Johnny Mercer

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EMI Music: A Financial Analysis (Part 1)

Published January 13, 2014 by Mayrbear's Lair

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To conclude my research work in organizational management with respect to the analysis of a company’s financial reports, this week we will wrap things up with a three part examination of the various components contained within the 2010 Annual Report of my former place of employment, the privately owned corporation known as EMI Music (EMI) to help us determine their financial condition and forecast their outlook. To help present a clearer picture of the company’s activities and overall functionality, the study will draw information from the report’s financial statements to evaluate such elements as assets, liabilities, and stockholders’ equity to help determine EMI’s viability as a business. The research will also include a closer look at the following components: (a) the economy, industry, and background of the firm; (b) their short term liquidity; (c) how efficiently they operated; (d) an examination of their capital structures; and (e) an assessment of their profitability levels, to reveal EMI’s financial condition as well as forecast their future potential. My research will also focus on the information retrieved from their financial data, ratios, and trends that were contained within the notes and statements to evaluate the firm’s use of their operating, financing, and equity activities to determine whether the corporation was managed efficiently and was profitable. The findings of this research will conclude that EMI’s financial statements provided sufficient evidence to reveal an authentic representation of their financial health during that time.

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Introduction

A corporation’s annual report helps provide shareholders a glimpse into a company’s overall performance and financial effectiveness. They are developed to satisfy the many needs of a variety of different people, including shareholders, creditors, economists, and strategists. Roth (2008) explains they have become the platforms that are used to launch new products, promotional strategies, and even shape the company’s cultural attitudes (Roth, 2008). They typically include an opening statement from the chief executive officer (CEO), the company’s financial statements, market segment information, new product strategies, subsidiary activities, as well as research and development (R&D) plans, all of which serve to bring a transparent view of the company’s operating, financing, and investing activities.  To fully understand and appreciate the information provided in EMI’s Annual report the examination will commence with a brief look at the company’s background.

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Background, Industry, and Economy

The true nature of a company’s image can be ascertained through a comprehensive analysis provided by the data contained within their annual reports. Fraser and Ormiston (2010) purport that in order to comprehend how to navigate through the vast amount of data in the reports, familiarity with accounting is helpful (Fraser & Ormiston, 2010). Learning more about the company’s background in the meantime, also helps provide valuable information that can help analysts forecast the firm’s future based on past performances.

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For instance, EMI is considered a prestigious primary-market record label. It is recognized worldwide and conducts business in 32 countries with a network of licenses to operate elsewhere as well. It is part of the EMI Music Group, which is a subsidiary of the Universal Music Group. EMI owns some of the most famous record labels in the world, including Capitol, Parlophone, Virgin, Blue Note, Capitol Records Nashville, EMI Christian Music Group and EMI and Virgin Classics.The firm is organized into two core divisions: EMI Music, which specializes in the signing, developing, and marketing of recording artists and their intellectual property; and EMI Music Publishing, which specializes in the signing, developing and marketing songwriters.

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The company was founded in 1942 by American lyricist, songwriter, and recording artist Johnny Mercer, who wrote the famous lyrics to Henry Mancini’s Moon River that later, went on to become the trademark song for singer Andy Williams (The Johnny Mercer Research Guide, 2012). Throughout the years, EMI consisted of an impressive artist roster including such mega stars like David Bowie, Tina Turner, Bob Seger, Coldplay, Lady Antebellum and Katy Perry. They have a wealth of artists in their catalog including such legendary icons like the Beach Boys, Iron Maiden, Depeche Mode, Miles Davis, Frank Sinatra, Duran Duran and the Pet Shop Boys. In the global marketplace, EMI distributes a wide genre of music including, pop, rock, classical, jazz, R&B, and hip-hop through various sister labels. With offices worldwide, the Capitol Records Tower in Los Angeles (where I worked) is their most famous building in America and stands out as a Hollywood landmark that is recognized throughout the world.

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Conditions in the music industry are highly competitive and unpredictable. EMI’s Annual Report, however, revealed that they continued to display the assets, strategic power, positioning, and a staff of top performers worldwide that had the ability to take the firm to the forefront of the industry. For example, one of the company’s strengths lies in their catalog inventory. The release of the complete remastered Beatles catalog during that time, demonstrated EMI’s ability to capitalize from their catalog assets. The remastered Beatles albums sold over 10 million units in one year enabling the firm to experience unprecedented levels of success during that time. In addition, EMI artist Lady Antebellum released an album that was one of their top sellers in 2010.

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The publishing division also proved they were in a leading position in the music industry during that accounting period. For instance, they were named US Publisher of the Year for the 12th consecutive time by the leading trade publication, Billboard Magazine. Furthermore, they had been named Publisher of the Year at the ASCAP Pop Music Awards in the US for eight consecutive years. In the meantime, in the UK, where the report was filed, EMI was named Music Week’s Publisher of the Year for the 14th consecutive year.  These statistics provide sufficient evidence that support the company’s strength of earning abilities in music industry.

