International Finance Report: Audi's Financial Performance Analysis

This report provides a comprehensive analysis of Audi's international finance, examining recent developments in the international financial environment and their impact on the company. It critically discusses the influence of equity markets and interest rates on Audi's operations. The report delves into key elements of Audi's international finance, including dividend policy and sources of finance, and evaluates the company's financial performance through various ratios such as gross margin, net profit margin, return on capital employed, trade receivables period, and current ratio. The analysis covers the years 2018 and 2019, offering insights into Audi's financial health and strategic risk management. The report concludes with an assessment of the company's strengths and areas for improvement in the context of its global operations. The report is a comprehensive analysis of the company's financial performance, offering valuable insights into its operations.

International finance

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Critical discussion of two recent developments in the international financial environment
which has impacted the international financial environment development of the organisation..1
Analysis and evaluation of the key elements that are related with the firm’s international
finance and its strategic risk management...................................................................................2
Evaluation of the performance of the company financially with the help of different ratios......3
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
APPENDIX....................................................................................................................................10

INTRODUCTION
International finance pertains to a branch of financial analysis and economics that deals
with macroeconomics and monetary interrelationships of 2 or even more countries Businesses
can be enabled to carrying out all their operating operations in a coordinated manner in different
nations with the aid of this. International finance practices are advantageous to economies as it
allows them to gain exposure to financial markets all over the world, from which they can extract
funds anytime they need them. It leads to promotion of both foreign and domestic investment,
that can serve to significantly boost capital flows (Palma, 2015). Audi has been chosen to
understand the various aspects of international finance in this study. Corporation is one of world
's biggest automobile companies, with operations all over the globe. August Horch formed it in
the year 1932. Audi is a well-known brand of premium vehicles that is loved by people
throughout world. The whole study discusses a number of aspects, including recent
developments in international financial system, funding sources, and dividend policy, among
others. Aside from that, various ratios are determined in this task in attempt to analyze the
financial status of the organisation.
MAIN BODY
Critical discussion of two recent developments in the international financial environment which
has impacted the international financial environment development of the organisation
Equity market: It is amongst the most significant developments in international
financial market. This has an influence on Audi as it's a multinational organization with
operations all over the world. Also, with support of this advancement, the majority of foreign
investors put their money into Audi, allowing the organization to being the most sought-after
shares. As a result of this growth, the entity will face numerous rewards and difficulties in the
upcoming period. The range of equity investors in the nation will rise in coming decades as stock
markets improve, resulting in more common stockholders for the company. It would have a
positive effect on the organization since it would be enabled to carrying out almost all of projects
in a much more streamlined and consistent way with the aid of a larger group of shareholders.
Company Audi’s existing market is primarily a capital market in order to decrease the
investment risks (Dafe, 2020). The portrayal of the factors of the developments occurring in the
financial markets is alluded to as international financial environment. Vital takeaway that could

have an effect on it is the nation's creditworthiness. When it is weak, it will have an effect on
such country 's economic development and also the businesses that operate within nation. Audi
is multinational automaker with businesses all over the world. The two most recent business
trends that have had an effect on Audi's aggregate performance are first, government's repricing
policies, which assist in the functioning of the business such that this can function in a consistent
and coherent way, adding value to company in the longer run.
Short term interest rates- This is amongst the most important and necessary elements for
any company that wishes to expand and enhance its long-term profitability and development, as
it assists in performing that in quite effective and convenient way It could be explained as if the
interest rate on the mortgage or debt that a corporation gets is weak, it can put it to effective
usage in the sector, bringing in a better profitability level for company and therefore
growing company's market value.
Audi, because it is called, is among the leading corporations functioning in the present
market situation in a quite specific manner, as well as this also exploited this during its initial
periods of formation as it offers the business an edge over other competing firms functioning in
comparable economic conditions. This is a valuable asset to business, and if implemented
properly, this could be beneficial to other as well. Audi uses shorter-term borrowing costs, but
only to a small extent, so as not to jeopardize its long-term status (Hussain, Salia and Karim,
2018). Secondly, the emergence of more impactful and systematic operating environment that
aids in securing a large number of customers who are ready and willing to make invest in the
business over the long term. Any developments in the international financial market might have
had a detrimental effect on business operations.
Analysis and evaluation of the key elements that are related with the firm’s international finance
and its strategic risk management
There are several key attributes which a corporation holds, and appropriately handling risk
is also one of these. This is extremely important for any organization operating in marketplace
regardless of the sector in where it operates. While it is true that the greater the risk greater the
gain, a company must consider wisely so that it doesn't adversely affect its brand image
in market. Owing to the competitive aspect of sector in where it operates an organization as large
as Audi carries a large number of risks, thus each of them is addressed in depth below with
regards to the organization-

