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FUJIFILM Holdings (formerly Fuji Photo Film) is Japan's top photographic film and paper maker. The company delivers technology solutions to meet the imaging and information needs of retailers, consumers, professionals and business customers. As a global leader in digital imaging, Fujifilm pioneered the development of digital medical systems, and today is the leader in digital minilab systems. Fujifilm Holdings Corp., reported revenue of ¥2.1 million (US$19,549) for the nine months ended Dec. 31, 2007, an increase from the ¥2 million (US$18,617) for the same time in 2006. Therefore, this paper will apply ratio analysis to financial statements to analyze the success, failure and progress of Fuji Film's business. What is more, the ratio analysis will enable managers to spot trends in a business and compare its performance and condition with the average performance of similar businesses in the same industry. Nevertheless, it is not without some limitations since comparing the ratio with past trends and with competitors may not give a correct picture as the figures my not be easily comparable because of differences accounting periods and polices.

Current Strategy

"As digital camera users increasingly choose retail printing over home printing, there is tremendous opportunity for a broad range of retailers to enter the market and profit from the massive revenue potential of providing digital prints," says Gael Lundeen, Vice President and General Manager, Photofinishing and Web Services Division, Fujifilm Imaging Group.

"Fujifilm's strategy is to take a modular approach to serving our customers, by developing highly customizable components and then matching the right kiosks, printers and online solutions to fit an individual retailer's needs and ROI requirements. This will allow new customers to get into the game in a small and affordable way, and later upgrade as their business grows. At the same time, retail customers who are already offering digital printing services will have exciting new opportunities to grow and add profits from digital imaging."

The analysis of common sized income statement shows that gross profit ratio remained almost at a constant level during 2006 and 2007.

Gross Profit Margin

Income Statement

As it can be seen in the income statement, the operating profit fell sharply in the year 2006. The reason for that was increased operating expense in the head of research and development and in restructuring and other expenses. Because of implementation of radical restructuring in both photographic materials business and electric imaging business the cost gone up and as a result the operating profit dropped.

When analyzing the Balance Sheet

The levels of account receivables and inventory remained approximately constant and there isn't any caution flag for the company because they remain same as compared to sales of the company.

When we analyze the liabilities and equity side of the balance sheet we find that there is a sharp increase in the long term debt of the company. This is due to issuance of European convertible bonds (due in year 2011 and 2013). There is also decreasing trend of retained earnings in the year 2007. This may be due to increase expenditure in restructuring expenses and research and development head.

Vertical analysis of income statement shows that the gross profit ratio is at a constant level.

The operating profit shows that there was a decline in operating profit ratio when we compare the year 2006 with 2007.

The income before income taxes also shows the same trend as the operating income shows in the previous graph.

Net income graph also shows that there is decline in net income which is mainly due to increased expenditure in restructuring activities and expenses on research and development head.

The above graph shows that due to efficient utilization of cash and cash equivalents have been converted into short term marketable securities in year 2006. Account receivables and inventories are almost at controlled levels.

The investment securities have an increasing trend which shows the strength of the company.

The above mentioned graph shows that short term debt has declined over the year and trade payables and accrued liabilities are in control.

There is a sharp increase in year 2007, this is due to unsecured europeon convertible bonds due in 2011 and 2013.

Industry Analysis

The world economy is expected to continue to grow at this more moderate pace of about 3 per cent during 2007. This rate of growth is, nonetheless, the same as the average of the past decade. The United States economy remains the main engine of global economic growth, but the dynamic growth of China, India and a few other large developing economies is becoming increasingly important. Economic growth slowed down in most of the developed economies during 2006, with no recovery expected in 2007. Growth will moderate further to 3.1 per cent in the United States of America, while lackluster performance will still prevail in Europe, with growth reaching a margin 2.1 per cent in 2007. The recovery in Japan is expected to continue, albeit at a very modest pace of around 2 per cent.

The digital camera companies conduct businesses in developing markets with economies that tend to be more volatile than those in the United States and Western Europe. The risk of doing business in developing markets like China, India, Brazil, Argentina, Mexico, Russia and other economically volatile areas could adversely affect the firms' operations and earnings. Such risks include the financial instability among customers in these regions, political instability and potential conflicts among developing nations and other non-economic factors such as irregular trade flows that need to be managed successfully with the help of the local governments. The failure to successfully manage economic, political and other risks relating to doing business in developing countries and economically and politically volatile areas could adversely affect their business.

Exchange rates

As a result of the global operation and financial activities, the companies are exposed to changes in currency exchange rates and interest rates, which may adversely affect the results of operations and financial position. Exchange rates and interest rates in certain markets in which the companies do businesses tend to be more volatile than those in the United States and Western Europe. There can be no guarantees that the economic situation in developing markets or elsewhere will not worsen, which could result in future effects on earnings should such events occur.

Yen fluctuation

While the dollar weakened the Japan Nikkei 225 fell 1.9 per cent and companies such as Canon  and Sony who are at mercy of U.S. customers 'were hit worse' (Authers, 2006b; p1). Due to the yen appreciation (Pilling, 2006 and Reuters, 2006) the Japanese  companies have increased its profits.

