Analysis Of BMW Financial Position And Performance Accounting Essay

Analysis Of BMW monetary Position And Performance Accounting strainThis is a fiscal analysis report on BMW. Specifically, in the start-off part of this report, the pecuniary position and surgery of BMW for the four pecuniary eld from 2008 to 2011 bequeath be firstly re-formulated, and the pecuniary proportions for the company leave al i be computed for analysis purposes. In found to transact a throughout monetary analysis on the company, the tr oblite evaluate of the pecuniary symmetrys of BMW leave behind be analyzed. Then, the financial dictations of Audi will as well be reformulated and the respective financial proportions for Audi will withal be computed. The financial cognitive operation of Audi will be use of goods and servicesd to comp atomic number 18 to the transaction of BMW, to gauge the relative exploit of BMW, as comp bed to one of the peer inwardly the patience. Then, in the second part, BMWs forecasted value of justness per shargon at the en d of the fourth financial (i.e., at FY 2011) will in addition be computed. Recommendations will be provided if the tired is a good investment choice, based on the variant findings derived from this study.1.2 company BackgroundToday, BMW is the worlds best-selling manu particularurer of premium simple machines (Rauwald, 2012). BMW is founded in 1916 and is headquartered in Munich, Germany. Today, the company has more than(prenominal) than than 96,000 workforces at 24 toil facilities in 13 countries and had penet appraised to around 140 countries in the world (Ain truth Bergsteiner, 2011). BMW is in addition a company emphasizing on corpo account social responsibilities (Stamoulakis Bridwell, 2009). Some of the competitors of BMW allow in Audi and Mercedes-Benz, whereby these companies has also been competing with BMW in important trades a good deal(prenominal) as chinaware (Rauwald Pearson, 2011a). Referring to circuit board 1 below, the various business segments BMW is in operation(p) within is shown. The study revenue contri providedion of the company comes from selling automobiles, and then followed by car pay activities.T commensurate 1 The several(a) Business Segments BMW Operating Within reference Worldscope instrument panel 2 below however shows the various geographical regions BMW is operating within. As shown from the figure, the revenue generated from BMW sales in China is improving fast, tour the revenue generated from the unify States are stagnating. Indeed, prior to the financial crisis, United States is the biggest merchandise for BMW (Rauwald, 2010). In contrast, as discussed in Muller (2010), BMW offset in new-fashioned years had largely driven by the increase of sales from emerge countries. This is a trend worth acknowledging in analyzing the liquify financial performance and to predict the future probable performance of the mansion.Table 2 The Various Geographical Region BMW Operating Within beginning Worl dscopePart I Analysis of BMW monetary Position and PerformanceIn Part I, the financial analysis on BMW will be performed through twain major methods, firstly by reexaminationing the trends of the financial metrics of BMW and its competitor and secondly, through the review of various financial ratios of BMW and to compare the ratios to the competitors ratios.2.1 Trend Analysis A check up on of BMW Past Performances2.1.1 favorableness proportions base on Table 3 below, the various clamsability ratios of BMW are shown. As measured by the Return on additions, Return on Equity and Return on posted Capital, BMW performance is broadly speaking well-performing in FY2007, still subsequently suffered to a minimal receiptsability in FY2008 towards FY 2010, before drive homeing to superior clearability particular in FY2011. This is not surprising. In FY2008, the world financial crisis hit, and the automotive industry, which is cyclical in nature, are impacted adversely (Peterso n, 2008). Indeed, the entire automotive industry fall into a turmoil as auto sales save plunged in the United State and Europe while sales faced stagnation in previously booming markets like China and India (Rauwald, 