CONTENTS

Financial Performance of the Organization over the Last 3 Years and with Peer Group including market leader; SONY................................................................................................................................................1

PROFITABILITY.............................................................................................................................................1

DU PONT ANALYSIS.................................................................................................................................4

LIQUIDITY....................................................................................................................................................6

ACTIVITY......................................................................................................................................................7

LEVERAGE....................................................................................................................................................8

APPENDIX..................................................................................................................................................10

Common size.........................................................................................................................................10

Index analysis............................................................................................................................................14

Balance sheet........................................................................................................................................15

REFERNCES................................................................................................................................................17

Financial Performance of the

Organization over the Last 3

Years and with Peer Group

including market leader; SONY

PROFITABILITYGroup sales amounted to $8542.82 million

in 2009, a 12% decline as compared to 2008.

The decline in comparable sales was largely

attributable to the challenging economic

environment, particularly in the consumer

markets. Consumer Lifestyle reported a 17%

comparable sales decline largely due to

weakened consumer markets, visible in both

mature and emerging markets, and selective

portfolio pruning. Sales at Lighting were

13% lower than in 2008, impacted by

weakness in the commercial construction

environment and automotive market.

Healthcare sales declined 3% on a

comparable basis, largely impacted by the

economic recession.

Selling expenses decreased from 7550.83

million (3.7%) in 2008 to 3.2 percent (764.9

million) in 2009. General and administrative

expenses had a decrease of 305.67 million in

relation to 2008, mainly due to a 17.78

million curtailment gain for retiree medical

benefit plans, lower restructuring charges

and lower cost in relation to sales at

consumer life style and health care partially

offset by lightening.

Gross profit margin was increased 2% as of

2008; almost similar to 2007. Industry

average is 27.1. This shows that that Philips

has performed really well in managing its

COGS.

EBITA in the year 2008 decreased to a great

extent by 5% and in 2009, it improved by

30%; the underlying reason is the fixed cost

reduction, lower restructuring and

acquisition related charges, portfolio

changes and strict cost control.

In 2007 and 2008, the sales were nearly

similar, but in the later year, COGS and

operating expenses were too high - EBIT

and EBITA in 2008 were both affected by

740.30 million restructuring charges and

179.60 million of acquisition charges. This

year, Philips has controlled all such charges.

Additionally, 2008 also included a 50.63

million loss related to the revaluation of the

TPV Technology convertible bond.

The net interest expense in 2009 was 201.15

million higher than in 2008, as a result of

lower interest income due to lower interest

rates applied to an average lower liquid asset

position of the Group and higher interest

costs associated with hedging.

Other financial income in 2009, primarily

consisted of a $ 25.99 million gain related to

the revaluation of the convertible bonds

received from TPV Technology and CBAY,

and dividend income totaling $ 21.89

million, $ 16.42 million of which related to

holdings in LG Display.

Corporate income taxes decreased

significantly in 2009 to 136.84 million,

mainly attributable to a net tax benefit

related to the recognition of a deferred tax

asset and the net effect of lower incidental

charges.

Net income increased from loss of $-129.99

million in 2008 to a profit of $331.15

million in 2009. The improvement was

largely driven by $766.30 million higher

EBIT. 77.99 million higher earnings from

equity allocated investees and lower income

tax expense. Net profit margin in 2009

equaled 1.8, where industry average was -

4.1. The economic hazard has affected on

average all the companies in the industry,

but Philips managed to resist.

Return on assets have decreased as

compared to 2008 due to the economic

downfall round the globe, but is still higher

as compared to 2007.

Return on equity has increased in 2009

where it was negative in year 2008, because

the company gained profit this year, despite

the increase in outstanding shares. But there

is a major decrease as compared to 2007.

Earning per share in 2007 was 5.69, it

immensely decreased to -0.123 it 2008,

despite the number of outstanding shares

decreased 13.3% and bettered a bit to 0.629

in 2009, where outstanding shares increased

slightly. Earning per share of both the

competitors was in negative this year was

better in 2008 in the trend of three years.

Return on equity (-17.0) and return on asset

(-7.6) are negative in the industry. This

shows where Philips managed to generate at

least positive returns, on average firms

operated in loss.

The profitability of Panasonic has fallen

over the last three years. Sony gained

substantial profit in 2008 but both

companies incurred loss because of the

economic slum, the appreciation of the Yen,

decline of the Japanese stock market and in

restructuring their corporations according to

the new arisen needs of the customers,

which decreased their EBIT to a high

degree.

PHILIPS has performed better as compared

to the average industry including its

competitors who have operated in loss due

to the economic recession.

