Financial Analysis on Nokia from 2008 to 2009 Research Paper

Financial Analysis on Nokia from 2008 to 2009 - Research Paper Example The Working Capital ratios indicate how well the company is able to manage its working capital. "The asset management ratios are also known as working capital ratios or the efficiency ratios. The aim is to measure how effectively the firm is managing its assets." (Netcom, n.d.)The following are some of the working capital ratios which indicate the efficiency of the company in managing its working capital. Liquidity ratio is defined "as a class of financial metrics that are used to determine a company's ability to pay off its short-term debts obligations.Generally, the higher the value of the ratio, the larger is the margin of safety that the company possesses to cover short-term debts." (Investopedia, 2009) The above table indicates that the company has efficiently managed its working capital during the year ending September 2009 as compared to the year 2008. Nokia is maintaining a comfortable current ratio and the current ratio of 1.5 implies that the company has sufficient current assets situation which will enable the company to meet its current liabilities without any problem. However, the company has increased its long-term debts during the year 2009 with the result that there is an increase in this ratio. This implies that the company will incur additional interest costs on borrowed funds. The cash flow to debts situation has therefore moved to an adverse situation in 2009 as co mpared to the earlier year. In 2008 the cash flow position of the company was comfortable enough to settle the short-term and long-term debts in just 7 months. Whereas, with the increase in long-term debts and the cash flow from operations it would take approximately 3.8 years for the company to settle the debts. This is not a good position from the equity shareholders' point of view. However, the purpose for which the long-term funds were mobilized is to be ascertained for a proper justification for the increase in debts. The number of days sales outstanding is another working capital ratio that indicates the efficiency of the working capital management of the company. This ratio has changed from the previous year figure of 70 days to 83 days. This implies that the company has not been able to collect the outstanding accounts receivable as efficiently as it was doing in 2008. However, the increase in credit sales might be another reason for the change in this ratio. When the company has offered more liberal credit terms to its distributors and dealers in order to boost its sales, that situation might have resulted in increased debtors and the consequent increase in the number of days sales outstanding. A weaker sales environment is indicated by the increase in the number of days inventory expressed as a ratio to the cost of goods sold. There is an accumulation of inventory due to lower sales which is indicated by the change in this ratio. Â