Nokia and Motorola:
This paper focuses on which would be the best company to invest in and we choose Nokia and Motorola to make a decision on which is the best to invest. There is a need for investors to forecast on possible earnings in the future using historical data of a company, we therefore analyze the two companies comparing the dividends paid, share prices, future growth and strategies, financial ratios and profitability.
Nokia Company emerged in 1995 in Finland, today it the largest company in Finland employing a large number of workers on the other hand Motorola was formed in 1928. Both companies have faced financial problems in the past but depending on strategies used by the company there has been a difference in their performance and also future anticipated performance. The Nokia Company has emerged a market leader in the industry. The two companies are quoted in the London stock exchange and using the financial ratios and historical dividends paid we will be in a position to determine which is the best investment option.
Nokia has a larger global market size than Motorola, in the second quarter of 2008 Nokia had a 40% global market share and this was a 2% increase in market share from the 2nd quarter of 2007. Motorola on the other had has a 9% market share today which is a decline from the market share in 2007 which was 18%. Therefore from the market share size it is evident that Motorola is loosing out and Nokia is expanding its market size, it is also clear that Nokia has a larger market share than Motorola and for this reason it is better to invest in the Nokia company due to the growth in the market share of the company which signify an increase in the profit levels in the near future.
Employment, profits and earnings:
Nokia employs over 100,000 employees worldwide and over 30,000 of these employees are in research and development, therefore this means that the company has a large market area that requires more employees to serve consumers and that the research and development expenses incurred are efforts to improve on the quality of products produced. Motorola on the other hand has les employees and in January the company laid off 3,500 workers and another 4,000 were laid off in June this year, this means that the Motorola Company is facing financial problems and also that it lacks proper strategies to improve on the current situation.
This also means that the Motorola company is facing stiff competition from its rivals and for this reason its only option is to cut down its production costs by laying off workers, this means that if nothing is done fast then the Motorola company may run bankrupt and shut down its operations.
Regarding profits it is evident that in the Nokia company realized an 8 billion operation profit in the year 2007, this in contrast with the Motorola Company that made a 1.2 billion loss in the forth quarter of 2007, and this made the entire company to only realize a 100 million dollars profit in the forth quarter of 2007. Therefore a rational investor will invest in the Nokia Company.
In this section we analyze the divided payments by for both companies; the following chart summarizes the divided payments:
The following table summarizes the dividends paid by the Nokia Company:
The values in the table can be summarized in a chart as follows:
From the chart above it is evident that Nokia divideds have increased over the years, this is can be explained by the increase in profits over the years.
Motorolla divideds over the years is sumarised in the table below:
The amount in the chart is sumarised by the table below:
From this table it is evident that the Motorola company dividends have been constant in the last four years.
From the above analysis of the two companies divided history it is evident that the Nokia Company is the best option to invest in, this is due to the increase in dividends over the years unlike the Motorola Company where dividends have been constant over the years. It is also evident that despite the dividends for the Motorola Company being constant it is clear that these dividends are much lower than those paid by the Nokia Company. Therefore it is better to invest in the Nokia Company.
We now analyze the financial ratios of the companies, in this section we report on the PE ratio, return on equity, return on assets, and return on capital and net profit margin among other financial ratios to make conclusion on which of the company is the best to invest.
The price earning ratio shows the amount in dollars that an investor will pay to acquire future rights for each dollar earned today. The PER ratio is calculated by dividing the market value of shares by the net income of a company. Currently the PE ratio for the Nokia Company is 12.2 while that for the Motorola Company is 10.5. The Motorola PE ratio is lower than that of the Nokia Company and this means that investing in Nokia is much more expensive than investing in the Motorola Company, however it is evident that despite high investment required it would be still much more profitable to invest in the Nokia Company.
Return on equity:
The return on equity is a measure of the companies performance, for our companies the Nokia company has a return on equity equal to 47.0 while the Motorola company has a return on equity equal to -0.3, the Motorola company has a negative value and this means that it would be better to invest in the Nokia company where the return on equity is positive and yet high.
Net profit margin:
The net profit margin for the Nokia company is 10.4 while the net profit margin for the Motorola company is -0.1, the Motorola company has a negative net profit margin and for this reason therefore an investor should invest in a company that has a positive net profit margin and for this reason it is best to invest in the Nokia company.
Debt equity ratio
The Motorola company has a debt equity ratio equal to 0.27 while the Nokia company has the ratio equal to 0.11, the higher the ratio then this means that the company finances using more debts than equity, in our case it is evident that Motorola finances using more debts than the Nokia company, this means that the Motorola company may be more prone to debt problems in the future due to the interest to be paid for the debts.
From the above discussion we have analyzed the Nokia and Motorola Company and showed which of the two is the best to invest, some of the issues addressed include the financial ratios, dividend payment history and the current state of the company. An investor should invest in the Nokia Company due to the current increasing profits, increasing global market share and high dividends paid. An investor should not invest in the Motorola company due to poor performance, low profits, the company is loosing is global market share and making large amounts of loses, therefore it is best of an investor to invest in the Nokia company.
Source: Charles Kelly