Financial Statement Analysis of Volkswagen and Peers

This report presents a financial statement analysis of Volkswagen, BMW, Ferrari, and Daimler, evaluating their cash flow positions from 2015 to 2017. The analysis utilizes trend analysis, ratios, and bar graphs to assess operating and free cash flow. The report examines the operating cash flow, revealing declining trends for Volkswagen and varying performance among the other companies. It calculates free cash flow, highlighting the dependence on external financing for certain companies. Furthermore, the report evaluates changes in receivables, investments in property, plant, and equipment, and dividend payments, discussing their impact on cash flow management. The analysis references annual reports and financial management principles to provide insights into the financial health and performance of these automotive companies.

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Financial Statement Analysis
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The purpose is to evaluate the cash flow position of Volkswagen, BMW, Ferrari and
Daimler for the period starting from 2015 to 2017. In order to evaluate the financial cash flow
position of all the four the company at the same time it has been decided to conduct trend
analysis through use of ratios and bar graphs. Cash flow position is typically dependent upon the
cash flow generated from the operating activity as this cash flow is business oriented and reflects
the business performance.
Analysis of Cash flow generated by selected four companies
Cash flow from operating activity
Cash flow from the operating activity of all the four companies during the last three years
has been presented in below graph:
Cash flow from operating activity
2015 2016 2017
Companies Amount in EURO million
Volkswagen € 13,679.00 € 9,430.00 € (1,185.00)
BMW € 960.00 € 3,173.00 € 5,909.00
Ferrari € 707.00 € 1,005.00 € 663.00
Daimler € 222.00 € 3,711.00 € (1,652.00)
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2015 2016 2017
€ (4,000.00)
€ (2,000.00)
€ -
€ 2,000.00
€ 4,000.00
€ 6,000.00
€ 8,000.00
€ 10,000.00
€ 12,000.00
€ 14,000.00
€ 16,000.00
€ 13,679.00
€ 9,430.00
€ (1,185.00)
€ 960.00
€ 3,173.00
€ 5,909.00
€ 707.00 € 1,005.00 € 663.00
€ 222.00
€ 3,711.00
€ (1,652.00)
Cash Flow Operating Activity
Amount in Euros
(Volkswagen: Annual Report, 2017 and 2016); (BMW Group, 2017 and 2016); (Ferrari N.V.,
2017 and 2016); (Daimler, 2016 and 2017)
The above graph shows that there was declining trend in cash flow operating activity in
case of Volkswagen and in year 2017 it was negative 1185 million Euros. It shows management
at Volkswagen was incapable to convert its revenue into cash in order to pay its operating
expenses and other working capital expenses. On the other hand, BMW has increasing trend over
the last three years that shows strong cash flow position of the company. Ferrari has moderate
operating cash flow position during the last three years (2015 to 2017) but company was capable
of generating more cash flow operating activity. Daimler had generated Euro 3711 million in
year 2016 and negative Euro 1652 million in year 2017 that shows cash management policies
were incapable to provide enough cash to the company. Operating cash flow of BMW seems to
be healthy and rest of the companies were struggling with the operating cash flow during year
2017. Companies generate most of their cash flows from the operating activities and use the cash
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flow generated in investment activities as well as in financing activities. Apart from the
operating activities company generates its cash flows the sales of securities, gains on investment
on securities, sale of assets and other investment activities. Mostly, the requirement of working
capital are covered through the cash generated from the operating activity but in case of
emergency there is required to make alternative cash source such as bank overdraft, bank loan or
any other sources of finance. So it can be said that operating cash flow position of Volkswagen,
Ferrari and Daimler in year 2017 was worst as compared with year 2015 and 2016. On the other
hand, BMW had strong operating cash flow position in year 2017 and it was much greater than
year 2015 and 2016 (Damodaran, 2011).
Free cash flow generated by all the four companies
Free cash flow can be regarded as the cash that a company produces by its operational
activities after deduction of the cost of expenses incurred on the asset base. As such, it can be
stated as the cash that is remained after a company meets its operational expenses such as capital
expenses incurred on buildings or equipment. The cash can be used for expansion, paying
dividends or for other business operations. The formula used for calculation can be depicted as
follows:
Free Cash Flow=Operating cash flow-Capital Expenditures (Brigham & Michael, 2013)
Capital expenditure (CAPEX) can be regarded as the outflows of cash incurred by the
company for buying, maintaining or improvement in the fixed asset base of the company.
