Comprehensive Review: BMW AG Annual Report 2017 Financial Analysis

This report provides an executive summary and detailed analysis of the BMW AG Annual Report for 2017. It begins with an introduction to the STOXX All Europe 100 Index and BMW AG, including its global presence and financial reporting standards. The report then examines the structure of the annual report, highlighting key sections such as financial statements, revenues, profitability indicators, and other financial metrics. It delves into the sources of revenue, including financial services and automotive sales, and discusses the importance of currency arbitrage. The report analyzes profitability indicators like Return on Capital Employed and Earnings per Share, alongside other financial indicators such as cash flows and net assets. It identifies areas where the report could be improved, such as the inclusion of specific arbitrage segment details and liquidity ratios, and provides an overview of contingent liabilities and sustainability reports. The report concludes with a bibliography.

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Executive Summary
Stoxx 100 is a registered index of some of the most high performing blue chip companies in Europe.
Companies registered on STOXX 100 are required to follow the highest standards of financial
disclosures, in order to maintain transparency with regulators and investors. One of the composite
stocks of the index is BMW AG.
This report surveys the Annual Report 2017 of BMW AG. Overall, the data very well presented with a
great deal of transparency. However, some points seem to be missing in the report. The highlights and
the missing points are presented in this report.

Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
BMW AG......................................................................................................................................................6
The Annual Reports.....................................................................................................................................7
Financial Statements...............................................................................................................................9
Revenues and Sources of Revenues........................................................................................................9
Other Sources of Revenues.....................................................................................................................9
Profitability Indicators.......................................................................................................................11
Other Indicators.................................................................................................................................12
Contingent Liabilities and Contingent Assets.....................................................................................14
Sustainability Report.................................................................................................................................16
Key sustainability goals of the BMW Group.......................................................................................17
Conclusion.................................................................................................................................................17
Bibliography...............................................................................................................................................17

Introduction
The STOXX All Europe 100 Index is an index of Blue Chip stocks. It is a
com[posite index of some of the largest companies in Eastern and Western.
This index is composed of 100 stocks from Belgium, Austria, Cyprus, Czech
Republic, Finland, Denmark, France, Germany, UK, Hungary, Greece Iceland,
Lithuania, Latvia, Ireland, Slovakia, Italy, Luxembourg, Malta, Macedonia,
Netherlands, Poland, Norway, Romania, Russia, Serbia, Portugal, Romania,
Russia, Serbia, Slovenia, Spain, Switzerland, and Ukraine. It boasts of stocks
of several high performing companies.
The Stoxx website itself offers plenty of data for analysis including research
papers, etc. Basic Information regarding the movements of the index is
easily available for a period of 5-10 years.
Moreover, there is also additional information regarding the two main
concerns of investors, returns and volatility available on the landing page
itself. One year returns and One year Volatility are figures are conspicuously
available.
Stoxx, also, publishes an Index guide that publishes the methodology for the
calculations that are published, including the calculations of variance and
volatility. The guide is also, a guide to how the stocks traded on the index
are selected. In addition to this all the the risk monitoring and control
systems are also, described in detail. (STOXXX Limited, 2018)

Figure 1 Stoxx LAtin American Indices
Source: (STOXXX Limited, 2018)

Figure 2 Stoxx Asian Indices
Source: (STOXXX Limited, 2018)
BMW AG
Founded in 1916 as Bayerische Fluegzeg Werke , (BFW) the company made
its first motorcycles in 1923. It established itself as a manufacturer of high
quality cars after World War Two. The Stock trades as “BMW” on The Stoxx
100. Known all over the world for its coveted high quality cars, automobiles, the products
and technology of the BMW Company, but also in it’s brilliant designs. Currently, the BMW
Group as a whole, has 31 facilities around the globe for production and assembly facilities
of cars automotive parts and, located in 14 countries along with a global sales network.
(BMW AG, 2018)
Given the presence around the world and a stock that is being traded on indices around the
globe, the Company must adhere to the highest standards of financial reporting However, in
the modern times, a simple reportage of financial data is incomplete without other reports