2009b). In 2009, as discussed within Rauwald (2009a), BMW suffered losses imputable to recession as the sales and penury of sumptuousness cars stalled. This is logical as in recessionary period, people cut drop spending and luxury product manufacturers are often the most impacted as the product demand are highly elastic.Then, qualitatively speaking, in FY 2010, the profitability bullion advance in BMW is receivable to improved efficiency profoundly in all areas of the company (during the restructuring programme of BMW in the global financial crisis) as well as favourable exchange-rate fluctuations for the company (Rauwald, 2010). Next, Rauwald Schmidt (2012a) had however attributed the signifi rumpt enhanced of BMW performance due to the companys comprehens ive transformation, via cutting jobs and costs since 2007 (which let in a cut of more than 8,100 jobs and reduction of more than 6 one thousand thousand Euros in costs). This is also true as based on the employee per sales figure, the company is showing positive improvement as in fresh years, more sales are generated per employee.Aside from that, it is also observed that the ratio of research and development to sales ratios has also been high, approximately around 5%. This is because BMW has been investing in research and development activities for further innovations in the future. For example, one of the recent innovations of BMW is development of eco-super car through the Vision Efficient dynamics concept (Kable, 2010).Overall, based on the profitability ratios, a taxation profit bound of 24% and the Return on Equity ratio of 19.2% in the recent years suggest that BMW is a well performing dissipated. Nonetheless(prenominal), the fact that the firm could be seriously affected by recession also suggests that the business is cyclical, and therefore, the business risk faced by the firm and investors could be high.Table 3 Trends of networkability Ratios of BMW pedigree Worldscope2.1.2 Asset Utilization RatiosBased on Table 4 below, the various plus utilization ratios, such as assets per employee, tote up assets turnover, inventory turnover and net sales to gross fixed assets are shown. Overall, there is a trend of improvement on these ratios. As discussed in Rauwald Schmidt (2012b), the hefty performance of BMW is in the beginning contributed by the force-out of the BMW, MINI and Rolls-Royce brands as well as improvements in efficiency. The improved of efficiencies rear end be noted as the assets per employees had increased (i.e., fewer employees as compared to the total assets), and the higher total assets and inventory turnover ratios (as the company is more able to generate more sales from every unit of asset).Table 4 Trends of Asset Utilization Ratios of BMWSource Worldscope2.1.3 leverage RatiosBased on Table 5 below, the trends of use of debt financing and capital structure of BMW are shown. Overall, it chamberpot be noticed that BMW is a highly geared firm, as the vast term debt within the capital structure has been consistently high throughout the past few years, i.e., at approximately 60%. Then, the portion of debt is also far outweigh the portion of equity, and as indicated by the total debt to unwashed equity ratio, the total debt is approximately more than 2 to 3 multiplication the total amount of equity. Overall, this suggests that BMW is heavily leveraged and the firm would face higher pay risks (such as solvency, fluidness and interest remuneration risks) in hard times. In contrast, the firm would make high return on equity for the shareholders due to use of leverage. Therefore, part of the reasons contributing to the high return on equity for BMW is through the use of high leverage within the firm.Table 5 Trends of supplement Ratios of BMWSource Worldscope2.1.4 Liquidity RatiosBased on Table 6 below, the various liquidity ratios such as quick ratio and real ratio are shown. Overall, the liquidity position of BMW is marginally satisfactory, as the on-going and quick ratio fall around the range of 1. A more conservative ratio would be a current ratio of more than 2 times. Then, it is also noted that throughout the years, the proportion of receivables