Return on Assets

2007 2008 2009

philips 74.29 82.68 75.96

sony 1.57 4.51 1.45

panasonic 5.56 7.75 1.483

Return on equity

2007 2008 2009

philips 19.22 -1.145 2.895

sony 3.747 1.06 -3.337

panasonic 0.83 6.18 -0.019

Net profit margin

2007 2008 2009

philips 15.5 -0.34 1.828

sony 1.66 4.5 -1.39

panasonic 2.384 2.64 -0.348

Gross profit margin

2007 2008 2009

philips 34.3 32.01 34.83

sony 22.1 23.1 20.3

panasonic 29.79 24.05 22.04

DU PONT ANALYSIS

In 2009, income from the sale of securities

totaled $172.41 million. This included a

$1.8735 million gain from the sale of

remaining shares in LG Display, and a

$65.68 million gain from the sale of

remaining shares in Pace Micro Technology.

The condition of return on equity had a

substantial deviation over the last three

years. The case was best in 2007, but in

2008 net profit margin became negative,

other factors remained constant. But in 2009

although net profit margin increased as of

2008, but the equity multiplier increased by

18 percent, the decrease in equity was

mainly attributable to share repurchase

programs for capital reduction purposes, as

well as the hedging of long-term incentive

and employee stock purchase programs,

reducing equity, all these factors have

resulted in increase in multiplier and

consequently business risk.

Philips 2009 2008 2007

0.0182 0.726 2.046

-0.0034 0.725 1.67

0.155 0.695 1.674

Sony’s net profit margin was the best in

2008, but in 2009 it became negative

because the company operated in loss. Total

asset turn over has bettered a bit in 2009 as

compared to the previous years, but earning

multiplier has increased continuously, this

year because of the downfall in yen stock

exchange. The business is more risky for

Sony than for Philips, they need to take

decisive actions regarding debt and

expense control, and financing through

capital more.

Panasonics net profit margin was in negative

this year like Sony i.e. less sales,

appreciation of yen and restructuring costs

were too high. However, they managed to

increase their asset turnover, because total

assets were reduced. Equity multiplier

lowered even more as compared to the

previous years, because of the asset

reduction. This shows that company doesn’t

face risk through debt, and if it doesn’t act

cautiously to generate more sales next year,

that would become a serious issue for its

survival.

Du Pont

analysis 2009

Philips Sony Panasonic

Net profit

margin 0.0182

-

0.013 -0.008

Total asset

turnover 0.759 0.566 1.48

Equity

multiplier 2.091 3.35 1.57

LIQUIDITY

Liquidity ratios

Current ratio

2007 2008 2009

philips 1.85 1.34 1.47

sony 1.28 1.24 0.9

panasonic 1.53 1.802 1.9

Quick ratio

2007 2008 2009

philips 1.51 0.958 1.117

sony 0.818 0.79 0.586

panasonic 1.18 1.3518 1.5

In 2009, the liquidity position of the

company has augmented as compared to the

last year by 0.13 but has fallen .38 as

compared to 2007. The increase in 2009 is

the result of increased cash equivalents &

operating cash flows; that are also the most

part of current assets, by $1973.23 million

dollars as compared to 2008 and decrease of

short term provisions; they decreased 447.46

million. Despite the overall crumbling of the

economy, liquidity position bettered.

However, it is still lower than the industry

average, which is 1.7, where Philips’s

liquidity is 1.5.

The liquidity position of its competitor,

Sony in 2008 has increased, but it declined

immensely in 2009, because they cut down

Inventories and call loans in banking

business to cope with the slum of the

economic conditions. In case of Panasonic,

liquidity decreased in 2008 (they also cut off

their stock to increase efficiency of the

business), but it has the highest liquidity of

1.98 in 2009 as compared to its competitors,

mainly due to decrease in financing

activities and issuance of billions in 3rd

series of unsecured bonds, amounting $0.44

billion.

ACTIVITYOperating cycle

2007 2008 2009

philips 130.37 132.99 144.39

sony 116.114 116.482 115.56

panasonic 97.6 76.8 86.19

Total asset turnover

2007 2008 2009

philips 0.74 0.82 0.75

sony 0.67 0.67 0.57

panasonic 1.14 0.59 1.43

The year 2009 was profitable for Philips, but

its operating cycle increased as compared to

2008 where the company operated in loss; it

has worsened over the years. The industry

average turnover days are 59.01. Industry

average of inventory turnover days is 66.67,

where as Philips as of 2009 is 69.49 - the

main increase in operating cycle is due to

the increase in average collection periods.

The management has not taken control of

average collection period - 13 days have

increased as of 2008. But by analyzing the

overall situation of the company, it shows

that Philips has compromised in managing

a/c receivables to increase the overall

performance of the firm.

Sony and Panasonic managed to control

their operating cycle over the years. Philips

cycle had remained the longest throughout

the years, but it didn’t have much impact on

the returns of the company.

Total asset turnover has decreased this year

to .75 from .82, because of the decrease in

sales. The same situation lies with Sony, but

Panasonic has been able to increase this

ratio because it has immensely decreased its

total assets. The industry average is 0.82.

