1. Rennes International School of Business
ESC RENNES
Executive Master of Business Administration
EMBA
COHORT 1 (2003 - 2004)
Financial Analysis
Conducted by:
Dr. Barbara Majumdar
Financial Analysis
By
Magdy A. Sattar
September, 2003
Cairo, Egypt

2. TABLE OF CONTENTS
Introduction & Objective II
Part 1. Presentation of Siemens 1
1-1 History 1
1-2 Corporation Structure 1
1-3 Financial Statement Presentation 1
Part 2. Efficiency of Siemens Operating Performance & Its Financial Conditions 2
2-1 Siemens Results for 2002 2
2-2 Siemens Cash Flow Chart 2
2-3 Siemens Financial Ratios 3
2-3-1 Liquidity Ratios 4
2-3-2 Operating Ratios 4
2-3-3 Activity Ratios 4
2-3-4 Financial Leverage Ratios 4
2-3-5 Profitability Ratios 4
2-3-6 Efficiency Ratios 4
2-3-7 Summaries 4
Annexes
1. Siemens Business Structure 5
2. Consolidated Statements of Income 6
3. Consolidated Balance Sheets 7
4. Consolidated Statements of Cash Flow 8
5. Siemens four year Summary 9
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3. INTRODUCTION & OBJECTIVE
The purpose of this report is to write a short financial analysis of “SIEMENS”
Consolidated financial statements over the last two years, as it is difficult for me to
analyze the financial statements for the last two years of “MENATEL” the company I
represent for the confidentiality of the data.
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4. SIEMENS PRESENTATION
HISTORY.
Siemens origins trace back to 1847. It became a multi-national business by the end of the
19th century. In 1966 became a stock corporation under the Federal laws of Germany.
With headquarters in Munich, Siemens employed an average of 445,100 people in some
190 countries during fiscal 2002, and net sales of 84.016 billion euros.
Siemens has a balanced business with activities predominantly in the field of electronics
and electrical engineering, holding global leader areas such as telecommunications
equipment, industrial automation, power generation equipment and medical equipment.
CORPORATE STRUCTURE. (Annex 1)
Siemens corporate structure consists of fifteen different business groups active in seven
different business areas. Thirteen of Siemens groups involve manufacturing, industrial
and commercial solutions and services, related more or less to Siemens origins in the
electrical business, are referred to as Siemens “Operations” to distinguish them from
Siemens financial services activities.
The financial services business comprises two additional activities that have a different
character from Siemens other business, also managed differently from operations groups.
Siemens business groups are supported by regional units and central corporate
departments, also operate through hundreds of subsidiaries, some of which are organized
along the lines of Siemens business group and others are organized on a geographical
basis.
In additional to the business groups, Siemens hold non-controlling interests in a number
of businesses.
FINANCIAL STATEMENT PRESENTATION. (Annexes 2,3,4,5)
The consolidated financial statements include the accounts of Siemens AG and all
subsidiaries, which are directly or indirectly controlled. Results of associated companies-
companies in which Siemens, directly or indirectly, has 20% to 50% of the voting rights
and the ability to exercise significant influence over operating and financial policies-are
recorded in the consolidated financial statements using the equity method of accounting.
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5. EFFICIENCY OF SIEMENS OPERATING PERFORMANCE &
ITS FINANCIAL CONDITIONS.
SIEMENS RESULTS FOR 2002.
* Sales level decreased by 3 % of the prior year.
*Gross profit as a percentage of sales increased by 1 % of the prior year this mean
decrease in COGS.
*EBIT increased by 30 % of the prior year.
*Net income increased by 24 % of the prior year.
*Net cash increased by 43.5 % of the prior year.
The results indicates that Siemens has a balanced business globally especially if we know
that the economic conditions during fiscal year 2002, IRAQ WAR, were not a healthy
environment for any business on a global basis.
SIEMENS CASH FLOW CHART.
2002 2001 2000 1999
CFO 5564 7016 6154 3640
CFI 810 5886 435 2876
CFF 859 95 1174 1111
Net increase (decrease) in cash and cash
equivalents.
3394 940 4725 292
Net increase (decrease) in cash and cash
equivalents. (Beginning of the period)
7802 6862 2137 1845
Net increase (decrease) in cash and cash
equivalents. (End of the period)
11,196 7,802 6,862 2137
12000
10000
8000 CFO
6000 CFI
CFF
4000
NC
2000
0
2002 2001 2000 1999
For the fiscal year 2002, net cash provided by operation and investing activities decreased
compared to the prior year and net cash provided by financing activities increased.
For the fiscal year 2001, net cash provided by operation and investing activities increased
compared to the prior year and net cash provided by financing activities decreased.
