BMW Company Financial Management Analysis - Assignment Example

BMW COMPANY al Affiliation: BMW Company Executive Summary Financial management analysis is also referred to as financial statement analysis or accounting analysis or analysis of finance. It refers to an assessment of the viability, stability, and profitability of a firm, business or venture. Professional who prepares reports using ratios makes use of information taken from financial statements and other reports to perform this duty. In most cases, these reports are presented to top management in order to facilitate accurate and informed decision-making especially that concern the particular firm. A basic investigation contains detail of the BMW financial statements. This will account for, the growth-sales and profit trends, the strength of cash flow generation, the levels of profit and the overall liquidity while identifying and recognizing how this compares to the competitors in the industry. BMW financial analysis may cover efficiency ratios, like the components of the cash conversion cycle, turnover ratios and a breakdown of return on equity components and return on capital employed. Financial analysis of the BMW result is to develop a business strategic plan that will have an aim of incorporating marketing initiatives that will attain better performance of the company. BMW have set ways of reorganizing their strengths and powers to ensure they are well recognized in the competitive automobile global markets. BMW has ventured into different strategic business locations that have provided quality services and products hence expanding their shares beyond limits of their competitors. BMW management has recognized ways that will increase and develop skills, knowledge and aptitude aimed at having effective competition within automobile markets. Table of Contents Executive Summary 2 Table of Contents 3 Background to the Industry 4 Brief History 4 Brief introduction to the Evolution of the Products or Services Offered by the industry since its founding 4 Key players in the industry by market share 4 Utility of the product or service (material, time, possession, psychological 5 What metrics are used to measure successful operations in this industry? E.g. productivity, throughput, service level, capacity utilization) 5 What are the compliance issues facing the key players doing business in this industry? 6 What are the key success factors in this industry? 7 BMW Group in Figures 7 Break the measures into the following categories 8 Apply what you have learned from the class to evaluate 10 What are the compliance issues facing key players doing business in the industry? 10 Apply what you have learned from the class to evaluate 11 What is the potential for companies in this industry? 11 Ethical Issues and Concerns 12 Conclusion 13 References 16 Background to the Industry Brief History Bavarian Motor Work or BMW is a German automobile, engine and motorcycle-manufacturing corporation incorporated in 1916. Headquarters of BMW are in Munich, Bavaria Germany. BMW owns and produce mini cars with its parent company of Roll-Royce motor cars. BMW Inc, produce motorcycles under the BMW Motorrad. BMW manufactured 1,845, 186 automobiles in the year 2012 and in the same year it produced other 117,109 motorcycles speared over their well-known automobile brands. Brief introduction to the Evolution of the Products or Services Offered by the industry since its founding BMW was incorporated as a major business entity after Rapp Motorrenwerke was restructured. The company was restructured in 1917 and was among best aircraft manufacturers. After the end of WW I, BMW ceased from manufacturing aircraft engines with creation of terms on Versailles armistice treaty. Afterward, BMW shifted to production of motorcycle in the year 1923. Restriction of this treaty was lifted and what followed was production of automobiles in 1928 (BMW, 2011). Key players in the industry by market share BMW is among the top three German large producers of luxury automobiles along with Mercedes-Benz and Audi. As well, BMW is listed to be one of the best world luxury automakers in the world (BMW, 2012). Utility of the product or service (material, time, possession, psychological According to forbes.com, BMW was the best reputable company in the world in 2012. These rankings were based on people willingness to recommend, purchase, invest and work for the company. The company reputation was cited to be fostered largely by perceptions of the company and perceptions ideas of their commodity (BMW, 2012). What metrics are used to measure successful operations in this industry? E.g. productivity, throughput, service level, capacity utilization) The major key agendas that are within BMW business plans are ways that will target its competitors, VRIN analysis, BCG analysis and SWOT analysis. SWOT analysis of BMW indicates the strength and weakness that are within their automobiles industry and operations. BMW strength has been cast on having an effective supply chain that has better and elaborate logistic system. Hence, BMW has been able to makes some of its operations more efficient hence having well management of resources and assets that are within the company. BMW has been associated with opportunities of being a well-innovated company that has made some of the