Interest rates

Digital camera companies are exposed to interest rate risks because of its borrowing activities. The company could utilize borrowings to fund its working capital and investment rates. The majority of short-term or long-term borrowings are in fixed rate instruments.  That is why, there is a roll-over risk for borrowings as they mature and are renewed at current market rates. The interest rates risk is not predictable because of differences of future interest rates and business financing equipment. (Kodak, 2006)

graph shows a positive trend in increase in total revenues

The gross profit trend also shows the same trend as shown by total revenue trend

The operating profit shows that there is a declining trend from the year 2004 to 2006. This is due to increased expenditure on research and development and in year there is an increasing trend in operating income.

The net income trend graph shows that there was increasing trend in net income from the year 2003 to 2005 and in year 2006 and 2007 there is a declining trend in net income.

The total current assets trend shows a positive trend on increasing total current assets from the year 2003 to 2007

The above mentioned graph shows very interesting trend in current liabilities and current assets. The current ratio as per above mentioned graph is not very positive because it is below 1 in the years 2004, 2005 and 2006 and also it is almost 1 to 1 in year 2007. I should be 2:1.

The trend of total investments and long-term receivables is also positive because there is nothing-extraordinary increases or decrease. These items are gradually increasing which is a positive sign


  • Current ratio of fujifilm holdings corporation is better than industry ratio.
  • Quick ratio is also matching with industry ratio, so it is fine too.
  • Cash ratio is also more than 50% so it is fine.
  • As per Z-Score calculation the company is highly solvent.


  • The company is turning its inventory in year 2007 at 4.16 times.
  • Account receivables are also being turned at 4.59 times which is also fine.
  • Average collection period trend is increasing year by year, the management has to make such kind of recovery policy which reduces the average collection period.
  • Operating asset ratio is constant at 1, it is well till it remains constant but if it declines than the management has to see what is going wrong.
  • Fixed asset turnover ratio is on increasing trend, it means that company is efficiently utlising its fixed assets.
  • Total asset turnover is also almost at a constant level, it is fine until it remains constant, but if it starts declining than the management has to see what is going wrong.


  • Total debt ratio is almost constant at .4, so it is fine.
  • Long term debt ratio has increased sharply in year 2007, might be due to increased developmental and restructuring expenditure.
  • Long term debt to equity ratio is below industry ratio so it is fine.


  • Gross profit margin is far ahead industry ratio, so it is very good.
  • Operating profit margin is also greater than industry ratio so it is also good.
  • Net Profit margin is below industry ratio, it is mainly due to restructuring expenses so the management has to keep check at this ratio.
  • Return on total assets is also below industry ratio so the management should try to utilize its total assets efficiently so that they can match with industry ratio.
  • Return on equity is also very low as compared to industry.
  • There is also declining trend on return on common equity since the year 2006.

Other Ratios

  • Basic earning power was at increasing rate till year 2005, and in year 2006 and 2007, it is very low.
  • Cash flow to debt ratio indicate that it is below 1 in year 2007. It means that the company is having problem with generating in cash flow from operations. In year 2006 it is fine.
  • Earning per share is at the lowest level in year 2007. It was at highest level in year 2005.
  • Price to earning ratio is at highest level, so it fine.
  • Price to book value is also reasonable.
  • Cost of sales ratio is also almost at constant level, so it is fine.
  • Selling and general expenses is also at a reasonable rate.
  • Research and development ratio is also at almost constant level, this shows the company's commitment on research work.


Limited Comparability: Different firms apply different accounting policies. Therefore the ratio of one firm can not always be compared with the ratio of other firm. Some firms may value the closing stock on LIFO basis while some other firms may value on FIFO basis. Similarly there may be difference in providing depreciation of fixed assets or certain of provision for doubtful debts etc.

False Results: Accounting ratios are based on data drawn from accounting records. In case that data is correct, then only the ratios will be correct. For example, valuation of stock is based on very high price, the profits of the concern will be inflated and it will indicate a wrong financial position. The data therefore must be absolutely correct.

Effect of Price Level Changes: Price level changes often make the comparison of figures difficult over a period of time. Changes in price affects the cost of production, sales and also the value of assets. Therefore, it is necessary to make proper adjustment for price-level changes before any comparison.

Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decision making. For example, average collection period may be equal to standard credit period, but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.

Effect of window-dressing: In order to cover up their bad financial position some companies resort to window dressing. They may record the accounting data according to the convenience to show the financial position of the company in a better way.

Costly Technique: Ratio analysis is a costly technique and can be used by big business houses. Small business units are not able to afford it.

Misleading Results: In the absence of absolute data, the result may be misleading. For example, the gross profit of two firms is 25%. Whereas the profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10,00,000 and sales are Rs. 40,00,000. Even the profitability of the two firms is same but the magnitude of their business is quite different.

Absence of standard university accepted terminology: There are no standard ratios, which are universally accepted for comparison purposes. As such, the significance of ratio analysis technique is reduced.