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Samsung Internal Control and Financial Performance

Samsung is one of the biggest and most famous companies in the electronic industry. It produces a large variety of devices and introduces new generations of technology. This paper aims at the discussion of Samsung Electronics Company in respect to its internal control, dividend policy, and financial performance. The research includes a literature review that provides basic information about the economic and financial strategies of the company and defines the best ways to improve its financial performance. The literature review includes the analysis of the works of independent authors who conducted their research in the last five years. The part also involves mainly the works by the Korean authors whose studies concerned internal control measures, dividend policy, and financial performance of the Samsung Electronics Company.

The research uses both primary and secondary methodology of data collection. The qualitative method is used in order to analyze the company’s activity in detail. The method was selected because it is rather simple and allows receiving quick results. The subject population of the research includes the employees of the Samsung Electronics Company, such as the members of the Company, the Vice Chairman, and the executive team members. The interviews were conducted via email because of the temporal and technical limitations. The principal questions of the interviews concerns the current dividend policy, mechanisms of internal control, management of the company’s assets, and performance efficiency.

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The main body of information used in the paper is collected from the Internet sources since the company in question is globally known and widely discussed in the international media. The research applies both primary and secondary sources. The former includes academic literature and scholarly research, the latter consists of online articles and HCT database.

The paper discusses the Samsung Electronics Company in broad context, starting with the company’s background and ending with its present state. Particular attention is paid to the methods of internal control, since it is extremely important for maintaining order in the company. Another vital issue the research discusses is the improvement of financial performance. The paper attempts to explore the strategies of financial performance improvement and measure Samsung’s performance. The measurement is used to determine how effectively the company distributes its assets and how its profit can be increased. The results of the assessment can be used as a basis for introduction of new performance strategies. Dividend policy is also discussed in the paper. The policy determines the distribution of dividends among the shareholders. Establishment of optimal dividend policy ensures the company’s stability and helps to increase the income. Fair dividend policy is also essential for the company’s reputation. Therefore, this paper aims at the analysis of Samsung’s dividend policy and exploring its influence on the competitiveness and profits of the company.

The plan of the research is included into the research proposal. The plan contains detailed schedule of the research and describes the methodology and time limits of the research procedure.

The results of both the primary and secondary research can used for the enhancement of the company’s present strategies and increasing the efficiency of its economic and financial performance.

Discussion

Samsung Electronics is one of the biggest manufacturers of electronic equipment in the world. More than 70% per cent of the company’s production consists of high-tech electronic devices (Samsung Corporate Profile, 2014). The company has numerous branches that function all over the world. The activity of the company can be studied by the means of SWOT analysis. The assessment method is highly effective, since it allows identifying the company’s advantages and disadvantages. It helps to increase the company’s competitiveness and strengthen its position in the market.

SWOT analysis is a method of strategic planning that evaluates inner and outer factors that influence the development of a business company (Business and Industry Portal, 2014). The factors are divided into four categories: Strengths, Weaknesses, Opportunities, and Threats.

Strengths

One of Samsung’s main strengths is in the company’s wide range of production. A broad selection of products that the firm can put on the market increases its competitiveness and allows diversifying the risks (Samsung Techwin, 2014). The second strengths is that Samsung uses innovative technologies and has won numerous awards, which helps it to maintain positive reputation and gain trust of customers all over the world (Samsung Corporate Profile, 2014). The third strong point is the good reputation and positive feedback from the media, which make Samsung Electronics respected by the competitors and increase its authority in the sphere of electronic technology. The company also has the ability to make relatively low-cost products and does not require considerable investments. Finally, Samsung has a comprehensive system of internal control and clear corporate laws and risk management system (Samsung Corporate Profile, 2014).

Weaknesses

A significant weakness of Samsung Electronics is that it rarely introduces new design projects for its products. The company does not take advantage of the first move and uses design innovations only as a response to its competitors (Samsung Corporate Profile, 2014).  Another weakness includes the complexity of Samsung electronic gadgets. Some Samsung devices are not user-friendly and may dissatisfy customers despite their high quality (Samsung Techwin, 2014). Moreover, the company does not focus on a particular product. Its activity is aimed at mass market, and sometimes the company’s resources seem to be dispersed on diverse projects. The business approach can decrease the efficiency of the company. Another weakness of Samsung Electronics involves its supply chain. Due to its popularity and high quality products, Samsung has to produce intensely. The company does not manufacture its own software and has to be dependent on external resources (Samsung Techwin, 2014). The lack of external support can weaken Samsung and decrease its competitiveness in the market. Moreover, it can result in financial losses and increase in liabilities, since the debit of cash flows is reduced.