company products and services to appeal to customer. The innovation level of the company has been well set to apply the up new techniques that are more effective in production of luxury automobiles. BMW is associated with having best quality and well set penetration routes to automobiles markets having world best communication satellite that capture all their markets (BMW, 2013). The company opportunities are ways to move globally growing and developing most of its operations in the middle class. Fairly, there is the opportunity of moving to E-business idea that will be equipped by the telecommunication networks. Finally, BMW is on the inorganic best’s critical growth that will lead to good business consolidations. There are few weakness of within BMW operations that are on the unionized and the labor law, the challenge of adopting their business internationally and having poor public corporate images. The treats that are in BMW are on the international trade blocks and regulations, the issue on war and terrorism, the competition issue that is strong in Europe, pollution and the anti-dumping and anti-competitive laws within their industrial operations (BMW, 2012). What are the compliance issues facing the key players doing business in this industry? Management course was set toward attaining a successful business in the year 2007. The management team decided on ways that will include the best strategies that will move BMW business ahead. Business part of the company was offered new strategic directions that initiated emphasis on the achievement of profitable business and long valuable growth. BMW activities have remained firm and are closely focused on ways that will segment premiums within internal market for automobiles. Company mission statement is clearly well defined that “the BMW Group is the world’s leading provider of premium products and premium services for individual mobility.” (BMW, 2012). What are the key success factors in this industry? BMW has opted in taking up new long term thinking that elaborate having responsible action that will incorporate company foundation in achieving its success. The management team for BMW has strived on ways that will attain ecological and social sustainment that will have to add in values for their worldwide supply chain. As well, management has taken full responsibilities of producing quality automobiles that will have explicit commitments hence preserving firm resources. BMW Management has objectives that will push and incorporate strategies together. For these management strategies, BMW group has been listed as one of the best-sustained company within the automobile industry for a long time (BMW, 2011). BMW Group in Figures Sales Volume- Automobiles 2011 2012 2013 BMW 1,380,384 1,394,280 1,399,770 MINI 285,060 236,175 279,538 Rolls-Royce 2,711 3,567 3,879 Sales volume motorcycles BMW 102,467 102,698 104,288 Husqvarna 13,511 13,052 12,066 BMW financial figures for the fiscal year ended 2011, 2012 and 2013. Financial figures in € million 2011 2012 2013 Revenues 74,821 68,681 60,477 Capital expenditures 4267 4204 4387 Operating cash flows 6246 5890 7834 Net profit 4907 4698 4769 Break the measures into the following categories The liquidity ratios that the BMW organization needs to determine include current ratio, quick ratio and cash ratio. Current ratio assists the organization to measure its ability to pay short-term obligations. Higher current ratio indicates that the company would be more capable of paying its obligations. Quick ratio is the ration that indicates the company’s ability to meet its short-term obligations with its liquid assets. Higher quick ratio indicates that the company is doing well (BMW, 2012) (check table 1) According to the financial ratio trend on liquidity level of BMW, it is clear that there have been changes in the performance of the company. For instance in the current ratio trend, the ratio was 2.2 at 2011, 2.6 at 2012 and in year 2013 it has a stand of 1.4. This is wide improvement in the performance of current asset to current liabilities. All other ration in the liquidity category has shown a wide improvement mainly on the performance (Knežević, Rakočević & Đurić, 2011). As well, there are higher performances that are shown in the profitability ratio for the company. For instance, in the dividend payment ratio, the percentage performances in payment of dividend have been decreasing the trend. In year 2011, the percentage ration for the firm dividend payout ratio was 22.89%, in 2012, it was 16.28% and in 2013, it was 16.53% (BMW, 2012). Apply what you have learned from the class to evaluate Financial ratios enable the management in BMW to evaluate the current and future financial needs of a company and making sure, it has enough resources to fund the same. The company in not only prepared to deal with its current expenses but also future expenses. As a result, it is also able to avoid any business challenges that may result from lack of funding. Financial ratio also enables BMW organization to manage its income in the desired manner. This is achieved through budgeting and business strategic planning. BMW is able to avoid a situation where it misuses its income. BMW is also able to enhance its cash flow by monitoring its expenses and determining what needs to be done to generate more