financial analysis of bmw group
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Financial Analysis of BMW Group !
By: Gualdi Miriam,
Raduan muhi Samar, Sbarra Stefano,
Tolkacheva Irina, Vagin Andrey
!24th February 2014
Table of content
1. Ownership Structure
2. Corporate Governance
3. Free Cash Flow calculation
4. Analysis of indexes and comparison with FIAT
2
Ownership Structure
Ownership structureTwo-tier board system
Source: Mitbestimmungsgesetz: http://www.gesetze-im-internet.de/bundesrecht/mitbestg/gesamt.pdf (20.02.2014) 4
Supervisory board Non-executive directors
Source: BMW Group: http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/investor_relations/fakten_zum_unternehmen/aufsichtsrat.html (20.02.2014) 5
Chairman:))
Deputy)Chairman:)2)shareholder)representa5ves)
7)employee)representa5ves)
Deputy)Chairman:))2)employee)
representa5ves)
8)employee)representa5ves)
(3)of)the)10)are)from)the)Trade)Unions)))
Board of management Executive directors
Source: BMW Group: http://www.bmwgroup.com/bmwgroup_prod/e/0_0_www_bmwgroup_com/investor_relations/fakten_zum_unternehmen/vorstand/vorstand2013.html (20.02.2014) 6
Shareholder Structure
Shares'in'%
Stefan'QuandtJohanna'QuandtSusanne'Kla1enFree'Float
Sources: http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/investor_relations/aktien/aktien/aktionaersstruktur.html (20.02.2014) 7
Corporate Governance
Corporate Governance• comprehensive stand-alone document
covering the corporate governance practices
• representative bodies: 1. Annual General Meeting2. Supervisory Board 3. Board of Management
grant fair and open dealings
compliance with law
Source: Corporate Governance Code BMW. Principles of Corporate Governance. (2008); Annual BMW Report (2012), pp. 153 9
Corporate Sustainability in BMW
Ecology'
• Sustainable'mobility'concepts'
• Product'responsibility'efficient'dynamics''
• Environmental'protec9on'
• Clean'produc9on'
Economy'
• Shareholder'values'
• Risk'management'
• Corporate'governance'and'compliance''
Society'
• Responsibility'for'employees'
• Value'orienta9on'in'supply'chain'
• Social'commitment'
Source: Corporate Social Responsibility at the BMW Group, 2011 10
Free Cash Flow calculation
Free Cash Flow BMW8.300 * ( 1 - 0.2948 ) + 3.541 - 5.433 + 1.755 = 5.716 mln
Free Cash Flow FIAT
3.677 * ( 1 - 0.314 ) + 4.134 - 7.537 + 714 = -167 mln
EBIT Tax D&A CAPEX NOWC
Source: Annual report BMW 2012; Balance sheet FIAT 2012 12
Indexes and comparison with FIAT
Current Ratio
• current assets are sufficient to cover short term liabilities
• ratio is almost at the lowest permitted level
• if it would decrease financial problems might incur
• if the current ratio is higher than the industry standard level, there is an insufficient use of the resources
BMW FIAT INDUSTRY
50.514.000 / 48.431.000
1.0436.642.000 / 30.145.000
1.22 1.27
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 14
Quick Ratio
• they are not able to settle their current liabilities instantaneously
• a quick ratio lower than the industry average suggests liquidity risk, or, better credit terms with suppliers than the competitors
BMW FIAT INDUSTRY
(50.514.000 - 9.725.000) / / 48.431.000
0.84
(36.642.000 - 9.295.000) / / 30.145.000
0.911.06
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 15
Total Assets Turnover
• in the case of BMW: lower than the industry standard
• Reasons: Improved by:- excess production capacity - increasing sales - poor inventory management - decreasing fix assets - lax collection methods - decreasing working capital
• in the case of FIAT: aligned situation with the standards
BMW FIAT INDUSTRY
76.848.000 / 131.850.000
0.5886.816.000 / 82.119.000
1.06 0.91
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 16
Debt Ratio
• lower value of debt ratio is favorable
• great value indicates: 1. higher portion of company’s assets are claimed by its creditors 2. difficult to obtain loans for new projects
BMW FIAT
101.448.000 / 131.850.000
