Comparative Financial Analysis of Daimler and BMW Automotive Groups

This report presents a comprehensive financial analysis of Daimler and BMW, evaluating their performance using key financial ratios, including profitability, liquidity, and solvency. The analysis covers the years 2012-2014, comparing the two automotive giants and the overall global automotive market. The report examines Daimler's financial performance, highlighting a decline in gross and net profitability ratios, and assesses its liquidity and solvency positions, revealing a less-than-ideal current ratio but a healthy quick ratio. A discussion of the bribery scandal and its impact on Daimler is included, along with an overview of the company's innovation, growth prospects, and future outlook. BMW's financial performance is also assessed, revealing fluctuations in profitability and liquidity ratios. The report concludes by comparing the financial health of both companies, considering the impact of industry saturation and scandals, and providing recommendations for future growth and development. The study aims to provide a clear picture of the financial strengths and weaknesses of each company, aiding in informed decision-making for stakeholders.

Financial Statement
Analysis

EXECUTIVE SUMMARY
Financial statement includes profit and loss account, cash flow statement and balance
sheet which helps organization in analyzing their financial performance through ratio analysis.
By making analysis of financial statement, company is able to make effectual business decisions
which help them in achieving success. In the present report, profitability, liquidity and solvency
aspect of the Daimler and BMW will be analyzed. In addition to this, the present research will
also provide information about the future growth of firm. From this research, it has found that
financial performance and position of Daimler are sound as compared to BMW. Besides this,
future of Daimler is very bright as business entity mainly focuses on contributing towards the
growth and development.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
INTRODUCTION ..........................................................................................................................2
1. Daimler financial performance...............................................................................................3
2. Assessment of the financial position.......................................................................................4
3. Discussion of scandal and its impact......................................................................................6
4. Innovation and growth............................................................................................................7
5. Future prospectus of Daimler automotive group....................................................................8
CONCLUSION................................................................................................................................8
RECOMMENDATIONS................................................................................................................9
REFERENCES..............................................................................................................................10
APPENDICES...............................................................................................................................12

INTRODUCTION
Financial statement analysis may be served as a tool in which manager or director of the
firm makes evaluation of the accounting reports of business. By reviewing and studying profit
and loss account, cash flow statement and balance sheet through ratio analysis, business
organization is able to make effectual decisions (Uechi and et.al, 2015). With the help of such
analysis, commercial entity is able to make suitable changes in their existing policies and
strategies. The present report will examine the financial performance of Daimler and its
competitor namely BMW. Daimler is the largest German manufacturer of automobiles. In 2014,
Daimler sold 2.4 million vehicles which entails the story of growth and success of the brand.
Ultra luxury edition of Mercedes Benz S-class is one of the strengths of this firm. Besides this,
Daimler offers employment to 279972 people and thereby, makes contribution in the
development of economy. The study will shed light on the financial performance of Daimler,
BMW and the overall global automotive market. This report will provide information about the
future growth and development aspect of Daimler.
1. Daimler financial performance
Financial performance of Daimler and its competitor BMW can be evaluated by the
management and different stakeholders of the firm through profitability ratios. Gross and net
profit ratios are the main indicators which help management and different stakeholders in
decision making aspects (Bay, Chan and Walczyk, 2015).
Financial performance analysis of Daimler: According to the ratio analysis, it has been
identified that gross profitability aspect of the firm decreased in 2013 and 2014 as compared to
previous years. In 2012, gross profitability of the business organization was 22.29%. Whereas, it
was 21.30% in 2013 and 21.70% in 2014 (Daimler Annual Report, 2014). This aspect clearly
reflects the slowdown in the growth and performance of Daimler. On the basis of this aspect, it
can be stated that company fails to generate high level of sales as compared to the expenditures
made by them (Parsons and et.al., 2015).
In addition to this, net profitability of the firm also shows declining trend and thereby,
negatively affects their corporate image. In 2013, there was significant increase in the net income
of business entity. Net profit ratio of Daimler was 5.98% in 2012 whereas, it increased by 2.39%
in 2013. Such increment in the ratio helped organization in attracting large number of investors.
Moreover, dividend decision of the corporation is highly dependent upon the net income
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generated by them. On the contrary to this, net income of Daimler reduced in 2014 by 1.78%
which was not a positive sign for the firm. Thus, as per the overall performance, it can said that
profitability aspect of the business enterprise is not sound.
