CRITICAL THINKING

Critical Thinking Essay on Critical Analysis Report

Critical Analysis Report: Case Study- Sharp Corporation

Introduction

Sharp Corporation is a company that focuses on producing manufactured electronic  goods for a huge client base. In 2009, the Japanese domestic market was able to recover and this had a positive impact on the Sharp Corporation because it was able to generate an operating income of JPY51.9 billion, which was an increase of JPY107.3 billion in comparison to the operating loss of JPY55.4 billion that the company had recorded in the previous year. Even though the sales of the company had risen by 6.2% in 2007, the company’s operating income decreased by 11.5% due to the alterations in taxation. By 2008, the global market share of Sharp were at 1% while that of Nokia Inc., which was the leading company at the time was 38.6%. Despite this, Sharp still continues to take the lead in the manufacture of solar energy and it is ranked as the top photovoltaic cell manufacture with 24%. The Financial and Strategic Analysis Review (2013), states that there are varied problems faced by Sharp Corporation, which have led to the huge losses and short-term financial difficulties that the company has been encountering. It is from this perspective that this report will conduct a situational analysis of the potential causes of the problems experienced by Sharp Corporation and also provide the primary reasons behind the company’s poor performance.

Reduced Revenues

In comparison to its main competitors such as Toshiba and Sony, the scale of operations in Sharp Corporation is quite small in terms of revenue. The decreasedrevenue always results in a decline in the profitability ratio, and this is evident in the deterioration in performance and poor return of investment experienced by the company. Sharp Corporation reported an operating loss of JPY37, 552million in 2012 which was a huge fall compared to the operating profits of JPY 8,896million that it had realized in the previous year. Generation of operating profits portends an increase of net profits for an organization while operating losses on the other hand portend net losses. The net profit of Sharp Corporation stood at JPY 40,880million in 2011 while in 2012 the company experienced a loss of JPY 238,429million. This kind of reduction in profit margins will ultimately affect the profitability ratios of an organization. Some of the key profitability ratios that will be affected by the reduced profit margins includes negative figures in return on equity ratio, return of capital employed, profit before tax, return on current assets, and return on fixed assets.

Reduced Liquidity

Even though Sharp Corporation has a strong presence in the international market and is recognized as a huge brand worldwide, its liquidity ratio has reduced significantly hence causing the company to be unable to meet its short-term liquidations due to the poor flow of cash within the business. The main declines of Sharp Corporation’s in terms of performance ratios occurred between 2011 to 2012. In terms of the current, quick and cash ratios stood at 1.02, 0.64 and 0.14 times in 2012 while in 2011, these ratios were 1.22 times, 0.83 times and 0.2 times. A liquid company is usually capable of meeting its short-term financial obligations, and in particular with regards to its financing the daily activities and operations that are pertinent to the organization. A company that experiences poor liquidity will inevitably have problems maintaining its operational functioning and experiences obstacles to its performance, and this raisesthe cost of operation leading to the generation of low revenues. Such companies will ultimately be compelled to depend on external sources to finance its operations.

Over-reliance in Japan

As one of the leading manufacturers of consumer electronic products worldwide, Sharp Corporation has over 20 subsidiaries that operate across Asia, Europe, and North America. The fact that the company gets most of its revenue from Japan, the other markets outside Japan are negatively affected. For example, 48.1% of the total revenue that the company generated was from Japan in 2012. According to Wakabayashi (2012) the smartphones fare ofSharp Corporation have been well received in Japan yet experienced a slight presence overseas.

Fluctuations in the Foreign Currency

The Japanese Yen is currently considered the  functional currency of Sharp Corporation and the fluctuations that occur in the foreign exchange rates of the world can threaten the revenue of the company especially if such fluctuations are directly linked to the functional currency. As such, any fluctuations in the exchange rates of Yen could have the potential to negatively affect the company and reduce its revenue hence increasing its exposure to the varied long-term liabilities that the company faces. Additionally, following entry to the solar business in 2009, the company was unable to utilize the Yen during the exportation of panels in competitive prices.

Competition Pressure

In comparison to its main competitors such as Toshiba and Sony, the scale of operations in Sharp Corporation is quite small in terms of revenue. The decreased revenue always results in a decline in the profitability ratio, and this is evident in the deterioration in performance and poor return of investment experienced by the company. Sharp Corporation reported an operating loss of JPY37, 552 million in 2012 which was a huge fall compared to the operating profits of JPY 8,896 million that it had realized in the previous year. Generation of operating profits portends an increase of net profits for an rganization while operating losses on the other hand portend net losses. The net profit of Sharp Corporation stood at JPY 40,880 million in 2011 while in 2012 the company experienced a loss of JPY 238,429 million. This kind of reduction in profit margins will ultimately affect the profitability ratios of an organization. Some of the key profitability ratios that will be affected by the reduced profit margins includes negative figures in return on equity ratio, return of capital employed, profit before tax, return on current assets, and return on fixed assets.