in the current assets is the highest, followed by cash, and then inventories. This is however unavoidable, as most of the customers would purchase the luxury cars on credit.Table 6 Trends of Liquidity Ratios of BMWSource Worldscope2.1.5 A revue of the Financial Performance Trends of BMWIn order to form an overview of the financial performance of BMW in the past few years, the general profitability picture of BMW is presented in Figure 1. As shown below, prior to the crisis, BMW has been in a rising profit position for more than a decad e (Avery Bergsteiner, 2011). However, unfortunately, the firm performance is gravely affected during the global financial crisis (as discussed previously). During the period of financial crisis, the net income, return on equity and total common equity fall sharply. Nevertheless, upon the crisis, the profitability of BMW surged sharply. Avery Bergsteiner (2011) had found that one of the reasons contribute to fast BMW recovery from the global financial crisis in 2008 is due to sustainable leadership model and processes within the company. Therefore, this suggests the resiliency and the quality of the management within the firm as satisfactory and competent.Then, other trend worth discussing is that in the recent years, BMW car sales have been increasing importantly in the China market (Rauwald, 2012). Indeed, as discussed within Schafer (2011), much of the sales increases of BMW come from the growth of sales from China and India. such a trend had contributed significantly as eve n in FY2011 and FY2012, BMW sales in Europe are facing challenges due to sovereign debt crisis (Rauwald Pearson, 2011a). Similarly, as discussed within Schafer (2011), the sales of BMW cars are slow in Europe due to the slow recovery within the region.Figure 1 authorise Income, Equity, roe and ROCI Trends of BMWCDocuments and SettingsHappyGoLuckyDesktopData Collectiondatareturn analysis chart.jpgSource Worldscope2.2 friends Financial Ratios ComparisonsIn this section, in order to understand the financial position and the performance of BMW in the context of its industry as well as in relation to its peers, the various financial ratios of BMW, the peers and one of its leading competitors, that is to say Audi will be performed.2.2.1 increment judge tie in RatiosAs shown in Table 7, the various growth rates of BMW is compared to the peers and Audi. Firstly, it is noted that the growth of sales of BMW is slightly worse than the growth of Audi, but significantly worse off than th e peers. In other words, twain Audi and BMW are performing less satisfactorily as compared to the industry bonny. Therefore, while the financial picture of BMW is recovering and experiencing sharp upturns in FY2011, the firm is actually atomic reactor perform as compared to the industry average.Table 7 Trends of maturation rank of BMW, Audi and PeersCompanyBMW AGPeer MeanAudi AG at long last pecuniary Yr End booking12/31/201112/31/2011Key 1 Year crop RatesSales 1Yr ingathering13.8022.2224.42Operating Income 1Yr ingathering53.2147.7557.09Net valuation reserve 1Yr Growth32.92104.8836.41Net Income 1Yr Growth51.26149.4369.72EPS 1Yr Growth51.12146.4769.73 primitive Assets 1Yr Growth11.7114.5419.56Equity 1Yr Growth13.118.5813.72Key 5 Year Growth RatesSales 5Yr Growth7.0315.177.20Operating Income 5Yr Growth16.3923.4414.71Net brink 5Yr Growth3.927.7618.21Net Income 5Yr Growth11.2223.0926.72EPS 5Yr Growth11.2121.3526.72 impart Assets 5Yr Growth9.1812.2514.00Equity 5Yr Growth7.179 .0911.83Source Thomson One BankerAs shown in Table 8, the figures of growth rates of several financial metrics are also computed, from the reformulated financial statements (as shown in Appendix at the end of this document). Overall, it can be observed that both Audi and BMW financial performance move in tandem, whereby the good performance of both company tend to be materialise at the similar time. For instance, the growth of sales was negative for both of the firm at FY2009. Then, the growth rates of common shareholder equity also tend to be similar in terms of magnitude. For example, the growth rate of shareholder equity has been slight negative or positive at