Analysis of financial performance of BMW: Ratio analysis of BMW represents unsteady
trend in the gross and net profitability aspect of firm. GP ratio of the business entity was declined
in the year of 2013 as compared to 2012. On the contrary to this, in 2014, gross profitability
margin of BMW was 21.15% which was higher as compared to the performance of past years. It
reflects that customers have started to make investment on the attractive as well as effective
BMW cars. Thus, sales strategies which were made by BMW in 2014, were more effective on
the comparison to 2012 and 2013. Along with it, Net profit ratio of the firm was decreased in
2014 in which it was 6.61%. On the contrary to this, in the financial year of 2012 and 2013, it
was 6.63% and 6.41%. Increase in the expenditure may one of the main causes due to which
profitability aspect of business was declined. This aspect places negative impact upon the
investment decision of corporation. Moreover, profit of the business has been decreasing in
comparison to the past years as they made inappropriate changes in their existing strategic
framework.
Global market financial performance analysis: Profitability aspect of global automobile
industry is not sound due to high level of saturation. From the period of 2012 to 2014, gross and
net profitability aspect of the business declined. Saturation which took place in the automobile
industry had negative influence upon the development of firms. It was the main cause due to
which organizations of automobile industry faced very critical situation. In order to overcome
this, business enterprises of automotive groups require to introduce luxury cars by taking into
consideration advanced technology. By inculcating attractive features in the cars, business units
of the automobile industry are able to improve their profitability aspect.
2. Assessment of the financial position
Position of Daimler and BMW can easily be analyzed with the help of liquidity and
solvency ratio. Financial position of the business is highly associated with its capability in
relation to the payment of its current obligations from the assets of firm. Thus, by evaluating
current and quick ratio, one can easily assess the financial capacity of corporation (Hein and
Schubauer-Berigan, 2015). Besides this, financial structure also provides deeper insight about the
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financial strategies and policies which are employed by the business unit through debt and equity
analysis.
Analysis of the financial position is enumerated below:
Daimler: On the basis of ratio analysis, it has been assessed that current financial
position of Daimler is very far from ideal ratio which is 2:1. Current ratio of the firm is 1.15:1 in
both the years 2012 and 2014. As compared to the ideal ratio, business entity is less capable to
meet its current financial obligations from its current assets. Usually, stable companies prefer to
maintain two current assets to fulfill its one current liability (Hofmann and Lampe, 2013). In
addition to this, quick ratio of the firm is also the main indicator which helps in evaluating the
financial capability of business. Quick ratio of the firm exceeds ideal ratio which is .5:1.
According to this ratio, company needs to have enough amount of current assets which can be
easily converted into cash. Through this, organization is able to make payment of its financial
obligations in an effectual manner. Quick ratio of the business is .84:1 which entails that
company keeps more of the current assets with itself rather than investing money. It may cause
behind the high quick ratio of firm.
Further, debt-equity ratio is also the most effectual measure which provides information
about the financial structure of business entity. This ratio helps in identifying the extent to which
money is raised by the firm from debt instruments and equities (Maaloul and Zeghal, 2015).
Debt-equity ratio of the corporation increased in 2014 as compared to 2012 which is not good for
the firm. It shows that Daimler had fulfilled its financial needs by issuing debt rather than
equities. Due to this, profitability aspect of the firm is heavily affected. Moreover, in debt,
company has to pay interest to their holders on the periodical basis. Whereas in equity, company
pays dividend when they generate sufficient amount of profit. Thus, increase in debt-equity ratio
may also cause to reduce the net profitability of Daimler.
BMW: Liquidity ratio of the business organization was declined in the year of 2014 in relation
to the previous position of firm. Current ratio of BMW was constant in 2012 and 2013 which
was 1.04:1. On the contrary to this, such ratio of the firm declined in 2014 in which it was .96:1.
Current assets of the firm declined because company had made investment in other business
activities. On the basis of this position, BMW is not highly able to meet up its obligations in an
effectual manner as compared to Daimler automotive group. Along with it, quick ratio of the
corporation is also reduced due to increasing investing activities of the firm. By this, company is
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able to improve its financial performance in the highly competitive business arena. Besides this,
Debt equity ratio of the firm was 1.26:1 in 2012 and 1.09:1 in 2013. In comparison to the past
years, this ratio of BMW is 1.13:1. In accordance with this aspect, company has started to reduce
its dependency from debt instrument for meeting the financial needs. Through this, BMW is
able to manage its capital structure in an effectual manner as compared to Daimler.
