Financial Statement Analysis and Equity Valuation Report: Daimler AG

This report presents a comprehensive financial statement analysis of Daimler AG, an automobile engineering company, focusing on its performance and valuation. The analysis includes a company profile, segment analysis, macro-economic and industry analysis, competitor analysis using Porter's Five Forces, and a review of the business model and corporate strategy. Key financial ratios are examined to assess profitability, liquidity, and efficiency. The report utilizes the Dividend Discount Model (DDM) and Free Cash Flow (FCF) analysis to derive a valuation and concludes with a 'BUY' recommendation, considering the long-term bullish outlook for the company. The analysis also addresses the impact of COVID-19 on the automotive industry and Daimler AG's operations. Detailed financial statements and ratio analysis are provided in the appendix, offering a thorough assessment of Daimler AG's financial health.

Running head: FINANCIAL STATEMENT ANALYSIS
Financial Statement Analysis
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Author’s Note:

1FINANCIAL STATEMENT ANALYSIS
Table of Contents
Analyst Tear-Sheet..........................................................................................................................3
Company Profile..............................................................................................................................4
Segment Analysis........................................................................................................................4
Macro-Economic Analysis..............................................................................................................5
Industry Analysis.............................................................................................................................6
Competitor Analysis........................................................................................................................7
Porter’s Five Force......................................................................................................................7
Business Model and Corporate Strategy..........................................................................................8
Corporate Strategy.......................................................................................................................9
Ratio Analysis................................................................................................................................10
Valuation and Analysis..............................................................................................................12
Dividend Discount Model..........................................................................................................12
Free Cash Flow Analysis...........................................................................................................13
Conclusion.....................................................................................................................................14
References......................................................................................................................................15
Appendix........................................................................................................................................17
1) Detailed Ratio Analysis.........................................................................................................17
2) CAPM Data...........................................................................................................................18
3) Balance Sheet........................................................................................................................19
4) Income Statement..................................................................................................................20
5) Free Cash Flow Model..........................................................................................................21
6) WACC...................................................................................................................................22

2FINANCIAL STATEMENT ANALYSIS
Analyst Tear-Sheet
Company Name: Daimler AG
Exchange: DAX Index
Industry: Automobile Industry
Market Cap: 27.92 Billion
Market Currency: Euro
Current Stock Price: €25.52
Valuation Ratio
Particulars 2017-12 2018-12 2019-12 Industry
Dividends EUR 3.25 3.65 3.25
Pay-out Ratio 37% 43% 86% 25%
Share Price 70.8 47.07 49.84
Dividend Yield 4.59% 7.75% 6.52% 2.00%
Book Value Per Share 68.7 68.67 64.25
Price to Book Value Ratio 1.03 0.69 0.78 0.2
Market Cap 27.92
B
P/E Ratio 11.49
Dividend Yield 3.53%
52-Week High 60.00
52-Week Low 21.06
Analyst Recommendation:
DDM Valuation: €92.26
DCF Valuation: € 35.76
Current Share Price: €25.52
Recommendation: “BUY”
Time Frame: Long Term
(BULLISH)

3FINANCIAL STATEMENT ANALYSIS
Company Profile
Daimler AG is an Automobile Engineering Company whereby the company is well
engaged in the development, production and distribution of the cars, vans and trucks in Germany
and the management in the Daimler Group. The company was well formed following the merger
of Benz and Cie and Diamler Motoren Gesellschaft in the year 1926. The Daimler owns business
groups which well includes Mercedes Benz, Mercedes AMZ, Mercedes-May Bach, Smart and
Heavy Truck Companies that well includes Freightliner and Western Star. The operations of the
company is primarily engaged in production, development and distribution of the cars, trucks
and vans in Germany and the management of Daimler Group (Daimler 2020). The production
facilities of the company is well expanded in almost 20 countries and over 8,500 sales centers
that is spread all across the world. The company is listed in the stock exchange with its stock
symbol as “DAI”. The current share price of the company is around 26.28Euro.
Segment Analysis
The key segments are as Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans,
Daimler Busses and Daimler Financial Services. 6/1/2015
11/1/2015
4/1/2016
9/1/2016
2/1/2017
7/1/2017
12/1/2017
5/1/2018
10/1/2018
3/1/2019
8/1/2019
1/1/2020
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
Daimler and Market Return
Daimler DAX Index

4FINANCIAL STATEMENT ANALYSIS
 Mercedes-Benz Cars: The Mercedes Benz Car Segments well includes the vehicles that
are a part of the Mercedes-Benz Brand, which also well-known brands such as Mercedes-
May-Bach and Mercedes-AMG (Editorial 2020).
 Daimler Trucks: The Daimler Truck segment well includes segments that is engaged
into development and production of vehicles under the brand name of Mercedes-Benz,
Freightliner, Western Star, FUSO and Bharat-Benz.
 Mercedes-Benz Vans: The business segment is a key supplier for a range of vans and
associated services. The vans of this segment are in particular sold under this brand name,
which also includes Freightliner and Mercedes-Benz.
 Daimler Buses: The Daimler Buses well segments and sells completely built up houses
that are under this brand name which also includes other key brands such as Setra and
Mercedes-Benz (Daimler 2020).
 Daimler Financial Services: The financial services segment of the company well helps
and support the company automobile services and various brands that are operating in
approximately 40 countries operating globally. The primary product portfolio of the
segment includes leasing and financing for end customers, dealers, and others.