such as Compliance Reports, Sustainability Report, and a separated report on the
shareholders.
The purpose of these reports is to present a ffull and fair understanding o the Company’s
business, in order to maintain transparency with shareholders and potential investors.
Having comprehensive data is important so that there is a good investors and potential
investors find it easier to make decisions. (Ittelson, 2009)
The Annual Reports
The Annual Report of a company is one of the most important documents of
the Company. (BMW Group, 2018) It is an overview of the activities of the
Company and must is the primary source of the financial statements of the
Company/. BMW publishes the Annual Reports and Quarterly Reports. The
Annual Report of 2017 had the following sections. Any annual report must
contain the Income statements, the balance sheet, the accounting
principles used and the items included under these accounting principles.
Table 1 Sections of the BMW Annual Report, 2017 (Introduction)
Source: (BMW Group, 2018)
Information and Group Profile
Organisation and Business Model
Management System
Report on Economic Position
General and Sector-specific Environment
Overall Assessment by Management
Financial and Non-financial Performance Indicators
Review of Operations
Results of Operations, Financial Position and Net Assets
Comments on Financial Statements of BMWAG
Report on Outlook, Risks and Opportunities
Outlook

Risks and Opportunities
Internal Control System Relevant for Accounting and
Financial Reporting Processes
Table 2 Sections of the BMW Annual Report, 2017 (Corporate Governance)
Source: (BMW Group, 2018)
Statement on Corporate Governance
(Part of the Combined Management Report)
Information on the Company’s Governing Constitution
Declaration of the Board of Management and of the
Supervisory Board pursuant to § 161 AktG
Members of the Board of Management
Members of the Supervisory Board
Composition and Work Procedures of the Board of
Management of BMWAG and its Committees
Composition and Work Procedures of the
Supervisory Board of BMWAG and its Committees
Disclosures pursuant to the Act on Equal
Gender Participation
Information on Corporate Governance Practices Applied
beyond Mandatory Requirements
Compliance in the BMW Group
Compensation Report
Responsibility Statement by the
Company’s Legal Representatives
Independent Auditor’s Report

Table 3 Important Sections of the Annual Report (Financial Statement)
Source: (BMW Group, 2018)
Income Statement
Statement of Comprehensive Income
Cash Flow Statement
Statement of Changes in Equity
Notes to the Group Financial Statements
Accounting Principles and Policies
Notes to the Statement of Comprehensive Income Page
Notes to the Balance Sheet Page
Other Disclosures
Segment Information
List of Investments at 31December 2017
Financial Statements
The financial statements are drawn based on IFRS standards. It must include an income statement , a
balance sheet, a report on the major shareholder , a change in owner’s equity statement, a list of
contingencies and provisions and an overview of the General Accounting Principles used. (Ittelson,
2009)
Revenues and Sources of Revenues
BMW earns revenues from its financial services segments, as well as sale and leasing out of automotive.
Each of these have been separately mentioned in the balance sheet. These have been mentioned as
Value Added (before Tax) (BMW Group, 2018)
Table 4 Growth of Revenues for BMW over the year
2017 2016 Value Added
% of Value Added
in the year

