Volkswagen Financial ratio analysis for 2015 & 2016

Financial Statement &

Financial Statement Analysis

ESB Business School

Finance

MAB International Management WS 16/17

Presented by: Priya Sarangla , Wolf Wagner, Lexuan Liu

Content

1. Financial Statement

- Financial Statements

- HGB, IFRS, and US-GAAP in Comparison

2. Financial Statement Ratios

- Type of Ratio Comparison

- Categories of Ratio Comparison

3. Financial Statement Ratio Case Analysis

- Case 1: Daimler, BMW and Audi (2015)

- Case 2: VW Group (2006-2016)


Financial Statement

Change in Shareholder’s

Equity

Balance Sheet

Cash Flow

Income Statement

4 Key Financial Statement Element

• Financial summary of operating results

during a specific financial period

• Summarizes financial position at a

given point in time

• Summarizes firm‘s operating,

investing and financial activities

• Showing changes of shareholder‘s

equity over an accounting period

Different historical roots and reasons for their creation:

HGB vs. US-GAAP vs. IFRS

German HGB

Hyperinflation in 1923

→ money lost its value

US-GAAP

Black Thursday in 1929

→ shares lost their value

IFRS

Transparency, accountability

and efficiency to financial

markets around the world

→ need for int’l comparability

Main Differences of HGB, US-GAAP, and IFRSGeneral differences German HGB US-GAAP IFRS

Objective Regulates legal relations of merchants

and provides regulations of accounting

Information about financial position and

capability to generate liquid assets

Information about financial position and

capability to generate liquid assets

Addressee Not stated Investors, shareholders Investors

Relationship to tax law Determination of income to be taxed is

influenced by trade balance

None None

Accounting principle Principle of conservatism Fair presentation Fair presentation

Annual financial statements Balance sheet, income statement,

appendix, status report

Balance sheet, income statement, cash

flow statement, statement of changes in

equity

Balance sheet, income statement, cash

flow statement

Practical example of valuation of

inventories

Balance sheet inventories: a company receives a first delivery of 100 units for the price of 1.000 € and a second delivery of 100

units for 1.200 €. Both deliveries are mixed up. At the end of the fiscal year 100 units are left.

Accounting methods FIFO: 1.200 €

LIFO: 1.000 €

Weighted-⌀: 1.100 €

Specific indent.: 1.000 € or 1.200 €

FIFO: 1.200 €

LIFO: 1.000 €


Specific indent.: 1.000 € or 1.200 €

FIFO: 1.200 €

LIFO: not permitted


Specific indent.: not required

How inventories would be stated 1.000 €

→ protection of creditors

→ lower shareholder equity

1.200 €

→ higher shareholders equity

1.200 €

→ higher shareholders equity

Content









- Case 2: VW Group (2006-2016)

2. Financial Statement Ratio

Type of Ratio Comparison

Cross Sectional Analysis (Benchmark) Time Series

AB

Cross-sectional analysis involves the comparison of different firms’

financial ratios at the same point in time.

• Competitor Comparison

• Industry Average Comparison

Years

Sales

Time-series analysis evaluates performance over time.

• Comparison of current to past performance

• Assess the firm’s progress

• Developing trends by using multiyear comparisons.

Debt ratioLiquidity ratio

Activity ratio

Market ratio

Profitability ratio

Liquidity ratio

• Current ratio, quick ratio

• Measures a company’s ability to pay debt

obligations

Debt ratio

• Debt ratio, Times interest earned ratio

• Measures the extent of a company’s

leverage

• The higher this ratio, the greater the amount

of other people’s money being used to

generate profits.

Activity ratios

• Inventory turnover, total asset turnover, Average collection period

• Measure a firm’s efficiency in using its resources within its balance sheet into

sales or cash—inflows or outflows.

Profitability ratio

• Gross profit ratio, operating profit ratio, net profit ratio, ROA, ROE

• Assess a company’s ability to generate earnings compared to its expenses and

costs incurred during a specific period of time.

Market ratios

• Price earning ratio, market book ratio

• Compare company’s current share price to certain

accounting values.

• These ratios give insight into how investors in the

marketplace feel the firm is doing in terms of risk and

return.

