You are on page 1of 22

FINANCIAL ANALYSIS

SID# 1546886/1

FINANCIAL ANALYSIS
VOLKSWAGON AG.

SID# 1546886/1
WORD COUNT: 2250

FINANCIAL ANALYSIS

SID# 1546886/1

Table of Contents
COMPANY OVERVIEW................................................................................................. 1
PART A........................................................................................................................ 2
EVENTS IMPACTING VW FROM THE PERIOD 2010 TO 2014...........................................2
Events of 2010............................................................................................................. 2
Events of 2011............................................................................................................. 2
Events of 2012............................................................................................................. 3
Events of 2013............................................................................................................. 3
Events of 2014............................................................................................................. 4
PART B........................................................................................................................ 5
IMPACT OF EVENTS ON FINANCIAL STATEMENTS.......................................................5
Impact on VW Financials - 2010....................................................................................... 5
Sales/Revenue.......................................................................................................... 5
Share Price.............................................................................................................. 5
Impact on VW Financials - 2011....................................................................................... 6
Sales/Revenue.......................................................................................................... 6
Debt....................................................................................................................... 6
Share Price.............................................................................................................. 6
Impact on VW Financials - 2012....................................................................................... 7
Sales/Revenue.......................................................................................................... 7
Debt....................................................................................................................... 7
Assets..................................................................................................................... 7
Share Price.............................................................................................................. 7
Impact on VW Financials - 2013....................................................................................... 8
Sales/Revenue.......................................................................................................... 8
Debt....................................................................................................................... 8
Assets..................................................................................................................... 8
Share Price.............................................................................................................. 8
Impact on VW Financials - 2014....................................................................................... 9
Sales/Revenue.......................................................................................................... 9
Debt....................................................................................................................... 9
Assets..................................................................................................................... 9

FINANCIAL ANALYSIS

SID# 1546886/1

Share Price.............................................................................................................. 9
PART C...................................................................................................................... 10
TREND ANALYSIS...................................................................................................... 10
Liquidity Ratio Analysis............................................................................................ 11
Efficiency Ratio Analysis........................................................................................... 12
Solvency Ratio Analysis........................................................................................... 13
Market Analysis...................................................................................................... 14
CONCLUSION.......................................................................................................... 14
APPENDICES........................................................................................................... 16
Appendix II : VW Balance Sheet- Five Year Trend..............................................................17
Appendix III : VW Cash Flow Statements- Five Year Trend...................................................18
Appendix IV: VW Ratio Table- Five Year Trend..................................................................19

FINANCIAL ANALYSIS

SID# 1546886/1

COMPANY OVERVIEW
The Volkswagen AG (VW) is a German multinational automotive manufacturing company with
its headquarters in Wolfsburg, Germany. VW is one of the worlds leading automobile
manufacturers and the largest carmaker in Europe. It designs, manufactures and distributes
passenger and commercial vehicles, motorcycles, engines, and turbo machinery and offers
related services including financing, leasing and fleet management through it Financial Services
division. VW has approximately 340 subsidiaries, operates 119 production plants in 31 countries
and sells its vehicles in 153 markets. VW has a worldwide staff of approximately 592,586 and
produces the second largest number of vehicles in the world. VW is a public company and has it
primary listing on the Frankfurt Stock Exchange, where it is a constituent of the Euro Stoxx
50 stock market index, and secondary listings on the London Stock Exchange, Luxembourg
Stock Exchange, New York Stock Exchange and SIX Swiss Exchange. VW trades under the
symbol(VLKAY).

FINANCIAL ANALYSIS

SID# 1546886/1

PART A
EVENTS IMPACTING VW FROM THE PERIOD 2010 TO 2014
Events of 2010

Expansionary monetary policy and recovery in emerging economies led to above-average


growth of global economy by 4.1% with positive impact of VW main markets: North
America, South America, Asia-Pacific, Europe, and Germany.

