financial analysis of bmw group

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