155575201295Financial Statement Analysis:The Bmw Group
Charlotte Gross
6900096000Financial Statement Analysis:The Bmw Group
Charlotte Gross
5673725201295Business Finance II
2420096000Business Finance II
Table of Contents
TOC o “1-3” h z u HYPERLINK l “_Toc386971986″Executive Summary PAGEREF _Toc386971986 h 3
HYPERLINK l “_Toc386971987″Introduction PAGEREF _Toc386971987 h 4
HYPERLINK l “_Toc386971988″The BMW Group PAGEREF _Toc386971988 h 4
HYPERLINK l “_Toc386971989″The History PAGEREF _Toc386971989 h 4
HYPERLINK l “_Toc386971990″Corporate Governance PAGEREF _Toc386971990 h 5
HYPERLINK l “_Toc386971991″Organizational Structure PAGEREF _Toc386971991 h 5
HYPERLINK l “_Toc386971992″The Business Strategy PAGEREF _Toc386971992 h 6
HYPERLINK l “_Toc386971993″The Product Lifecycle PAGEREF _Toc386971993 h 7
HYPERLINK l “_Toc386971994″Competitor Analysis PAGEREF _Toc386971994 h 7
HYPERLINK l “_Toc386971995″Competitiveness PAGEREF _Toc386971995 h 8
HYPERLINK l “_Toc386971996″Financial Analysis PAGEREF _Toc386971996 h 8
HYPERLINK l “_Toc386971997″Financial Performance PAGEREF _Toc386971997 h 8
HYPERLINK l “_Toc386971998″Sales PAGEREF _Toc386971998 h 9
HYPERLINK l “_Toc386971999″Profitability PAGEREF _Toc386971999 h 10
HYPERLINK l “_Toc386972000″Capital Structure PAGEREF _Toc386972000 h 11
HYPERLINK l “_Toc386972001″Ratio Analysis PAGEREF _Toc386972001 h 11
2) Describe the capital structure of the company, what kind of debt is used, calculate and comment on debt ratios. Benchmark with main competitors of the company.3) Explain the company’s policy in terms of leasing and whether it uses operating and/or financial lease.4) Ratio analysis: Apply techniques learnt in class, trying to include added value comments related to the ratio result (suggestion: benchmark with main competitors and try to reach conclusions related to differences). Evaluate Company’s leverage, liquidity, efficiency, profitability and market value.5) Evaluate company’s working capital management, as well as short-term and long-term financial policies.6) Finally, give your view on the following question: If you were the new Company’s CFO, what changes would you suggest, in terms of financing strategy and financial policies or choices? Explain your recommendations.
The BMW Group: Executive Summary
This report seeks to provide the overall performance of BMW group and the strategic measures put in place by the company to survive in an environment that is very competitive. The company has a rich history of success in the motor industry as it involves services such as developing, assembling, selling cars, manufacturing, and a variety of financial services. The company has in the past been ranked the most valuable car brand name in the whole world as it has 140 global sales offices and employing over 100,000 people across the world. The report will provide the basic organizational structure of the company and how corporate governance has contributed to the success of the company. Due to the fact that the company has a target market whose customers vary greatly in their tastes and preferences, the company has put in place strategies that will ensure that all its customer needs are satisfied across the world. The report also explores the strategies that the company has put in place to project and forecast the future in order to improve the efficiency of the company in the dynamic global market.
The number one determinant of success of any company is the maintenance of leadership and efficiency through innovation. This report presents the measures adopted by BMW to counter its major competitors in the motor industry. Proper financial analysis and investment in development and research are some of the factors identified to give BMW a competitive advantage and thereby making it continue being the market leader. The company has also used the strategy of brand acquisitions to diversify its operations in different target markets. The report also presents a summary of financial performance and most notably how its sales volume has performed globally. The financial report also presents the company’s profitability compared to its performances in the previous years. The last part of the report focuses on the company’s management of its capital in relation to its objectives and the mission statement.IntroductionThe Bavarian Motor Works were launched in 1916. It is a German automobile, motorcycle and engine manufacturing company, headquartered in Munich. Their automotive segment consists of developing, manufacturing, assembling, selling cars, off-road vehicles & spare parts and accessories, while they as well offer financial services such as car leasing, retail customer & dealer financing and insurance activities.