Wednesday’s post will reveal Part 2 of this analysis where we analyze EMI’s short term liquidity and take a closer look at their operating efficiency. See you then!

References

(2011). EMI annual review 2009/2010. Finances. Hollywood: Maltby Capital Ltd.

The Johnny Mercer Research Guide. (2012). Retrieved October 30, 2013, from The Johnny Mercer Foundation: http://www.johnnymercerfoundation.org/initiatives-charities/for-researchers/johnny-mercer-research-guide/

Fraser, L., & Ormiston, A. (2010). Understanding financial statements. Pearson Education.

Friedlob, G., & Welton, R. (2008). Keys to reading annual report. Hauppauge, NY: Barron’s Educational Series.

Loth, R. (2013). Profitability indicator ratios: Profit margin analysis. Retrieved December 5, 2013, from investopedia.com: http://www.investopedia.com/university/ratios/profitability-indicator/ratio1.asp

How to determine your capital structure. (n.d.). Retrieved December 5, 2013, from Structuringfinance.com: http://www.structuringfinance.com/capital-structure/how-to-determine-your-capital-structure

Roth, R. (2008). The writers guide to annual reports. Atlanta, GA: Booksurge.com.

Scherreik, S. (2002, December 22). How efficient is that company? Retrieved December 5, 2013, from businessweek.com: http://www.businessweek.com/stories/2002-12-22/how-efficient-is-that-company

Financial Statements

Published November 15, 2013 by Mayrbear's Lair

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Financial statements contain an enormous amount of valuable information with respect to a company’s financial position, the success of their operations and provides a clear insight of their future potential. They help investors make effective decisions because they answer such questions as: (a) would an investment yield an attractive return; (b) what is the level of risk they pose; (c) should existing inventory be liquidated, and (d) are cash flows sufficient to support the firm’s borrowing needs. For example, because of changes in the economy as well as advances in technology in how music products are now marketed and sold, someone looking to invest in a record company like the one I used to work at, Capitol-EMI Records (CER), would look to the financial statements of their annual report to help them determine how well the company is performing.

In it’s hey day, CER was considered a prestigious primary market record label that is still recognized worldwide today. It is part of the EMI Music Group and is a subsidiary of the Universal Music Group. The company was founded in 1942 by American lyricist, songwriter, and recording artist Johnny Mercer, who wrote the famous lyrics to Henry Mancini’s Moon River that later went on to become the trademark song for singer Andy Williams  (The Johnny Mercer Research Guide, 2012). Throughout the years, CER has consisted of an impressive artist roster including such mega stars of the past like The Beatles, Kenny Rogers, David Bowie, Tina Turner, Bob Seger, as well as the giants of today like Katy Perry and Coldplay. In the global marketplace, CER distributes a wide genre of music including, pop, rock, classical, jazz, R&B, and hip-hop through various sister labels. With offices around the globe, the Capitol Records Tower in Hollywood, California is their most famous landmark.

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Investors that are looking to figure out how well the company is performing today would seek answers from the company’s annual report. Friedlob and Welton (2008) explain that the key to comprehending any annual report is understanding that they are developed to help satisfy the many needs of a variety of different people including shareholders, creditors, potential shareholders and creditors, as well as economists, financial analysts, and suppliers  (Friedlob & Welton, 2008).

EMI’s Annual Report provides information that discloses how well the company is performing, their financial condition, and where the company is headed. Fraser and Ormiston (2010) purport that segmenting the financial information helps direct individuals to the data that is relevant to them (Fraser & Ormiston, 2010). For example, a creditor may want to peruse the cash flow statements to gain insight into the company’s liquidity. The Consolidated Financial Statements however, would be useful to investors because they provide details on all the company’s financial branches that reveal the true nature of their net worth. Any person therefore, looking to invest in the Capitol-EMI family, would need to take into consideration the information provided from these consolidated statements. They are important documents that will help investors decipher how well all of the company’s affiliates are performing to give them a clearer a picture of its net worth.

References:

(2011). EMI annual review 2009/2010. Finances. Hollywood: Maltby Capital Ltd.

The Johnny Mercer Research Guide. (2012). Retrieved October 30, 2013, from The Johnny Mercer Foundation: http://www.johnnymercerfoundation.org/initiatives-charities/for-researchers/johnny-mercer-research-guide/

Fraser, L., & Ormiston, A. (2010). Understanding financial statements. Pearson Education.

Friedlob, G., & Welton, R. (2008). Keys to reading annual report. Hauppauge, NY: Barron’s Educational Series.