April 2010 VW AG completed a share capital increase against cash contributions,


generating net proceeds of 4.1b. Volkswagen preferred shares and preemptive rights
were issued in part by utilizing the authorized capital through the issue of up to 65
million new, no par value, non-voting preferred bearer shares against cash contributions:
one of the most significant transactions of its kind in Europe and the largest in the
automotive sector to date.

On January 15th 2010, VW acquired 19.89% of the shares of Suzuki Motor Corporation at
a value of 1.7b.

In July 27th 2010, VW acquired 90.1% of the voting rights of the design and development
service provider Italdesign Giugiaro S.p.A. (IDG) in Italy becoming majority shareholder.
This was strategically done to increase VW design and development capacity.

Scania AB, major Swedish commercial automotive manufacturer and subsidiary of VW


(VW has 70.94% equity in Scania) acquired dealership operations in France, Switzerland
and Italy.

Events of 2011

In July 2011, VW acquired a 55.9% voting stake and 53.7% of the share capital in MAN
SE; German mechanical engineering company, through the mandatory public offer.

On March 1st 2011, VW acquired the automobile trading business of Porches Holdings
2

FINANCIAL ANALYSIS

SID# 1546886/1

Salzburg (PHS) at a value of 3.3 billion, including the acquisition of automobile


operations of PHS such as the wholesale and retail business, Porsche Informatik, Porsche
Bank, Porsche Immobilien ,Porsche Versicherung and PGA Motors. Under the VW
group, PHS retained its status as an independent organizational unit and continued with
its existing business model. All assets remained intact.

February 25th 2011, Volkswagen AG invested 140m in an 8.18% stake in the equity of
SGL Carbon SE, one of the worlds leading manufacturers of carbon fibers for the auto
industry.

Events of 2012

August 1st 2012, VW purchase remaining stake in Porsche equaling 100% of shares
taking full ownership and consolidation of Porsche AG into the VW group. VW became
the parent company of Porsche with contribution in full of Porsche SEs operative
automotive business, primarily consisting of the 50.1% interest in Porsche Holding
Stuttgart GmbH (and thus indirectly in Porsche AG). This was completed for share-based
and cash consideration.

July 2012, VW through its Audi Brand bought Ducati, Italian motorcycle manufacturer
for 860m. VW also inherited Ducatis liabilities of approximately 200m

May 5th 2012, VW issue subordinated mandatory convertible notes with an initial
volume 2 billion. The targeted proceeds of approximately 2 to 2.5 billion euros from the
issuance of the mandatory convertible notes was intended for the improvement of VW
capital base against the background of the creation of the integrated automotive group
and implementation of the strategic growth and investment program.

Events of 2013

January 2013, Volkswagen bank Gmbtt, a 100% owned subsidiary of VW AG sold its
50% indirect interest in Lease Plan Corporation N.V to Volkswagen AG as part of
internal restructuring measures.

FINANCIAL ANALYSIS

SID# 1546886/1

July 2013 VW was given approval by the AGM of MAN SE for its entry into VW
commercial register for the control and profit and lost transfer agreement between MAN
SE and VW AG.

Events of 2014

June 2014, VW held 99.57% of Scanias share capital. This corresponded to 99.66% of
the voting rights. Volkswagen initiated a squeeze-out for the remaining Scania shares.

June 2014, to partially fund the transaction of the Scania offer, VW implemented a capital
increase under which new preferred shares were issued from authorized capital against
cash contributions. This increased the share capital by a notional 26.8 million and
generated gross proceeds totaling 2.0 billion.

FINANCIAL ANALYSIS

SID# 1546886/1

PART B
IMPACT OF EVENTS ON FINANCIAL STATEMENTS
Impact on VW Financials - 2010
Sales/Revenue

Revenue increased resulting from the recovery of the economy and the expansion of the
business due to the acquisitions of shares in Suzuki Motors and inclusion of the Scania
subsidiaries.

Debt

Debt increased from acquisition cost incurred from Suzuki and IDG.

Assets

Total current assets grew from the impact of the share capital increase in April 2010.
However current assets was negatively affected by cash and cash equivalent outflows for
increased liability from the increased cost of sales and selling and administrative
expenses from the increase volume sales and capitalised cost from the acquisitions.

