Dividend per Share


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.


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


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


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


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


(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


It means that for each stock, the company has

2008

572.8

4063

2008

2,57

2,61

RIM

Nokia


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%.


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.


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


side had an increase of 33.06%.


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.


Nokia had a stable Operating Income per employee between 2005 and 2007

This decrease is probably linked


2008

6254

112262

g Income per Employee

2008

0,29

0,08

RIM

Nokia


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%).


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



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

6254

112262

2008

0,21

0,08

RIM

Nokia

5 ANNEXES

5.1 Annex 1: RIM Balance Sheet (2005-2008, including vertical analysis)


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)


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


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


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)

5.8 Annex 8: Nokia Income Statement (Fiscal 2005-2008, including vertical analysis)


5.9 Annex 9: Nokia Cash Flow Statement (Fiscal 2005-2008, including vertical analysis)


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


5.11 Annex 11: RIM Financial Report Fiscal 2008


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/


• 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?"

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