Financial Ratio Analysis: Daimler Group and Bmw Group Essay

AbstractIn this report, we calculate and examine the financial performance between Daimler throng and BMW radical in two financial years 2010-2011. The objective is to analyse the financial performance of two groups and identify our lodges position, thus suggesting the potential atomic number 18as for breakment for our accompany.I) IntroductionIn this report, we analyse and compare the financial performance between BMW convention and Daimler Group in 2010 and 2011 using financial symmetrys analysis. The BMW Group and Daimler Group are two of Germanys largest industrial companies and are among the most successful car and motorcycle manufacturers in the world. By doing comparisons, we will be able to identify the financial position and the potential areas of improvement for our firm. either the figures were taken from the firms annual reports.II) Financial Ratio AnalysisFinancial dimensions for BMW Group and Daimler Group are provided below.1) profitabilityThe ROCE ratio measures how rise up the problem has utilize the capital invested to generate profits turn the hard roe indicates the businesss ability to generate profits using shareholders coin. The GPM indicates how much a company earns taking into rumination the cost of gross sales. The NPM shows the amount of each sales dollar left over after all expenses give birth been paid. two(prenominal) groups commence achieved signifi empennaget increase in revenues in 2011 campaigning to improvements in all profitability ratios comparing to 2010. some(prenominal) firms have been more than efficient in using its resources to generate returns, where both ROCE and ROE ratios have showed signifi natest increases in 2011. It is also worth noticing that despite having higher GPM for both years, Daimlers NPM figures were dismount than that of BMW, indicating that Daimler has higher operating expenses than BMW. Overall, BMW has performed check than Daimler in terms of profitability.2) Efficienc yEfficiency ratios are typically used to analyse how well a company uses its assets and liabilities internally. The sales revenue to capital employed ratio indicates how well the organization used the capital invested in the business to generate revenue for the company as whole. Both companies have experienced an increase in the revenues over the past two years but both companies havent experienced an increase in the asset turnover ratio. It has increased with BMW probably as a result of the reduction in the non- accepted liabilities. The opposite has occurred with Daimler Group most likely as a result of the massive increase in the non- authentic liabilities. This ratio put up be further explained using the sales revenue to non- original assets and sales revenue to operative capital ratio.The sales revenue to non-current assets ratio measures how well the managers invested the non-current assets of the company to generate revenue for the growth of the business. This ratio has mos t definitely been affected by the investment in new non-current assets by both groups but Daimler has managed to use these assets to generate more revenue than BMW but equable has used its new non-current assets efficiently to generate a sales revenue which would in turn lead to a ratio higher than the previous years ratio figure.The sales revenue to work capital explains how well the company is using its working capital to generate sales revenue. It is one of the silk hat ways to watch the changes in capital overtime, this is important because the company needs immediate cave inment to operate. Daimler has experienced a significant decrease in this ratio and BMW, the opposite occurred. This could be as result of fluctuations in the current assets and liabilities of both companies.The inscription turnover period ratio measures the length of time stock is held within the business. Both companies are now holding stock for long-lasting than they did in 2010. It takes Daimler 7 7 days to sell its products while it takes BMW 65days. Both results are quite high but BMW has an advantage. This means that BMW has fewer inventories in store than Daimler at the end of the year, which means lower holding costs for BMW.The trade receivables period ratio calculates how long it takes the company to collect fabricatements from its customers. A business will naturally be concerned with the amount of funds laced up in trade receivables and try to keep this at a minimum as it can have a significant impact on the cash flow of the business. This has not changed much for both companies over the past two years but has increased purely for BMW in 2011. Daimler has more funds tied up in trade receivables.The trade payables period indicates how long it takes the company to pay its suppliers. more or less companies would prefer this to be as long as possible but this can be taken to far and result in the loss of goodwill of suppliers. Both groups have managed to increase the period it takes them to pay their creditors. Both companies take a longer period to pay their suppliers than it takes for their debtors to pay what they owe.This shows a good cash flow movement for both companies. The operating cycle is expressed as an indicator of management efficiency. It has trey components of inventory turnover period, trade receivables period and trade payables period. These come together to form the complete amount of operating cycle days. This hasnt changed for Daimler over the past two years and has increased slightly for BMW. It takes BMW a laconicer period to generate revenue from its purchase of