Goodwill was positively affected from the acquisition of IDG.

Share Price

Capital increase in April 2010 increases the number of preferred shares. Net issue
proceeds from the capital increase improved VW capitalization and increased its market
price.

FINANCIAL ANALYSIS

SID# 1546886/1

Impact on VW Financials - 2011


Sales/Revenue

Revenue increased due to the inclusion of Porsche Holdings Salzburg, MAN SE and the
PHS financial services business from the financial services division.

Debt

An expense of 263 million was recognized for Suzuki and 292 million for MAN from
the share of profits and losses of equity-accounted investments in the fiscal including the
adjustment of the equity interest in Suzuki Motor Corporation and MAN SE.

Assets

Current assets declined as a result of the investment activity and capitalised cost related
to the acquisitions as which has significant cash outflow.

Acquisition and investment in the financial assets of MAN SE and the indirect
acquisition of the trading business of PHS has driven a significant increase in total assets.

Share Price

Share price increased significantly in second quarter and mid-year driven by VW positive
performance and business growth. Wide fluctuation through the end of the fiscal year saw
the share price decline, this did not have any company-specific or fundamental reasons,
but rather was largely attributable to general uncertainty on the financial markets.

FINANCIAL ANALYSIS

SID# 1546886/1

Impact on VW Financials - 2012


Sales/Revenue

Revenue increased primarily attributable to higher volumes and the full consolidation of
Porsche AG (August 1, 2012).

Debt

Debt increased from the cash outflows and equity used in the full acquisition of Porsche
and the liabilities assumed directly from the purchase of Ducati

Assets

Total non-current assets increased because of the addition of Porsches primary assets and
liabilities and their re-measurement as part of purchase price allocation.

The issuance of the mandatory convertible note led to a cash inflow and the inclusion of
Porsche inventory both contributed to positive impact on current assets.

The liabilities assumed directly from the purchase of Ducati had a negative effect on
current assets.

Intangible assets increased as a result of the goodwill and brand value of Porsche.

Invested capital rose mainly due to the full effect of the consolidation of Porsche Holding
Salzburg the consolidation of Porsche in 2012,

Share Price

VW share price recorded significant increases in 2012, due largely to the integration of
the automotive group with Porsche in August 1, 2012. The issuance of the mandatory
convertible notes had minor impact on the share price.

FINANCIAL ANALYSIS

SID# 1546886/1

Impact on VW Financials - 2013


Sales/Revenue

Events in period have no impact on revenue

Debt

Event in period had no impact of Debt

Assets

Assets were positively impacted from the purchase of 50% indirect interest in Lease Plan
Corporation N.V.

Approval of MAN SE of the control and profit and loss transfer agreement created the
obligation for VW to absorb losses effective in the fiscal year 2013 and therefore a
liability amount was recognized for the obligation to acquire the shares held by the
remaining free float shareholders of MAN thus negatively impacting current assets

Share Price

The announcement that Volkswagen was seeking to enter into a control and profit and
loss transfer agreement with MAN SE led prices to drop briefly.

FINANCIAL ANALYSIS

SID# 1546886/1

Impact on VW Financials - 2014


Sales/Revenue

Events during 2014 had no effect on revenue.

Debt

Event had no impact on debt and equity financing was used for acquisition and business
expansion activities.

Assets

Assets were positively impacted from the capital increase implemented to fund the Scania
share purchase. In addition, the increased ownership in Scania resulted in increased fixed
and current assets.

Increase in cash inflows from financing activity, hybrid notes placed in March 2014 and
the capital increase implemented in June 2014 by issuing new preferred shares, positively
impacted current assets.

Increase in the interest in Scania and the squeeze out resulted in cash outflows with
negative impact on current assets.

Share Price
Capital increase and the further acquisition of Scania shares positively affected the share price,
however the volatility of the market caused share price to decline to the end of the year.

