Sony Corporation

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Sony Corporation Financial Analysis produced by
Hany Feadullh Petrus Johnson Jose
Mireles Diana Neira Ima Primasari Hengky
Sutandi
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Background Analysis
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What is Sony?
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Who is Sony?
Nobuyuki Idei Chairman CEO
Kunitake Ando President COO
Teruhisa Tokunaka Chief Stategy Officer
Howard Stinger Chairman CEO, USA
Kenji Kitatani Group Exec Officer, Global Hub
Nicole Seligman Group Deputy General Counsel
Emily Susskind President, Broadband Services
Robert Wiesenthal CFO, USA
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Sales and Operating Revenue Year 2002
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(No Transcript)
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Free Cash Flow Cost of Equity
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Whats the Cost of Equity?
g
Estimated Growth Rate -53.54
Shares 3.5 billion
Current Price 29
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Whats the Cost of Equity?
-53.06
So should you invest in Sony Corp?
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Market Efficiency
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Three Types of ME
Weak Form

• Publicly past price trading volumes

• Insider can earn excess return

Semi-Strong Form

• Security prices reflect all publicly available
  information

• Insider can earn excess return

Strong Form

• Public and private

• Insider cannot earn excess return

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Non-specific News

• SARS Japans weak Economy
• Before the news, price already shows gradual
  decrease
• A few days approaching the date, price plunged
  drastically
• Days ahead after the news, Price stabilize

• Patterns above characterize semi-strong market
  efficiency

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Specific News

• Sony announces a handheld multimedia
• Efficient market responds to good news, price
  increases
• On the announcement date, price rises up
  considerably
• Days after the news, price stabilize

• Patterns above characterize semi-strong market
  efficiency

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Risk Analysis
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Calculated Beta, ß
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What does this mean?
Sony is not as risky as the average SP 500 stock
However, it does not earn what the average SP
500 stock does
When returns on the SP 500 are up, SNEs returns
are only about 80 as high and vice versa when
there is a loss
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Required Return on Equity
CAPM model is K Rf Beta(Rm-Rf)
We assume Rf 4.5 Rm-Rf 6 and us Beta
0.795526 Ke 0.09273156
The company is currently overpriced because
K(CAPM) K(DCF Model)
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Cost of Capital Optimal Capital Structure
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WACC Kd Computation
WACC WeKe WdKd(1-T) WpKp

• Sonys required return on debt (Kd) is too small

• We assume a Kd of 5

• Sonys Ke is negative

• We assume a Ke of 10

• Sonys WACC for 2000-2002 has been decreasing

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Sonys WACC

• WACC WeKe WdKd(1-T) WpKp
• Total Asset Debt Equity

• Sonys total asset has been relatively balanced
  consisting of 30 equity and 70 debt
• From year 2000 to 2002 there has been a decrease
  in WACC
• In year 2000 0.056
• In year 2001 0.048
• In year 2002 0.0396

• WACC vs Firm Value
• Low WACC means greater Firm Value

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MM Theory

• Based on the WACC distribution throughout 2000 to
  2002. The (temporary/assumed) optimal Cap.
  Structure is in yr 2002, w/ 0.7104
• It shows MM model w/ tax (Model 2),
• In reality, WACC will eventually shift to Model 3
  (MM3 w/ tax, financial distress cost agency
  cost).
• At least 10 years required to compute optimal
  Cap. Structure.

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Conclusion

• HPR Ending Price Beginning Price
  Distributions / Beginning Price
• 55-290 / 29 0.896551724 (Expected HPR 2003)

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Conclusion

• Strong Ratios (D/E, ROI, P/E, Gross Margin)
• Current Price of 29 and expected to grow to 55
  at the end of Fiscal year 2003
• Stable market Efficiency
• STRONG HOLD!!!