Global market: In the dynamic business environment, there are significant changes
experienced by the firms of automobile industry (Liu and et. al., 2013). The current ratio in case
of global automobile industry ranges from .50:1 to .65:1 which is not fruitful for the firm. In
order to survive in the highly complex business arena, automobile industry makes high level of
annual expenditure on research and development approximately $100 billion. With an aim to
fulfil the demand of customers and to enhance its profitability, automobile companies make
continuous research which also imposes high financial cost. This is the main reason due to
which businesses are unable to maintain high level of liquidity. In addition to this, financial
structure of the respective industry is also not in accordance with the ideal debt-equity ratio.
Saturation of the market is the main factor which prevents shareholders to make investment in
the securities of auto-mobile sector. Due to this, large number of companies emphasis to raise
their fund through debt instruments rather than equity. Moreover, debt instruments are highly
secured as compared to other securities.
3. Discussion of scandal and its impact
In the year of 2010, Daimler paid $185 million to US due to the bribery scandal. US
Securities and Exchange Commission found that Daimler was involved in bribery which was
recognized as scandal. For such scandal, high penalty charged from the business unit. This aspect
had high level of negative impact upon the sales and profitability of firm. In addition to this,
Daimler is supporting Volkswagen because it is the biggest employer in automobile industry.
Heavy losses are facing by Volkswagen due to its emission scandal. This scandal has also
impacted all the companies which are operated in automobile sector. Thus, in order to overcome
the impact of such scandal related to Volkswagen group, Daimler has make decision to support
this so it can be easily rebuilt trust in the mind of investors. Due to this, gross as well as net
profitability ratio of the firm have decreased. In addition to this, saturation is another factor
which hampered growth and success of firm.
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Along with it, Daimler has good credit rating in the automobile sector. Usually, financial
institution prefers to evaluate the creditworthiness of firm before giving financial assistance to
them. In addition to this, creditworthiness of the firm is also evaluated by the debt holders before
giving money (Aghion and Jaravel, 2015). Credit rating agencies have rated Daimler as very
good on the basis of its trustworthiness. Besides this, share price of the firm fluctuated heavily at
the time of its scandal. Furthermore, scandal made by Volkswagen had closely affected the share
price of firm. Such scandal also affected the whole automobile sector. It is the main cause due to
which Daimler gives high dividend to their shareholders instead of enhancing its profitability
aspect. In 2012, dividend per share is 2.2 whereas in 2014 it is 2.45. By offering high dividend,
firm is trying to build and maintain the faith of investors. Due to this, earnings per share of
Daimler got increased from 6.02 to 6.541. Moreover, shareholders invest their money in
securities to get high return (Nevado, Barata and Almendra, 2016). Hence, by considering this
aspect, business unit is giving high dividend to their shareholders. By adopting such strategy,
company is able to attract large number of investors to make investment in Daimler.
4. Innovation and growth
There is a high and positive relationship exist between innovation and growth. At the
competitive business place, innovation is the main aspect which makes contribution in the
growth and development of firm (Oktorina and Wedari, 2015). With an aim to build a distinct
image in the mind of target market, Daimler offers attractive as well as environment friendly cars
to its customers. In addition to this, by taking into consideration the light weight design concept,
company has introduced Mercedes Benz C-class. In this, business unit has employed high level
of technology which helps in reducing the fuel consumption. Along with it, Daimler undertakes
research and development activity to identify about new technologies which facilitate accident
free driving.
In the present era, rate of accidents are also increasing with a very high pace. Thus,
company needs to make focus upon the manufacturing of car which contains proper health and
safety features. Besides this, business also makes focus upon the development of more luxurious
cars which give great driving experience to the customers. Moreover, car is one of the main
elements which represents the living standard of people. Hence, by keeping in mind all these
innovative aspects, Daimler is able to maximize its productivity and profitability aspect to a large
extent. Moreover, in today's world, company can increase its customer base only when they offer
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unique or innovative cars in the market. Thus, innovation and growth aspect are closely
associated with each other and thereby helps in getting the desired outcome or success.
5. Future prospectus of Daimler automotive group
By keeping in mind current growth and performance of Daimler, it can be stated that
future of the firm is very bright. Company has successfully launched new Mercedes c-class in
four plans within the six months. Thus, management team and employees of the firm are highly
efficient which helps them in attaining success in near future. In addition to this, Daimler also
makes high level of efforts with an aim to lead in the technological aspect as compared to the
rival firms. Daimler is planning to make more emphasis upon the safety and connectivity aspect
to attract large number of customers towards their cars (Strategic areas of growth Our Strategy,
2016). Along with it, Daimler is also planning to expand its business operations and functions at
the global level specifically in the Chinese market.