FY2009. However, the growth rate of operating income (after tax) for both the company tend to be less similar. This could be due to the ope discerning management differences between the two firms.Table 8 Trends of Growth Rates of BMW to AudiProfitability R200920102011Growth Rate in SalesBMW-4.73%19.33%13.80%Audi-12.74%18.77 %24.42%Growth Rate in OI (after tax)BMW352.36%-20.66%49.91%Audi-43.17%128.13%60.40%Growth Rate in NOABMW31.36%13.02%-10.94%Audi10.86%47.64%-4.07%Growth Rate in CSEBMW-1.79%15.94%17.18%Audi2.62%9.30%13.72%Source Computed from Reformulated Financial Statement2.2.2 Profitability RatiosAs shown in Table 9, the profitability associate ratios for BMW, peers and Audi are shown. Overall, the profitability margins of BMW would be slightly lesser than that of the Audi (particularly from the net margin horizon), but would be higher than that of the peers. This is because BMW operate within the luxury car segment, and therefore, the margins would be higher, as the majority of other competitors go for the volume for profitability. Therefore, the asset turnover of BMW and Audi is lower significantly than the peers, as the company focus on the luxury niche segment. Aside from that, it could be seen that the RD expense to sales ratio for BMW (and Audi) is higher than that of the peers. For this, one of the successes of BMW comes from investing heavily in extra production capacity and new technology constantly (Rauwald, 2012).Table 9 Profitability Related Ratios for BMW, Peers and AudiCompanyBMW AGPeer MeanAudi AG function Fiscal Yr End Date12/31/201112/31/2011Asset Turnover0.570.851.25Pretax Margin10.7313.70ROA4.3713.86Return on Invest Cap5.6234.13Reinvest Rate13.2537.5935.68R D to Sales4.903.435.09Gross Profit Margin24.6219.4518.57Operating Profit Margin11.426.929.54Pretax Margin10.7313.70Net Margin7.099.95Source Thomson One BankerTable 10 is about the profitability ratios of BMW and Audi, computed from the reformulated financial statements (as shown in Appendix at the end of this document). Overall, it can be seen that Audi would perform slightly better than BMW, although from the net profit margin perspective, BMW outperform Audi in FY2010 and FY2011. Then, it is also observed that the financial margins of BMW are more volatile as compared to Audi. Therefore, the risks (from the standard deviation perspective) for BMW are higher. Nonetheless, as discussed before, BMW is performing well in terms of cutting down the expense. This can be observed as the portion of administration costs to the sales ratio for BMW has been decreasing from FY2008 towards FY2011 whereby the ratio for Audi had been staying relatively constant (around 8-10%). This reaffirm that BMW had been slowly transform itself into a more efficient organization.Table 10 Trends of Profitability Ratios of BMW to Audi2008200920102011Operating Profit MarginBMW0.95%-0.09%5.71%8.03%Audi5.27%3.43%6.59%8.50%Sales Profit MarginBMW1.95%9.27%6.17%8.12%Audi5.27%3.43%6.59%8.50%Other Items Profit MarginBMW0.00%0.00%0.00%0.00%Audi2.82%2.86%2.87%2.90%Net Profit MarginBMW1.25%0.13%5.23%7.75%Audi6.46%3.52%3.07%5.91%Expense Ratio Admin CostsBMW9.59%9.91%7.98%7.83%Audi9.47%10.52%8.57%8.16%Expense Ratio Distribution CostsBMW-0.21%0.10%0.24%0.50%Audi0.88%1.01%1.06%0.97%Operating Profitability (RNOA)BMWN/A14. 55%9.55%14.27%AudiN/A12.48%21.87%30.03%Financing Profitability (RNFA)BMWN/A0.70%0.98%1.37%AudiN/A5.07%5.54%9.98%Source Computed from Reformulated Financial Statement2.2.3 Asset Utilization ratiosTable 11 is about the asset utilization related ratios for BMW, Audi and peers. Overall, BMW down perform both Audi and the peers from asset turnover and inventory turnover perspective. Indeed, Audi perform best in utilizing assets in generating revenue. This shown that BMW may not be effective to the peers and Audi in leverage on the assets to generate sales, and there are much room for improvement to significantly enhance the asset utilization ratios for the firm.Table 11 Asset Utilization Related Ratios for BMW, Audi and PeersCompanyBMW AGPeer MeanAudi AGLast Fiscal Yr End Date12/31/201112/31/2011Asset Turnover0.570.851.25Inventory Turnover5.118.528.85Source Thomson One Banker2.2.4 