Categories of Ratio Comparison

Content









- Case 2: VW Group (2006-2016)


Benchmark Comparison for Year

2015

Automobile Industry

• Automobile is not only one of the strongest industry in

Germany, but also one of the world's most

important economic sectors by revenue.

• The automobile industry has surged ahead worldwide in

recent years, with particularly sharp growth, especially

financially.

• Industry radical changes: e-mobility, connectivity and

autonomous driving.

• Daimler, Audi and BMW are the top 3 premium

automobile manufacture.

149.47

58.42

92.16

Total Revenue 2015

Daimler Audi BMW

Sample Case 1

Ratios Calculation DAIMLER 2015 AUDI 2015 BMW 2015 Industry Average

Current Ratio Current assetsCurrent Liabilities 1.19 1.43 0.94 1,84

Quick ratio Current Assets-InventoryCurrent Liabilities 0.88 1.14 0.67 0,5

Inventory turnover Cost of Goods soldInventory 4.95 7.45 6.68 10,61

Total assets turnover SalesTotal Assets 0.69 1.03 0.56 1,15

Average collection period Accounts ReceivableAverage sales per day 32.14 25.6 38.16 30

Debt Ratio Total LiabilitiesTotal Assets 0.75 0.62 0.8 1

Times interest earned ratio Earnings before Interest &taxInterest 3.27 5.35 22.81 10

Gross profit margin % Gross profitSales 21% 19.47% 19.67% 19,75%

Operating profit margin % Operating ProfitSales 7.52% 8.28% 10.41% 7,99%

Net profit margin % Earnings for common StockholderSales 6% 7.36% 6.91% 4,78%

Earning per share (Euro) Earnings for common StockholderNo. of share of common stockholder

outstanding7.87 97.78 9.7 10

Return on total assets % Earnings for common StockholderCommon stock Equity 4% 7.57% 3.9% 5,59%

Return on Equity % Net IncomeStockholders Equity 16.43% 19.73% 15.97% 17,74%

Price earning ratio Market price per Share of common stockEPS 8.29 6.91 7.7 7

Market/book ratio Market price per Share of common stockBook Value Per share of common stock 1.53 1.33 1.5 1.20

Cross Section Ratio Calculation 2015

Liquidity Ratio & Activity Ratio

1.19

0.88

1.43

1.14

0.94

0.67

1.13

0.50

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Current Ratio Quick Ratio

Liquidity Ratio

DAIMLER AUDI BMW Automotive Average

4.95

0.69

7.45

1.03

6.68

0.56

10.61

1.15

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Inventory Turnover Total Assets Turnover

Activity Ratio


Debt Ratio & Market Ratio

8.29

1.53

6.91

1.33

7.70

1.50

7.00

1.20

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Price Earning Ratio Market/Book Ratio

Market Ratio


0.75

0.62

0.80

1.00

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Debt Ratio

Debt Ratio


21.00%

7.52%

6.00%

4.00%

16.43%

19.47%

8.28%7.36% 7.57%

19.73%19.67%

10.41%

6.91%

3.90%

15.97%

19.75%

7.99%

4.78%5.59%

17.74%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Gross profit margin % Operating profit margin % Net profit margin % Return on total assets % Return on Equity %

Profitability Ratio

DAIMLER 2015 AUDI 2015 BMW 2015 Automotive Average

Profitability Ratio

%

Financial Statement RatioTime Series Analysis

• Leading global automotive group with extensive brand portfolio.• The recent scandal will make it fascinating to look at the financial analysis. A considerable

uncertainty about the future outlook.