Free Cash flow of Volkswagen
Years Cash flow from operating
activity (1)
Capital Expenditures
(CAPEX) (2) Free Cash Flow (1-2)
2015 € 13,679.00 € 18,234.00 € (4,555.00)
2016 € 9,430.00 € 18,902.00 € (9,472.00)
2017 € (1,185.00) € 18,312.00 € (19,497.00)
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(Volkswagen: Annual Report, 2017 and 2016)
Free Cash flow of BMW
Year
s
Cash flow from operating
activity (1)
Capital Expenditures
(CAPEX) (2) Free Cash Flow (1-2)
2015 € 960.00 € 5,889.00 € (4,929.00)
2016 € 3,173.00 € 5,823.00 € (2,650.00)
2017 € 5,909.00 € 7,112.00 € (1,203.00)
(BMW Group, 2017 and 2016)
Free Cash flow of Ferrari
Years Cash flow from operating
activity (1)
Capital Expenditures
(CAPEX) (2) Free Cash Flow (1-2)
2015 € 707.00 € 356.00 € 351.00
2016 € 1,005.00 € 342.00 € 663.00
2017 € 663.00 € 391.00 € 272.00
(Ferrari N.V., 2017 and 2016)
Free Cash flow of Daimler
Years Cash flow from operating Capital Expenditures Free Cash Flow (1-2)
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activity (1) (CAPEX) (2)
2015 € 222.00 € 7,336.00 € (7,114.00)
2016 € 3,711.00 € 8,833.00 € (5,122.00)
2017 € (1,652.00) € 10,158.00 € (11,810.00)
(Daimler, 2016 and 2017)
Free Cash Flow
2015 2016 2017
Companies Amount in EURO million
Volkswagen € (4,555.00) € (9,472.00) € (19,497.00)
BMW € (4,929.00) € (2,650.00) € (1,203.00)
Ferrari € 351.00 € 663.00 € 272.00
Daimler € (7,114.00) € (5,122.00) € (11,810.00)
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2015 2016 2017
€ (25,000.00)
€ (20,000.00)
€ (15,000.00)
€ (10,000.00)
€ (5,000.00)
€ -
€ 5,000.00
€ (4,555.00)
€ (9,472.00)
€ (19,497.00)
€ (4,929.00)
€ (2,650.00)
€ (1,203.00)
€ 351.00 € 663.00 € 272.00
€ (7,114.00)
€ (5,122.00)
€ (11,810.00)
Free Cash Flow
Amount in EURO
(Volkswagen: Annual Report, 2017 and 2016); (BMW Group, 2017 and 2016); (Ferrari N.V.,
2017 and 2016); (Daimler, 2016 and 2017)
The above graph reflects the free cash flow position of all four companies during the last
three years. The graph clearly shows that except Ferrari no company has free cash flow that can
be used in business activities like business expansion, new product launch etc. It means
Volkswagen, BMW and Daimler is critically dependent upon the outside sources of cash such as
issue of common shares and bank loan for non operating activities (Damodaran, 2011).
Evaluation of Change in Receivables, Investment in Property, Plant & Equipment, and
Dividend Paid
Various Cash flow Items for year 2017
Companies Volkswagen BMW Ferrari Daimler
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Amount in EURO million
Change in Receivables € (1,660.00) € 45.00 € (1.75) € (1,592.00)
Investment in PPE and
intangible assets € (13,052.00) € (7,112.00) € (391.00) € (10,158.00)
Dividend Paid € (1,332.00) € (2,324.00) € (133.00) € (3,905.00)
(Volkswagen: Annual Report, 2017 and 2016); (BMW Group, 2017 and 2016); (Ferrari N.V.,
2017 and 2016); (Daimler, 2016 and 2017)
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Change in Receivables Investment in PPE and
intangible assets Dividend Paid
€ (14,000.00)
€ (12,000.00)
€ (10,000.00)
€ (8,000.00)
€ (6,000.00)
€ (4,000.00)
€ (2,000.00)
€ -
€ 2,000.00
€ (1,660.00)
€ (13,052.00)
€ (1,332.00)
€ 45.00
€ (7,112.00)
€ (2,324.00)
€ (1.75) € (391.00) € (133.00)
€ (1,592.00)
€ (10,158.00)
€ (3,905.00)
Cash Flow Items
In Euros
The increase in account receivables are subtracted from the operating cash flow i.e.
