Assessment of the Internal
Environment of Matsushita Electric Industrial Co., Ltd.

Western Illinois University
Management 590, Business Strategy & Policy
Spring Semester, 2007

02/26/2007

Christian Rodiek

Introduction 2

Company Overview 2

Financial Results 2

Core Competencies, Firm Resources and Opportunities for Improvement 7

References 14

Introduction

This paper will analyze and assess the internal environment of Matsushita Electronic Industrial Co., Ltd.(Matsushita). Through the interpretation and discus-sion of the company′s financials and financial ratios as well as the description of its core competencies, firm resources and opportunities for improvement the pa-per will reach an assessment of the company′s current competitive standing and conclude with some suggestions of how to improve the company′s position in its industry.

Company Overview

Matsushita founded in 1918 is a Japanese company headquartered in Osaka, Japan and the world′s largest producer of consumer electronics. Fur-thermore the company is engaged in the production and sale of electronic and electric products for business and industrial uses. A wide range of its products a marketed under the main brand name Panasonic and other brand names such as Technics, National, Quasar, Victor, JVC and PanaHome^{1 2 3} .

Financial Results

Before discussing and interpreting Matsushita′s financial results and ratios along with its weaknesses and strengths in the context of its own recent financial performance history and its industry rivals, it is provided some information about Matsushita′s stock price and earnings per share (EPS).

Matsushita′s share price increased from the lowest of 1,408 JPY in 2002 to the highest of 2,640 JPY in 2006. This represents a compounded growth rate, i.e. a average growth rate from 2002 examined through 2006 of 17.02% p.a. Even though the stock price went to a overall low of 875 JPY in 2004 during this period, one of the reasons behind this increase might have been the growth of EPS. These increased from a loss of 206.09 JPY per share in 2002 to earnings of 69.48 JPY in 2006. Alone the compounded growth rate went from 2004 to 2006 by approximately 95.66%.

In the Appendix are provided besides some of the financials the required ra-tios for Matsushita and the corresponding Audio and Video Equipment Manufac-turing Industry with the Standard Industrial Classification (SIC) 3651. Besides the market value ratio of price/earnings (P/E) ratio the other key business ratios can be categorized into the three major groups of profitability, debt management, and liquidity. "Profitability ratios [such as return on equity (ROE), return on assets (ROA), return on sales (ROS), and gross profit margin] show how successfully a business is earning a return to its owners."⁴ "Debt management ratios [on the other hand such as debt to equity (D/E) and times interest earned (TIE)] help to analyze the degree and the effect of a company′s use of … [debt] to finance its operations."⁵ Liquidity ratios such as current ratio and acid (quick) ratio finally help to measure and evaluate a corporation′s "ability to meet short and long-term obligations." ⁴

To point out Matsushita′s financial weaknesses and strengths, to compare these to its own performance over the last five years and its benchmark industry as well as to a major competitor in the following it will be therefore concentrated on ROE, acid ratio, D/E, and finally TIE.

The ROE can be used to analyze and evaluate the ability of the company′s management to achieve an appropriate return on the owners′ investment. Overall this ratio should better increase over the time in order to keep the investors satis-fied and to show that the management can realize certain returns. Matsushita′s ROE increased from -13.2% in 2002 to 4.1% in 2006. In 2004 Matsushita outper-formed the Audio and Video Equipment Manufacturing Industry having a ROE of 1.2% vs. only 0.4% the industry. Even in comparison with a major competitor such as Sony Matsushita was able to perform better in 2006, given Matsushita′s ROE of 4.1% vs. Sony′s of 3.77%. The reason for this growth of Matsushita′s ROE over the past five years from 2002 - 2006 was mainly the increase of net income from -427,779,000K JPY to 154,410,000K JPY. Matsushita was therefore able to convert a big loss in 2002 into a adequate profit in 2006. Hence, the ROE under-lines Matsushita′s financial strengths especially under the consideration of the out performance of the industry and the beating of a major competitor.

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1 http://finance.yahoo.com/q/pr?s=MC;

2 Value Line Investment Survey – Company Profile, 2007;

3 Matsushita Electric Industrial Co., Ltd., Company Profile, Datamonitor, Reference Code: 1053, June 2006;

4 Industry & Financial Consulting Services, Industry Norms & Key Business Ratios, Desk-Top Edition 2004 – 2005, Dun & Bradstreet, Inc., 2005;

5 http://library.stritch.edu/guides/financialratio.htm;