Financial Ratio Analysis: Daimler Group and Bmw Group Essay

AbstractIn this report, we calculate and equivalence the financial performance amid Daimler Group and BMW Group in twain financial grades 2010-2011. The heading is to analyse the financial performance of two groups and identify our ships friendships position, thus suggesting the emf argonas for improvement for our company.I) IntroductionIn this report, we analyse and compare the financial performance between BMW Group and Daimler Group in 2010 and 2011 utilise financial likenessalitys analysis. The BMW Group and Daimler Group are two of Germanys largest industrial companies and are among the most successful car and motor daily round manufacturers in the world. By doing comparisons, we im snap off be able to identify the financial position and the potential areas of improvement for our hearty. All the figures were copen from the firms annual reports.II) Financial Ratio compendFinancial proportionalitys for BMW Group and Daimler Group are provided on a lower floor.1 ) Profit great powerThe ROCE ratio measures how puff up the business has used the enceinte invested to grant profits while the roe indicates the businesss ability to commit profits victimization shareholders funds. The GPM indicates how untold a company earns taking into consideration the cost of sales. The NPM shows the summation of to each one sales dollar left over after all expenses beget been paid. Both groups deplete achieved signifi shtupt annex in revenue enhancements in 2011 lede to improvements in all profitability ratios comparing to 2010. Both firms turn over been much efficient in using its resources to generate returns, where two ROCE and ROE ratios give showed signifi tummyt increases in 2011. It is also worth noticing that despite having higher(prenominal) GPM for both divisions, Daimlers NPM figures were lower than that of BMW, indicating that Daimler has higher operating expenses than BMW. Overall, BMW has performed breach than Daimler in terms of profitability.2) EfficiencyEfficiency ratios are typically used to analyse how advantageously a company uses its assets and liabilities internally. The sales revenue to capital employed ratio indicates how salubrious the organization used the capital invested in the business to generate revenue for the company as whole. Both companies give birth experienced an increase in the revenues over the previous(prenominal) two years barely both companies havent experienced an increase in the asset perturbation ratio. It has increased with BMW probably as a conclusion of the reduction in the non- menstruation liabilities. The antonym has occurred with Daimler Group most likely as a result of the massive increase in the non-current liabilities. This ratio can be pass on explained using the sales revenue to non-current assets and sales revenue to on the job(p) 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 most definitely been affected by the enthronisation in new non-current assets by both groups but Daimler has managed to use these assets to generate much revenue than BMW but still has used its new non-current assets expeditiously to generate a sales revenue which would in turn fleet to a ratio higher than the previous years ratio figure.The sales revenue to working capital explains how well the company is using its working capital to generate sales revenue. It is one of the best ways to watch the changes in notes overtime, this is important because the company needs cash 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 archive turnover plosive speech sound ratio measures the length of time stock is held deep down the business. Both compan ies are now holding stock for longish than they did in 2010. It takes Daimler 77 days to sell its products while it takes BMW 65days. Both results are quite an 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 business receivables stop ratio calculates how long it takes the company to collect passments from its customers. A business will naturally be concerned with the amount of funds tied up in trade receivables and try to keep this at a minimal as it can have a significant affect on the cash point of the business. This has not changed much for both companies over the past two years but has increased sparingly for BMW in 2011. Daimler has more than funds tied up in trade receivables.The trade payables period indicates how long it takes the company to pay its suppliers. Most companies would prefer this to be as long as possible but this can be taken to far and re sult in the loss of heartfeltwill 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 devout cash flow movement for both companies. The operating cycle is expressed as an forefinger of management efficiency. It has three components of inventory turnover period, trade receivables period and trade payables period. These come together to form the complete measurement of operating cycle days. This hasnt changed for Daimler over the past two years and has increased slightly for BMW. It takes BMW a shorter period to generate revenue from its purchase of inventory than it takes Daimler.3) lucid stateLiquidity ratios attempt to measure a companys ability to pay off its short-term debt obligations. In general, the greater the showingage of liquid 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 time to come 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 equivalent 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 falls below 1 in both years for both firms, thus both firms are unable to pay back its short term debts immediately, it does not necessarily mean that it will go bankrupt as on that point are many ways to access financing but it is definitely not a good sign. In general, Daimlers current and right away ratios showed a slightly better liquidity 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 full analyze two companies liquidity circumstances. The Cash Conversion Cycle ( 300) is similar to the Operating Cycle. While the parts are the same 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 operational capital assets. The CCC measures the number of days a companys cash is tied up in the take and sales process of its operations and the benefit it gets from paymen t terms from its creditors.The shorter this cycle, the more liquid the companys working capital position is. In general, 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 being 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) SolvencyGearing measures the proportion of a companys finance which is provided from external sources. In theory, the higher level of railroad train, the riskier the business, since beguile and repayment of debts must be paid unheeding of the situations. However, gearing can be a financially soun d part of a businesss capital structure, especially if the business has strong, predictable cash flows. Both companies 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 fairness. 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 normally 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 by-line on outstanding debt.There has been a good amount of increase in this ratio in BMW as well as i n 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 Daimler) greater than the amount of interest that it incurred on its respective outstanding debts. A higher interest cover ratio indicates that the business is easily able to meet its interest obligations. Usually any interest coverage ratio higher than 1.6 is considered gum elastic which leaves us to the conclusion that BMW and Daimler Group both are safe companies in matters of Interest payable on outstanding debt.III) ConclusionThe 2011 financial year was an excellent one for the Daimler where sales volume, revenue and earnings figures all importantly 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 and improve its efficiency by better managing the Operating Cycle. In this paper, we have illustrated relationships between different aspects of the firms operations an d provided relative measures of the firms conditions and performance. By comparing two similar firms in the same 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 other aspects of the business, therefore, users should approach them with caution.