FINANCIAL ANALYSIS

SID# 1546886/1

PART C
TREND ANALYSIS
Profitability
This assesses the ability of VW to generate earnings in comparison to its expenses and other
relevant cost incurred during the specified period.

Gross Profit Margin (GPM)


GPM was relatively constant with average 1% change over the period. Increased net sales
resulting from recovery of the economy and acquisitions were proportional to the
increase in expenses. Although revenue had increased over the period, there was no
major impact on its profits margin.

Net Profit Margin (NPM)


Average growth of 44% from 2010 to 2012 related to increased revenue from recovery of
economy and business expansion activities . However, NPM declined from 2012 to
2013 mostly related to increase in operating expenses from business expansion and
other acquisitions related cost. 2014 saw an increase of 20% from previous period.

Operating Profit (OP)


Operating profit increased in 2010, due to the increase in operating income by approximately
61% against and increase in net sales of 25%. OP took a downward turn from 2011 to
2014, dropping by 11%, directly related to increase in operational cost related factors
10

FINANCIAL ANALYSIS

SID# 1546886/1

from acquisition and business expansion while net sales increased. Despite this, VW OP
is slightly higher than the industry median of 5.09.
Return on Capital Employed (ROCE)
ROCE grew in 2010 because of the increased net earnings due to the recovery of the economy.
However, because of the significant capital outlay and increased liabilities in 2011-2012
for the acquisition of Porsches, Ducati and equity on MAN SE and the yet to be realized
earning from these acquisitions in the short term, the ROCE trended downwards.
Return on Equity (ROE)
ROE had a steady incline from 2010 to 2012 with the growth in net income attributable to
increase revenue from acquisition activities and recovery of the economy. However, in 2012
ROE dropped sharply as VW funded its acquisitions, strategic growth and investment program
by issuing shares. 2014 saw a modest increase of 3% indicating the reduction of investment
expenditure.

Liquidity Ratio Analysis


This analyses VW ability to pay off its short-term debt obligations.

Current Ratio and Acid Test


Both current ratio and acid test were high in 2010 resulting from the positive effect of the capital
increase which increase liquidity in the period. By 2011, there was a decrease in
liquidity because of acquisition activities and related cash outflows.

11

FINANCIAL ANALYSIS

SID# 1546886/1

Efficiency Ratio Analysis


This identifies how effectively/efficiently VW uses its resources (or working capital) to run the
business.

Receivable Turnover
Receivable has been consistent with no fluctuation despite the increase in sales over the period.
VW has strong credit policies and management.
Total Assets Turnover
Asset turnover rose in 2010 from the significant increase in sales driven by the recovery of the
economy. Despite the increase in assets in 2010, the increase sales offset the asset turnover.
There was a minor decline from 2011 to 2014 by an average of 4% over the period, as assets
continue to grow faster from the acquisition and other expansion in comparison to the YOY sales
growth.
Inventory Turnover
Although sales increased from the period 2010 to 2014, because of the increased stock from the
full consolidation Porsche, MAN SC, the Scania subsidiaries, inventory increase at a faster rate
of sales thus the inventory turnover trended downward to 2014.

12

FINANCIAL ANALYSIS

SID# 1546886/1

Solvency Ratio Analysis


The Solvency or Gearing analyses the financial position of VW. It focuses on the stability of the
business and exposure to risk and takes into consideration the way the business is financed.

Debt to Equity
Debt to equity rose by 101% in 2010 from debt incurred in the acquisition of Scania, initial
interest in MAN and Porsche as well as the Capital Increase. The debt to equity moved
downward from 2011 as less debt was used to finance business growth and investment activities
as these were funded by equity.
Interest Cover
Interest coverage declined in 2011 correlating to the decline in Debt-to-Equity and further
indicating that VW utilized mostly equity to fund its acquisitions from 2012 to 2014.
Debt to Assets
Debt to assets is relatively constant withstanding the accumulation of assets. This suggests that
the debt portion of VW financing portfolio is decreasing indicating that VW is using more equity
than debt.