inventory than it takes Daimler.3) LiquidityLiquidity ratios attempt to measure a companys ability to pay off its short-term debt obligations. In general, the greater the coverage of still assets to short-term liabilities the better it is, because it gives a clear signal to whether a company can pay its debts that are due in the near future and still be able to fund its ongoing operations. The current ratio measures a companys ability to pay back its short-term debts in short notice. The acid test ratio is similar to the current ratio except does not include inventory and prepaid expenses as assets but only those that can be turned into cash easily. Therefore, it measures the firms ability to pay its current obligations immediately. Comparing the two companies, those figures are quite similar. As for manufacturing companies like Daimler and BMW, current ratio of/more than 1 is desirable.Both companies did manage well to achieve the target figures in both years. Changes in the ratios between two years are not significant, but it is worth pointing out that Mercedes showed a small improvement in fluidity (from 1.07 to 1.22), whereas BMW got a minor decline (from 1.08 to 1.04). Although the acid test ratios fall below 1 in both years for both firms, thus both firms are ineffective to pay back its short term debts immediately, it does not necessarily mean that it will go rupture as there are many ways to access financing but it is definitely not a good sign. In general, Daimlers current and quick ratios showed a slightly better gas position, comparing to BMWs. In fact, liquidity ratios are remarkably affected by the companys working capital management.That is why we should examine some working capital figures to fully analyze two companies liquidity circumstances. The Cash Conversion Cycle (CCC) is similar to the Operating Cycle. While the parts are the uniform receivables, inventory and payables in the CCC, they are analysed from the perspective of how well the company manages its cash, as opposed to their impact on operative capital assets. The CCC measures the number of days a companys cash is tied up in the production and sales process of its operations and the benefit it gets from payment terms from its creditors.The shorter this cycle, the more liquid the companys working capital position is. In genera l, both firms have taken longer to shift their stocks, receive payments and pay out their creditors in 2011 comparing to 2010. This trend could mean the demand for the firms products has been decreasing. Moreover, BMW performed better than Daimler with all of its figures world noticeably lower in both years. Therefore, the CCC of BMW is considerably lower than that of Daimler. Apparently, we can see that both companies had reasonable figures and good working capital management. Yet, overall, BMW seemed to have performed better than Daimler, as the processes were faster.4) Solvency railroad train measures the proportion of a companys finance which is provided from external sources. In theory, the higher level of gearing, the riskier the business, since sideline and repayment of debts must be paid regardless of the situations. However, gearing can be a financially sound part of a businesss capital structure, especially if the business has strong, predictable cash flows. Both compani es have had a consistent gearing ratio of about 65% (for BMW) and about 55% (for Damlier Group) over the course of 2 years (2010 and 2011) which states that the companies are highly geared. Debt Equity Ratio is the ratio of the debt that a company has to the its shareholders equity. A higher the percentage means that a company is using more leverage and has a weaker equity position.Optimally the debt equity ratio of a company should be 1. For most companies, the ratio is usually between 1.5-2. The debt equity ratio of BMW shows a slight fall this year and a slight increase in the case of Daimler Group. BMWs gearing ratio and debt to equity ratio indicate that BMW is more leveraged than Daimler. Interest cover ratio is used to determine how easily a company can pay interest on outstanding debt.There has been a good amount of increase in this ratio in BMW as well as in Daimler Group as it can be seen above. It can be said that the profit of BMW was 8.5 times and 6.94 times (for Daimle r) greater than the amount of interest that it incurred on its several(prenominal) outstanding debts. A higher interest cover ratio indicates that the business is easily able to construe its interest obligations. Usually any interest coverage ratio higher than 1.6 is considered safe which leaves us to the coating that BMW and Daimler Group both are safe companies in matters of Interest payable on outstanding debt.III) end pointThe 2011 financial year was an excellent one for the Daimler where sales volume, revenue and earnings figures all significantly improved. Daimler Group should control its operating costs and continue to invest in R&D to maintain and improve its profitability levels. It could also further improve its efficiency by better managing the Operating Cycle. In this paper, we have illustrated relationships between different aspects of the firms operations and provided relative measures of the firms conditions and performance. By comparing two similar firms in the s ame industry in two years, we have found that BMW has performed slightly better than our firm (Daimler) despite being more leveraged. However, the financial ratios are pure mathematics and do not take into account another(prenominal) aspects of the business, therefore, users should approach them with caution.