Evaluating Financial Performance of Companies

This research evaluates the financial performance of the UK and US car manufacturing industries using financial ratios and models. It compares the profitability, liquidity, efficiency, and solvency of selected companies from both industries.

Running head: EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Evaluating Financial Performance of Companies
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1EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Abstract:
Long-term sustainability, development and growth depending on a sound platform of an
organisation need effective decisions and superior performance. These needs mainly depend
on holistic assessment within the organisation. In addition, for sustaining long-term
prosperity, organisations are required to base their businesses on credible and accurate data
that could be gathered from financial analysis. For conducting the current research, the
researcher has used a number of financial tools like financial ratios and models like economic
value added and market value added for evaluating the financial performance of the UK and
US car manufacturing industries. The researcher has used the philosophy of positivism,
descriptive research design and deductive research approach for arriving at the research
outcomes. The three organisations selected from the UK car manufacturing industry include
Aston Martin, Jaguar and Rolls Royce, while the three organisations chosen from the US car
manufacturing industry are General Motors Company, Fiat Chrysler Automobiles and Tesla
Inc.
It has been analysed that in terms of profitability and liquidity, the UK car manufacturing
industry is having competitive edge over the US car manufacturing industry, while the
situation is just the opposite in terms of efficiency in the global market. Finally, in terms of
solvency, both industries are struggling to maintain stable position in the global market.
Therefore, the financial models have been used for estimating their future growth in the
market.

2EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Acknowledgements:
I would like to express my sincere gratitude and thank the following people for their immense
help and support, as without their assistance, it would not be possible for me to complete this
research.
 To my supervisor, your constant direction and guidance enabled me to carry out my
research effectively and diligently
 To my dearest friends and family, as without their financial and emotional support,
the research study would not have been possible
 Finally, I would like to thank sincerely to all the teaching staffs as well as library
staffs in my college/university

3EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table of Contents
Chapter 1: Introduction..............................................................................................................8
1.1 Background of the research..............................................................................................8
1.2 Problem statement............................................................................................................9
1.3 Significance of the research.............................................................................................9
1.4 Research objectives........................................................................................................10
1.5 Research questions.........................................................................................................11
Chapter 2: Literature Review...................................................................................................12
2.0 Introduction....................................................................................................................12
2.1 Financial Analysis..........................................................................................................12
2.1.1 Financial Analysis Objectives.................................................................................12
2.2 Users of the Financial Statements..................................................................................13
2.3 Tools of Financial Statement Analysis..........................................................................14
2.3.1 Financial Ratio Analysis.........................................................................................14
2.3.2 Shareholder Value Added (SVA)............................................................................16
2.3.3 Market Value Added...............................................................................................16
2.3.4 Economic Value Added (EVA)..............................................................................17
2.4 Summary........................................................................................................................17
Chapter 3: Research Methodology...........................................................................................18
3.1 Introduction:...................................................................................................................18
3.2 Research philosophy:.....................................................................................................18

4EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
3.3 Research approach:........................................................................................................18
3.4 Research design:.............................................................................................................19
3.5 Sampling and sample size:.............................................................................................19
3.6 Data collection and analysis:..........................................................................................20
3.7 Timeframe of the research:............................................................................................20
3.8 Summary:.......................................................................................................................21
Chapter 4: Data Analysis.........................................................................................................22
4.1 Introduction:...................................................................................................................22
4.2 Financial analysis of the car manufacturing companies in UK and USA:.....................22
4.2.1 Profitability analysis:..............................................................................................22
4.2.2 Liquidity analysis:...................................................................................................29
4.2.3 Efficiency analysis:.................................................................................................34
4.2.4 Solvency analysis:...................................................................................................41
4.3 Application of financial models in the selected car manufacturing organisations:.......48
4.4 Summary:.......................................................................................................................52
Chapter 5: Conclusion and Recommendations........................................................................53
5.1 Conclusion:....................................................................................................................53
5.2 Linking with the research objectives:............................................................................53
5.3 Recommendations:.........................................................................................................55
5.4 Limitations and future scope of the research:................................................................55
References and Bibliographies:................................................................................................56

5EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table of Figures
Figure 4.1: Profitability ratios of Aston Martin for the years 2013-2017................................23
Figure 4.2: Profitability ratios of Jaguar for the years 2013-2017...........................................24
Figure 4.3: Profitability ratios of Rolls Royce for the years 2013-2017..................................25
Figure 4.4: Profitability ratios of General Motors Company for the years 2013-2017............26
Figure 4.5: Profitability ratios of Fiat Chrysler Automobiles for the years 2013-2017...........27
Figure 4.6: Profitability ratios of Tesla Inc for the years 2013-2017.......................................28
Figure 4.7: Liquidity ratios of Aston Martin for the years 2013-2017....................................29
Figure 4.8: Liquidity ratios of Jaguar for the years 2013-2017...............................................30
Figure 4.10: Liquidity ratios of General Motors Company for the years 2013-2017..............32
Figure 4.11: Liquidity ratios of Fiat Chrysler Automobiles for the years 2013-2017.............33
Figure 4.12: Liquidity ratios of Tesla Inc for the years 2013-2017.........................................34
Figure 4.13: Efficiency ratios of Aston Martin for the years 2013-2017.................................35
Figure 4.15: Efficiency ratios of Rolls Royce for the years 2013-2017..................................37
Figure 4.16: Efficiency ratios of General Motors Company for the years 2013-2017............39
Figure 4.17: Efficiency ratios of Fiat Chrysler Automobiles for the years 2013-2017...........40
Figure 4.18: Efficiency ratios of Tesla Inc for the years 2013-2017.......................................41
Figure 4.19: Solvency ratios of Aston Martin for the years 2013-2017..................................42
Figure 4.20: Solvency ratios of Jaguar for the years 2013-2017.............................................43
Figure 4.21: Solvency ratios of Rolls Royce for the years 2013-2017....................................44
Figure 4.22: Solvency ratios of General Motors Company for the years 2013-2017..............45
Figure 4.23: Solvency ratios of Fiat Chrysler Automobiles for the years 2013-2017.............46
Figure 4.24: Solvency ratios of Tesla Inc for the years 2013-2017.........................................47

6EVALUATING FINANCIAL PERFORMANCE OF COMPANIES

7EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table of Tables
Table 3.1: Timeframe of the research......................................................................................21
Table 4.1: Profitability ratios of Aston Martin for the years 2013-2017.................................22
Table 4.2: Profitability ratios of Jaguar for the years 2013-2017............................................23
Table 4.3: Profitability ratios of Rolls Royce for the years 2013-2017...................................24
Table 4.4: Profitability ratios of General Motors Company for the years 2013-2017.............26
Table 4.5: Profitability ratios of Fiat Chrysler Automobiles for the years 2013-2017............27
Table 4.6: Profitability ratios of Tesla Inc for the years 2013-2017........................................27
Table 4.7: Liquidity ratios of Aston Martin for the years 2013-2017......................................29
Table 4.8: Liquidity ratios of Jaguar for the years 2013-2017.................................................30
Table 4.9: Liquidity ratios of Rolls Royce for the years 2013-2017.......................................30
Figure 4.9: Liquidity ratios of Rolls Royce for the years 2013-2017......................................31
Table 4.10: Liquidity ratios of General Motors Company for the years 2013-2017...............32
Table 4.11: Liquidity ratios of Fiat Chrysler Automobiles for the years 2013-2017..............32
Table 4.12: Liquidity ratios of Tesla Inc for the years 2013-2017..........................................33
Table 4.13: Efficiency ratios of Aston Martin for the years 2013-2017..................................35
Table 4.14: Efficiency ratios of Jaguar for the years 2013-2017.............................................36
Figure 4.14: Efficiency ratios of Jaguar for the years 2013-2017............................................36
Table 4.15: Efficiency ratios of Rolls Royce for the years 2013-2017....................................37
Table 4.16: Efficiency ratios of General Motors Company for the years 2013-2017..............38
Table 4.17: Efficiency ratios of Fiat Chrysler Automobiles for the years 2013-2017.............39
Table 4.18: Efficiency ratios of Tesla Inc for the years 2013-2017.........................................40
Table 4.19: Solvency ratios of Aston Martin for the years 2013-2017....................................42
Table 4.20: Solvency ratios of Jaguar for the years 2013-2017...............................................42
Table 4.21: Solvency ratios of Rolls Royce for the years 2013-2017.....................................43

8EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.22: Solvency ratios of General Motors Company for the years 2013-2017...............45
Table 4.23: Solvency ratios of Fiat Chrysler Automobiles for the years 2013-2017..............45
Table 4.24: Solvency ratios of Tesla Inc for the years 2013-2017..........................................46
Table 4.25: MVA Table ofUK Car Manufacturing Firms.......................................................48
Table 4.26: MVA Table ofUS Car Manufacturing Firms........................................................49
Table 4.27: EVA Table ofUK Car Manufacturing Firms........................................................50
Table 4.28: EVA Table ofUS Car Manufacturing Firms.........................................................51

9EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Chapter 1: Introduction
1.1 Background of the research
Long-term sustainability, development and growth depending on a sound platform of
an organisation need effective decisions and superior performance (Bekaert and Hodrick
2017). These needs mainly depend on holistic assessment within the organisation. In
addition, for sustaining long-term prosperity, organisations are required to base their
businesses on credible and accurate data that could be gathered from financial analysis. The
regular review of the financial health of an organisation is a useful practice. Financial ratios
and other financial models are primary tools used for analysing financial performance and
situations of business organisations, in which the numerical values are extracted from the
published annual reports (Finkler, Smith and Calabrese 2018).
UK car production has fallen to a five-year low in 2018, since the manufacturers have
warned that fears of Brexit have promoted a slump in new investment. The UK car factories
have manufactured 1.52 million in 2018, which is lower than 9.1% by 2017. Moreover, the
investment in UK car manufacturing industry has fallen to half by £588.6 million in 2018
compared to the previous year (Jolly 2019). In December 2018, Ford has been the leading car
manufacturer in UK occupying 11.45% of the market share in UK followed by Volkswagen
with 11.11% market share. On the other hand, the US car manufacturing industry is one of
the biggest global automotive markets and in 2017, the car sales in USA has reached 17.1
million units and it is the third straight year where sales have surpassed $17.1 million. In
USA, the market leaders are General Motors, Ford and Fiat Chrysler (Selectusa.gov 2019).
This research has intended to evaluate the financial performance of UK car manufacturing
sector with that of the US car manufacturing industry. Hence, three companies from each
country have been chosen to compare their financial performance over the past five years.

10EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
1.2 Problem statement
The car manufacturing industry is one of the most significant sectors for economic
development and it actually has considerable effect on the global economy. Along with the
stimulation of economic growth, the industry contributes to globalisation as well (Zietlowet
al. 2018). Over the past decades, this industry has encountered significant growth; however,
the competition is found to be intense from the global perspective. This has mandated the
need to analyse the financial performance of the organisations operating in the sector. The
current research has emphasised mainly on the UK and US car manufacturing industries to
compare their financial performance for the years 2013-2017.
The reasons that these two countries are chosen have been due to their strong
positions in the global car manufacturing industry. However, in the recent times, it has been
observed that the UK car manufacturing industry has experienced decline in their car sales,
while the trend is opposite in case of the US market. Due to the unavailability of adequate
previous studies concentrating on analysing the financial performance of companies of global
car manufacturing industry, there is a gap that requires to be filled and it is imperative that
additional studies need to be conducted in this area. However, for this research, the researcher
has chosen three organisations each from the two industries due to the fact that they are
marker leaders in their nations.
1.3 Financial Analysis Objectives
A comprehensive analysis of a firm’s financial statements assists in showing the
financial strengths and weaknesses (Robinson et al. 2015). Financial analysts can obtain the
required financial information from the financial statements for assessing the present
financial condition and structure. This includes information on how the company is financing
its business activities, whether there is efficient asset management policy in the firm or not,
whether it has the needed liquidity and profitability position or not and many others

11EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
(Robinson et al. 2015). However, Williams and Dobelman (2017) argued that financial
analysis fails to consider the effects of inflation and thus, the expected investment could be
minimised in future. Overall, it assists in determining the long-term visibility of the business.
In addition, financial statements analysis helps the managements in providing certain
pertinent information related to recent trends and occurrences that can positively influence
the decision-making process of the management (Muda, Shaharuddin and Embaya 2013).
By using financial analysis, creditors can find the reasons of the companies behind the
need of additional financing; they can know the company’s plan to pay back the debts; can
assess the process of handling previous debts by the company and others (Robinson et al.
2015). However, as argued by Muritala (2018), financial analysis does not provide an
estimate of the financial position of an entity in future and hence, investment decision could
not be taken based on financial analysis only. At the same time, the current and potential
investors can assess the present and long-term financial operations of the companies; can
estimate the future revenue potential; can assess the position of the companies as compared to
the competitors; can assess the revenue vulnerability and others (Ehiedu 2014).
1.4 Significance of the research
The current research has focused on financial ratio analysis and measurement of
shareholder wealth. Financial ratio analysis is used for describing a significant association
between the figures shown on income statement, balance sheet statement and cash flow
statement (Baños-Caballero, García-Teruel and Martínez-Solano 2014). From the perspective
of the management, the managers could rely on financial ratios for having the right choice in
the process of decision-making along with adopting new policies and new management
system efficiently. Along with this, with the help of shareholder wealth models, the investors
could project the future situation, earning ability of their invested organisations and the safety
of their investments.

12EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Ratio analysis assists the creditors in knowing about the capability of an organisation
to know about its repayment ability and its future potential for undertaking lending decisions
(Salikin, Ab Wahab and Muhammad 2014). The importance of financial ratios to the
government could be found in the industrial ratios. Many financial ratios analyse different
organisations in the same industry that would assist the government in having an accurate
evaluation along with deciding the kind of financial support to be provided for assisting these
organisations.
As indicated earlier, the car manufacturing industry helps in stimulating economic
growth, the analysis of financial performance of the six chosen organisations with the help of
financial ratios and shareholder value models to obtain a deeper insight of the situation of the
organisations. These organisations mainly include Aston Martin, Rolls Royce and Jaguar
operating in the UK car manufacturing industry and General Motors, Tesla Inc and Fiat
Chrysler Automobiles operating in the US car manufacturing sector. The intention has been
to assist the investors in undertaking accurate investment decisions.
1.5 Research objectives
The following research objectives have been set for the study:
 To assess the tools used to measure financial performance of the car manufacturing
industry within the UK and US
 To critically analyse the financial performance of the car manufacturing industry
within the UK and US
 To evaluate the impact of financial crisis on the shareholder value of the car
manufacturing industry within the UK and US

13EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
1.6 Research questions
Based on the research objectives, the following research questions have been
formulated:
 What are the tools used of gauging financial performance of the car manufacturing
industry within US and UK?
 What is the financial performance of the car manufacturing industry within UK and
US?
 What is the impact of financial crisis on the shareholder value of the car
manufacturing industry within UK and US?

14EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Chapter 2: Literature Review
2.0 Introduction
Literature review is considered as an essential part of the whole research process, as it
incorporates discussion on various literatures on the selected research topic. Since the main
aim of this research is to measure the financial performance of the firms, this part of the
research focuses on different aspects of financial analysis. First, it discusses about the
objectives and users of the financial statements. After that, it sheds light on different types of
financial statements used for financial analysis. Lastly, it incorporates discussion on different
tools used for the purpose of financial analysis.
2.1 Financial Analysis
Financial analysis includes different tools and techniques along with their analytical
application on commonly-used financial statements in order to identify valuable information
for making effective business decisions (Isberg and Pitta 2013). For the purpose of
investment, its use can be seen as a screening mechanism for determining whether the
selected firms are worth investing or not. It is also widely used a forecasting tool for
estimating the future financial performance of the companies. It also has a diagnostic function
for analysing operating, investing and financial activities along with measuring the overall
efficiency of the business organizations (Isberg and Pitta 2013). For these reasons, financial
analysis is provided to be an efficient process for the users in gaining the needed financial
information.
2.2 Users of the Financial Statements
The presence of two groups can be seen who use the financial statements for different
purposes; they are internal users and external users.

15EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Internal Users – These users have direct connection with the companies; such as
management and employees who have direct access to the financial information. Some of the
major internal users of financial statements are shareholders/owners, employees, managers
and internal auditors (Kim, Kraft and Ryan 2013). Shareholders use financial statements to
assess the financial condition of the firms in order to assess whether the company resources
are sufficiently used or not. Managers analyses the financial statements for making the
correct business decisions. Employees assess the financial statements to measure the financial
performance of the companies (Kim, Kraft and Ryan 2013).
External Users – These users have indirect correction with the companies and they rely on
the financial information provided by the managements of the firms (Finkler, Smith and
Calabrese 2018). Some of the major external users of the financial statements are equity
investors, merger and acquisition analysts, creditors, external auditors, regulatory agencies,
partners that include suppliers and customers, brokers and other intermediaries and general
public. External users analyse the financial statements of the firms for assessing their
financial performance and position for different decision-making purposes (Kim, Kraft and
Ryan 2013).
2.3 Tools of Financial Statement Analysis
The use of different tools can be seen for the purpose of analysing the financial
statements of the companies and some of them are discussed below.
2.3.1 Financial Ratio Analysis
A financial ratio is considered as the ratio of two variables from the balance sheet or
income statement (Kim, Kraft and Ryan 2013). Analysis of the financial rations is crucial for
gaining understanding of the current financial standings of the firms. Four different types of

16EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
financial ratios are there; they are Profitability ratios, Liquidity ratios, Leverage ratio and
Activity or Turnover ratios (Ehiedu 2014). These ratios are discussed below:
Profitability Ratios – Profitability ratios could be defined as a class of financial metrics used
to analyse the ability of an organisation in generating earnings relative to revenue and
operating costs. Several researches have been conducted, in which it has been found that
profitability ratios play a key role in determining the expected earnings of an organisation
based on its past trends. However, since these ratios are based on past figures, they fail to
provide an accurate overview of the financial performance of an organisation (Ehiedu 2014).
Three major profitability ratios are Profit margin, Return on Assets and Return on Equity.
Profit margin measures the firms’ ability in controlling the purchase and production costs
(Muda, Shaharuddin and Embaya 2013). Return on assets ratio measures the ability of the
firms in effectively using their assets for profit generation. Return on equity helps in
measuring how well the companies are generating profit by using the contribution of the
shareholders. Increase in profitability ratios indicates towards the effective financial
performance of the companies while decrease indicates the companies’ poor financial
condition (Muda, Shaharuddin and Embaya 2013).
Liquidity Ratios – Liquidity ratios assist in measuring the firm’s ability in meeting their
short-term business obligations. Two main ratios under the liquidity ratios are Current ratio
and Quick ratio (Ibe2013). Current ratio represents the current assets as a fraction of current
liabilities and shows whether the company has sufficient current assets to pay off the current
liabilities. On the other hand, inventory and prepaid expenses are removed from current
assets in quick ratio and thus, this ratio is able in showing the more precise picture of how the
current business obligation are expected to be met(Ibe 2013).

17EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Leverage Ratios – Leverage ratios help in ascertaining the dependency of the firms on debt;
and thus, it includes both the long-term and short-term debts. Three major ratios under
leverage ratios are Debt to total assets ratio, Debt to equity ratio and Times interest earned
ratio. Debt to asset ratio shows the proportion of firm’s assets financing through debt and
lower debt to equity ratio is risky for creditors (Dang 2013). Debt to equity ratio ascertains
the firm’s debt against its equity. Times interest earned ratio measures the ability of the firms
in making the interest payments out of earnings. For this reason, a higher times interest
earned ration is a good indicator for the investors and creditors (Dang 2013).
Activity or Turnover Ratios – This ratio helps in measuring the effectiveness of managers
in running the companies in appropriate manner (Cornwall, Vang and Hartman 2016). The
major ratios under this ratio are inventory turnover, total asset turnover, fixed asset turnover
and average collection period. Inventory turnover ratio assists in measuring how many times
inventories of a firm have been sold and replaced (Muritala 2018). Total asset turnover ratio
helps in measuring the productiveness of the companies in using their assets for generating
sales. Fixed assets turnover ratio helps in measuring the intensity of the companies in using
their fixed assets. Average collection period helps in measuring the efficiency of the
companies in collecting the dues from their trade debtors(Muritala 2018).
2.3.2 Shareholder Value Added (SVA)
SVA is considered as a technique for measuring a business’s incremental value to the
interested groups. The calculation of SVA helps in deriving the additional earnings generated
by a firm for its investors that is in excess of the costs of funds. Since, net profit does not
consider the cost of funds, SVA provides the stakeholders with more relevant information
about the companies (Morck2014). The formula of SVA is shown below:
SVA = Net Operating Profit after Tax – Cost of Capital

18EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
SVA is seen as a crucial metric for measuring firm’s performance for the
shareholders. The primary assumption of this model states that the main goal of a firm is to
increase the return of the shareholders (Morck 2014).
2.3.3 Market Value Added
The concept of market value added helps in deranging the difference between a
business’s market value and cost of the capital invested in that particular business. In case the
market value is less than the cost of invested capital, it means the management has failed in
value creation with the contribution by the investors (Imberman and Lovenheim2016). The
formula for market value added in shows below:
(Number of Outstanding Common Shares × Price of Share) + (Number of Outstanding
Preferred Shares × Price of Share) – Book Value of Invested Capital
Market value added helps in measuring the performance of the management.
However, the calculation of market value added does not take into consideration any cash
payments that the company has paid out of the stockholders(Imberman and Lovenheim
2016).
2.3.4 Economic Value Added (EVA)
EVA is considered as the incremental difference in the rate of return over the cost of
capital of a firm. More specifically, EVA is referred as the value generated from invested
funds in a business. In case the result of EVA isnegative, it implies that the management of
the company is terminating value of the invested funds. There is a possibility that the
business winds up in case the EVA remains in negative (Altaf2016). The formula for EVA is
shown below:
(Net Investment) × (Actual Return on Investment – Percentage Cost of Capital)

19EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
EVA is considered as crucial because of its utilization as an indicator for measuring
the profitability of the company projects(Altaf 2016).
2.4 Summary
The above discussion states that financial analysis provides the users with the needed
information for assessing the financial performance and position of the companies. The main
financial statements are profit and loss statement, balance sheet, cash flow statement and
change in equity statement. The above discussion also shows that certain tools can be used
for the analysis of the financial statements of the companies; such as ratio analysis, EVA,
SVA and market value added. These techniques help the investors and users in converting the
financial data to financial information for the purpose of making effective decisions.

20EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Chapter 3: Research Methodology
3.1 Introduction:
This research has intended to use the outcomes from the financial position analysis of
the UK and US car manufacturing industry from 2013-2017 for making effective
recommendations along with providing lasting and sustainable solutions for addressing any
identified drawback. The main objective has been to analyse the financial standing of the
selected organisations by finding out the factors contributed to or retarded the growth of
them. Such recommendations and solutions would move a long path for enhancing the
existing situation along with making the organisations more profitable and feasible in future.
3.2 Research philosophy:
Research philosophy is of four types that includes positivism, interpretivism, realism
and pragmatism. For this particular research, philosophy of positivism is chosen, as it uses
the existing theories and models with scientifically proven facts and information (Kumar
2019). In this research, the researcher has used the ratio analysis tools and shareholder wealth
valuation models owing to which positivism is deemed to fit for this particular research.
3.3 Research approach:
Research approach could be categorised into inductive research approach and
deductive research approach. With the help of deductive research approach, the researcher
could be able to relate the outcomes of the research by using the theories and models used in
the research (Ledford and Gast 2018). For this research, the researcher has used deductive
research approach, as the intention has been to use the theories and models discussed in the
literature review section on the selected six organisations operating in the UK and US car
manufacturing industry. The researcher has not inducted inductive research approach, since

21EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
the researcher has not intended to formulate any new model or theory after arriving at the
outcome of the research.
3.4 Research design:
By using research design, the researcher could gain an opportunity of steering the
research towards the accomplishment of a particular goal depending on the research
objectives. Research design could be categorised into exploratory research design, descriptive
research design and explanatory research design. Explanatory research design assists in
explaining the cause and effect relationship by projecting the probable future results of the
ongoing process (Mackey and Gass 2015). On the other hand, exploratory research design is
carried out for detecting the reasons behind the research issues. Finally, descriptive research
design aids in finding out and defining the problems confronting the research. This research
design helps the researcher in increasing the base of understanding as well as knowledge.
This research has focused on evaluating the financial performance of the car
manufacturing industry in UK and US for identifying the path through it would be possible to
achieve the desired objectives. Hence, the current research has included a detailed description
of the main factors affecting the financial position of the organisations operating in the car
manufacturing industry. As a result, the researcher has used descriptive research design for
conduction of overall research.
3.5 Sampling and sample size:
Sampling is the technique, in which the targeted respondents for the research study
are selected from a larger population. Sampling enables the researcher to choose the most
relevant source of primary data to blend relevant information, which matches the research
aims and objectives. For this particular research, the researcher has chosen six car-
manufacturing organisations, three each from UK and US. Probability sampling in the form

22EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
of simple random sampling has been used for choosing the organisations, as it provided equal
opportunities of all the organisations of being chosen in the research process. In addition, the
reason that the UK and US car manufacturing organisations have been chosen is due to the
fact that the car manufacturing industry has grown rapidly in these nations over the decade.
3.6 Data collection and analysis:
Data is gauged as a primary need for certifying the success of the research, in which
the collection of appropriate data depends on the character of study and the target outcomes
to be accomplished. As pointed out by Flick (2015), data could be classified in the form of
primary data and secondary data. The secondary data are generally accumulated from
secondary sources like books, journals and websites. On the other hand, primary data are
accumulated mainly from human responses to evaluate the existing trend of the research
issue. However, for this research, the researcher has used secondary data, since the financial
performance and future valuation of an organisation could not be conducted by analysing
human responses. The researcher for performing the desired calculations has used MS Excel
application.
3.7 Timeframe of the research:
Task Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Week
9
Selection of topic
and search for
justification
Constructing
literature
Selecting
appropriate

23EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
methods
Data collection
Data analysis and
representation
Reviewing the
outcomes
Conclusion and
recommendations
Submitting draft of
the project
Printing and final
submission
Table 3.1: Timeframe of the research
(Source: As created by author)
3.8 Summary:
Based on the above discussion, it could be stated that the researcher has chosen the
philosophy of positivism, deductive research approach and descriptive research design for
conducting the research. In addition, the researcher has chosen six car manufacturing
organisations, three each from UK and US and data has been analysed with the help of MS
Excel application.

24EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Chapter 4: Data Analysis
4.1 Introduction:
The current chapter has focused on evaluating the financial standing of the six chosen
organisations in the global car manufacturing industry. For conducting the same, different
financial ratios have been taken into consideration. These ratios mainly include profitability
ratios, liquidity ratios, efficiency ratios and solvency ratios. Moreover, various financial
models have been used to obtain a clear overview of their likely performance in future and
these models include market value added (MVA) and economic value added (EVA).
Shareholder value added has not been considered in this research, since the investment
community no longer holds it in high regard.
4.2 Financial analysis of the car manufacturing companies in UK and USA:
For conducting the financial analysis of the car manufacturing organisations in UK
and USA, different types of ratios are considered, which are listed down as follows:
4.2.1 Profitability analysis:
In order to perform profitability analysis of the chosen organisations, the two ratios
that have been taken into consideration include net margin and return on capital employed. It
has been mentioned in literature review section 2.3.1 that profitability ratios play a key role in
determining the expected earnings of an organisation based on its past trends. These ratios are
evaluated briefly in the context of the chosen organisations as follows:
UK car manufacturing companies:

25EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.1: Profitability ratios of Aston Martin for the years 2013-2017
(Source: Astonmartinlagonda.com 2019)
2013 2014 2015 2016 2017
-30.00%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Profitability Ratios of Aston Martin
Net margin
Return on capital employed
(ROCE)
Figure 4.1: Profitability ratios of Aston Martin for the years 2013-2017
(Source: Astonmartinlagonda.com 2019)
Table 4.2: Profitability ratios of Jaguar for the years 2013-2017
(Source: Jaguarlandrover.com 2019)

26EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Profitability Ratios of Jaguar
Net margin
Return on capital employed
(ROCE)
Figure 4.2: Profitability ratios of Jaguar for the years 2013-2017
(Source: Jaguarlandrover.com 2019)
Table 4.3: Profitability ratios of Rolls Royce for the years 2013-2017
(Source: Rolls-royce.com 2019)

27EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
Profitability Ratios of Rolls Royce
Net margin
Return on capital employed
(ROCE)
Figure 4.3: Profitability ratios of Rolls Royce for the years 2013-2017
(Source: Rolls-royce.com 2019)
From the above tables and figures, it could be seen that the net margin of Aston
Martin after staying negative from 2013-2016 has become positive in 2017. This is primarily
due to the fact that despite rise in sales revenue over the years, cost of sales and other
operating expenses have increased considerably. However, it has managed to improve its
profitability position in 2017 owing to the decline in operating costs like marketing costs and
selling and administrative expenses. On the other hand, the net margin of Jaguar is observed
to be fluctuating over the years; however, it has remained positive. Even though revenue has
grown over the years, the organisation failed to keep its operating expenses under control and
hence, net margin has fallen in 2017. Finally, for Rolls Royce, the net margin after
experiencing significant downfall from 2013 to 2016 has increased massively in 2017 due to
increase in sales generated out of increased market demand from the third quarter of 2016
(Rolls-royce.com 2019).
In terms of return on capital employed (ROCE), the trend is observed to be similar
for Aston Martin, which implies that the organisation has used its assets effectively in order

28EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
to generate returns for its shareholders. On the other hand, the ratio has fallen for Jaguar over
the years, since it has not employed its assets appropriately for generating adequate returns.
Finally, for Rolls Royce, the ratio after experiencing significant decline in 2016 has increased
again in 2017 due to sound asset management policies adopted by the organisation.
Therefore, by comparing the profitability position of three UK car manufacturing
organisations, it could be said that Rolls Royce is placed in a better position in the industry
compared to the other two organisations.
US car manufacturing companies:
Table 4.4: Profitability ratios of General Motors Company for the years 2013-2017
(Source: Annualreports.com 2019)
2013 2014 2015 2016 2017
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
Profitability Ratios of General Motors Company
Net margin
Return on capital employed
(ROCE)

29EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Figure 4.4: Profitability ratios of General Motors Company for the years 2013-2017
(Source: Annualreports.com 2019)
Table 4.5: Profitability ratios of Fiat Chrysler Automobiles for the years 2013-2017
(Source: Fcagroup.com 2019)
2013 2014 2015 2016 2017
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Profitability Ratios of Fiat Chrysler
Automobiles
Net margin
Return on capital employed
(ROCE)
Figure 4.5: Profitability ratios of Fiat Chrysler Automobiles for the years 2013-2017
(Source: Fcagroup.com 2019)

30EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.6: Profitability ratios of Tesla Inc for the years 2013-2017
(Source: Annualreports.com 2019)
2013 2014 2015 2016 2017
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
Profitability Ratios of Tesla Inc
Net margin
Return on capital employed
(ROCE)
Figure 4.6: Profitability ratios of Tesla Inc for the years 2013-2017
(Source: Annualreports.com 2019)
In case of US car manufacturing organisations, profitability position is deemed to be
better for Fiat Chrysler Automobiles followed by General Motors Company and Tesla Inc.
Although General Motors maintained a better position in generating profit until 2016, it
experienced a fall in sales revenue in 2017 with increase in operating expenses. However, it
has managed to provide better return on capital employed due to the efficiency of the
management in using the money of the shareholders. On the other hand, although Tesla
experienced massive increase in sales revenue over the years, its operating expenses have
increased massively owing to which it experienced net loss in all the years.
By contrasting the organisations of both industries, it could be said that the UK car
manufacturing industry is placed in a more favourable position than the US car
manufacturing industry in terms of profitability.

31EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
4.2.2 Liquidity analysis:
In order to perform liquidity analysis of the chosen organisations, the two ratios that
have been taken into consideration include current ratio and quick ratio. These ratios are
evaluated briefly in the context of the chosen organisations as follows:
UK car manufacturing organisations:
Table 4.7: Liquidity ratios of Aston Martin for the years 2013-2017
(Source: Astonmartinlagonda.com 2019)
2013 2014 2015 2016 2017
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Liquidity Ratios of Aston Martin
Current ratio
Quick ratio
Figure 4.7: Liquidity ratios of Aston Martin for the years 2013-2017
(Source: Astonmartinlagonda.com 2019)

32EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.8: Liquidity ratios of Jaguar for the years 2013-2017
(Source: Jaguarlandrover.com 2019)
2013 2014 2015 2016 2017
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Liqudity Ratios of Jaguar
Current ratio
Quick ratio
Figure 4.8: Liquidity ratios of Jaguar for the years 2013-2017
(Source: Jaguarlandrover.com 2019)
Table 4.9: Liquidity ratios of Rolls Royce for the years 2013-2017
(Source: Rolls-royce.com 2019)

33EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Liquidity Ratios of Rolls Royce
Current ratio
Quick ratio
Figure 4.9: Liquidity ratios of Rolls Royce for the years 2013-2017
(Source: Rolls-royce.com 2019)
In terms of current ratio, the position of Rolls Royce is seen to be better than its
other two competitors in UK. This is because the organisation has higher cash availability
owing to which it possesses the ability of repaying its short-term dues and obligations. The
trend is found to be similar in case of quick ratio as well, which implies that Rolls Royce has
maintained appropriate amount of inventory by accurate estimation of market demand. Thus,
in terms of liquidity, Rolls Royce is the leader followed by Jaguar and Aston Martin in the
UK car manufacturing industry.
US car manufacturing organisations:

34EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.10: Liquidity ratios of General Motors Company for the years 2013-2017
(Source: Annualreports.com 2019)
2013 2014 2015 2016 2017
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Liquidity Ratios of General Motors Company
Current ratio
Quick ratio
Figure 4.10: Liquidity ratios of General Motors Company for the years 2013-2017
(Source: Annualreports.com 2019)
Table 4.11: Liquidity ratios of Fiat Chrysler Automobiles for the years 2013-2017
(Source: Fcagroup.com 2019)

35EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Liqudity Ratios of Fiat Chrysler Automobiles
Current ratio
Quick ratio
Figure 4.11: Liquidity ratios of Fiat Chrysler Automobiles for the years 2013-2017
(Source: Fcagroup.com 2019)
Table 4.12: Liquidity ratios of Tesla Inc for the years 2013-2017
(Source: Annualreports.com 2019)

36EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Liqudity Ratios of Tesla Inc
Current ratio
Quick ratio
Figure 4.12: Liquidity ratios of Tesla Inc for the years 2013-2017
(Source: Annualreports.com 2019)
By considering current ratio, the position of General Motors Company is found to be
better compared to its other two rivals. The reason is its ability to generate working capital at
a faster rate. Similar trend is observed in case of quick ratio as well, which is due to the better
inventory management policies adopted General Motors Company compared to the other two
competitors. It has been mentioned in the literature review section 2.3.1 that liquidity ratios
assist in measuring the firm’s ability in meeting their short-term business obligations.
Therefore, in terms of liquidity, General Motors is seen to enjoy competitive edge over Tesla
Inc and Fiat Chrysler Automobiles in the US car manufacturing industry.
However, when nation-wise comparison is made, it is apparent that the UK car
manufacturing industry is placed in a favourable position than the US car manufacturing
industry in the global market owing to better current ratio and quick ratio.
4.2.3 Efficiency analysis:
In order to perform efficiency analysis of the chosen organisations, the three ratios
that have been taken into consideration include inventory turnover, receivables turnover and

37EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
payables turnover and all these ratios are expressed in terms of days. These ratios are
evaluated briefly in the context of the chosen organisations as follows:
UK car manufacturing organisations:
Table 4.13: Efficiency ratios of Aston Martin for the years 2013-2017
(Source: Astonmartinlagonda.com 2019)
2013 2014 2015 2016 2017
-
50.00
100.00
150.00
200.00
250.00
300.00
350.00
Efficiency Ratios of Aston Martin
Inventory turnover (in days)
Receivables turnover (in days)
Payables turnover (in days)
Figure 4.13: Efficiency ratios of Aston Martin for the years 2013-2017
(Source: Astonmartinlagonda.com 2019)

38EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.14: Efficiency ratios of Jaguar for the years 2013-2017
(Source: Jaguarlandrover.com 2019)
2013 2014 2015 2016 2017
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
Efficiency Ratios of Jaguar
Inventory turnover (in days)
Receivables turnover (in days)
Payables turnover (in days)
Figure 4.14: Efficiency ratios of Jaguar for the years 2013-2017
(Source: Jaguarlandrover.com 2019)

39EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.15: Efficiency ratios of Rolls Royce for the years 2013-2017
(Source: Rolls-royce.com 2019)
2013 2014 2015 2016 2017
-
50.00
100.00
150.00
200.00
250.00
300.00
Efficiency Ratios of Rolls Royce
Inventory turnover (in days)
Receivables turnover (in days)
Payables turnover (in days)
Figure 4.15: Efficiency ratios of Rolls Royce for the years 2013-2017
(Source: Rolls-royce.com 2019)
In accordance with the above tables and figures, it could be seen that the inventory
turnover in terms of days has increased for all the organisations from 2013 to 2017, which is
not a favourable indication. This is because of the declining market demand owing to the
premium pricing strategy adopted by these organisations. In terms of receivables turnover,

40EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Jaguar has managed to minimise the collection period from its customers, while the trend is
opposite for the other two organisations. This is because of the stringent policy adopted by
Jaguar for enhancing its liquidity position and availability of working capital. Finally, in
terms of payables turnover, the trend seems to be increasing for all three organisations.
However, too much delay in settling supplier payments might minimise negotiation terms
with the suppliers in future, which is evident in case of Aston Martin and Rolls Royce. Thus,
in terms of efficiency, Jaguar is having competitive edge over Aston Martin and Rolls Royce
in the UK car manufacturing industry.
US car manufacturing organisations:
Table 4.16: Efficiency ratios of General Motors Company for the years 2013-2017
(Source: Annualreports.com 2019)

41EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
Efficiency Ratios of Fiat Chrysler Automobiles
Inventory turnover (in days)
Receivables turnover (in days)
Payables turnover (in days)
Figure 4.16: Efficiency ratios of General Motors Company for the years 2013-2017
(Source: Annualreports.com 2019)
Table 4.17: Efficiency ratios of Fiat Chrysler Automobiles for the years 2013-2017
(Source: Fcagroup.com 2019)

42EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
Efficiency Ratios of Fiat Chrysler Automobiles
Inventory turnover (in days)
Receivables turnover (in days)
Payables turnover (in days)
Figure 4.17: Efficiency ratios of Fiat Chrysler Automobiles for the years 2013-2017
(Source: Fcagroup.com 2019)
Table 4.18: Efficiency ratios of Tesla Inc for the years 2013-2017
(Source: Annualreports.com 2019)

43EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Efficiency Ratios of Tesla Inc
Inventory turnover (in days)
Receivables turnover (in days)
Payables turnover (in days)
Figure 4.18: Efficiency ratios of Tesla Inc for the years 2013-2017
(Source: Annualreports.com 2019)
After analysing the above table and figures, it could be cited that inventory turnover has
not increased or decreased massively for all the three organisations, which implies steady
sales. The trend is similar in case of receivables turnover and payables turnover as well;
however, the performance of General Motors Company is found to be superior in contrast to
the other two organisations.
By taking into account all the above-discussed aspects, the US car manufacturing
industry is found to be better compared to the UK car manufacturing industry in terms of
efficiency.
4.2.4 Solvency analysis:
In order to perform solvency analysis of the chosen organisations, the two ratios that
have been taken into consideration include debt/equity ratio and interest cover ratio. These
ratios are evaluated briefly in the context of the chosen organisations as follows:
UK car manufacturing organisations:

44EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.19: Solvency ratios of Aston Martin for the years 2013-2017
(Source: Astonmartinlagonda.com 2019)
2013 2014 2015 2016 2017
-15.00
-10.00
-5.00
-
5.00
10.00
15.00
20.00
Solvency Ratios of Aston Martin
Debt/equity ratio
Interest cover ratio
Figure 4.19: Solvency ratios of Aston Martin for the years 2013-2017
(Source: Astonmartinlagonda.com 2019)
Table 4.20: Solvency ratios of Jaguar for the years 2013-2017
(Source: Jaguarlandrover.com 2019)

45EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
20.00
40.00
60.00
80.00
100.00
120.00
Solvency Ratios of Jaguar
Debt/equity ratio
Interest cover ratio
Figure 4.20: Solvency ratios of Jaguar for the years 2013-2017
(Source: Jaguarlandrover.com 2019)
Table 4.21: Solvency ratios of Rolls Royce for the years 2013-2017
(Source: Rolls-royce.com 2019)

46EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Solvency Ratios of Rolls Royce
Debt/equity ratio
Interest cover ratio
Figure 4.21: Solvency ratios of Rolls Royce for the years 2013-2017
(Source: Rolls-royce.com 2019)
In accordance with the above table and figures, it could be stated that the debt/equity
ratio is significantly high for all the three organisations and thus, these organisations are
highly leveraged denoting more financial risk. On the other hand, interest cover ratio is found
to be significantly effective for Jaguar, while the other two organisations have not managed
to generate steady operating income over the years for covering their interest expenses.
Hence, in terms of solvency, Jaguar is placed in a favourable position in the UK car
manufacturing industry followed by Rolls Royce and Aston Martin.
US car manufacturing organisations:

47EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Table 4.22: Solvency ratios of General Motors Company for the years 2013-2017
(Source: Annualreports.com 2019)
2013 2014 2015 2016 2017
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Solvency Ratios of General Motors Company
Debt/equity ratio
Interest cover ratio
Figure 4.22: Solvency ratios of General Motors Company for the years 2013-2017
(Source: Annualreports.com 2019)
Table 4.23: Solvency ratios of Fiat Chrysler Automobiles for the years 2013-2017
(Source: Fcagroup.com 2019)

48EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Solvency Ratios of Fiat Chrysler Automobiles
Debt/equity ratio
Interest cover ratio
Figure 4.23: Solvency ratios of Fiat Chrysler Automobiles for the years 2013-2017
(Source: Fcagroup.com 2019)
Table 4.24: Solvency ratios of Tesla Inc for the years 2013-2017
(Source: Annualreports.com 2019)

49EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
2013 2014 2015 2016 2017
-8.00
-6.00
-4.00
-2.00
-
2.00
4.00
6.00
8.00
Solvency Ratios of Tesla Inc
Debt/equity ratio
Interest cover ratio
Figure 4.24: Solvency ratios of Tesla Inc for the years 2013-2017
(Source: Annualreports.com 2019)
The above tables and figures clearly make it evident that all organisations are highly
leveraged in terms of debt/equity ratio, as they have relied mostly on raising funds through
debt. On the other hand, in terms of interest cover, the position is sound for General Motors
Company and Fiat Chrysler Automobiles, while Tesla Inc is not capable of covering its
interest expense.
Therefore, in terms of solvency, both the UK and US car manufacturing industries are
struggling to maintain stable position in the global market.

50EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
4.3 Application of financial models in the selected car manufacturing organisations:
Particulars Details 2013 (in £mil) 2014 (in £mil) 2015 (in £mil) 2016 (in £mil) 2017 (in £mil)
Share Price A 32.40 33.65 36.40 42.40 46.20
Number of common shares outstanding B 3,069.09 3,069.09 3,069.09 3,069.09 3,069.09
Book value of invested capital C 1,54,149.00 3,52,801.00 2,64,080.00 72,660.00 1,47,826.00
Market value added (A*B)-C 54,710.65- 2,49,526.29- 1,52,365.31- 57,469.20 6,034.27-
Particulars Details 2013 (in £mil) 2014 (in £mil) 2015 (in £mil) 2016 (in £mil) 2017 (in £mil)
Share Price A 4.18 4.45 5.89 5.84 4.75
Number of common shares outstanding B 1,500.64 1,500.64 1,500.64 1,500.64 1,500.64
Book value of invested capital C 3,538.80 5,864.00 6,040.00 7,614.00 6,581.00
Market value added (A*B)-C 2,733.88 813.86 2,798.78 1,149.75 547.05
Particulars Details 2013 (in £mil) 2014 (in £mil) 2015 (in £mil) 2016 (in £mil) 2017 (in £mil)
Share Price A 11.23 10.13 8.20 7.11 7.56
Number of common shares outstanding B 1,880.00 1,882.00 1,838.00 1,838.00 1,840.00
Book value of invested capital C 6,303.00 6,387.00 5,016.00 1,864.00 6,170.00
Market value added (A*B)-C 14,809.40 12,677.66 10,055.60 11,204.18 7,740.40
Jaguar:-
Rolls Royce:-
UK Car Manufacturing Firms:-
Aston Martin:-
Table 4.25: MVA Table ofUK Car Manufacturing Firms
(Source: Annualreports.com 2019)
The above table provides information about the MVA value of the UK car
manufacturers. From the relevant evaluation, it can be detected that the overall MVA value of
Aston has mainly improved over the period of five years. On the other hand, the values of
MVA for both Jaguar and Roll Royce have mainly declined over the period of 5 year.
However, the evaluation also indicated that Roll Royce has the highest MVA values, which
indicates about the financial strength of the organisation in comparison to other companies.

51EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Particulars Details 2013 (in $m) 2014 (in $m) 2015 (in $m) 2016 (in $m) 2017 (in $m)
Share Price A 28.82 35.45 36.88 37.74 46.76
Number of common shares outstanding B 1,393.00 1,605.00 1,586.00 1,540.00 1,465.00
Book value of invested capital C 42,607.00 36,024.00 40,323.00 44,075.00 36,200.00
Market value added (A*B)-C 2,460.74- 20,873.25 18,168.68 14,044.60 32,303.40
Particulars Details 2013 (in €m) 2014 (in €m) 2015 (in €m) 2016 (in €m) 2017 (in €m)
Share Price A 7.21 9.66 12.92 8.66 14.91
Number of common shares outstanding B 1,215.92 1,222.35 1,510.56 1,513.02 1,535.99
Book value of invested capital C 25,168.00 27,476.00 32,510.00 19,353.00 20,987.00
Market value added (A*B)-C 16,401.21- 15,668.14- 12,993.63- 6,250.26- 1,914.58
Particulars Details 2013 (in $'000) 2014 (in $'000) 2015 (in $'000) 2016 (in $'000) 2017 (in $'000)
Share Price A 120.50 197.81 202.00 181.45 299.26
Number of common shares outstanding B 1,19,421.41 1,24,539.34 1,28,202.00 1,44,212.00 1,65,758.00
Book value of invested capital C 6,67,120.00 9,11,710.00 10,88,944.00 47,52,911.00 42,37,242.00
Market value added (A*B)-C 1,37,23,160.39 2,37,23,417.44 2,48,07,860.00 2,14,14,356.40 4,53,67,497.08
Fiat Chrysler Automobiles-
Tesla Inc:-
US Car Manufacturing Firms:-
General Motors Company:-
Table 4.26: MVA Table ofUS Car Manufacturing Firms
(Source: Annualreports.com 2019)
The calculation conducted in the above segment mainly evaluates the car
manufactures in US. From the relevant evaluation, it can be detected that all the three
companies situated in US have developed that MVA over the period of five years. Moreover,
Fiat has managed to obtain Positive MVA value over the period of five years. This directly
indicates that the Market Values Added of the US companies is relevantly higher than the UK
car manufacturers. This directly indicates that the investors would be keen on investing in US
companies rather than UK companies.

52EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Particulars Details 2013 (in £mil) 2014 (in £mil) 2015 (in £mil) 2016 (in £mil) 2017 (in £mil)
Profit A 30,907.00- 64,752.00- 1,06,957.00- 1,47,573.00- 79,002.00
Interest B 3,565.00 56,018.00 71,764.00 1,33,042.00 97,649.00
NOPAT C=A+B 28,411.50- 25,539.40- 56,722.20- 54,443.60- 1,47,356.30
Equity D 1,54,149.00 3,52,801.00 2,64,080.00 72,660.00 1,47,826.00
Debt E 2,96,765.00 4,12,598.00 5,32,103.00 6,96,065.00 8,72,400.00
E% F 0.11 0.12 0.10 0.09 0.12
D% G 0.01 0.14 0.13 0.19 0.11
Value H=(D*F)+(E*G) 20,521.39 98,354.12 98,172.00 1,39,581.40 1,14,648.99
EVA C-H 48,932.89- 1,23,893.52- 1,54,894.20- 1,94,025.00- 32,707.31
Particulars Details 2013 (in £mil) 2014 (in £mil) 2015 (in £mil) 2016 (in £mil) 2017 (in £mil)
Profit A 1,215.00 1,879.00 2,038.00 1,312.00 1,272.00
Interest B 18.00 185.00 135.00 90.00 68.00
NOPAT C=A+B 1,227.60 2,008.50 2,132.50 1,375.00 1,319.60
Equity D 3,538.80 5,864.00 6,040.00 7,614.00 6,581.00
Debt E 2,190.00 2,028.00 2,550.00 2,500.00 3,581.00
E% F 9.00% 8.00% 7.00% 8.00% 9.50%
D% G 0.82% 9.12% 5.29% 3.60% 1.90%
Value H=(D*F)+(E*G) 336.49 654.12 557.80 699.12 693.20
EVA C-H 891.11 1,354.38 1,574.70 675.88 626.41
Particulars Details 2013 (in £mil) 2014 (in £mil) 2015 (in £mil) 2016 (in £mil) 2017 (in £mil)
Profit A 1,379.00 58.00 84.00 4,032.00- 4,208.00
Interest B 438.00 1,452.00 1,456.00 4,773.00 161.00
NOPAT C=A+B 1,685.60 1,074.40 1,103.20 690.90- 4,320.70
Equity D 6,303.00 6,387.00 5,016.00 1,864.00 6,170.00
Debt E 7,173.00 7,243.00 9,927.00 11,274.00 13,109.00
E% F 0.04 0.04 0.05 0.05 0.08
D% G 0.06 0.20 0.15 0.42 0.01
Value H=(D*F)+(E*G) 692.64 1,720.89 1,718.34 4,875.15 645.35
EVA C-H 992.96 646.49- 615.14- 5,566.05- 3,675.36
UK Car Manufacturing Firms:-
Aston Martin:-
Jaguar:-
Rolls Royce:-
Table 4.27: EVA Table ofUK Car Manufacturing Firms
(Source: Annualreports.com 2019)
The economic value added of the UK car manufacturing companies is mainly
conducted in the above table. The calculations directly indicate that only the EVA values of
Aston and Jaguar had declined over the period of five years, which indicates about the low
financial position of the organisation. However, the value of Roll Royce has sprung quickly
during the 5-year period, which indicates about the positive financial operations of the
company.

53EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Particulars Details 2013 (in $m) 2014 (in $m) 2015 (in $m) 2016 (in $m) 2017 (in $m)
Profit A 3,770.00 2,804.00 9,687.00 9,427.00 3,864.00-
Interest B 334.00 403.00 423.00 563.00 575.00
NOPAT C=A+B 4,003.80 3,086.10 9,983.10 9,821.10 3,461.50-
Equity D 42,607.00 36,024.00 40,323.00 44,075.00 36,200.00
Debt E 29,046.00 37,431.00 54,346.00 64,563.00 80,717.00
E% F 0.06 0.07 0.06 0.05 0.03
D% G 0.01 0.01 0.01 0.01 0.01
Value H=(D*F)+(E*G) 3,005.46 2,809.40 2,834.32 2,850.49 1,675.48
EVA C-H 998.34 276.70 7,148.78 6,970.61 5,136.98-
Particulars Details 2013 (in €m) 2014 (in €m) 2015 (in €m) 2016 (in €m) 2017 (in €m)
Profit A 1,951.00 632.00 377.00 1,814.00 3,510.00
Interest B 334.00 403.00 423.00 563.00 575.00
NOPAT C=A+B 2,184.80 914.10 673.10 2,208.10 3,912.50
Equity D 25,168.00 27,476.00 32,510.00 19,353.00 20,987.00
Debt E 30,283.00 33,724.00 27,786.00 24,048.00 17,971.00
E% F 0.03 0.03 0.04 0.07 0.06
D% G 0.01 0.01 0.02 0.02 0.03
Value H=(D*F)+(E*G) 990.88 1,169.58 1,593.36 1,942.87 1,928.66
EVA C-H 1,193.92 255.48- 920.26- 265.23 1,983.84
Particulars Details 2013 (in $'000) 2014 (in $'000) 2015 (in $'000) 2016 (in $'000) 2017 (in $'000)
Profit A 74,014.00- 2,94,040.00- 8,88,663.00- 7,73,046.00- 22,40,578.00-
Interest B 32,934.00 1,00,886.00 1,18,851.00 1,98,810.00 4,71,259.00
NOPAT C=A+B 50,960.20- 2,23,419.80- 8,05,467.30- 6,33,879.00- 19,10,696.70-
Equity D 6,67,120.00 9,11,710.00 10,88,944.00 47,52,911.00 42,37,242.00
Debt E 16,28,800.00 1,10,78,600.00 1,37,94,900.00 75,11,760.00 1,01,67,380.00
E% F 0.11 0.06 0.09 0.06 0.06
D% G 0.02 0.01 0.01 0.03 0.05
Value H=(D*F)+(E*G) 1,04,382.55 1,52,032.93 2,19,360.53 4,96,817.52 7,42,018.76
EVA C-H 1,55,342.75- 3,75,452.73- 10,24,827.83- 11,30,696.52- 26,52,715.46-
US Car Manufacturing Firms:-
General Motors Company:-
Fiat Chrysler Automobiles-
Tesla Inc:-
Table 4.28: EVA Table ofUS Car Manufacturing Firms
(Source: Annualreports.com 2019)
The above calculation provides information on the US car manufacturing firms, where
the overall EVA of the companies is been evaluated. The evaluation has indicated that the
EVA of only Fiat is appropriate, as per the valuations. On the other hand, both Tesla and
General Motors overall economic value added calculation represents a negative impact on
their financial condition. This directly indicates the economy value added condition of both

54EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
UK car-manufacturing firms and UScar-manufacturing firms are relevantly same. Therefore,
improvements are needed by the car manufacturing companies to increase their overall
profitability in the long run.
4.4 Summary:
From the above analysis, it is apparent that there are certain aspects or areas that the
UK and US car manufacturing organisations have to work on for enhancing their financial
standing in the global market. It has been evaluated that in terms of profitability and liquidity,
the UK car manufacturing industry is having competitive edge over the US car manufacturing
industry, while the situation is just the opposite in terms of efficiency in the global market.
Finally, in terms of solvency, both industries are struggling to maintain stable position in the
global market. Therefore, the financial models have been used for estimating their future
growth in the market.

55EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
Chapter 5: Conclusion and Recommendations
5.1 Conclusion:
For conducting the current research, the researcher has used a number of financial
tools like financial ratios and models like economic value added and market value added for
evaluating the financial performance of the UK and US car manufacturing industries. The
researcher has used the philosophy of positivism, descriptive research design and deductive
research approach for arriving at the research outcomes. The three organisations selected
from the UK car manufacturing industry include Aston Martin, Jaguar and Rolls Royce,
while the three organisations chosen from the US car manufacturing industry are General
Motors Company, Fiat Chrysler Automobiles and Tesla Inc. It has been analysed that in
terms of profitability and liquidity, the UK car manufacturing industry is having competitive
edge over the US car manufacturing industry, while the situation is just the opposite in terms
of efficiency in the global market. Finally, in terms of solvency, both industries are struggling
to maintain stable position in the global market. Therefore, the financial models have been
used for estimating their future growth in the market.
5.2 Linking with the research objectives:
Linking with objective 1: To assess the tools used to measure financial performance of the
car manufacturing industry within the UK and US
“Sections 4.2 and 4.3 of Chapter 4: Data Analysis and Findings” have helped in
fulfilling this objective. The researcher has used different financial techniques for analysing
the financial performance of the car manufacturing industry within the UK and US. Different
ratios such as profitability ratios, liquidity ratios, efficiency ratios and solvency ratios and
financial models like market value added and economic value added have been taken into
consideration for conducting the same. The car manufacturing industry helps in stimulating

56EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
economic growth, the analysis of financial performance of the six chosen organisations with
the help of financial ratios and shareholder value models to obtain a deeper insight of the
situation of the organisations. These organisations mainly include Aston Martin, Rolls Royce
and Jaguar operating in the UK car manufacturing industry and General Motors, Tesla Inc
and Fiat Chrysler Automobiles operating in the US car manufacturing sector. The intention
has been to assist the investors in undertaking accurate investment decisions.
Linking with objective 2: To critically analyse the financial performance of the car
manufacturing industry within the UK and US
“Sections 4.2.1, 4.2.2, 4.2.3 and 4.2.4 of Chapter 4: Data Analysis and Findings” have
mainly assisted in fulfilling this objective. By contrasting the organisations of both industries,
it could be said that the UK car manufacturing industry is placed in a more favourable
position than the US car manufacturing industry in terms of profitability. When nation-wise
comparison is made, it is apparent that the UK car manufacturing industry is placed in a
favourable position than the US car manufacturing industry in the global market owing to
better current ratio and quick ratio. The US car manufacturing industry is found to be better
compared to the UK car manufacturing industry in terms of efficiency. Finallyin terms of
solvency, both the UK and US car manufacturing industries are struggling to maintain stable
position in the global market.
Linking with objective 3: To evaluate the impact of financial crisis on the shareholder
value of the car manufacturing industry within the UK and US
“Section 4.3 of Chapter 4: Data Analysis and Findings” has helped in fulfilling this
objective partially. The researcher has used a variety of models such as market value added
and economic value added to estimate the future standing of the above-mentioned
organisations in the global car manufacturing industry. However, due to the limited

57EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
timeframe, the researcher has not been able to consider the financial data of these
organisations for the past 10 years and consideration has been made for five financial years
only. Hence, the exact impact of the financial crisis could not be analysed precisely owing to
which this objective has only been met partially.
5.3 Recommendations:
Based on the overall analysis, the following recommendations are provided:
UK car manufacturing industry:
 All organisations need to minimise its operating costs so that they could generate
more profits and accordingly, higher dividends could be paid to the shareholders.
 The organisations need to settle their supplier payments quickly for obtaining
necessary raw materials and other goods in future.
 Finally, the organisations have to focus on raising more funds through equity in the
form of issuance of equity shares in the public market.
US car manufacturing industry:
 All organisations have to focus on reducing its operating costs so that they could
generate more profits and accordingly, higher dividends could be paid to the
shareholders.
 The organisations have to focus on raising more funds through equity in the form of
issuance of equity shares in the public market.
5.4 Limitations and future scope of the research:
The limited timeframe of the research and selecting only three organisations from
each industry have been the major research limitations. Moreover, the financial data of all
organisations operating in the industry are not publicly available and hence, this has restricted
the researcher to choose only those organisations whose financial data are available from

58EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
online sources. Furthermore, limited amount of time has restricted the researcher to use data
for longer timeframe, which could have enhanced the authenticity of the research outcomes
more effectively. Hence, this research could be conducted further in future by considering
data for longer timeframes and including more organisations operating within the car
manufacturing industries of UK and US.

59EVALUATING FINANCIAL PERFORMANCE OF COMPANIES
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