Dividend policy-
Dividend Policy: It is among the most crucial facets because it is where dividend
payout decisions are made which are extremely significant in the existing market environment. If
all earnings were distributed as dividends to shareholders, corporation would face difficulties.
Dividend Last 3 Years:
Year 2017: 2.00 per share
Year 2018: 3.90 per share
Year 2019: 4.80 per share
Trend in dividend: The above stated DPS for three year shows that there is incremental trend in
ratio.
Theories Applies to Company: Decisions are made on dividend allocation, such as whether profit
sum should be held in business or allocated to shareholders Another thing which is accomplished
is that certain parts are kept and others are dispersed, with the remaining parts being distributed
later. As a result, after thoroughly analyzing both aspects, all companies make decisions based
on the needs, preferences, and demands. Although since inception, Audi has adopted a strategy
that has proven to be quite profitable for the corporation which is to maintain a portion of profit
called retained earnings as well as allocate the remainder to the corporation 's owners who are
shareholders. This has consequently aided the company in accelerating its growth and
profitability generation in the longer term, and also boosting its market valuation (Willy, 2017).
Sources of finance- There are numerous means of finance through which a business can obtain
the anticipated and needed funding, but the corporation that is leveraging sources of financing to
obtain extra capital must ensure that the finances are raised in an acceptable manner so that firm
does not face difficulties in the foreseeable future There's primarily two types of finance:
equities and debts and almost every corporation in the industry employs a mix of the two to
maximize long-term profits.
When a corporation generates funds entirely through borrowing, there will be more
liabilities for the corporation, and if a corporation generates funds entirely through equity, there
will be many owners of the company, which is not a positive indication for the business
Therefore, in such cases, a mixture of each is required, and Audi plc is doing same thing by
employing skilled staff to assist the organization in determining the optimal mixture of both in
order to maximize profitability and efficiency (Hudson and Green, 2015).

Evaluation of the performance of the company financially with the help of different ratios
A range of ratios are being highlighted in depth, then reviewed as well as interpreted in
light of the company's context in this section, as below-
Gross margin- This is a percentage that aids in assessing difference between the company's
sales and the costs associated with them, and it has a lot of importance in the current situation
because it aids in determining real output, which is crucial factor in both the existing and
prospective sectors (Dafe, 2020). The gross profit margin measured of company Audi for years
2018 and 2019 as shown below-
Gross margin: Gross profit/net sales*100
2018 2019
Gross profit 9131 8082
Net sales 59248 55680
Gross margin 15.4 % 14.5 %
As stated in above table, Audi plc’s gross profits margin has been decreased from 15.4 % in
year 2018 to 14.5 percent in year 2019. As a result, company must take serious steps to boost this
aspect, because it is crucial for long-term sustainability. This slight decline in ratio is due to
inefficient management of business’s core manufacturing operations and increase in direct
expenses.
Net profit margin- It is among the most significant ratios because it aids in assessing the
current levels of profitability for the business (Puspasari, Suseno and Sriwidodo, 2017). It
assists in calculating percentage of net profits using sales and other similar factors that are
currently in use in the industry. It was produced for company Audi-
Net profit margin: Net profit/net sales*100
2018 2019
Net profit 3463 3943
Net sales 59248 55680
Net margin 5.84 % 7.08 %
As shown in above presented table, the company, Audi plc has performed excellently in
this respect, increasing its net profitability margin from 5.84 percent in 2018 to 7.08 percent in
2019, and it is crucial factor contributing to the company's improved profitability in long run.

