SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN

THE DESIGN SCHOOL

FOUNDATION IN NATURAL BUILD ENVIRONMENT

Assignment: Financial Ratio Analysis

Company: BMW

Group members:

Name Student ID

Fong Wen Ying Cynthia 0320499

Nurafiqah Zariful 0321196

Sim Chia Ting 0320932

Basic Accounting (ACC30205)

Lecturer: Mr Chang Jau Ho

Submission date: 4th June 2015, Thursday

1

Table of Content

No. Title Page

1. Company’s Background 2 ­ 3

2. Recent Developments 4 ­ 5

3. Ratio Analysis: 4.1 ­ Profitability Ratios 4.2 ­ Stability Ratios 4.3 ­ P/E Ratio

6­13

4. Investment Recommendation 14 ­ 15

5. Appendices: Appendix A ­ Consolidated Balance Sheet Appendix B ­ Consolidated Statements of Income

16­ 17

2

2) Biography of The Company

BMW stands for Bayerische Motoren Werke. It is based on

German automobile and motorcycle manufacturer. It was founded

in 1916 by Franz Josef Popp, Karl Rapp and Camillo Castiglioni.

The headquarters are located in Munich, Bavaria, Germany. BMW

also owns and produces other company such as Mini Cars and

Roll­Royce Motor Cars.

It is now one of the ten largest car manufacturers in the world and

since it also produces Mini and Roll­Royce Cars as mentioned, it

possesses three of the strongest exceptional brands in the car

industry. The circular blue and white BMW logo portrays the the

movement of an aircraft propeller, signifying the white blades

cutting through the blue roundel was created. The emblem evolved

from the circular Rapp Motorenwerke company logo from which

BMW grew from, combined with the white and blue colors of the

flag of Bavaria.

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The group also has a strong market position in the motorcycle

sector and operates a successful financial service business. BMW

aims to generate profitable growth by focusing on the top

segments of the international automobile markets. With this in

mind, a wide range of products and market offensive was

introduced in 2001 which made the BMW group expanding its

product range considerably and also strengthening its worldwide

market position.

The company’s brand is extremely strong and is associated with

high performance, engineering excellence and innovation. Indeed

the BMW brand is often cited as one of the ‘best’ in the world and

the company continues to launch a stream of innovative products

as part of its battle with German peer, Mercedes, to be the world’s

best largest luxury car maker.

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3) Recent developments

Automobile sales volume of the BMW Group have set a new

record for the period. The BMW Group continued to perform well

during the first three months of 2015, with sales volume, revenues,

profit before financial result and profit before tax all rising to new

highs for the first quarter period.

The size of the workers have grew compared to the end of the

previous year's first quarter. Overall, the BMW Group had a

worldwide labor force of 117,554 employees at the end of the

reporting period. The BMW Group continues to recruit engineers

and other skilled workers, in order to keep pace with rising demand

for BMW Group vehicles, push ahead with innovations and

develop new technologies.

The BMW brand also recorded a new sales volume high, with

451,576 units as of in 2014 the sales volume were up to 428,259

units which is 5.4% more than the recent development sold during

the first quarter. Tailwind came from numerous models, including

the BMW X5 and the 4, 5 and 6 Series, each of which achieved

the pole position in their relevant segments.

The Financial Services segment continued to perform well during

the period from January to March, recording new first quarter highs.

Segment revenues were higher compared to last year, and profit

before tax rose. The segment result benefited in particular from

favorable exchange rate developments. In total, new financing and

leasing contracts were signed during the first quarter, more than

in the previous year. The number of lease and financing contracts

have also increased.

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They can look ahead to the rest of the year with confidence,

thanks to its attractive range of models. Economic conditions in

some regions will, however, continue to pose challenges. The

situation on the Russian automobile market, for instance, is likely

to remain difficult. The ongoing process of normalisation of the

Chinese automobile market is also likely to continue, resulting in

less dynamic growth. The political and economic environment is

also expected to remain tense.

The BMW Group expects growth in economy in 2015 due to its

attractive model range, the market launch of 15 new models and

model revisions and because of the forecast positive development

of international automobile markets. Automotive segment

revenues are forecast to grow significantly due to the increase in

sales volume and exchange rate factors. The company had

previously expected a solid growth in revenues. The Financial

Services segment should also continue to perform well throughout

2015. Despite rising equity capital requirements worldwide, the

BMW Group forecasts a return on equity (ROE) in line with the

previous year’s level of 19.4%, thus remaining ahead of the target

of at least 18%.