Besides this, company also follows the concept of driving ahead with digitization.
Business unit makes research to introduce digitization in the industry of automobile. In addition
to this, C350 plug-in hybrid gives luxurious ride to the customers by burning 2.1 liters fuel for
per 100 kilometers. Now, company has planned to launch 10 new plug-in models by 2017.
Through this, company is able to capture large market share in the automobile indsustry.
CONCLUSION
From the above report, it can be revealed that financial position and performance of the
global automobile market are not so good. Current and quick ratio of the automobile sector are
very poor as compared to ideal ratio. Besides this, it can be concluded that companies in global
automobile sector fulfill more of their financial needs from debt. It can be seen in the report that
gross profitability of Daimler is high as compared to BMW. It shows that Daimler is first choice
of the customers while making investments in car. Further, it can be inferred that net profitability
of Daimler decreases due to increase in expenditure namely high interest etc. Along with it,
BMW maintains good control over the expenses of business unit. Due to this strategy, net
profitability of the firm has increased over the past accounting years. It also has been concluded
that both Daimler and BMW maintain high level of current assets within the firm which can be
easily converted by the organizations into cash. Along with this, it can be articulated that
dependency of Daimler is high on debt as compared to BMW. Besides this, innovation is the
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most effectual way through which Daimler can strengthen its brand image. Furthermore, it can
be summarized that business organization will reach on height in the near future in against to its
rival firms. By summing up this project, it can be said that bribery scandal negatively affected
the sales revenue of firm as well as its share price.
RECOMMENDATIONS
 From the above financial statement analysis, it is advised to the management of Daimler
that they need to make review of their existing policies and strategies. Besides this,
business enterprise also needs to focus upon the promotional aspect which helps them in
enhancing sales and thereby, making improvement in the gross profitability.
 Further this, Daimler should make efforts to identify the ways through which they will be
able to reduce the operating cost which is incurred by the firm. Moreover, pricing
decision of the firm is highly dependent upon the cost which is invested by them for
manufacturing of car. Thus, by making control over the expenditure, organization is able
to offer luxurious cars at very reasonable rates.
 In addition to this, Daimler needs to invest its money in further productive activities
rather than retaining it. Quick ratio of the firm is higher, so company should start to
invest it which proves to be more profitable.
 Profitability aspect of BMW is also not sound so they need to make changes in their
strategic framework by making thorough analysis of the market situation.
 Besides this, Daimler requires to make competent strategies which facilitate optimum
utilization of financial resources to a great extent. By this, organization is able to enhance
its financial capability.
 Solvency aspect of Daimler is very poor because company raises its fund from debt
sources. Thus, corporation needs to issue more shares to meet up its financial needs. In
addition to this, director of the firm needs to make effectual or appropriate financial
structure which helps them in improving their solvency aspects.
 It is recommended to Daimler that they need to encourage its human resources in order to
give their best efforts in business operations and functions. Besides this, manager of the
firm also guides employees which enables them to perform their activities more
effectively and efficiently. This aspect facilitates an effective use of financial resources to
a significant extent.
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REFERENCES
Books and Journals
Hofmann, E. and Lampe, K., 2013. "Financial statement analysis of logistics service providers:
ways of enhancing performance". International Journal Of Physical Distribution and
Logistics Management. 43(4). pp.321–342.
Aghion, P. and Jaravel, X., 2015. Knowledge spillovers, innovation and growth. The Economic
Journal. 125(583). pp.533-573.
Bay, L. J., Chan, S. H. and Walczyk, T., 2015. Isotope ratio analysis of carbon and nitrogen by
elemental analyser continuous flow isotope ratio mass spectrometry (EA-CF-IRMS)
without the use of a reference gas. Journal of Analytical Atomic Spectrometry. 30(1).
pp.310-314.
Hein, M. J. and Schubauer-Berigan, M. K., 2015. Re: Bias in the proportionate mortality ratio
analysis of small study populations: A case on analyses of radiation and mesothelioma.
International journal of radiation biology. 91(11). pp.908-910.
Liu, C. M. and et.al., 2013. "Ratio analysis comparability between Chinese and Japanese firms".
Journal of Asia Business Studies. 7(2). pp.185–199.