13

FINANCIAL ANALYSIS

SID# 1546886/1

Market Analysis

Price Per Earning Ratio


Price per share rose steadily in 2011 to 2013 with an 11% increase in 2012 and 93% increase in
2013 largely driven by the positive measurement effect from the integration of Porsche SE and
effect of the mandatory convertible note issued in November 2012 and supplemented in 2013.
Share price surged downwards from 2013 from fluctuations of the volatile market and overall
underperforming auto industry in that period.
Dividend Per Share (DPS)
DSP has increased steadily from 2010 to 2014 because of the increase in VW net profit year over
year generated from the business growth and new acquisitions.

CONCLUSION
In summary, the analyses performed on VW have shown that, VW has been able to maintain a
reasonable level of financial stability over the last five years (2010-2015) despite its aggressive
business expansion activities. VW has not accrued any high level of debts and its share price has
a steady grown. VWs ability to pay its way in the near future is also positive, since its liquidity
has been within a reasonable threshold. VW is a profitable company and with consistent financial
astuteness and leadership, should be able to maintain market strength and its competitive position
in the future.
14

FINANCIAL ANALYSIS

SID# 1546886/1

REFERENCES
Dyson, J. Accounting for Non-Accounting Students. 7th Edition. Harlow: FT Prentice Hall
Berman, K. Knight, J. Cass, J., And Financial Intelligence: A Manager's Guide to Knowing What
the Numbers Really Mean. USA: Business: Literacy Institute
Gurufocus., n.d. Where are WE with Market Valuations. [online]. Available at:
http://www.gurufocus.com/stock-market-valuations.php [Accessed 12 January 2016
Standards and Poor Research., 2012. Summary: Volkswagen AG. [online]. Available at:
http://www.volkswagenag.com/content/vwcorp/content/de/investor_relations. [Accessed 14
January 2016]
Volkswagen AG , 2010. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2010
Volkswagen AG , 2014. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2014]
Volkswagen AG , 2013. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2013]
Volkswagen AG , 2011. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2011]
Volkswagen AG , 2012. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2012]
Volkswagen, n.d., News. [online]. Available at:
http://www.volkswagenag.com/content/vwcorp/content/en/homepage.html. [Accessed 12
January 2016]

15

FINANCIAL ANALYSIS

SID# 1546886/1

APPENDICES
Appendix I : VW Income Statement- Five Year Trend

16

FINANCIAL ANALYSIS

SID# 1546886/1

Appendix II : VW Balance Sheet- Five Year Trend

17

FINANCIAL ANALYSIS

SID# 1546886/1

Appendix III : VW Cash Flow Statements- Five Year Trend

18

FINANCIAL ANALYSIS

SID# 1546886/1

Appendix IV: VW Ratio Table- Five Year Trend


VW AG Ratios
Profitability
Gross margin
Net Profit Margin
Operating Profit Margin
Return on Capital Employed (ROCE)
Return on Equity (ROE)
Liquidity
Current Ratio
Quick Test Ratio
Efficiency
Receivable Turnover
Total Assets Turnover
Inventory Turnover
Solvency
Debt to Equity
Debt to Assets
Interest Cover
Market Analysis/Shareholder
P/E Ratio
Dividend Per Share

2010

2011

2012

2013

2014

16.9
5.7
0.0
10.2
16.1

17.6
9.9
7.1
12.7
18.8

18.2
11.4
6.0
7.8
20.2

18.1
4.6
5.9
5.7
11.2

18.0
5.5
6.3
5.8
11.6

1.1
0.9

1.0
0.8

1.1
0.8

1.0
0.8

1.0
0.8

1.1
0.0
6.4

1.0
0.7
5.8

1.1
0.7
5.6

1.0
0.6
5.8

1.0
0.6
5.2

0.8
0.0
3.3

1.6
0.2
5.5

1.5
0.2
0.0

1.1
0.2
0.0

1.2
0.2
0.0

7.2
0.3

4.9
0.6

5.5
0.8

10.6
1.0

8.2
1.0

19