VW Group

Sample Case 2

Volkswagen Time series Analysis from 2006 to 2016

Period 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Current Ratio 1.14 1.22 1.18 1.12 1.12 1.05 1.07 1.03 1 0.98 1.00

Quick acid ratio 0.91 0.96 0.86 0.9 0.88 0.77 0.79 0.78 0.75 0.74 0.76

Inventory T/o 7.26 7 6.07 5.74 6.64 5.82 5.6 5.63 5.52 5.39 9.40

Total assets T/o 0.78 0.77 0.73 0.61 0.67 0.7 0.68 0.62 0.6 0.58 0.55

Average collection period 33.42 34.07 35.47 39.65 39.41 40.1 38.92 39.9 41.3 40.69 43.72

Debt Ratio 1.07 0.92 0.97 1.05 0.81 0.77 0.82 0.7 0.75 0.82 0.71

Times interest earned ratio

2.13 4.97 4.64 1.56 3.14 10.25 0.82 4.12 8.74 0.2 1.50

Gross profit margin % 13.21 14.96 15.11 12.91 16.9 17.55 18.25 18.07 18.04 15.9 18.09

Operating profit margin% 1.92 5.65 5.56 1.76 5.63 7.07 5.97 5.92 6.27 -1.91 0.58

Net profit margin% 2.62 3.78 4.18 0.91 5.39 9.67 7.11 2.79 5.36 -0.74 0.15

Earning per share(Euro) 1.4 2.07 2.37 0.47 3.03 6.62 9.28 3.72 4.36 -0.64 0.12

Return on Equity % 10.89 14.02 14.21 2.73 16.82 29.77 20.29 6.65 12.21 -1.78 0.36

Return on total assets % 2.04 2.92 3.03 0.56 3.63 6.8 4.86 1.73 3.21 -0.43 0.08

Price earning ratio 12.21 15.1 15.63 32.31 7.97 3.49 3.78 10,92 8,43 -43,3 6.95

Market/book ratio 1.25 1.97 3.03 0.87 1.09 0.3 0.99 1.06 0.92 0.81 0.72

Time Series Ratio 2006 - 2016

VW Group (2006 – 2016) Liquidity

Ratio

1.14

1.221.18

1.12 1.121.05 1.07

1.031 0.98 1

0.910.96

0.860.9 0.88

0.77 0.79 0.780.75 0.74 0.76

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Current Ratio Quick Acid Ratio

7.267

6.075.74

6.64

5.825.6 5.63 5.52 5.39

9.4

0.78 0.77 0.73 0.61 0.67 0.7 0.68 0.62 0.6 0.58 0.55

0

1

2

3

4

5

6

7

8

9

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inventory Total Asset

9,4

VW Group (2006 – 2016) Activity Ratio

6,64

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Debt Ratio

Debt Ratio

VW Group (2006 – 2016) Debt Ratio

1.07 0.92 0.97 1.05 0.81 0.77 0.82 0.7 0.75 0.82 0.71

2.13

4.974.64

1.56

3.14

10.25

6.1

4.12

8.74

0.2

1.5

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Debt Ratio Times interest earned ratio

10,25

8,74

0,2

VW Group (2006 – 2016) Market Ratio

12.2115.1 15.63

32.31

7.97

3.49 3.78

10.928.43

-43.3

6.95

1.25 1.97 3.030.87 1.09 0.3 0.99 1.06 0.92 0.81 0.72

-50

-40

-30

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Price Earning Ratio Market/Book Ratio

-43,3

32,31

10.8914.02 14.21

2.73

16.82

29.77

20.29

6.65

12.21

-1.780.36

-5

0

5

10

15

20

25

30

35

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Return on Equity %

VW Group (2006 – 2016) Profitability Ratio (2/2)

2.042.92 3.03

0.56

3.63

6.8

4.86

1.73

3.21

-0.430.08

-1

0

1

2

3

4

5

6

7

8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Return on total Asset %

-1,78

29,77

6,8

-0,43

-20,000 €

10,000 €

40,000 €

70,000 €

100,000 €

130,000 €

160,000 €

190,000 €

220,000 €

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Overall Performance

Net Income Gross Profit Revenue

VW Group (2006 – 2016) Profitability

Mio.€

Summary

• The different accounting methods of HGB, US-GAAP, and IFRS can lead to

different results when calculating financial ratios.

• Financial Statement ratios are useful management tool for investors,

creditors and managers inside of a company to understand financial result and

trends over time.

• Interpretation of ratios requires consideration of a company’s holistic

business activities. Lower ratio does not necessarily mean bad performance,

the company‘s investment, financial activities have also impact on their

long/short term ratios.

Thank you for your attention!

Education

Volkswagen Financial ratio analysis for 2015 & 2016