Maaloul, A. and Zeghal, D., 2015. "Financial statement informativeness and intellectual capital
disclosure: An empirical analysis". Journal of Financial Report and Accounting. 13(1).
pp.66–90.
Nevado, P. P., Barata, J. M. and Almendra, R. A., 2016. Boosting innovation and growth
through the use of design. Journal of Business Economics and Management. 17(1).
pp.74-91.
Oktorina, M. and Wedari, L. K., 2015. An Empirical Investigation on Ownership
Characteristics, Activities of the Audit Committee, and Audit Fees in Companies Listed
on Indonesia Stock Exchange. Applied Finance and Accounting. 1(1). pp.20-29.
Parsons, B. A. and et.al., 2015. Tile-Based Fisher Ratio Analysis of Comprehensive Two-
Dimensional Gas Chromatography Time-of-Flight Mass Spectrometry (GC× GC–
TOFMS) Data Using a Null Distribution Approach. Analytical chemistry. 87(7). pp.3812-
3819.
Uechi, L. and et.al., 2015. Sector dominance ratio analysis of financial markets. Physica A:
Statistical Mechanics and its Applications. 421. pp.488-509.
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Online
Daimler Annual Report, 2014. [Pdf]. Available through:
<http://www.daimler.com/Projects/c2c/channel/documents/2590210_Daimler_FY_2014
_Annual_Report.pdf>. [Accessed on 2nd March 2016].
Strategic areas of growth Our Strategy. 2016. [Online]. Available through:
<https://www.daimler.com/company/strategy/growth-areas.html>. [Accessed on 2nd
March 2016].
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APPENDICES
Ratio analysis of Daimler
Ratios Formula 2012 2013 2014
Profitability ratios
Gross profit 25476 25127 28184
Net profit 6830 8720 7290
Net Sales 114297 117982 129872
Gross Profit Ratio (Gross Profit/ Net Sales) *100 22.29 21.30 21.70
Net Profit Ratio (Net Profit/ Net Sales) *100 5.98 7.39 5.61
Liquidity ratios
Current Assets 67458 70441 77145
Current Liabilities 58716 59108 66974
Closing Stock 17720 17349 20864
Current Ratio
Current Assets / current
Liabilities 1.15 1.19 1.15
Quick Ratio
(Cu. Assets - Cl. Stock)/Cu.
Liabilities 0.85 0.90 0.84
Activity ratio
Net Sales 114297 117982 129872
Total Assets 163062 168518 189635
Total Assets Turnover
Ratio Net Sales/ Total Assets 0.70 0.70 0.68
Cost of goods sold 88821 92855 101688
Inventory 17720 17349 20864
Inventory Turnover
ratio COGS/Inventory 5.01 5.35 4.87
Solvency Ratio
Debt 65016 66047 78077
10

Equity 39330 43363 44584
Debt Equity Ratio Debt/ Equity 1.65 1.52 1.75
Net income 6830 8720 7290
Annual Interest Expense 937 884 715
Times Interest Ratio Net Income/ Interest expense 7.29 9.86 10.20
Valuation ratio
Earning per share
Total earnings available to
equity shareholders/Total no.
of equity shares 6.02 6.4 6.51
Dividend per share
Total dividend declared/No. of
equity share issued 2.2 2.25 2.45
BMW Group
Ratios Formula 2012 2013 2014
Profitability ratios
Gross profit 15494 15274 17005
Net profit 5096 4876 5318
Net Sales 76848 76058 80401
Gross Profit Ratio
(Gross Profit/ Net Sales)
*100 20.16 20.08 21.15
Net Profit Ratio (Net Profit/ Net Sales) *100 6.63 6.41 6.61
Liquidity ratios
Current Assets 50514 52174 56844
Current Liabilities 48431 50043 59078
Closing Stock 9725 9585 11089
Current Ratio Current Assets / current 1.04 1.04 0.96
11

Liabilities
Quick Ratio
(Cu. Assets - Cl. Stock)/Cu.
Liabilities 0.84 0.85 0.77
Effciency Ratios
Net Sales 15494 15724 17005
Total Assets 131850 138368 154803
Total Assets Turnover
Ratio Net Sales/ Total Assets 0.12 0.11 0.11
Cost of goods sold 61354 60784 63396
Inventory 9725 9585 11089
Inventory Turnover
ratio COGS/Inventory 6.31 6.34 5.72
Gearing ratios
Debt 38170 38773 41954
Equity 30295 35455 37220
Debt Equity Ratio Debt/ Equity 1.26 1.09 1.13
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