funds. Increased cash flow can lead to increased capital. As a result, BMW is able to think of investment strategies that will enhance its position in the automobiles market (Korteweg, 2010). Financial ratios of BMW company need to be compared with those of the industry. Financial analyst should compare the ratios of the company with the industry averages of the companies with common size. Industry analysis is very imperative, as this will help the organization to determine organizational performance against that of the competitor company. When the company’s ratios are higher than those of the industry the ratios will be in right track. On the other hand, when the ratios of the company are below that of the industry, the managers should find ways of developing strategies that will help to improve the performance of the company (Knežević, Rakočević & Đurić, 2011). What are the compliance issues facing key players doing business in the industry? Financial ratio analysis has their limitations. Ratios are tools that focus on quantitative analysis while ignoring qualitative aspects of the financial information. There are qualitative aspects of financial information that the ratio analysis fail to capture. Ratios are affected by inflation. They are based on historical information and do not take into account the changes in inflation. This implies that even the profits of the company are as well affected and distorted (Korteweg, 2010). Ratios may offer false results since they may sometimes be calculated from erroneous accounting data. Ratios are usually calculated based on past accounting data. The seasonal changes are not taken into consideration and this may lead to misinterpretation and poor forecasting of future performance. Ratios may also be distorted due to differences in accounting practices. Organizations use different accounting practices and this affects comparison (Boguslauskas, Mileris & Adlytiė, 2011). Apply what you have learned from the class to evaluate In BMW, there are issues and conflict on management especially among internal and external stakeholders. Managers in BMW may make decisions that conflict with the best interest of firm shareholders. For example, managers may avoid investing in risky assets that may generate more returns to the shareholders. Investing in assets that will generate higher returns to the investors may be in the best interest of the shareholders that conflict with the manager’s best interest of ensuring enough asset security. Agency problem may also occur between shareholders and creditors (Žager, Sačer & Dečman 2012). For example, when BMW managers borrow more money on behalf of the firm shareholders to purchase shares and increase shareholder return. In such a case, the shareholders will benefit while the creditors will be concerned with how increased debt will affect the future cash flow (BMW, 2012). What is the potential for companies in this industry? Managerial compensations program at BMW should support manager’s interests together with those of stockholders. BMW managers should be given a certain number of shares based on the company’s performance in each year. Intervention and including shareholders to management issue will solve some of the possible conflicts. BMW shareholders should be able to pressure managers to work in their paramount interest. For instance, the shareholders may encourage the board of directors to substitute some of the current managers (Akbulut & Aktaş, 2013). BMW managers must take responsibility of developing business plans and look for better business opportunities that will come up will elaborate efforts that will create business ventures with crucial skill. This will account for new ways of exploiting all available resources in BMW hence formulating business strategic plans that create lively beneficial business. Some of the features that characterize some of this BMW managers are; seeking of opportunities, taking all risk that surpass limit of safety, and having gist of creating ideas that are practical with sensible element. Such strategies are achieved due to the application of advanced technology, knowledge transfer and collaborating efforts aimed at creating real ideas that are competent, secured and proficient for the firm (Karim & Alam, 2013). Precisely it carries managers owns ability to make astonishing move that characterize better leadership team in BMW that understand ways to grow. This will develop strategies and options portfolios that master fundamental adjacencies. Fundamental adjacency indicates manager’s ability to go beyond normal business and practices while aiming at seizing all available opportunities within the wide global automobile market (Akbulut & Aktaş 2013). Ethical Issues and Concerns BMW should come up with new business strategic plan that have a look on ways that will attain developments. Business strategic plan will commence power that is within company success. In BMW cases, the new business podiums do take consideration of rules and all other essential facilities that organize and manage commerce as the main trading engine for the company. New business podium must have consideration and a review of especially on society, marketplace and other competitors. The business podium will have wide development on ways that will attain perfect control of business process