Philips lies a bit lower than the industry in

utilizing its assets efficiently. All the firms

in the industry were victimized of low sales,

to cope with it they decreased there total

assets as well, but Philips thought otherwise;

it didn’t decrease the assets much, because

the slum would eventually lift and it didn’t

want to let go of the assets in hand.

LEVERAGE

Debt to asset ratio

2007 2008 2009

philips 0.4 0.51 0.5

sony 0.7 0.7 0.732

panasonic 0.43 0.09 0.363

D

ebt to equity ratio

2007 2008 2009

philips 0.678 1.046 1.08

sony 2.42 2.34 2.72

panasonic 0.87 0.153 0.133

In the year 2008 debt to asset ratio increased

to a great extent, 21%. However in the year

2009, the change in debt to asset ratio is

minimal, it increased from 0.51 to 0.52.

Long-term debt as a proportion of the total

debt stood at 85% at the end of 2009 with

average remaining term of 9.6 years,

compared to 83% at the end of 2008, but the

decrease in short term debt with higher

proportion, total debt decreased. Total assets

declined as well - current assets (receivables

because of fewer sales) and fixed assets

(non-current financial assets) have decreased

with a wider proportion. The industry

average was 0.51, this shows that the

company hasn’t performed inefficiently in

leverage activity.

In the year 2008, debt to equity ratio has

mainly augmented because of increased in

accrued liabilities, short provisions and long

term debt, and equity decreased 28%. In

2009, total debt decreased, but the

proportion of debt to equity ratio remained

almost similar because equity also declined

by 1298.61 as a result of a 552.83 reduction

from total comprehensive income.

The company’s time interest earned ratio

from the year 2007 to 2008 decreased

because the company didn’t have enough

EBIT to cover interest expense (Note: the

reasons of decrease in EBIT are mentioned

in profitability condition). In 2009, trend

remained almost alike, where time interest

earned ratio accelerated from 0.204 to 0.206,

but this time the reason of reduced EBIT

were less sales, rather huge expenses. But is

still quite better as compared to the industry,

where it is -13.8.

Sony’ decreased its debt this year but the

equity decreased even more (yen stock

market had a downfall); consequently it has

increased their default risk because the

company also operated in loss. Sony’s debt

to asset ratio has also increased this year as

of the last two years, this shows that more of

their asset purchase is done through debt.

Interest earned ratio of Sony has decreased

over the last three years and was negative

this year, because the company operated in

loss.

In case of Panasonic, debt to asset ratio and

debt to equity both have decreased over the

3 years; the company has decreased their

overall capital and debt; only long term debt

was taken to keep the business on move with

less sales. Like Sony, Panasonic also

operated in loss this year, which didn’t allow

them to pay off interest expense.

Time interest earned ratio

2007 2008 2009

philips 0.663 0.204 0.206

sony 53.11 97.61 378.51

panasonic 22 22.34 -0.36

Conclusion

Philips performance with respect to its

competitors was remarkably better in 2009,

despite the ruination of sales in 2009. They

stayed focused and acted decisively.

As a result of the swift action they took, the

Philips of 2010 is clearly a more agile, better

company than the one that went into 2009.

APPENDIX

Common size

Income statement:

2007 2008 2009

Sales 100 100 100

Cost of sales 65.6 67.9 65.1

Gross margin 34.3 32 34.8

Selling

expenses

18.6 20.9 22.2

General and administrative

expenses

3.1 3.6 3.1

Research and development

expenses

5.9 6.7 7

Impairment of goodwill 0 1.1 0

Other business income 1 98.9 41.8

Other business

expenses

61.5 32.5 13.6

Income from operations 6.9 20.4 2.6

Financial

income

11.9 6 97

Financial expenses 1.2 5.7 1.6

Income before taxes 17.6 53.8 1.9

Income tax expense 2.1 97 43.1

Income (loss) after

taxes

15.4 43.2 1.5

Company’s participation in

income

91.8 30.6 9.9

Other results 2.3 23.4 22.8

Income (loss) from continuing operations 18.7 36 1.8

Discontinued operations - net of income

tax

51.5 1.1 0

Net income

(loss)

18.2 (34.8) 1.8

Net income (loss) attributable to

stockholders

18.1 34.4 1.7

Net income (loss) attributable to minority

interests

2.6 37.9 6

Gross profit margin of philips in 2009 is better as compare to 2008 and 2007 because they have

controlled their general and administrativre expenses as compare to 2008 and cost of sales in

2007 are higher than 2009 due to which the gross profit margin of 2007 is lower than 2009.