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6. For the fiscal year 2000, net cash provided by operation and financing activities increased
compared to the fiscal year 1999 and net cash provided by investing activities decreased.
The net cash and cash equivalents at the end of each period was gradually increasing, this
mean that Siemens manage the three generators of cash flow to maintain a gradual
increase and growing for the corporate using mainly its internal sources.
SIEMENS FINANCIAL RATIOS.
2002 2001 Comments
LIQUIDITY RATIOS.
Current Ratio 1.2 1.1 Improve
Quick Ratio 0.96 0.84 Improve
Cash Ratio 0.32 0.17 Improve
OPERATING CYCLE
Number of days Inventory (NDI) 64 76.6 Decrease
Number of days Receivable (NDR) 66 74.4 Decrease
Number of days Payables (NDP) 52 62 Decrease
Net Operating Cycle (NOC) 78 89 Decrease
ACTIVITY RATIOS
Acts receivable turnover 5.5 4.9 Increase
Inventory turnover 5.7 4.8 Increase
Total assets turnover 1.1 0.96 Increase
Fixed assets turnover 7.1 4.8 Increase
Current assets turnover 1.9 1.7 Increase
FINANCIAL LEVERAGE RATIOS
Debt-To-Assets Ratio 30 % 25 % Increase
Debt-To-Equity Ratio 96 % 95 % Increase
Interest rate coverage Ratio 477 % 280 % Increase
PROFITABILITY RATIOS
Gross Profit Margin (GPM) 27.6 % 26.5 % Increase
Operating Profit Margin (OPM) 4.1 % 3% Increase
Net Profit Margin (NPM) 3% 2.4 % Increase
Basic Earning Power Ratio (BEPR) 4.4 % 2.9 % Increase
EFFICIENCY RATIOS
Return On Assets (ROA) 3.3 % 2.3 % Increase
Return On Equity (ROE) 11 % 8.7 % Increase
Equity Multiplier (EM) 3.3 % 3.7 % Decrease
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7. LIQUIDITY RATIOS.
The current ratio improved by more than 10 percent, from 1.1 in 2001 to 1.2 in 2002, the
quick ratio increased from 0.84 to 0.96, also the cash ratio improved by more than 15
percent, from 0.17 in 2001 to 0.32 in 2002, indicating a stronger liquid position. We can
see also that the working capital increased by 2861 million euros in-spite of the net sales
decrease by almost the same amount, 2984 million, indicating that the increasing in the
working capital is due to the cash position.
OPERATING CYCLE
The number of days it takes to sell the inventory decreased by 12.6 days, the average
length of time from sales to cash collection decreased by 8.4 days, the number of days it
takes for Siemens to pay its trade payable decreased by 10 days, the operating cycle as
results decreased by 11 days indicating an improved cash position.
ACTIVITY RATIOS
The number of times it takes receivables to run into cash per year increased by 60 percent
of a cycle reflecting a stronger credit and collection policies, the number of times Siemens
liquidates its inventory over a year increased by 90 percent of a cycle reflecting effective
management controls over inventory, the turnover rate of total assets to achieve net sales
increased from 0.96 in 2001 to 1.1 in 2002 indicating effective use of assets in supporting
sales, the turnover rate of fixed assets to achieve net sales increased by 2.3 times
indicating effective management to put the fixed assets to work to generate revenue.
FINANCIAL LEVERAGE RATIOS
The debt to assets ratio increased by 5 % indicating increase in the proportion of assets
that are financed with debt (long-term in our case), and the debt to equity ratio show the
same increase for relying on long-term debt as sources of capital.
PROFITABILITY RATIOS
The gross profit margin increased by 1.1 % not due to increase in sales, but to cost
reduction in sales cost, the operating profit margin increased from 3 % in 2001 to 4.1 % in
2002 indicating effective management controlling the operating expenses, the net profit
margin increased by 0.6 % indicating a profitable firm.
EFFICIENCY RATIOS
The return on assets increased from 2.3 % in 2001 to 3.3 % in 2002 indicating improved
effective use of all the resources of Siemens, the return on equity increased by 2.3 %
reflected a roughly increase in net income after taxes.
SUMMARY OF FINDINGS
The two-year financial ratio analysis discloses a substantial improvement resulting from: -
*An increase in working capital, (cash), which improved the liquidity position.
*Increased profitability in absolute Euros, affected mainly by price policy, cost
reduction, and controlled expenses.
*Increased efficiency indicated by higher inventory and payable turnovers, stable
receivable turnover.