4,115 3,593 522
14.528249373782
4
Other Sources of Revenues
Currency Arbitrage Risks and Opportunities: BMW AG operates in several countries and is required
to manage several currencies. Better management of currencies provides the Company with an additional
source of income. Samsung Electronics trades in Canadian Dollar, US dollar, Great British Pound,
Sterling, Japanese Yen, Korean Won among other currencies. (BMW Group, 2018) The profit or loss
made from trading in different currencies through business operations is known as arbitrage. The BMW
has provided information regarding the profits made from currency trading. However, what was not
mentioned was the segment of arbitrage that was gained. Arbitrage can come from one of the three
different sources: (Wang, 2009)
 Locational Arbitrage: Locational arbitrage can be earned because of the difference in the
receipts of a currency in one country while a sale was obtained. Locational arbitrage is a
possible source of revenue for BMW AG since the Company was dealing in several
countries. (Wang, 2009)
 Triangular arbitrage: Triangular arbitrage is triangular arbitrage requires a minimum of
three currencies to be held. It is not clear, if BMW has made any gains or losses due to
triangular arbitrage. (Wang, 2009)
 Covered interest arbitrage: Covered interest arbitrage is also a possible source since
interest rates between various countries in the world, developed and developing have
been digressing. For example, there is an interest rate differential between Canada and
US is very high. Additionally, the USA and Canada are major trading partners and the
possibility of currency exchange is high. Hence, there is plenty of opportunity to exploit
the interest rate differential and gain covered interest arbitrage. It is not clear if any
interest rate arbitrage was included. (Wang, 2009)

Table 5 Short Term Interest Rates for USA, UK and Canada since January 2016
1
3
5
7
9
11
13
15
17
19
21
23
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Short Term Interest Rates
USA
UK
Canada
Short Term Interet Rate
Data Source (Organization for Economic Co-operation and Development, 2018) Prepared by
Author
Profitability Indicators
Profitability Indicators help in understanding the profitability of a Company over the last year. The key
profitability ratio of Return in Capital employed has been mentioned in the Annual Report. It provides a
balanced view of the growth of the Company, in terms of absolute growth and efficiency.
Return on Capital Employed : The Return in Capital Employed, calculated in percentage terms, helps
understand how efficient a business operation was in the past year. Calculating the return on capital
employed will help understand whether the business operation became more profitable or less
profitable within a given year. (Khan & Jain, 2007)
Earnings per share: Earnings per share for BMW were calculated by dividing the net profit after
minority interest ( as attributable to each stock category whether common or preferred, by the average
number of outstanding shares. The net profit are accordingly allocated to the different categories of
stock. The portion of the Group net profit for the year that is not being distributed is allocated to every
category of stock based on the number of shares. Profits distributed are determined directly on the

basis of the dividend resolutions passed outstanding in the category. Earning per share help understand
the profitability or investors. (Khan & Jain, 2007)
Other Indicators
There are several other indicators that help understand the financial position of a firm from the point of
view of “going concern” or the ability of the firm to stay in business but are not concerned with the
profit or loss. (Khan & Jain, 2007)
Cash Flows
The Cash Flows of the firm have been disclosed according to IFRS standards. However, an understanding
of cash flows helps describe the liquidity position of the firm. However, a cash flow statement, on it’s
own is not a good indicator, unless paired wit some indicative ratio. (Khan & Jain, 2007)
One such ratio is the liquidity Ratio. Any liquidity ratio describes the amount of liquid balances (such as
cash flows) that a firm held during the accounting period. It is an important ratio to understand, in order
to be able to understand, if the firm dispense off its current liabilities or the payments that must be
made within the given year, without issuing a sale of its assets. (Khan & Jain, 2007)
The report shows an decrease in the overall cash flows since last year. A low liquidity ratio (decrease in
cash flows) is dangerous because may lead to a loss of investor or consumer confidence since the firm
will find itself unable to pay off its liabilities, in spite of having sufficient assets. (Khan & Jain, 2007)
Table 6 Cash Flow Changes by Percentage
Source: (BMW Group, 2018)
Cash Inflow/ Outlow 2017 2016 Change
% of Change in
Cash Flows
Cash inflow / outflow from operating
activities 5,909 3,173 2,736
86.227544910179
6
Cash inflow / outflow from investing
activities – 6,163 -5863 -300
5.1168343851270
7
Cash inflow / outflow from financing
activities
1,572 4,393 -2,821 -
64.215797860232