0.7768.946.000 / 82.119.000
0.84
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 17
Interest Coverage Ratio
• advisable to maintain an interest coverage of at least 2 times (near to the case of FIAT)
• interest cover of lower than 1.5 times: fluctuations in profitability and potential to delays in interest payments
• very high interest coverage (BMW), the company is not capitalizing on the relatively cheaper source of finance
BMW FIAT INDUSTRY
8.200.000 / 202.000
40.603.425.000 / 1.995.000
1.72 0.94
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 18
Operating Margin
• the BMW’s operating margin is quite high it is preferred because the company make more money for each euro of sales
• BMW is more profitable than FIAT
BMW FIAT INDUSTRY
8.200.000 / 75.848.000
10.67%3.425.000 / 86.816.000
3.90% 12.40%
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 19
Profit Margin
• profit margin of BMW is much higher than FIAT but lower than the average of cars industry
• the main differences:1. BMW reported a net income of 463% higher than the level of FIAT2. FIAT exceeded the sales of BMW just for 13%
BMW FIAT INDUSTRY
5.096.000 / 76.848.000
6.63%904.000 / 86.816.000
1.04% 10.38%
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 20
Return On Equity
• ROE of BMW is quite high but there is a clear gap with the ratio of the cars industry
• it is not a very encouraging signal for the investors because the average of industry exceed 20%
• the situation of FIAT is worse, especially for the very low level of net income
BMW FIAT INDUSTRY
5.096.000 / 30.345.000
16.79%904.000 / 9.448.000
9.56% 22.30%
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 21
Return On Assets
• the results of BMW and even more of FIAT are much lower than the industry’s ratio
• for ROA, it’s important to consider the industry and the sector of company
• the current allocation of the assets of these two companies (compared with the industry’s ratio) shows that is not optimal
BMW FIAT INDUSTRY
5.096.000 / 131.850.000
3.86%904.000 / 82.119.000
1.10% 9.57%
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 22
DuPont Equation
• three-parts division of ROE:1. Profit margin: BMW much higher than FIAT2. Total asset turnover: BMW lower than FIAT3. Equity multiplier: FIAT is more exposed to the debt
• the main disadvantage for FIAT in ROE calculation is about the Profit Margin that is very low compared to the BMW’s one
BMW FIAT
Profit margin 6.63% 1.04%
Total Assets Turnover 0.58% 1.06%
Equity Multiplier131.850.000 / 30.345.000
4.39%82.119.000 / 9.448.000
8.69%
ROE 16.79% 9.56%
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 23
Price/Earnings Ratio
• the ratio is higher for firms with strong growth prospects
• FIAT realized an important partnership with Chrysler with the consequent opening up to new segments and markets
• BMW shows a more conservative strategy
BMW FIAT INDUSTRY
10.68 11.25 16.93
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 24
Market/Book Ratio
• BMW and FIAT reported a price to book ratio higher than one
• the investors are willing to pay more for stocks than their accounting book values
• the investors consider that the companies have good potential for the future (the ratio doesn’t consider for example intangible assets)
BMW FIAT INDUSTRY
1.65 1.46 0.28
Source: http://it.finance.yahoo.com/q/is?s=BMW.DE&annual; http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual 25
References• Annual BMW Report (2012)
• BMW Group
• BMW Group - Corporate Governance Code 2012
• Bundesministerium der Justiz und für Verbraucherschutz
• Corporate Governance Code BMW. Principles of Corporate Governance. (2008)
• Corporate Social Responsibility at the BME Group, 2011
• http://it.finance.yahoo.com/q/is?s=BMW.DE&annual
• http://finance.yahoo.com/q/is?s=F.MI+Income+Statement&annual
26
“The BMW Group remained firmly on the road to success in 2012
with record figures.”
Annual report 2012, BMW Group