This significant increase in ratio is due to company’s policies regarding cost cutting and
optimising business expenses.
Return on capital employed- This is a metric which aids in analyzing and measuring the yield
that the business obtains from the capital which is employed in business, and this thus has a great
deal of significance and relevance in every sector, regardless of the sector in which the
organization operates (Willy, 2017). Following is ROCE ratio of Audit. as follows:
ROCE: EBIT/capital employed
2018 2019
EBIT 3529 4509
Capital employed (Shareholder’s Equity) 44247 44659
ROCE 0.08 or 8% 0.1 or 10%
The corporation is undoubtedly doing an outstanding job in terms of generating ROCE,
as company has managed to enhance this part of the organization from 8% in year 2018 to
10% in year 2019. While much progress remains to be done the organization is on right track and
performing well in competitive market environment.
Trade receivables period- It is significant because it aids in considering the no. of days during
which a company receives payments from its accounts receivable. It is better to be on the poorer
side as if the money is quickly retrieved, this could be spent in other ways that will yield a -
positive return and vise – versa (Arshad, Iqbal and Omar, 2015). In this regard following is
computation of trade receivables period, as follows:
Trade receivable period: 365 days/accounts receivable
turnover
2018 2019
Sales 59248 55680
Accounts receivable 5800 5011
Accounts receivable turnover 10.22 11.11
Trade receivable period 36 33
Audi has made considerable progress in keeping overall trade receivables duration low,
growing it from around 36 days during 2018 to 33 days during 2019, which is one reason for the
company's accelerated and strengthened progress and profitability in competitive business

environmental setting. The reason for decline in ratio is late collection or postponement in
collection of trade receivables.
Current ratio- This is simple ratio, but it is perhaps one of most relevant because it is
quite useful in calculating a corporation 's short paying ability because it allows to
determine if a corporation 's current assets are sufficient of covering its current obligations
or not (Husna and Satria, 2019). Most optimal ratio for business is 2:1, which the whole
company should strive to achieve because it is quite helpful to the company. In this context
following is computation of current ratio of Audi as follows:
Current ratio: Current assets/current liabilities
2018 2019
Current assets 33205 32422
Current liabilities 21351 22219
Current ratio. 1.56 1.46
As shows in above table, company’s current ratio has been declined from 1.56 to 1.46
during 2018 to 2019. Ratio below 1 indicates that business’s current assets are not adequate to
cover its current liabilities. The organization is not delivering as anticipated, as well as
business's performance has declined from the prior year; as a result, the company must take
necessary and sufficient steps to ensure that it does not become burden in the longer term. The
reduction is due to a rise in current liabilities at a higher margin, whereas current assets of
company do not change as much. The reason for decline in this ratio is inefficient working
capital management and increase in current liabilities.
Gearing ratio- This is proportion that aids in measuring and contrasting the two
components: debt and equities that are very vital and pivotal to every company, and it decides
the company's ratios (Wong and Joshi, 2015). In this regard following are calculation of Audi's
gearing ratio, as follows:
Gearing ratio: Total debt/total equity
2018 2019
Total debts 35900 38431
Total equity 29698 28447
Gearing ratio 1.21 1.35

This could be seen in above, the company's debts are growing while its equity is decreasing
in relation to the prior year, that is not positive indicator for the organization because it raises
financial risk for company. In long run this increase in debts of company can lead to decrease in
profitability as well as can affect solvency status. As result, organizations must take reasonable
steps to address the problem that the company is experiencing. The explanation for the increase
is that total loans have increased in comparison to overall equity implying that the organization
has more debts as compare to capital. The key reason of increase in this ratio is increasing long
term debts in company as well as increasing dependency of company over debts funding instead
of equity funding.
Earnings per share- It refers to the profit earned by a company's shareholders on per-
share basis. It is crucial because it aids in the review of the company’s profitability in terms
to generation of profit for each shareholder (Kumar, 2017). The earnings per share of Audi
is calculated as follows:
Earnings per share: Net income/outstanding shares
2018 2019
Net income 3382 3850
Outstanding share 43 43
EPS 78.64 89.53
As per analysis of EPS of company Audi plc is performing well, with earnings per share
increasing from 78.64 during 2018 to 89.53 during 2019, indicating increase in efficiency of
company to provide return in terms of each share. This incremental trend points out that
business’s efficiency to generate return for their shareholders has been increased. Reason for
increase in ratio is significant increase in company’s profitability level.
Payout ratio- It is a proportion that specifies how much money is allocated to the corporation 's
true shareholders as dividend (Nia, 2015). The pay-out percentage of the company Audi is
computed as below:
Payout ratio: Dividend per share / Earning per share
2018 2019
DPS 3.9 4.8
EPS 78.64 89.53
Payout Ratio 4.3% 6.8%

Above computed ratio of pay-out of the company shows that company has reduced payout
of dividend to its shareholder over the period and it needs to change its emphasis in this area as
well, or else the company's market value will be diminished. This decline in payout ratio shows
that profitability of company has been reduced or company want to retain more profits as
reserves. There is increase in ratio due to increment in earning per share level as well as higher
percentage of dividends.
CONCLUSION
From above study this has been ascertained that international financing is a vital area of
business that any company should be aware of because it has potential to boost profits.
From above study, it can be inferred that company Audi, is doing remarkably well in market,
however there are some aspects wherein the company needs to concentrate in order to maintain
its market leadership. Company’s liquidity ratio and solvency ratio have been declined from
2018 to 2019, thus company should focus on these areas and improve by appropriate steps like
effective working capital management, debt restructuring, change in credit policies etc.