Leverage RatiosTable 12 is about the comparisons of leverage related ratios between BMW, Audi and peers. Ob viously from the figure of the industry mean score, it can be noticed that most of the automotive manufacturers are highly geared. Indeed, as it is discussed that BMW is a firm that relied heavily on debt instrument for financing its operations, the industry average figure is even higher. In stark contrast, Audi is a lowly leveraged firm. Indeed, the use of debt is very minor within the firms capital structure.Table 12 Leverage Ratios Related Ratios for BMW, Audi and PeersCompanyBMW AGPeer MeanAudi AGLast Fiscal Yr End Date12/31/201112/31/2011Total Debt to Common Equity245.94%250.96%9.39%LT Debt to Common Equity133.58%146.61%0.17%LT Debt to Total Capital56.96%41.23%0.16%Dividend Payout17.46%15.80%0.00%Cash Dividend Coverage Ratio7.1321.08N/ASource Thomson One BankerIn Table 13 below, trends of leverage ratios of BMW and Audi, computed from the reformulated financial statements (as shown in Appendix at the end of this document) are presented. Similar to the discussions presented to a higher place, the financial leverage ratio of BMW is significantly higher than the case of Audi. However, from the operating liability leverage ratio perspective, the figures of the two firms are roughly comparable.Table 13 Trends of Leverage Ratios of BMW to Audi2008200920102011Financial Leverage Ratio (FLEV)BMW0.2990.4140.4130.410Audi0.2560.198-0.1280.054Capitalization RatioBMW1.3781.8431.7961.365Audi0.7810.8441.1400.962Operating financial obligation Leverage Ratio (OLLEV)BMW1.0930.6630.6451.011Audi1.4791.3811.0581.268Source Computed from Reformulated Financial Statement2.2.5 Liquidity RatiosIn Table 14 below, the liquidity related ratios for BMW, Audi and peers are compared and presented. It is noted that the liquidity position of BMW, as measured from all of these ratios, i.e., quick ratio, current ratio, cash and equivalent to current assets ratio, account receivables days as well as inventories days held are not only down performing the peers, but also perform much badly as compared to the situation of Audi. Indeed, Audi is having strong liquidity position, thereby indicating that the firm is unlikely to suffer from any expert term liquidity issues. Audi had also outperformed the peers significantly and based on the findings above that Audi is a lowly geared firm the firm is financially cautiously managed.Table 14 Liquidity Related Ratios for BMW, Audi and PeersCompanyBMW AGPeer MeanAudi AGLast Fiscal Yr End Date12/31/201112/31/2011Quick Ratio0.821.001.32 topical Ratio1.041.281.60Cash Equivalent to authentic Assets23.5232.2441.13Accounts Receivable geezerhood136.25102.0761.22Inventories Days Held71.4448.6041.24Source Thomson One Banker2.2.6 SummaryOverall, while BMW is a profitable firm, and the firm is performing very well in FY2011 (i.e., experiencing sharp recovery) such performance can be largely attributed to the industry wide recovery situation around the world. However, the performance of BMW would seem to be lacking, more risky and less efficiently, effectively and conservatively managed when compared to the peers. This is particularly when compared to Audi, as Audi had found to be having much stronger and yet conservative financial position and performance. It can be summarized that BMW performed unsatisfactorily as compared to the other automotive manufacturers.Part II ValuationIn this section, valuation of BMW neckcloth will be performed via the discount cash flow model. In order to compute the company value via this method, the dividend distributed to the investors will be treated as the proxy of the cash flow to the investors. Currently, the latest dividend payment from BMW is EUR 2.30 (Figure 2, the indicated dividend payment from the management). Then, from Figure 3, the growth rate of the dividend yield/ payment (i.e., the growth rate of the cash flow of the firm) range from 0.23% (i.e., 3-years growth rate) to 1.01% (i.e., 3-years growth rate). Theoretically, the chronic term growth rate should be used. However, the global financial nuclear meltdown in FY2008 to FY2009 would be considered as anomalies (the black swan event), and therefore, it is unfair to ask the three year average figure for the firm. Therefore, conservatively, a growth rate of 0.5% would be assumed to represent the growth rate of dividend payment for the investors. Then, in order to compute the undeniable rate of return for BMW, the risks pertaining to the firm will be considered. As BMW is found to be highly geared, a required rate of return of above 10% would be necessary. Therefore, conservatively speaking, a required rate of return of 15% is justifiable.HenceD = EUR 2.30g = 0.5%r = 15%Firm value=D (1+g)(r-g)=2.3 (1+0.005)(0.15-0.005)=2.3 (1.005)(0.145)=EUR 15.94Therefore, a very conservative firm value for BMW from the dividend discount model (i.e., Gordon Growth modelling valuation method) is only EUR 15.94. This is even much lower than the analysts target hurt of EUR 75.60 (Figure 2). Therefore, from t he valuation method applied, it is unwise to purchase into BMW stock.Figure 2 Estimates from analystCDocuments and SettingsHappyGoLuckyDesktopUK0538 Advanced financial statement analysisData Collectiondatathomson forecast report.jpgSource Thomson FinancialFigure 3 Estimates from AnalystCDocuments and SettingsHappyGoLuckyDesktopUK0538 Advanced financial statement analysisData Collectiondatastock valuation.jpgSource Thomson FinancialIn Table 15 below, the price doubled of BMW, peers and Audi is shown. It is shown that BMW stock prices is valued at 10 times earnings multiple, as compared to Audi (which is only 5 times earnings multiple). Indeed, from the other two yardsticks, namely price to book value and price to cash flow ratios, BMW stock is valued more expensively. Then considering that the financial position and performance of BMW is significantly lower than the peers, and particularly, to Audi, the high price multiples of BMW would justify a sell gloss on the stock.Table 15 Market Value Related Ratios for BMW, Audi and PeersCompanyBMW AGPeer MeanAudi AGLast Fiscal Yr End Date12/31/201112/31/2011Current P/E Ratio10.175.15 set/Book Ratio1.841.331.81Price/Cash Flow Ratio-11.101.943.34Source Thomson One BankerThen, from the qualitative perspective however, looking forward, competition between automotive manufacturers in China could be intensifying and this could affect how BMW compete with other car manufacturers (Rauwald, 2012). However, some analysts had also been optimistic as they anticipate growth in markets such as China and Russia which would contribute to higher BMW sales in these acclivitous regions (Rauwald Schmidt, 2012a). Then, as discussed in Reed Schafer (2010), the rise of sales in China is primarily due to the branding and the quality of the cars sold by BMW. Therefore, the growth score of BMW in emerging regions would be in doubts, as the competitors, such as Audi has also strong performance in these emerging regions. Therefore, fro m a more conservatively perspective, it is reasonable to conclude that even it is expected that BMW could profit from the emerging countries, which would also not justify the high valuation of the stock. Hence, it is not rational to purchase into the stock of the company at the current price. In contrast, investors pursuance exposure to automotive industry would be better to purchase the stock of Audi, as the firm is financially conservatively and operational effectively managed, and yet, having a low price multiple.ReferencesAvery, G. C., Bergsteiner, H. (2011). How BMW successfully practices sustainable leadership principles. Strategy Leadership, 39(6), 11-18.Kable, G. (2010). Bolts from BMW. Autoweek, 60, 12-12.Muller, J. (2010). BMWs energy for made-to-order cars. Forbes, 1.Penman, S. H. (2010). Financial Statement Analysis and Security Valuation, 4th Edition. McGraw-Hill Irwin, unused York.Peterson, T. (2008). BMW 135i High performance, low price. Business Week (Online).Ra uwald, C. (2009a). integrated news BMW posts loss as unit sales fall 21%. jetty course Journal.Rauwald, C. (2009b). incorporate news BMW swings to $1.24 billion loss as luxury-car sales plunge. groyne street Journal.Rauwald, C. (2010). Luxury demand drives BMW results. 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