To: Christopher Thacker, Managing Partner, Towson Cornerstone Group, LLC.

From: Thea Kreis, Junior Analyst, Towson Cornerstone Group, LLC. Date: August 3, 2013 Subject: Sony in Strong Financial Position Compared to Hewlett-Packard Towson Cornerstone Group, LLCs client, Sony, is considering making its entertainment division into a separate company. To determine if Sonys financial state is strong enough to withstand such a split, a comparative financial analysis was conducted using one of Sonys competitors to reflect on Sonys current market position. Hewlett-Packard (HP) is one of Sonys competitors in the computing industry, and was chosen for comparison due to ease of finding a complete set of information from the same source and similar product offerings and retail outlets. Sonys financial information indicates that the firm is in an acceptable position, but competitor HP appears to be in a fairly poor position. Sonys earnings per share, net income, and price/earnings ratios are all significantly higher than HPs, which are all negative. However, Sony has a low quick ratio and fairly low stock prices, which could impede its success. Specific financial information can be found in the table below. Table 1. A Comparison of Sonys and HPs Values in 2012 for Five Financial Indices Sony HP Earnings per share $0.42 -$6.841 Net income $430 million -$12.65 million Price/earnings ratio 50.32 -3.60 (0) Quick ratio 0.68 0.95 Stock price ranges: Intraday $19.32-$19.75 $24.45 - $24.73 6 months $9.89-$19.75 $14.26-$24.73 One year $12.85-$19.75 $22.31-$24.73
Table adapted from The Wall Street Journal website. Information from June 10, 2013

Sony Has Strong Earnings per Share, Net Income and Price/Earnings Ratio In Table 1, it is clear that Sonys financial strengths are its earnings per share, net income, and price/earnings ratio. The companys earnings per share of $0.42 indicates that per dollar of shares invested in the company, there was a return of 42 cents. Sonys net income of $430 million shows that the firm is profitable and is able to keep its costs low compared to its revenue. As reflected in the table above, Sony has a price/ earnings ratio of 50.32, which means that investors are purchasing shares at a higher price today because they believe the stock will grow in the future.

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Sonys Quick Ratio and Stock Prices Need Improvement Sonys quick ratio indicates that it does not have enough liquid assets to cover the costs of its liabilities, and its unpredictable stock price reflects the publics uncertainty about the future of the firm. The quick ratio of 0.68 implies that Sony holds 68 cents worth of assets that could be converted to cash for short term payments per dollar of liabilities. This means the company would not have enough funds to cover current liabilities. Sonys stock price was somewhat volatile; from the beginning to end of a six month period, it grew by about 50%, and in a single year, it grew by about 35%. Stabilizing stock prices at a higher amount would help the companys overall bottom line. HP Is Struggling, Many Financial Indicators in the Red HP suffered a loss and its financial measures reflect that the company is in a poor financial state. In HPs current situation, the price/earnings ratio is not a helpful financial measure because it is negative. As shown in Table 1, HPs quick ratio is 0.95. Therefore, the firm holds 95 cents worth of liquid assets per dollar of liabilities. While HP has a greater quick ratio than Sony, it still does not have enough liquid assets to cover its current liabilities. Since HPs stock price had a net change of $2.42 over the course of one year, it is fairly stable. The change in stock price over a six-month period likely reflects a change in the overall market. Sony Is In Favorable Financial Position Compared to HP Sony is in a fairly strong financial position, particularly in comparison to its competitor HP. Sonys positive earnings per share and net income, as well as its good price/earnings ratio, are key to its financial health. These financial indicators reflect the companys current place in the market and, investors optimism about its future. HP is in a significant amount of debt, and effectively has no earnings per share or price/earnings ratio. While it does have a stronger quick ratio and more stable stock price than Sony, it is not enough to put the company in a better financial position. Please contact me via email at tkreis1@students.towson.edu with any questions you may have regarding this financial analysis.

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