Financial Analysis: The LG group
The LG group is the largest global manufacturer of electronics. It is the third largest producer of mobile phones. It was begun in 1947 under the Lak Hui trading name. It was a cosmetics and trading concern (Lee, 2010). In the 1960s, the electronics division of the company, then named Goldstar, expanded into the current LG electronics. LG stood for Luk Hai Goldstar; it was changed to stand for Lucky Godlstar.
Financial statement overview
These statements in review constitute the financial position of the Korean Firm LG Electronics as of September 3oth 2012. The statements under review are those of financial position, cash flow, owner’s ...view middle of the document...
This shows that the group is in a competent position to address the needs of short-term liabilities. This relates to the ability to meet obligations that may fall due to a short time relative to the trading period. The gap between the current liabilities and the current assets has reduced sharply in a worrying twist. This perhaps goes to show that the company faced difficult trading times during the current year as opposed to the years prior. The fixed assets of the group are almost the same in value as the current liabilities of the same. This represents an unfavorable situation as far as strategic plans are concerned. It points to a lack of formidable capital investment in operations that would make it difficult to institute expansionary measures. As far as the assets are concerned, the company could pursue a more aggressive growth strategy than the current conservative set up. Further, the non-current liabilities are significantly higher than the owners’ equity. This presents a precarious situation because the gearing ratio will be very high. This opens an assortment of problems for the company, as it is going to be quite costly to secure financing. Further, it is rather difficult for the company to fond guarantors in cases of borrowing loans. Creditors are likely to attach some of the property of the group in cases of default and the goodwill may be lost. In other sections, the assets may be subjected to restrictive contracts that may severely affect the manner in which the company transacts business. The restrictive covenants may cause the group to miss lucrative business opportunities.
The fact that company assets are as low as current assets is another avenue for trouble. The company may have to seek other sources of financing that do not increase the gearing. This may include issuing of new share capital subject to legislative restrictions. In essence, the owners may have to cede ownership. This further complicates the issue because the company may be subject to a significant shift in policy, control and decision-making. This is not favorable for a group that is in financial turmoil to the extent that LG is. At the end of the day, the company faces tough choices to make. The group has further problems in securing financing. Any financier will seek extremely high interests due to the riskiness of the venture. This is a further predicament for the group that is already struggling to stay on its feet. The fact that financing is expensive will be translated into the cost of business (Baker, 2011). As such, the group would find it very difficult to break even in any investment. An entity needs to make a high return on investments is the financing is costly, this would enable it to cover costs of financing as well as running costs in order to make a profit. In strained times, the group will find it difficult to operate due to concurrency of difficulties. It is a loop because high gearing attracts costly financing; that leads to high gearing....