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8. SIEMENS BUSINESS STRUCTURE
Information and Communication Automation and Control
Informattion & Information &
Automation & Siemens Dematic
Communication Communication
Drives (A&D) (SD)
Networks (ICN) Mobile (ICM)
Siemens Industrial
Siemens Building
Business Solutions &
Technologies (SBT)
Services (SBS) Services (I &S)
Power Transportation
Power
Power Transmission & Transporttion Siemens VDO
Generation
Distribution (PTD0 Systems (TS) Automotive (SV)
(PG)
Medical Lighting
Medical Osram
Solutions
(Med)
Financing and Real Estate
Siemens
Siemens Real
Financial
Estate (SRE)
Services (SFS)
Business Areas
Business Groups
1000
800
600
400
200
0
ICN SBS I&S SBT PTD SV OSRAM SRE
EBIT
Annex 1
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9. Consolidated Statements of Income
For the fiscal years ended September 30, 2002 and 2001 (in millions of €, per share amounts in
€)
Siemens worldwide
2002 2001
Net sales 84,016 87,000
Cost of sales (60,810) (63,895)
Gross profit on sales 23,206 23,105
Research and development expenses (5,819) (6,782)
Marketing, selling and general administration expenses (15,455) (16,640)
Other operating income (expense), net (therein gain on issuance of
subsidiary and associated company stock €37 and €617, respectively) 1,321 2,762
Income (loss) from investments in other companies, net (114) 49
Income (expense) from financial assets and marketable securities, net 18 173
Interest income (expense) of operation, net 94 (32)
EBIT(1) from operations / EBIT lnfineon
Other interest income (expense), net 224 43
Goodwill amortization and purchased in-process R & D expenses of
operations
Gains on sales and dispositions of significant business interests
Other special items
Income (loss) before income taxes 3,475 2,678
Income Taxes(2) (849) (781)
Minority interest (29) 191
Net income (loss) 2,597 2,088
Basic earning per share 2.92 2.36
Diluted earning per share 2.92 2.36
(1)
EBIT is measured as earning before financing interest, income taxes and certain
onetime items. In fiscal 2001, EBIT excluded the amortization of goodwill and
purchased in-process research and development expenses. Beginning October 1,2001,
Siemens adopted the provision of SFAS 142 and no longer amortizes goodwill. Interest
income related to receivables from customers, cash allocated to the segments and
interest expense on payables to suppliers is part of EBIT.
(2)
The income taxes of Eliminations, reclassifications and Corporate Treasury,
Operations, and Financing and Real Estate are based on the consolidated effective
corporate tax rate applied to income before income taxes. The corresponding figures for
fiscal year 2001 are calculated based on the consolidated effective corporate tax rate
excluding Infineon.
(3)
As of December 5, 2001, Siemens deconsolidated Infineon. The results of operations
from Infineon for the first two months of the fiscal year 2002 are included in
Eliminations, reclassifications and Corporate Treasury. AS of December 5, 2001, the
share in earning from Infineon is included in “Income (loss) from investments I other
companies, net” in operations.
The accompanying notes are an integral part of these consolidated financial statements.
Annex 2
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10. Consolidated Balance Sheets
As September 30, 2002 and 2001 (in millions of €)
Siemens worldwide
2002 2001
Assets
Current assets
Cash and cash equivalents 11,196 7,802
Marketable securities 399 791
Accounts receivable, net 15,230 17,734
Intracompany receivables
Inventories, net 10,672 13,406
Deferred income taxes 1,212 1,113
Other Current assets 5,353 10,167
Total curent assets 44,062 51,013
Long-term investments 5,092 3,314
Intangible assets, net 8,843 9,771
Property, plant and equipment, net 11,742 17,803
Deferred income taxes 3,686 3,684
Other assets 4,514 4,533
Other intracompany receivables
Total assets 77,939 90,118
Liabilities and Shareholder’s Equity
Current liabilities
Short-term debt and current maturities of long-term debt 2,103 2,637
Accounts payable 8,649 10,798
Intracompany liabilities
Accrued liabilities 9,608 10,864
Deferred income taxes 661 754
Other Current liabilities 13,691 19,471
Total curent liabilities 34,712 44,524
Long-term debt 10,243 9,973
Pension plans and similar commitments 5,326 4,721
Deferred income taxes 195 111
Other accruals and provisions 3,401 2,957
Other intracompany liabilities
53,877 62,286
Minority interests 541 4,020
Shareholders’ equity
Common stock, no par value
Authorized: 1,145,917,335 and 1,145,773,579 shares, respectively
Issued: 890,374,001 and 888,230,245 shares, respectively 2,671 2,665
Additional paid-in capital 5,053 4,901
Retained earnings 21,471 19,762
Accumulated other comprehensive income (loss) (5,670) (3,516)
Treasury stock, at cost. 49,864 and 1,116 shares, respectively (4)
Total shareholders’ equity 23,521 23,812
Total liabilities and shareholders’ equity 77,939 90,118
The accompanying notes are an integral part of these
consolidated financial statements.