Opportunities

The company has numerous opportunities. First of all, Samsung’s can venture into the expansion of the market. The company can establish more subsidiaries outside South Korea and open more stores that could make its products easily available. Samsung should invest in research and development to introduce more creative projects on its own, not as an attack of competitors. Another opportunity is the diversification of supplies, which as a result decreases dependence on external resources. The company can start producing software along with the devices. Finally, segment diversification is an opportunity for development, as attracting new markets with additional services and updated marketing campaign contribute to Samsung’s reputation.

Threats

Increasing competition is one of the biggest threats Samsung faces. The company’s diversification makes it less competitive than the firm focusing on one niche. In addition, the purchasing power of customers and the economic situation in the country present a challenge, as Samsung products might be considered non-necessity goods. Moreover, Samsung establishes its plants in low-cost areas that are subject to economic turmoil and political clashes, which may break the production. Economic instability may lead to considerable financial losses. Another threat that Samsung has to face is related to linked product lines. Linking significantly increases the company’s risks since the failure of one line will trigger failures of other products (Samsung Techwin, 2014).

Findings

The study of the Samsung Electronics Company has shown its main strengths and weaknesses and allowed to evaluate its internal control, dividend policy, and financial performance.

The company possesses a well-developed system of internal control that allows maintaining stability and ensures voluntary observance of corporate code of ethics by the employees (Bloomberg Business, 2015). Effective internal control provides the integrity of workforce. The internal control system is formed by several methods of regulations, such a physical, legal, operational, administration, and IT. Control measures prove to be rather effective since the company is efficient in all areas of business and possesses a distinct corporal policy.

Samsung’s dividend policy is aimed at the fair management of dividends and their equal distribution among the shareholders. Regular payment of dividends makes Samsung attractive for investors and ensures stable inflow of finances. Currently, the company is attempting to introduce a more robust dividend policy since its shares have dropped (Cheng, 2013). In addition, Samsung is becoming harsher on mergers and acquisitions in order to keep its present profit rate (Cheng, 2013).

Samsung’s financial performance is measured by analyzing the liquidity, solvency, profitability, and efficiency ratios. The ratios prove that it is capable of maintaining stable financial performance. However, Samsung’s income and profit rate have dropped because of the growing competition (Samsung Techwin, 2014). The company also has considerable debt and risks falling of its shares.

Recommendations

Despite its considerable efficiency, Samsung’s performance can be improved in various ways. One of the methods of internal control improvement implies a system of fraud prevention and regular monitoring of observation of corporate laws. Secondly, standardization of operational processes can improve and facilitate internal control, since it prevents misinterpretation of rules and instructions as well as reduces the number of mistakes. Thirdly, clear segregation of duties is also essential for the improvement of internal controls since collision of duties can result in mismanagement or circumvention of the rules.

Samsung’s dividend policy can be improved, first of all, by means of decreasing debts and ensuring stable cash inflow. Debt covenants limit the dividends that the company can afford. Control and restriction of expansion rate is also a good strategy for improving dividend policy. Rapid expansion makes the company retain finance, but dividends cannot be paid from the retained income (Cheng, 2013). Samsung could also make its dividend policy more flexible and resort to stock repurchase strategies instead of paying regular dividends.

Improvement of Samsung’s financial performance implies consideration of all its aspects, including liquidity, solvency, profitability, and efficiency ratios. For example, liquidity can be increased by objective assessment of assets and decrease of overhead costs, such as expenses on software. Reliance on own resources increases both liquidity and efficiency ratio. Solvency can be improved by protecting the shareholders and reducing losses as well as by the increase of turnaround. As a result, profitability ratio will grow. Profitability can also be improved by increasing the margins. Reasonable increase of prices seems to be possible for Samsung. The customers are able to tolerate certain price increase on condition that the quality of the products is high enough. Reduction of marketing costs is also useful for profitability increase. Samsung has a well-established reputation. It does not require much advertising since existing customers relation management seems to be more effective than trying to attract new ones.

Conclusions

The Samsung Electronics Company is a successful business that has firmly established itself in the international market. Its success is ensured by a strong system of internal control, reasonable dividend policy, and effective financial performance to a reasonable extend. All internal aspects are interconnected and strongly influence the company’s overall performance.

Samsung seems to be a stable and quickly developing business. However, the company’s strategies can be improved. The developments may be applicable to many areas of the company’s activities. The improvement of internal control system, dividend policy, and financial performance will result in the overall increase of the company’s efficiency and growth of is profits.

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