REFERENCES
Books and journals:
Palma, J.G., 2015. Why corporations in developing countries are likely to be even more
susceptible to the vicissitudes of international finance than their counterparts in the
developed world: A Tribute to Ajit Singh.
Chwieroth, J.M., 2015. Managing and transforming policy stigmas in international finance:
Emerging markets and controlling capital inflows after the crisis. Review of
International Political Economy, 22(1), pp.44-76.
Dafe, F., 2020. Ambiguity in international finance and the spread of financial norms: The
localization of financial inclusion in Kenya and Nigeria. Review of International
Political Economy, 27(3), pp.500-524.
Hussain, J., Salia, S. and Karim, A., 2018. Is knowledge that powerful? Financial literacy and
access to finance: An analysis of enterprises in the UK. Journal of Small Business and
Enterprise Development.
Hudson, Y. and Green, C.J., 2015. Is investor sentiment contagious? International sentiment and
UK equity returns. Journal of Behavioral and Experimental Finance, 5, pp.46-59.
Willy, S., 2017. Analysis of financial ratios to measure the company’s performance in the sectors
of consumer goods at Pt. Nippon Indosari Corpindo, Tbk and Pt. Mayora Indah,
Tbk. International Journal of Business and Economic Affairs, 2(1), pp.45-51.
Kalaiselvi, S. and Sangeetha, C., 2018. Ratio analysis of the selected stock broking
companies. Asian Journal of Multidimensional Research (AJMR), 7(7), pp.195-199.
Arshad, R., Iqbal, S.M. and Omar, N., 2015. Prediction of business failure and fraudulent
financial reporting: Evidence from Malaysia. Indian Journal of Corporate
Governance, 8(1), pp.34-53.
Wong, K. and Joshi, M., 2015. The impact of lease capitalisation on financial statements and key
ratios: Evidence from Australia. Australasian Accounting, Business and Finance
Journal, 9(3), pp.27-44.
Nia, S.H., 2015. Financial ratios between fraudulent and non-fraudulent firms: Evidence from
Tehran Stock Exchange. Journal of Accounting and Taxation, 7(3), pp.38-44.
Kumar, P., 2017. Impact of earning per share and price earnings ratio on market price of share: a
study on auto sector in India. International Journal of Research-Granthaalayah, 5(2),
pp.113-118.
Husna, A. and Satria, I., 2019. Effects of return on asset, debt to asset ratio, current ratio, firm
size, and dividend payout ratio on firm value. International Journal of Economics and
Financial Issues, 9(5), p.50.
Puspasari, M.F., Suseno, Y.D. and Sriwidodo, U., 2017. Pengaruh Current Ratio, Debt to Equity
Ratio, Total Asset Turnover, Net Profit Margin dan Ukuran Perusahaan terhadap
Pertumbuhan Laba. Jurnal Manajemen Sumber Daya Manusia, 11(1).

APPENDIX
Calculation of ratios with formulae and steps that are involved in it-
 Gross margin ratio- Gross profit/net sales*100
2018= 9131/59248*100 = 15.4
2019= 8082/55680*100 = 14.5
 Net profit margin ratio- Net profit/net sales*100
2018= 3463/59248*100 = 5.84
2019= 3943/55680*100 = 7.08
 Return on capital employed- EBIT/capital employed
2018= 3529/44247 = 0.08
2019= 4509/44659 = 0.1
 Trade receivables period- 365 days/accounts receivable turnover
2018= 59248/5800 = 365/10.22 = 36
2019= 55680/5011 = 365/11.11 = 33
 Current ratio- Current assets/current liabilities
2018= 33205/21351 = 1.56
2019= 32422/22219 = 1.46
 Gearing ratio- Total debt/total equity
2018= 35900/29698 = 1.21
2019= 38431/28447 = 1.35
 Earnings per share- Net income/outstanding shares
2018= 59248/29698 = 2.00
2019= 55680/28395 = 1.96
 Payout ratio- 365/accounts payable turnover
2018= 59248/8565 = 365/6.92 = 52.77
2019= 55680/7106 = 365/7.84 = 46.58