Story of a Big Player from Gangnam

In order to monitor their business activities, companies were generating their profit and loss statements regularly. As to the time when to produce their year-end annual profit and loss statements, it varied from company to company. And, the month of December was commonly chosen among many companies.

However, Gun-Ho chose to receive the profit and loss reports in early January for all GH companies considering all sorts of circumstances going on around his companies. None of his GH companies was registered with KOSDAQ yet, and each of them was independently operated without any particular department that would connect them to each other as one group. Gun-Ho had to visit each company to receive the financial report from each company.

However, the schedule for the report was informed to each company by GH Development’s Manager Hong who was hoping to do the planning and coordinating jobs connecting all GH companies someday.

It was the day when GH Mobile would give the year-end profit and loss report on the previous year and also on next year’s business plan. The report would be presented by its accounting director—Min-Hwa Kim. The general affairs department arranged the meeting, and the entire executive officers gathered in the conference room. Gun-Ho’s seat was in the middle of the large table.

As he sat on his assigned seat, Gun-Ho looked around the room. There were President Jang-Hwan Song, Chief Research Officer Joon-Soo Oh, General Affairs Director Joon-Young Choi, Accounting Director Min-Hwa Kim, Production Director Jong-Suk Park, and the newly promoted director in the product quality department—Director Chang-Ik Pyo.

“Let’s begin,” Gun-Ho said calmly.

Accounting Director Min-Hwa Kim stood up from her seat and distributed handouts to the attendees. She then started her presentation by summarizing GH Mobile’s financial status of last year. Everyone was listening to her quietly.

“GH Mobile generated a total sales revenue of 110.2 billion won last year. It’s 35% higher than the sales revenue of the previous year. This acute increase in the sales revenue was due to the increase of the product orders from A Electronics as you all are well aware.”

“Hmm.”

“The cost of goods sold was 89.3 billion won, and our gross profit is 20.9 billion won accordingly, which is 19% of the total sales revenue. The general administrative cost was 11 billion won, and the operating profit was 9.9 billion won.”

“What is the operating profit to sales ratio?”

“It’s 9%, sir.”

“What about the cost of sales to revenue ratio?”

“It’s 81%, sir.”

“The cost of sales to revenue ratio is still over 80%… Well, please continue.”

“The non-operating expenses were reduced to 2.4 billion won compared to the one in the previous year. That would make our net profit before tax 7.5 billion won.”

“Hmm.”

“Taking into account our corporate tax, our net earnings after tax would be 5.85 billion won.”

Gun-Ho finished a glass of water before asking the accounting director, “How much financial liabilities do we currently have for the financial institutions?”

President Song responded before the accounting director could answer, “It’s 35 billion won, sir.”

“We must have a high amount of accounts payable as well.”

“It’s 20 billion won, sir.”

“I won’t take my dividend this time either just like last year. Use our profit of 5 billion won to pay the bank for our debt.”

“Yes, sir.”

“I haven’t received Dyeon Korea’s yearly profit and loss report yet, but its capital has been increased as I added its building to their assets as investment in-kind. Consequently, it is highly possible that about 3 billion won would flow into GH Mobile.”

“Is that right, sir?”

The meeting was mostly made up of the conversation between Gun-Ho and President Song as other executive officers were busy writing down important figures while listening to them.

“We can use that 3 billion won to pay for our debt for the bank as well. Our debt will be reduced to 2.7 billion won then.”

“That’s right.”

“The 20 billion won of accounts payable is shown on this handout… Is it from the Mulpasaneop era?”

“Yes, sir.”

“Let’s cut it down gradually as we continue to do business with the vendor companies.”

“Yes, sir.”

The new year’s business plan was presented by President Song. President Song set the goal to generate 140 billion won that year.

While President Song was talking about this year’s business plan, Gun-Ho was doing math on his own without really paying attention to President Song’s presentation.

‘If GH Mobile makes 140 billion won this year, the net income after tax would be 6 billion won at most. If we don’t use the profit to pay the bank for the debt but instead distribute to shareholders as the dividends, about 5 billion won will be available for the dividend payment, after setting aside the required reserve. How much dividend would Minister Jin-Woo Lee’s father receive as one of our shareholders?

He owns 15% of the shares. Even if he takes his dividend corresponding to his share, it won’t be much. He will have to pay taxes for his income and also local tax. He will probably get 700 million won then. They are trying to save for Minister Lee’s slush funds, and I wonder if 700 million is a satisfactory amount for them. If not, they might try to make another deal with me.

Minister Jin-Woo Lee will have to step down from his position this year. He has been in that position for too long, and also, he is an ambitious man who wouldn’t be satisfied working as a mere minister in the government. Next year, we have an election. He will definitely need money ready by then. Even if he is successfully elected as a congressman, he won’t stay in the position for long either. He must desire to go up to a higher position.’

“This is all for today. Please feel free to ask any questions.”

The business plan report seemed to be completed while Gun-Ho was lost in thought on his own. The only thing that Gun-Ho wanted to know from the year’s business plan and goal was their aimed sales revenue. He didn’t care much about the details about how to reach that goal. That was just a plan and the will of the person who drafted the plan. That was what Gun-Ho thought.

“Good job, everyone. You all heard of this year’s plan from President Song. We made a tremendous growth last year; let’s continue to work hard this year and achieve our goal. Thank you for your time today.”

“I have a suggestion to make,” President Song rapidly said as he raised his hand.

“Yes?”

“I heard that Dyeon Korea is giving a 100% performance-based bonus to the employees for their last year’s work. I understand that Dyeon Korea achieved an impressive growth last year, but our employees also worked so hard for the past year.”

“You are saying that GH Mobile’s employees deserve an opportunity to receive a bonus too.”

“Yes, sir.”

“I want to know how much we should expect to expend as part of labor cost if we pay a bonus of 25% and 50%. Ms. Director Min-Hwa Kim, please give me those two numbers.”

“GH Mobile currently has 500 workers. Assuming that we only provide a bonus to the workers who have worked with us for at least a year, 400 workers would be eligible for a bonus. If we give 50% of the bonus to those 400 people, we will need an additional 400 million won, and 200 million won will be needed if we decide to give 25%.”

“I guess we can’t make it 50% then since we won’t have enough cash left to pay for our debt. Let’s make it 25% then.”

“I was actually going to suggest 20%, but 25% will be great. Thank you so much, sir. I want to show my gratitude on behalf of Dyeon Korea’s employees, sir,” President Song exclaimed.

As President Song expressed his gratitude, all of the other executive officers shouted at once as well, “Thank you, sir.”

After the meeting, when the executive officers started leaving the conference room, Gun-Ho asked Jong-Suk to stay, “Director Park! Can I have a moment with you?”

Director Park turned around and came closer to Gun-Ho.

“Is everything okay? You look extremely tired.”

“I just couldn’t sleep much lately.”

“Why?”

“I submitted my application to transfer to Korea University of Technology and Education. I have an interview with them tomorrow. I’m so anxious that I might fail this time. I just can’t sleep since I’m worrying about it.”

“If you fail, then you fail. So what? It’s not worth missing a night of sleep.”

“I will be extremely embarrassed if my application to transfer to their school is rejected.”

“Hey, Jong-Suk Park! You’ve changed a lot. You were not the type of person who would ever feel embarrassed about things like that.”