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Accounting Project

Lecturer: Chang Jau Ho

Group:

Muhammad Haziq bin Hj Zariful 0314131

Muhd. Syafiq bin Hj Abd Zariful 0314702

Brief Bio of the Businesses

BMW is known as Bayerische Motoren Werke

LOCATION

The main branch is located in Munich, Bavaria, in Germany. at Gurney Drive in 6th December 2005.

Key people:

Norbert Reithofer (CEO), Joachim Milberg (Chairman of the supervisory board)

BRIEF HISTORY

The company was founded in 1916 / 1917, the BMW Group is now one of the ten largest car manufacturers in the world and, with its BMW, MINI and Rolls-Royce brand/brands?, possesses three of the strongest exceptional brands in the car industry. The circular blue and white BMW logo or roundel is portrayed by BMW as the movement of an aircraft propeller, to signify the white blades cutting through the blue sky – an interpretation that BMW adopted for convenience in 1929, twelve years after the roundel was created. The emblem evolved from the circular Rapp Motorenwerke company logo, from which the BMW company grew, combined with the white and blue colors of the flag of Bavaria, reversed to produce the BMW roundel. However, the origin of the logo being based on the movement of a propeller is in dispute, according to an article recently posted by the New York Times, quoting “At the BMW Museum in Munich, Anne Schmidt-Possiwal, explained that the blue-and-white company logo did not represent a spinning propeller, but was meant to show the colors of the Free State of Bavaria.” (Muenchen, n.d.) The group also has a strong market position in the motorcycle sector and operates a successful financial services business. The company aims to generate profitable growth by focusing on the top segments of the international automobile markets. With this in mind, a wide-ranging product and market offensive was introduced in 2001, which has resulted in the BMW Group expanding its product range considerably and strengthening its worldwide market position. The company’s brand is extremely strong and is associated with high performance, engineering excellence and innovation.

Indeed, the BMW brand is often cited as one of the ‘best’ in the world, and the company continues to launch a stream of innovative products as part of its battle with German peer Mercedes to be the world’s largest luxury car maker. (Zimbio.com, n.d.)

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Ratio Analysis of the business based on 2012 & 2011

Profitability Ratios 2011 2012 Interpretation

Return on Enquity (ROE)

net profitavg .owne r ' senquity

X 100

¿ 1,970(8,222+7,088)÷ 2

X 100

=25.7%

net profitavg . owne r ' senquity

X 100

¿ 3,131(9,864+8,222)÷ 2

X 100

=34.6%

During the year 2011 to 2012, the ROE has increased from 25.7% to 34.6%. This means the owner is receiving a higher earning on his capital in the year 2012 than 2011.

Net Profit Margin (NPM)

net profitnet sales

X 100= 1,97055,007

X 10 0

=3.6%

net profitnet sales

X 100

¿ 3,13158,805

X 10 0

=5.3%

Between the period of 2011 to 2012, the NPM has increased from 3.6% to 5.3% which means the business is getting better at controlling expenses

Gross Profit Margin (GPM)

gross profitnet sales

X 10 0

¿ 11,68755,007

X 10 0

=21.2%

gross profitnet sales

X 100

¿ 12,55358,805

X 10 0

=21.3%

From 2011 to 2012, the GPM for the business slightly increased from 21.2% to 21.3%, which means the business is slightly getting better at controlling Cost of Goods Sold

Selling Expense Ratio (SER)

total sellingexpensenet sales

X 100

¿ 3,38155,007

X 10 0

=6.1%

total sellingexpensenet sales

X 100

¿ 3,68458,805

X 10 0

=6.3%

During the period from 2011 to 2012, the SER increased from 6.1% to 6.3%. This shows the business is getting worse at controlling selling expenses.

General Expense Ratio (GER)

total general expensenet sales

X 100

¿ 1,41055,007

X 10 0

=2.6%

¿ tal general expensenet sales

X 100

¿ 1,70158,805

X 10 0

=2.9%

Between the years 2011 to 2012, the GER increased from 2.6% to 2.9%. This means the business is getting worse at controlling general expenses.

Financial Expense Ratio (FER)

total financial expensenet sales

X 100

¿ 2,09655,007

X 10 0

=3.8%

total financial expensenet sales

X 100

¿ 1,66658,805

X 10 0

=2.8%

During the period, FER has decreased from 3.8% to 2.8%, which indicates that the business is getting better at controlling financial expenses.