within firm operations. Clients for the BMW will be forced to be quite tolerant. Implementing BMW new strategic plan will ensure business capability in creating an enabling podium for customer that will be almost parallel to those of top competitors. The podium will enable BMW business stakeholders to attain their major plan in the business while enabling clients to have a better ground of selling and buying within BMW community. Business platform will enable entrepreneurship, personal and professional growth, and reputation development that will be done on an extraordinary scale within BMW. This means that, new business strategic plan does not only provide new ways of scaling BMW business but also create values within BMW business community. These generate the actual meaning of share in BMW corporate values. Conclusion Businesses strategies will ensure company attain strategic business unit level that is essential and significant for the Company operation. This can be achieved if the top management of the company decides to establish directions that are more specific. For example, identifying the potential customers and then conducting a promotion program to create awareness of the products and services that are available. This will make the company to exploit the value-creating opportunities established by business strategies. It is important to highlight that the company should reorganize its structure in accordance with the needs and wants of the customers so that a more satisfying products and services can be delivered to the markets. Business strategies will ensure that the company satisfies the needs and preferences of the customers, a factor that will enable it to expand their market shares. Appendices Table 1 Leverage Ratio 2011 2012 2013 Debt to equity ratio= long term debt/ common equity capital =12056/1206 =9.9 =12486/1291 =9.68 =8218/1293 =6.4 Debt to capital ratio=long term debts/total capital employed =12056/3642 =3.3 12486/5289 =2.4 8218/3762 =2.24 Debt ratio=total debts/total assets =16698/21659 =0.77 15578/20867 =0.75 11301/15063 =0.75 Table 2 Ratio analysis Liquidity ratio 2011 2012 2013 Current ratio=current assets/current liabilities 3656/1652 =2.2 =3662/1414 = 2.6 =3650/2616 = 1.4 Quick ratio=(cash+ accounts receivable+ short-term or marketable securities)/ (current liabilities) =(2354+698)/2013 =1.1 = (2158 +409)1414 =1.8 =(2343+588)/2616 =1.1 Cash ratio=(cash+ Short-term or marketable securities)/ current liabilities =(2265)/2124 =1.1 =(2158)/1414 =1.5 =2343/2616 =0.9 Activity Ratio Inventory turnover ratio= cost of sales/ average stock =3980(961+678)/2 =4.9 =5140/(617+961)/2 =6.5 =4008/(617+586)/2 =6.6 Stock holding period=(360 days/cost of sales) =360/3459 =0.1 =360\5140 =0.07 = 360/4008 =0.09 Total asset turnover ratio=(Revenue)/ (Average Total Assets) =1876/(15467+15063)/2 =0.12 (1746)/(20867+15063)2 =0.11 =1559(15063+13076)2 =0.11 Table 3 Dividend ratio 2011 2012 2013 Dividend cover= EPS/DPS 0.3058/0.0700 =4.3 0.4913/0.0800 =6.14 0.6046/0.1000 =6.0 Dividend payout ratio%=DPS/EPS 22.8908 16.2833 16.5399 Retention ratio= 1-dividend payout ratio 1- 0.228908 =0.771 1-0.162833 =0.837 1-0.165399 = 0.835 References Akbulut, R. & Aktaş, M. (2013). “Proper Financial Strategies for the Multinational Firms against the Global Economic Crisis.” Journal Of Alanya Faculty Of Business / Alanya Isletme Fakültesi Dergisi, 5(2), pp. 1-8. Ambarchyan, M. S. (2013). “Method for Complex Analysis of Banking Group Member Efficiency Rate.” Accounting & Finance / Oblik I Finansi, 61, pp. 62-68 BMW. (2011). Annual Report 2011. Retrieved on November 22, 2014 from: http://www.BMWgroup.com/e/0_0_www_BMWgroup_com/investor_relations/corporate_events/hauptversammlung/2012/BMW-Annual-Report-2011.pdf BMW.2(012). Annual Report 2012. Retrieved on November 22, 2014 from: http://annual-report2012.BMWgroup.com/BMWgroup/annual/2012/gb/English/pdf/report2012.pdf BMW. (2013). Annual Report 2013. Retrieved on November 22, 2014 from: http://www.BMWgroup.com/e/0_0_www_BMWgroup_com/investor_relations/finanzberichte/geschaeftsberichte/2013/_pdf/report2013.pdf Boguslauskas, V. Mileris, R. & Adlytiė, R. (2011). “The Selection Of Financial Ratios As Independent Variables For Credit Risk Assessment.” Economics & Management, 16, pp. 1032-1038 Bujaki, M. & Durocher, S. (2012). “Industry Identification through Ratio Analysis Industry Identification through Ratio Analysis.” Accounting Perspectives, 11(4), pp. 315-322 Karim, R. & Alam, T. (2013). “An Evaluation of Financial Performance of Private Commercial Banks in Bangladesh: Ratio Analysis.” Journal Of Business Studies Quarterly, 5(2), pp. 65-77 Knežević, S. Rakočević, S. & Đurić, D. (2011). “Implementation and Restraints of Ratio Analysis of Financial Reports in Financial Decision Making.” Management (1820-0222), 61, pp. 24-31. Korteweg, A. (2010). “The Net Benefits to Leverage The Journal of Finance The Net Benefits to Leverage.” Journal Of Finance, 65(6), pp. 2137-2170. Ramalho, J. & Silva, J. (2013). “Functional form issues in the regression analysis of financial leverage ratios.” Empirical Economics, 44(2), pp. 799-831. Žager, K. Sačer, I. & Dečman, N. (2012). “Financial ratios as an evaluation instrument of business quality in small and medium-sized enterprises.” International Journal Of Management Cases, 14 (4), pp. 373-385 Read More