5FINANCIAL STATEMENT ANALYSIS
Macro-Economic Analysis
Supply and demand of the automotive industry are well affected as the profitability
aspects are well affected by the macro-economic policies followed. The history of the
automotive industry well demonstrate that that the trend it has followed is highly affected due to
changing business cycles and key economic factors like GDP Growth rate, Inflation rate and
monetary and fiscal policies followed are some of the key macro-economic factors that would be
impacting the business operations of the company. On the other hand falling interest rate
globally and slowdown in business production activities like Brexit, Trade War and then the
Outbreak of COVID-19 were some of the crucial aspects which is outweighing other factors as
factories and business operations of Daimler gets affected heavily due to the current business
scenario. A graphical image is been presented below which well shows the impact of
Coronavirus and how will the same be affecting the GDP Growth Rate globally where the
operations of the company is situated.

6FINANCIAL STATEMENT ANALYSIS
Industry Analysis
The global demand for cars has particularly remained at a very high level in the year
under review, but actually decreased slightly by about 1% when compared with previous year.
The traditional sales method that is operating in the Western Europe Market and United States
are now fully recovering from the considerable amount of fall or loss in the volume as a result of
financial crisis and Brexit in the European Union Nation. Further the outbreak of Pandemic
Disease COVID-19 which has brought a slowdown in the global economy and would be
affecting the consumer expenditure pattern. The slowdown has primarily been observed in major
parts of Europe, Asia and North America where the outbreak is severe. It becomes important for
the management of the company to undertake a detailed strategic analysis for the upcoming
threats and events which can disrupt the business operations. However this will be well affecting
not only one player in the industry or a single company, but Daimler represents a group a
premium vehicles that are offered to its customer, with the ongoing lockdown and a decrease in
the income level of individuals the company and industry might be reporting a weaker outlook
and current business scenario.
At the time when the global manufacturing industry was in the midst of evolution
whereby customer’s needs were catered, advancement of technology in the form of Artificial
Intelligence (A.I.) Systems were introduced. On the other hand side an uncertain trade
environment due to Brexit Issues, Trade War between US and China in the past few years. The
year 2020, turns out to be more disruptive for the auto manufacturers with the outbreak of
COVID-19 which is well affecting the supply chains and at the same time is disrupting the
manufacturing operations globally. The most vulnerable organisations and companies are those
who used to heavily rely or solely on the factories that were located in China for material and
spare parts. The image below well shows the industries that were most affected due to COVID-
19 is shown which shows that the Automotive Industry was the one which was highly affected.

7FINANCIAL STATEMENT ANALYSIS
Competitor Analysis
Porter’s Five Force
The Porter’s five forces can be well applied for the purpose of examining the industry and
business environment of Daimler Company.
 Threat of New Entry: The Daimler Company is facing currently low threats of new
entrants in the Automobile Industry. The manufacturing automobile industry requires a
continuous continuous manufacturing and supplying the same in the international markets
which is a high capital extensive business and this is the key reason why new entrants
generally does not enter in this industry.
 Bargaining Power of Buyers: Buyers bargaining power is considerably moderate when
it comes to the brand image and product of Daimler. The key reason is the features
provided by the product which includes luxury, comfort and latest technological featured
cars which are catered to a group of people so in this area the bargaining power is
considerably less for the buyers of the company.
 Bargaining Power of Suppliers: The bargaining power of suppliers has a moderate basis
of bargaining power, similar to other large scale vehicle manufacturers. Daimler currently
has a considerable amount of negotiating power in the supplier contract, this well limits
down the bargaining power of suppliers.
 Threat of Substitute Product: The threat is response to similar product that is faced by
company is currently low as the offered product by the company differs widely when it
comes to luxury and comfort. Each company has its level of product which offers its
unique feature and hence threat for similar product is considerably less.
 Competitive Rivalry: The competitive rivalry in the industry is considerably well high
for the company. Daimler Company faces an intense level of competition from other
Automobile and Vehicle Manufacturers. The key competitors of the company include top
auto manufacturers like BMW Group, General Motors, Volvo Group, Volkswagen, Ford,
Tesla, Aston Martin are some of the key competitors of the company.

