Question

Key comparative information for Samsung (Samsung.com), a leading manufacturer of electronic consumer products, follows.

W in millions	Current year	1 Prior Year	2 Prior Years
Operating cash flow	W 40,061,761	W 36,975,389	W 46,707,440
Total assets	242,179,521	230,422,958	214,075,018

Required

1. Compute the recent two years’ cash flow on total assets ratio for Samsung.

2. How does Samsung’s ratio compare to Apple’s and Google’s ratios from BTN 12-2?

Short answer

1. Cash flow on total assets ratio

Current year: 16.95%

1 year prior: 16.64%.

1. Apple and Google are performing well as compared to Samsung.

Step-by-step solution

Definition of Financial Ratios

All the comparisons made between the various line items of the financial statement to draw any useful conclusion are known as financial ratios. Such comparisons provide information about the business entity's profitability, liquidity, efficiency, and solvency.

Cash flow on total asset ratio

Samsung

W in millions	Current year	1 year prior	2 years prior
Operating cash flow	W 40,061,761	W 36,975,389	W 46,707,440
Total assets	242,179,521	230,422,958	214,075,018
Average total assets	236,301,240	222,248,988
Cash flow to total assets ratio	16.95%	16.64%

Working note:

The formula for average total assets:

$\mathbf{Average}\mathbf{}\mathbf{total}\mathbf{}\mathbf{assets}\mathbf{=}\frac{\mathbf{Current}\mathbf{}\mathbf{average}\mathbf{}\mathbf{assets}\mathbf{+}\mathbf{Previous}\mathbf{}\mathbf{year}\mathbf{}\mathbf{assets}}{\mathbf{2}}$

The formula for calculation of cash flow to total assets ratio:

$\mathbf{Cash}\mathbf{}\mathbf{flow}\mathbf{}\mathbf{to}\mathbf{}\mathbf{total}\mathbf{}\mathbf{assets}\mathbf{=}\frac{\mathbf{Operating}\mathbf{}\mathbf{cash}\mathbf{}\mathbf{flow}}{\mathbf{Average}\mathbf{}\mathbf{total}\mathbf{}\mathbf{assets}}\mathbf{\times }\mathbf{100}$

Comparison

Apple

Google

Current year	1 year prior	Current year	1 year prior
31%	27%	19%	19%

In comparison, it can be said that Samsung is not performing well compared to Apple and google because it has a lower cash flow on total asset ratio than both these companies.