Balance sheet

2009 2008 2007

cash ana cash equivalents 14.3 11.3 2.41

accounts receivables 12 11.9 11.5

other receivables 98.2 1.4 1.1

inventories 9.5 13.4 4.65

other current

assets

2 10.9 8.8

total current

assets

39 2.3 2.8

investments in equity accounted 92 91.8 5.1

other non current financial assets 2.2 4.1 8.7

non current receivables 27.8 14.7 23.1

other non current assets 4.5 5.9 45.1

deffered tax assets 4 2.9 10.2

property, plant and equipment at cost 26.3 25.2 21.6

accumulated depriciation 15.7 14.3 12.9

intangible assets excluding goodwill 21.1 20.4 8.9

accumulated amortization 7.5 6.4 2.9

goodwill 24.1 22.8 11.3

total non current asstes 60.9 61.9 50.9

trade creditors 9 9 8.4

accounts payable to related parties 31.1 35 79.5

accrued liabilities 10.2 11.3 12.6

short term provisions 2.34 3.2 8.2

other current liabilities 2.3 2 1

short term debt 2 2.2 1.4

total current liabilities 26.4 28.3 26.5

long term debt 11.9 10.8 6.4

long term provisions 5.6 5.6 3.3

non current liabilities 1.7 1.8 7.5

other non current liabilities 6.3 4.5 30.5

total non current liabilities 25.6 22.8 13.7

minority interests 16 15.3 2.5

common shares issued and fully paid 63.5 60.7 11.5

retained earnings 52.2 53.5 62.7

revaluation reserves 33.4 36.6 70.3

other reserves 1.5 1.8 5.1

treasury shares 3.8 4 6

total equity 47.9 48.8 59.6

Over the 3 years span, the percentage of cuurret assets incrased because csh eqiuvalents and

accounts receivables increased in 2009 as compared to 2008 and 2007.total non current asets in

2008and 2009 are higher as compared to 2007 because investment in equity is much more than

in 2007.total current liabilities in 2008 are higher because thieir shot term debts are higher as

compard to 2009 and 2007. Total non current liabilities in 2009 are higher due to icrease I long

trerm bebt as compared to 208 and 2007.

Index analysis

Income statement

2007 2008 2009

Sales 1 98% 86%

Cost of sales 1 101 85

Gross margin 1 91 87

Selling

expenses

1 110 3

General and administrative

expenses

1 116 88

Research and development

expenses

1 110 101

Impairment of goodwill 1 97 36

Other business income 1 52 33

Other business

expenses

1 2 32

Income from operations 1 49 7

Financial

income

1 436 113

Financial expenses 1 3 9

Income before taxes 1 43 17

Income tax expense 1 -2 8

Income (loss) after

taxes

1 32 9

Company’s participation in

income

1 9 8

Other results 1 -1 8

Income (loss) from continuing operations 1 -2 0

Discontinued operations - net of income

tax

1 -1 8

Net income

(loss)

1 -1 8

Net income (loss) attributable to

stockholders

1 -14 2

Net income (loss) attributable to minority

interests

1 41 50

Although in 2008, their sales and EBIT is higher than in 2009 but cost of sales, and all other

expenses are much more higher , due to which in 2008 philips incurred loss. In 2009, their sales

are less but they have controlled all their expenses and earned profit.

Balance sheet

2007 2008 2009

cash and cash equivalents 1 41.20% 50%

accounts receivables 1 90.50% 87.10%

accounts

receivables from related parties 1 92% 53%

other receivables 1 103.90% 68.90%

inventories 1 91.80% 85%

other current

assets 1 0% 90.90%

total current 1 108% 61.40%

assets

investments in equity accounted 1 443.1 14.8

other non current financial assets 1 15 21.7

non current receivables 1 41.8 101.1

other non current assets 1 55 41

deferred tax assets 1 0 0

property, plant and equipment at cost 1 51.1 102.2

accumulated depreciation 1 102 102.3

intangible assets excluding goodwill 1 97.3 102.2

accumulated amortization 1 201 199

goodwill 1 188 211

total non current assets 1 207 150

trade creditors 1 176 178

accounts payable to related parties 1 93.4 90

accrued liabilities 1 38.7 32.8

short term provisions 1 88.7 85

other current liabilities 1 121.7 105

short term debt 1 276 190

total current liabilities 1 126 138

long term debt 1 30.7 26.7

long term provisions 1 93.7 83.5

non current liabilities 1 286 300

other non current liabilities 1 64.7 63.5

total non current liabilities 1 154 206

minority interests 1 146 157

common shares issued and fully paid 1 116 116

retained earnings 1 85 85

revaluation reserves 1 67 62.3

other reserves 1 58.1 53.5

treasury shares 1 71.7 67.4

total equity 1 87 83.9

REFERNCES

www.philips.com

www.panasonic.net

www.sony.net

http://moneycentral.msn.com/investor/invsub/results/compare.asp?

Page=InvestmentReturns&Symbol=PHG