negative representation of change in account receivables reflects increase in account receivables
over the period of time. So when the account receivables are not collected over the period of time
or in defined term it will increase burden on payments that are need to be made for capital
investment and dividend payments. Mostly profits are used to pay the dividends but when there
is shortest of cash during the current period, company has to rely heavily on past cash balance or
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other sources of cash flow. So it can be said that there is positive relationship in collection of
account receivables and dividend payment also investment in PPE.
In case of Volkswagen there was increase in account receivables by Euros 1660 million
and company required to pay Euro 1332 million for dividend and Euro 13052 million for
investment made in PPE and intangible assets for year 2017. It can be said that if account
receivable are collected on time it has surely helped the Volkswagen to decrease the cash
requirement from other sources. However to make payment for PPE and intangible assets,
company has managed some funds from disposable of tangible and intangible assets
(Damodaran, 2011).
In case of BMW, there was decrease in account receivable in year 2017 as compared to
previous year, but it was not enough to pay the dividend and cash liabilities for PPE and
intangibles assets. However cash flow position from operating activity has been improved in year
2017 that has helped the company to manage the working capital effectively. BMW has made
investment of Euro 7112 million in PPE and intangibles which was huge amount to be paid for
but company has successfully managed it through cash generated through disposal of assets and
marketable securities. To make the payment of dividend company has used cash generated from
the operating activity and financing activity. It reflects the positive flow from account
receivables help to manage cash requirement in proper manner (Brigham and Michael, 2013).
The case of Daimler was similar to Volkswagen as company has failed to collect the
accounts receivable properly and it requires huge of cash for payment of cash dividend and
investment in PPE. The impact of account receivable has also impact the cash flow from the
operating activity. The cash flow from operating activity has been greatly reduced in year 2017
as compared to previous year. It means there was serious impact of account receivable on cash
flow position of the company.
The cash flow position of Ferrari was also impacted by change in account receivables as
company has to render greater amount of cash flow as compared to cash generated.
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References
Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Canada: Cengage
Learning.
Damodaran, A, 2011. Applied corporate finance. USA: John Wiley & sons.
BMW Group. (2017). Annual Report. Retrieved 5 March, 2017, from https://annual-
report2017.bmwgroup.com/bmwgroup/annual/2017/gb/layout/pdf/en/
Annual_Report_2017.pdf
Volkswagen: Annual Report, (2017). Retrieved on March 5, 2019, from
https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/
2018/volkswagen/en/Y_2017_e.pdf
Volkswagen: Annual Report, (2016). Retrieved on March 5, 2019, from
https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/
2017/volkswagen/en/Y_2016_e.pdf
BMW Group. (2016). Annual Report. Retrieved 5 March, 2019,
from https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/
ir/downloads/en/2017/GB/2016-BMW-Group-Annual-Report.pdf
Ferrari N.V. (2017). Annual Report. Retrieved 5 March, 2019,
from http://corporate.ferrari.com/sites/ferrari15ipo/files/annual_report_2017_eng.pdf
Ferrari N.V. (2016). Annual Report. Retrieved 5 March, 2019,
from http://corporate.ferrari.com/sites/ferrari15ipo/files/ferrari_nv_-
_2015_annual_report_feb_25_final.pdf
Daimler. (2016). Annual Report. Retrieved 5 March, 2019,
from https://www.daimler.com/documents/investors/reports/annual-report/daimler/
daimler-ir-annualreport-2016.pdf
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Daimler. (2017). Annual Report. Retrieved 5 March, 2019,
from https://www.daimler.com/documents/investors/reports/annual-report/daimler/
daimler-ir-annual-report-2017.pdf
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