Reduced Liquidity

Even though Sharp Corporation has a strong presence in the international market and is recognized as a huge brand worldwide, its liquidity ratio has reduced significantly hence causing the company to be unable to meet its short-term liquidations due to the poor flow of cash within the business. The main declines of Sharp Corporation’s in terms of performance ratios occurred between 2011 to 2012. In terms of the current, quick and cash ratios stood at 1.02, 0.64 and 0.14 times in 2012 while in 2011, these ratios were 1.22 times, 0.83 times and 0.2 times. A liquid company is usually capable of meeting its short-term financial obligations, and in particular with regards to its financing the daily activities and operations that are pertinent to the organization. A company that experiences poor liquidity will inevitably have problems maintaining its operational functioning and experiences obstacles to its performance, and this raises the cost of operation leading to the generation of low revenues. Such companies will ultimately be compelled to depend on external sources to finance its operations.

Over-reliance in Japan

As one of the leading manufacturers of consumer electronic products worldwide, Sharp Corporation has over 20 subsidiaries that operate across Asia, Europe, and North America. The fact that the company gets most of its revenue from Japan, the other markets outside Japan are negatively affected. For example, 48.1% of the total revenue that the company generated was from Japan in 2012. According to Wakabayashi (2012) the smartphones fare of Sharp Corporation have been well received in Japan yet experienced a slight presence overseas.

Fluctuations in the Foreign Currency

The Japanese Yen is currently considered the  functional currency of Sharp Corporation and the fluctuations that occur in the foreign exchange rates of the world can threaten the revenue of the company especially if such fluctuations are directly linked to the functional currency. As such, any fluctuations in the exchange rates of Yen could have the potential to negatively affect the company and reduce its revenue hence increasing its exposure to the varied long-term liabilities that the company faces. Additionally, following entry to the solar business in 2009, the company was unable to utilize the Yen during the exportation of panels in competitive prices.

Competition Pressure

Rival companies of Sharp Corporation, such as Toshiba, Samsung, and Sony have over time gained a competitive advantage over the company in terms of the scale of operations as well as global market presence. In addition, the Apple brand has also emerged as a top brand in the phone and tablet market hence raising the competition even further. This has enhanced the competition and further reduced profit margins as well as revenues, leading to the decline of the company operations of Sharp Corporation. Such factors have enabled many companies within this competitive industry to utilize their financial and technical muscles to further weaken their competitors (Wakabayashi & Osawa, 2012). Competition is now based on varied criteria including price, brand value, quality, after sales services among other factors. The rising rates of competition combined with the aspect of the rising infant industries, are among the factors attributed to the poor performance witnessed by Sharp Corporation. The flooding of the market with cheap Chinese manufactured imports have also caused more performance problems for Sharp manufacturers.

Change in Consumer Needs and Preferences

The Sharp Corporation manufactures both office systems and consumer systems and with the changing needs of consumers and market standards,both types of electronics tend to change more frequently leading to the decline of sales. This has compelled the company to be on toes in terms of innovating and increasing its clients loyalty. This is mainly caused by the poor brands that are of low quality that the company has continued to manufacture, leading to clients switching to newer and more efficient products.

Conclusion

There are diverse factors that have contributed towards the declining performance of Sharp Corporation and currently the company is still undergoing many problems, which have resulted in huge losses and difficulties within the short-term financing. Such factors include the lowered in revenues, low profits, as well as poor cash flow. Furthermore, the company’s incapacity to keep up with the quick exchange in technology, increased competition, over-dependence in Japan, and high fluctuations in the exchange rates within the world economy are all factors that have led to the organizational poor performance. Finally, the evolving needs of the consumers have led the company to register low sales because they shift their loyalties to other companies.

 

References

Sharp Corporation – Financial and Strategic Analysis Review. (2013). London: Global Data Ltd. Retrieved from: http://search.proquest.com

Wakabayashi, D. (2012). Sharp says its future is at risk. Wall Street Journal (Online).Retrieved from: http://search.proquest.com/docview/1124611305?accountid=45049

Wakabayashi, D., & Osawa, J. (2012). Corporate news: How Japan’s sharp lost its edge — ‘we haven’t had a good understanding of the market,’ electronics maker’s next president explains. Wall Street Journal. Retrieved from: http://search.proquest.com/docview/929082528?accountid=45049

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