LG 1
BUS 650 Week 6 Final Paper
Conduct a comprehensive evaluation of LG Electronics’ financial performance
using the company’s 2012 annual report. Your analysis should include:
1. An introduction to the company and its background.
2. A thorough review of the company's financial statements, comparing data
from 2012 to 2011.
3. Pro Forma financial statements (Balance Sheet and Income Statement) for
the next two fiscal years, assuming a 10% growth rate in sales and Cost of
Goods Sold (COGS).
4. Ratio analysis, including at least two ratios from each of the following
categories: liquidity, financial leverage, asset management, profitability, and
market value.
5. Calculation of Return on Equity (ROE) using the DuPont system.
6. Evaluation of the company’s management performance using Economic
Value Added (EVA).
7. Assessment of the soundness of LG's financial policies, including capital
structure, debt, leverage, and dividend policies.
8. A conclusion with a recommendation regarding whether or not to purchase
LG Electronics' stock based on your analysis.
Ensure your report follows APA 6th edition formatting guidelines, is between 15 to
20 pages long (excluding the title page and reference page), and includes at least
five scholarly sources in addition to the annual report.

LG 2
Focus of the Final Paper
Evaluation of Corporate Performance
The Final Project will involve applying the concepts learned in class to an analysis
of a company using data from its annual report. Using the concepts from this
course, you will analyze the strengths and weaknesses of the company and write a
report either recommending or not recommending purchase of the company stock.
The completed report should include:
An introduction to the company, including background information.
A complete and thorough financial statement review.
Pro Forma financial statements (Balance Sheet and Income Statement) for the next
two fiscal years, assuming a 10% growth rate in sales and Cost of Goods Sold
(COGS) for each of the next two years.
Complete ratio analysis for the last fiscal year using at least two ratios from each of
the following categories:
a. Liquidity
b. Financial leverage
c. Asset management
d. Profitability
e. Market value
Calculate Return on Equity (ROE) using the DuPont system.
Assess management performance by calculating Economic Value Added (EVA).
Review of the soundness of the company’s financial policies (e.g. capital structure,
debt, leverage, dividend policy, etc.) based on the material covered during class.
A synopsis of your findings, including your recommendations and rationale for
whether or not to purchase stock from this company.
This report should be 15 – 20 pages long excluding title page and reference page(s)
using APA 6th edition formatting guidelines. Support your findings and
recommendations with evidence from at least five scholarly sources in addition to
the annual report; such as the textbook, industry reports, and articles from the
Ashford library. Be sure to include links to websites that were used as references or
to access company information.
LG
BUS650

LG 3
LG
Financial Analysis: The LG group
The LG group is the largest global manufacturer of electronics. It is the third largest producer
of mobile phones. It was begun in 1947 under the Lak Hui trading name. It was a cosmetics
and trading concern (Lee, 2010). In the 1960s, the electronics division of the company, then
named Goldstar, expanded into the current LG electronics. LG stood for Luk Hai Goldstar; it
was changed to stand for Lucky Godlstar.
Financial statement overview
These statements in review constitute the financial position of the Korean Firm LG
Electronics as of September 3oth 2012. The statements under review are those of financial
position, cash flow, owner’s equity, and the relevant financial reports. The statements relate
to the company and its subsidiaries, referred to as the group. The statements review the
performance of the company in 2012 as contrasted with 2011.The first item that catches the
eye in the financial statements is the decline in cash held by the group. This is in effect
contrasted by the significant increase in trade receivables. This represents an unfavorable
state of affairs because it predisposes the company to default on debts. It compensates for the
ability to meet short-term obligations. Inventories held have decreased markedly as the
prepaid tax also decreases (Baker, 2011). This represents a favorable shift because electronic
goods are subject to steep depreciation curves. Holding fewer items in stock as compared to
the former year represents a shift in policy.
Overall, there is a sharp decline in current assets in the latter year. In liabilities, there is a
marked decline in trade payables. Further, there is a large increase in borrowings. This is not
a favorable situation regarding the fact that there have been difficult credit terms during the
period in question. Commendable, the group has managed to maintain a healthy gap between

LG 4
current liabilities and current assets. This shows that the group is in a competent position to
address the needs of short-term liabilities. This relates to the ability to meet obligations that
may fall due to a short time relative to the trading period. The gap between the current
liabilities and the current assets has reduced sharply in a worrying twist. This perhaps goes to
show that the company faced difficult trading times during the current year as opposed to the
years prior. The fixed assets of the group are almost the same in value as the current liabilities
of the same. This represents an unfavorable situation as far as strategic plans are concerned. It
points to a lack of formidable capital investment in operations that would make it difficult to
institute expansionary measures. As far as the assets are concerned, the company could
pursue a more aggressive growth strategy than the current conservative set up. Further, the
non-current liabilities are significantly higher than the owners’ equity. This presents a
precarious situation because the gearing ratio will be very high. This opens an assortment of
problems for the company, as it is going to be quite costly to secure financing. Further, it is
rather difficult for the company to fond guarantors in cases of borrowing loans. Creditors are
likely to attach some of the property of the group in cases of default and the goodwill may be
lost. In other sections, the assets may be subjected to restrictive contracts that may severely
affect the manner in which the company transacts business. The restrictive covenants may
cause the group to miss lucrative business opportunities.
The fact that company assets are as low as current assets is another avenue for trouble. The
company may have to seek other sources of financing that do not increase the gearing. This
may include issuing of new share capital subject to legislative restrictions. In essence, the
owners may have to cede ownership. This further complicates the issue because the company
may be subject to a significant shift in policy, control and decision-making. This is not
favorable for a group that is in financial turmoil to the extent that LG is. At the end of the
day, the company faces tough choices to make. The group has further problems in securing

BUS 650 Week 6 Final Paper

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