The BMW GroupBMW is part of the “German Big 3” among Mercedes and Audi, however as well is a global company as it was recognized and awarded by many market research companies such as Frost & Sullivan or Forbes to be the 1st global company of 2013. Further, BMW was ranked by MillwardBrown as the world’s most valuable brand name in the car industry. It is one of Germany’s largest industrial companies.
It has 140 global network sales offices worldwide and employs over 100,000 people in engineering, manufacturing, R&D and sales. The company has 29 production and assembly line sites in 14 countries on 4 different continents. Its main sites are found in German cities such as Leipzig and Munich and in Shenyang, China.Additionally, BMW Groups global supplier network consists of more than 1200 suppliers.The HistoryThe company first produced airplane engines until it switched to a car production in 1929. However, BMW was forced into the production of airplanes during the WWII. The early expansion of subsidiaries and plants into foreign countries made the company internationally known from the early beginning of existence. BMW launched its first production plant in a foreign country in 1972. It was in South Africa, in Pretoria where the plant was named Rosslyn. With this plant BMW back then began to produce vehicles to provide them to the British, Indonesian and Australian market. One year later they established a distribution center in France. 1975 BMW North America was established. In 1998 they constructed their first production plant in the U.S. Since then the company has been growing with some ups and downs however constantly, being present in.
In the year 1994 BMW took over the British Rover Group, which they sold a few years later again. However, keeping the brand MINI, which belonged to the Rover group. In 2002, then they took over Rolls Royce as well. Through these 3 brands, MINI, Rolls Royce and BMW the group covers the premium and luxury market segment well and strong. Additionally, this targeted three different types of customer types. MINI targets through its advertising campaigns an urban, modern and young audience, whereas Rolls Royce targets the top 1% of the social class and BMW all premium segment interested audiences. In 2012 and 2013 the automotive company introduced the BMW i3 and i8 as well as the electric and first hydrogen vehicles. These achievements made them the leading sustainable car company worldwide due to their fuel efficiency.
Corporate GovernanceBMW AG is a stock corporation based on the German Stock Act. It consists of three representative bodies: The annual general meeting, the supervisory board and the board of management.
Organizational Structure
As demonstrated above, BMW consists of three main divisions, the automotive, the motorcycle and the financial services division.
The automotive division is divided up into three individual sectors. These sectors present individual car brands such as BMW, Mini and Rolls Royce. The motorcycle division consists of BMW and Husqvarna motorcycles. The last sector is the financial one. It offers among other activities car leasing and car sharing programs, insurance activities and customer deposit business.
Target Market
The overall target audiences of the BMW Group are customers found and interested in the premium car segmentation. The main importance of the company is the customer satisfaction, as the customer is the base of their existence and for all their actions. Depending on the individual brands, meaning Rolls Royce, MINI and BMW, the specific target audience varies to a certain extent. The different target market of the individual brands creates diversity and differentiation in the company itself.
The Business StrategyThe BMW Group mainly focuses every approach and decision on sustainability, looking at the long term effects in the future. Their forecasting and projecting of market trends, individual economies and continually increasing company efficiency is their key to success, belonging to the premium products and services providers worldwide.
Therefore, as the world continues to change at a rapid pace, individual mobility remains a focus of political regulation and national industrial policy. BMW Groups mission statement is: “The BMW Group is the world’s leading provider of premium products and premium services for individual mobility.” This already underlines the drive of wanting and maintaining to be the best and the number one company in the car industry worldwide.
In year 2000 BMW developed of new strategy specializing on premium segment in German & international automotive market. The launching of that new business strategy, the “Strategy Number One” was in 2007.
The strategy “Number One” consists of a common automotive platform strategy, where the BMW group shares strategic alliances with Alfa Romeo & Fiat to decrease manufacturing costs. It focuses ultimately on profitability and to enhance long-term value in times of change. It applies to technological, structural as well as cultural aspects of our company. The model below demonstrates each step by step factor of the “Number One” strategy. The ultimate factor, the access to technologies and clients is achieved through their continuous heavy in investing in research and development (R&D). This allows the company to maintain and increase its efficiency and leadership through innovation, new and improving technology and guarantees its future sustainability.