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StabilityRatios 2011 2012 Interpretation

Working Capital

total current assettotalcurrent libailities

¿ 17,80210,604

= 1.68 : 1

total current assettotalcurrent libailities

¿ 20,21513,151

= 1.54: 1

From 2011 to 2012, working capital has decreased from 1.68:1 to 1.54:1. This does not just mean the business is getting worse in paying their liabilities, but it also does not satisfy the minimum 2:1 ratio

Total Debt

total liabilitiestotal asset

X 100

¿ 11,51527,508

X 10 0

=41.9%

total liabilitiestotal asset

X 100

¿ 14,55931,965

X 10 0

=45.5%

From 2011 to 2012, total debt has increased from 41.9% to 45.5%, which means that the debt level has gone up, however, it still below the maximum 50% limit

Stock Turnover

365 ÷[ COGSavg .inventory ]

¿365 ÷[ 43,320(3,755+3,259)÷ 2 ]

=29.5 days

365 ÷[ COGSavg .inventory ]

¿365 ÷[ 46,252(3,749+3,755 )÷ 2 ]

=29.6 days

Between the period of 2011 to 2012, stock turnover has slightly increased from 29.5 days to 29.6 days. This means the business is selling their products at a slightly slower speed.

Debtor Turnover

365 ÷[ credit salesavg .debtors ]

¿365 ÷[ 55,007 ÷ 2( 8,035+8,237 ) ÷2 ]

=108 days

365 ÷[ credit salesavg . debtors ]

¿365 ÷[ 58,805 ÷ 2( 9,216+8,035 ) ÷2 ]

=107.1 days

During the period from 2011 to 2012, debtor turnover has decreased from 108 days to 107.1 days. This indicates that the business is getting faster in collecting their debts from debtors.

InterestCoverage

interest expense+ne t profitinterest expense

¿ 943+1,970943

= 3.1 times

interest expense+net profitinterest expense

¿ 913+3,131913

=4.4 times

During the period, the business’s interest coverage has increased from 3.1 times to 4.4 times. This means the business’s ability to pay interest

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* Units represented in € millions

Price/Earning Currently (24th Jan 2014) Interpretation

P/ERatio

Current share priceEarnings per share

¿ € 84.63€ 7.93

=10.67 years

The P/E ratio for BMW as of 24th January 2014 is 10.67 years. This means an investor who bought a share of BMW would have to wait 10.67 years in order to retain his/her investment, in this case, €84.63. The P/E ratio is also lower than what a conservative investor would pay, which is lower than 15 years

Investment Recommendation

In our recommendation through our analysis, the company BMW would is a company worth investing on.

One of the reasons is that the company has exhibited good profitability, as shown in the profitability ratio analysis. Firstly, the Return on Enquity has vastly increased by 9.1%, which shows that the net profit has also increased through the years. Even though it can be seen that the Selling Expense & General Expense Ratio has increased, there is only a slight rise of less than 1%. Moreover, the Net Profit Margin, which shows how the business controls all its expense, has greatly been increased. This is because of how the Financial Expense Ratio has prominently been decreased by 1%. Other than the expenses, the business has also been better at controlling their Cost of Goods Sold.

As for stability, even though the total debt has increased, it is still lower than the maximum 50% limit for both the years of 2011 & 2012, which means the business has kept it below the limit for a long time. In addition, the debtors are getting faster at paying their debts to the company as seen in the Debtor Turnover Ratio. The business does have some flaws however, such as getting slower in selling their products, getting worse at paying liabilities in addition to not exceeding the minimum limit, & lastly not exceeding the minimum limit for Interest coverage, even though there is an increase.

Even though the business has shown not to be stable, the price per earning is still lower than 15 years; the investors can receive their investment after only 10 years.

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References

Muenchen, I. (n.d.). Bmw group : company : company portrait : locations. [online] Retrieved from: http://www.bmwgroup.com/bmwgroup_prod/e/0_0_www_bmwgroup_com/unternehmen/unternehmensprofil/standorte/standorte/index.html [Accessed: 24 Jan 2014].

Zimbio.com. (n.d.). [online] Retrieved from: http://www.zimbio.com/Norbert+Reithofer/articles/JwVX2Ci0vT9/Bayerische+Motoren+Werke+AG+BMW+Biography [Accessed: 20 Jan 2014].

Bloomberg. (n.d.). Bmw:xetra stock quote - bayerische motoren werke ag. [online] Retrieved from: http://www.bloomberg.com/quote/BMW:GR [Accessed: 20 Jan 2014].

Marketwatch.com. (n.d.). Bayerische motoren werke ag. [online] Retrieved from: http://www.marketwatch.com/investing/stock/bmw?countrycode=de [Accessed: 20 Jan 2014].

Financial statements of BMW AG. (2011). [e-book] BMW Group. p. 4, 5. Available through: bmwgroup.com http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/investor_relations/corporate_events/hauptversammlung/2012/BMW_AG_Jahresabschluss_2011_engl.pdf [Accessed: 24 Jan 2014].

Financial statements of BMW AG. (2012). [e-book] BMW Group. p. 4, 5. Available through: bmwgroup.com http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/investor_relations/finanzberichte/geschaeftsberichte/2012/_pdf/BMW_AG_Jahresabschluss_2012_en.pdf [Accessed: 24 Jan 2014].

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Appendices

BALANCE SHEET 2012

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BALANCE SHEET 2011

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P&L STATEMENT 2012

P&L STATEMENT 2011

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