Annex 3
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11. Consolidated Statements of Cash Flow
As September 30, 2002 and 2001 (in millions of €)
Siemens worldwide
2002 2001
Cash flows from operating activities
Net income 2,597 2,088
Adjustments to reconcile net income to cash provided
Minority interest 29 (191)
Amortization, depreciation and impairments 4,126 6,264
Deferred taxes (191) 36
Gains on sales and disposals of business and property, plant and equipment, net,
and gain fromissuance of subsidiary and associated company stock (1,610) (4,429)
(Gains) losses on sales of investments, net (177) 141
Gains on sales and dispositions of significant business interests
Losses (gains) on sales and impairments of marketable securities, net 4 (209)
Losses (income) from equity investees, net of dividends received 298 27
Write-off acquired in-process research and development 195
Change in current assets and liabilities
(Increase) decrease in inventories, net 1,349 (716)
(Increase) decrease in accounts receivable, net 1,763 1,797
Increase (decrease) in outstanding balance of receivables sold (503) 866
(Increase) decrease in other current assets 1,213 (1.397)
Increase (decrease) in accounts payable (899) 467
Increase (decrease) in accrued liabilities (575) 629
Increase (decrease) in other current liabilities (1,025) 2,682
Supplemental contributions to pension trusts (1,782)
Change in other assets and liabilities 947 (1,234)
Net cash provided by (used in) operating activities 5,564 7,016
Cash flows from investing activities
Additions to intangible assets and property, plant and equipment (3,894) (7,048)
Acquisitions, net of cash acquired (3,787) (3,898)
Purchases of investments (332) (410)
Purchases of marketable securities (338) (436)
Increase in receivables from financing activities (172) (619)
Increase (decrease) in outstanding balance of receivables sold by SFS
Proceeds from sales of long-term investments, intangible and property, plant and
equipment 1,218 3,804
Proceeds from sales and dispositions of business 6,097 1,878
Proceeds from sales marketable securities 398 1,143
Net cash (used in) provided by investing activities (810) (5,886)
Cash flows from financing activities
Proceeds from issuance of capital stock 156 514
Purchase of common stock of Company (152) (514)
Proceeds from issuance of treasury shares 81 233
Proceeds from issuance of debt 384 4,141
Repayment of debt (847) (976)
Change in short-term debt 512 (1,828)
Change in restricted cash (2) 45
Dividends paid (888) (1,412)
Dividends paid to minority shareholders (103) (298)
Intercompany financing
Net cash (used in) provided by financing activities (859) (95)
Effect of deconsolidation of Infineon on cash and cash equivalents (383)
Effect of exchange rates on cash and cash equivalents (118) (95)
Net increase (decrease) in cash and cash equivalents 3,394 940
Cash and cash equivalents at beginning of period 7,802 6,862
Cash and cash equivalents at end of period 11,196 7,802
Supplemental disclosure of cash paid for:
Interests 794 779
Income taxes 389 1,098
The accompanying notes are an integral part of these consolidated financial statements.
Annex 4
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12. FOUR-YEAR SUMMARY
2002 2001 2000 1999
Sales and earnings (in millions of euros)
Net sales 84,016 87,000 77,484 68,069
Gross profit on sales 23,206 23,105 21,535 17,909
Research and development expenses 5,819 6,782 5,848 5,260
As apercentage of sales 6.9 7.8 7.5 7.7
Net incom 2,597 2,088 8,860 1,209
Assets, liabilities and shareholders’equity (in millions of euros)
Current assets 44,062 51,013 49,091 44,850
Current liabilities 34,712 44,524 36,855 31,049
Debt 12,346 12,610 9,338 7,492
Long-term debt 10,243 9,973 6,734 4,753
Pension plans and similar commitments 5,326 4,721 2,473 11,540
Shareholders’ 23,521 23,812 28,480 19,138
As apercentage of total assets 30 26 35 27
Total assets 77,939 90,118 81,654 71,720
Cash flows (in millions of euros)
Net cash provided by operating activities 5,564 7,016 6,154 3,640
Amortization, depreciation and impairments 4,126 6,264 4,652 3,594
Net cash uesd in investing activities 810 5,886 435 2,876
Additions to intangible assets, property,plant and equipment 3,894 7,048 5,544 3,998
Net cash used in financing activities 859 95 1,174 1,111
Net increase (decrease) in cash and cash equivalents 3,394 940 4,725 292
Employees
Employees ( in thousands) 624 484 448 437
Employee cost (in millions of euros) 27,195 27,102 26,601 23,126
Annex 5
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