8FINANCIAL STATEMENT ANALYSIS
Business Model and Corporate Strategy
Daimler Group is well recognized as a global leader in vehicle manufacturing segment
whereby the company is having an unparalleled range of premium automobiles and featuring
pioneering achievements in the Automotive Engineering. The Daimler Group today is also
having a range of product portfolio that is well rounded by a range of customized financial
services and various other mobility services. The automotive industry is in the process of process
of fundamental transformation and the company intends to well play a major role in the
development and transformation of the same. The company with its strong brand name like
Daimler is well active in almost all parts of the world. The production facilities of the company
are well located in Europe, Asia, North and South America and Africa. The global scaled up
operations and networking of the research and development activities that also includes the
production and sales globally gives Daimler a comparative advantage in the international
competitive field and also offers an additional group of opportunities. In the year 2018, the
revenue of Daimler has well increased its revenue by 2% to €167.4 Billion. The five division of
the group well includes and contributes to the total are as follows:
Corporate Strategy
In a fast evolving automobile company it becomes important for the company to well
understand the various business factors along with global industry wide factors so that strategies

9FINANCIAL STATEMENT ANALYSIS
and implementation of ideas could be well done to achieve the same. The global demand for
Cars remained competitively at a high rate level in the year 2018, but recently saw a decrease in
the year 2019 following due to ongoing financial crisis and weakening of Automobile Industry
Globally. The growth rates of passenger car globally is shown below which has shown a slight
decrease as shown, whereby the management of the company has found what are the key area
and aspects in which issues have been found and how can the same can be well resolved whether
it turns out to be in the form of resolving sales issues or efficient utilization of resources with the
help of technological innovations.
Ratio Analysis
Financial performance and position has been well introspected using ratio analysis a
quantitative assessment tool which would be well used for the analysis. The analysis of the
company has been well compared with the industry trend in order to analyse a detailed
examination. Profitability, Liquidity and Efficiency are some of the key aspects upon which the
analysis will be performed.

10FINANCIAL STATEMENT ANALYSIS
Profitability: The profitability aspects of the company has been well done with the help of key
ratio’s like Gross Profit Margin, Operating Margin, Return on Assets and Return on Equity. The
profitability aspects of the company has shown a increasing trend, however the same has taken a
downfall in the year 2019 due to lower amount of sales and increasing costs for the company.
The industry ratio on a comparative note had a better ratio in which the company had
underperformed in the year 2019. From income statement perspective the company was tried to
deliver better gross profit and operating margin from the industry perspective. However from the
balance sheet perspective, like Return on Asset and Equity has shown a underperformance when
compared with the industry set of data.
Liquidity: The liquidity aspect of the company has been well assessed with the help of the
current and quick ratio for the company in which the company has tried to maintain sound
liquidity in the business and that has been stable for the company and better from industry
perspective as well as from company perspective.
Efficiency: The efficiency of the management of Daimler has been well assessed with the help
of the Days Inventory, Payables Period and Receivable Turnover. The inventory ratio on a
comparative note is greater for the Daimler Company which well says that the company is taking
more time than the industry for well clearing out the stocks that are locked in inventory. The
payables period for the company has been also less than the industry average which got to well
show that the management of the company are well paying off early to their payables than other
companies operating in the same industry. While the receivable turnover ratio is greater for the
industry perspective and is comparatively lower for the company stating that a higher amount is
locked down with the receivables for the company. Thus the management of the company well
take key steps for ensuring assets and resources deployed are well utilized so that management of
cash and debt can be done optimally.
Investor’s Ratio: From an investor’s valuation perspective the payout ratio offered by the
Daimler Company is the highest in the industry whereby the company has paid more than 86%
of its earnings in the form of dividends, while the industry average at the same time was 25%.
Increased amount of dividend has also lead to the increased dividend value and low P/B Ratio for
the company.
Ratio Analysis

11FINANCIAL STATEMENT ANALYSIS
Particulars 2017-12 2018-12 2019-12 Industry
Profitability Ratio
Gross Profit Margin 20.9% 19.8% 16.9% 13.40%
Operating Profit Margin 7.90% 6.00% 2.30% 3.60%
Return on Assets 4.22% 2.70% 0.81% 1.80%
Return on Equity 17.26% 11.27% 3.77% 7.10%
Liquidity Ratio
Current Ratio 1.23 1.24 1.21 1.1
Quick Ratio 0.86 0.87 0.87 0.8
Efficiency Ratio
Days Inventory 70.94 74.12 74.6 49.5
Payables Period 33.75 36.23 34.18 42
Receivables Turnover 3.3 3.06 2.85 3.01
Investor's Ratio
Dividends EUR 3.25 3.65 3.25
Pay-out Ratio 37% 43% 86% 25%
Share Price 70.8 47.07 49.84
Dividend Yield 4.59% 7.75% 6.52% 2.00%
Book Value Per Share 68.7 68.67 64.25
Price to Book Value Ratio 1.03 0.69 0.78 0.2
Valuation and Analysis
Dividend Discount Model
The dividend discount model would be well carried for the company by well taking the
dividends of the company for the last three years. The future dividends will be forecasted based
on historical growth rate. Terminal rate for valuation would be well analyzed by selecting an
estimate about the company future operation keeping industry and macro-economic factors
analyzed above (Yahoo Finance 2020). In order to find out the terminal growth rate for the
company we have taken macro-economic factors and current business situation for which we
have well taken a growth rate of about 1.00%. The average growth rate taken on the other hand is
around 8.58%.
In order to well find out the cost of equity, the Capital Asset Pricing Model has been well
applied for the purpose of valuation purpose for which risk free rate taken was 1.10%, market