2104390554990The Product LifecycleThe constant introduction of new and existing models can be seen to avoid a negative ROI.
Competitor AnalysisBMW’s strongest and main competitors are Audi, Mercedes and Smart. Further competitors are Porsche, Toyota, Jaguar and Lexus. The return on investment (ROI) comparison graph below indicates the steady growth after the crisis, whereby the BMW Group is the second best performing next to the Audi Group.
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CompetitivenessThe strong investment in research and development provides a strong advantage due to the coming up with innovative and technological development of products and tools before its competitors. This long term thinking makes them continuous market leaders. An example would be the development and launching of increasingly sustainable vehicles such as the first Hydrogen car worldwide.
The quick and response and long term thinking towards changes in the market are essential to remain market leaders. BMW has expanded into foreign markets way before the crisis and were one of the first automotive companies to invest in Asia. However, they saw the potential in Asia and the BRIC countries (Brazil, Russia, India & China) as well as the recognition of the saturated European market and its high risk due to the PIGS countries (Portugal, Italy, Greece & Spain).
Another aspect is their constant introduction of new and current products together with their unique design creating permanent market penetration.
Further, through the acquisition of various brands, such as Mini Rolls Royce and BMW the BMW group has achieved a strongly diversified market presence with completely different target markets and marketing approaches.
Financial AnalysisFinancial PerformanceThe past, recent and current financial performance is shown in the table below. One can see that despite the minor reduction in numbers of the year 2008, one year after the crisis, the numbers in revenues and especially in the net profit have recovered and increased constantly throughout the 5 years. The revenue of the BMW Group of 2012 was €76,848 million.
Sales-2952751094740The BMW Group financial performance is not only reaching a yearly all time high overall, the company also achieves that in each sector when one takes a closer look at the sales. The automobile brands sector increased by a total of 10.6% having sold 1,845,186 units from 1,668,882 units in 2011. The motorcycle sector grew by 3.1% as well breaking the sales volume record with 117,109 BMW and Husqvarna units.
The financial services sector also made progress in the number of retail customer contracts worldwide by 12.1% to 1,341,296 units and the leasing and financial contracts with retail customers and dealerships by 7.1% to 3,846,364 units.
Profitability3810001316355The profitability over the time frame of 2000 until the third quarter of 2013 is demonstrated in the table below in Earnings before interest and taxes (EBIT). After the economic crisis, the BMW Group had a profit all time high performance of over approximately 4% above the normal average. However, this peak is fading off slowly, when one takes the quarterly EBIT percentage into account of the year 2013.
Capital StructureWhen it comes to the management of BMW’s capital the company is focusing as mentioned in their objectives and mission statement above on the long term approach, which is also mirrored in their Number One strategy. Additionally to its objectives the company has the goal to provide their shareholders with a fair return.
-2019303781425The capital structure can be influenced by the amount of risk of their assets and certain economic conditions. However, the BMW group takes a large amount of financial instruments and factors into account to find the optimal capital structureand “matching maturities” for the financial management.The debt is managed by having a fixed target debt ratio of the capital. Below in the table is the current structure comparison of the end of the year 2012 and 2011. One can see that the total capital has increased by €4,787. The proportion of the total capital however has shrunk minimally. The target debt ratio is nowhere exactly stated, but it can be assumed that it lies by 60%.
Ratio AnalysisThe added value is a very valuable financial performance indicator. It measures whether the BMW Group is “meeting its minimum requirements for the rate of return expected by capital providers”. In other words, it measures the financial success of the company.
1304925472440The added value formula is the following:
Working Capital Management
Working capital management is an essential function of especially short term and long term financing of a company. The BMW Group has an efficient working capital management, as when many companies struggled due to the economicsovereign debt crisis in the year 2008 and 2009. However, BMW recovered in the year 2010 almost fully again. The company even had the importance of the working capital management stated in their annual report of the year 2009, saying “Stringent working capital management is a further key parameter for managing the business”.
Working capital management basically exists to manage the highly important and essential key to survival of a business, the liquidity of a company. It further is responsible for the management of the cash in- and outflow, cash funds, investments and equity.