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4) Ratio Analysis & P/E Ratio

4.1 Profitability Ratios:

Workings 2013 Workings 2014

Return On Equity

( 2 )

× 100%

22.4%

( 2 )

× 100%

28.5%

Net Profit Margin

×

100%

3.7%

×

100%

4.8%

Gross Profit Margin

×

100%

22.1%

×

100%

22.2%

Selling Expenses Ratio ×

100%

5.8%

×

100%

5.3%

General Expenses Ratio

×

100%

3.5% ×

100%

3.3%

2 2 8 9 1 0 5 2 9 + 9 8 6 4 3 2 2 9

1 2 0 6 6 + 1 0 5 2 9

7

Financial Expenses Ratio

1674

60474

× 100%

2.7%

×

100%

2.9%

8

Interpretations:

2013 2014 Interpretation

Return On Equity

22.4% 28.5% Over the year of 2013 to 2014, the ROE has increase from 22.4% to 28.5%. This means that the owner is getting more

return from their capital compared to last

year.

Net Profit Margin 3.7% 4.8% Over the year of 2013 to 2014, the NPM has increase from 3.7% to 4.8%. The business’ ability to control its expenses is getting better.

Gross Profit Margin

22.1% 22.2% Over the year of 2013 to 2014, GPM has increase from 22.1% to 22.2%. This

means the business ability to control its

Cost Of Goods Sold (COGS) expenses is getting bettercompared to last year.

Selling Expenses Ratio

5.8% 5.3% Over the year of 2013 to 2014, the selling expenses ratio has decreased from 5.8% to 5.3%. This means the business expenses is getting better compared to last year. ability to control its selling compared to

General Expenses Ratio

3.5% 3.3% Over the year of 2013 to 2014, the general expenses ratio has decreased from 3.5% to 3.3%. This means that the business expenses is getting better last

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year. ability to control its general compare to

Financial Expenses Ratio

2.7% 2.9% Over the year of 2013 to 2014, the financial expenses ratio has increase from 2.7% to 2.9%. This means that the business ability to control its financial expenses is getting worst compare to last year.

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4.2 Financial Stability:

Workings 2013 Workings 2014

Working Capital

1.43:1

1.61:1

Total Debt

×

100%

45.4%

×100%

40.1%

Stock Turnover

365 ÷

29.5 days 365 ÷

27.1 days

Debtor Turnover

365÷ 311.5 Days 365 ÷

(80401÷2)

318.0 days

(32616+37438)÷2

Interest Coverage

5.8 times 7.2 times

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Interpretations:

2013 2014 Interpretations

Working Capital (WCR)

1.43:1 1.61:1 From 2013 to 2014, working capital Increased from 1.43 to 1.61. This means the business has improved in paying their liabilities, but this does not satisfy the minimum 2:1 ratio.

Total Debt (TDR)

45.4% 40.1% From 2013 to 2014, the total debt has decreased from 45.4% to 40.1%, which means that the debt level has become better but it does not satisfy the maximum limit of 50%.

Stock Turnover (ITR)

29.5 days 27.1 days From 2013 to 2014, the stock turnover decreased from 29.5 days to 27.1 days. This means that the business’ selling products ability is getting better.

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Debtor Turnover (DTR)

311.5 days 318.0 days

During the period from 2013 to 2014, debtor turnover has been decreased from 311.5 days to 318 days. This show that the business is getting slower in collecting their debts from debtors.

Interest Coverage (ICR)

5.8 times 7.2 times From 2013 to 2014, the interest coverage increased from 5.8 times to 7.2 times. This means the business ability to pay interest is getting better but it does not satisfy the minimum limitations of 5 times.

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4.3 P/E Ratio:

Price/Earning Currently (26th May 2015) Interpretation

P/E Ratio

= 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑆ℎ𝑎𝑟𝑒 𝑃𝑟𝑖𝑐𝑒

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

=𝐸𝑢𝑟𝑜 104.515

𝐸𝑢𝑟𝑜 8.91

= 11.73 years

The P/E ratio for BMW as of 26th May 2015 is 11.73 years. This means that an investor who bought a share of BMW would have to wait for 11.73 years in order to retain his/her investment, in this case, €104.515. Hence, the P/E ratio is lower than what a conservation investor would pay, which is lower Than 15 years.

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5) Investment Recommendation

Based on the calculations and thorough analysis, we conclude that

the BMW Company is worth investing in.

The company has exhibited good profitability, as shown in the

profitability ratio analysis. The Return on Equity has increased by

6.1% and that the Net Profit and Gross Profit has also increased

throughout 2013 and 2014. Moreover, the Selling and General

Expenses Ratio decreased by 0.5% and 0.2% respectively. These

are good improvements for BMW compared within the year 2013

and 2014. The Financial Expenses Ratio increased by 0.2% but it

would not have any big changes.

From the stability ratio table, we can see that the Working Capital

Ratio shows that the company is improving at paying its current

liabilities with its current assets. Even though it does not satisfy the

minimum ratio, the BMW Company did improved compared to the

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previous year. Its Total Debt Ratio indicated that it has reduced

5.3% of debts and this is good. For the Inventory Turnover Ratio,

it shows that the company is selling stocks 2.4 days faster than the

year 2013. However, Debtor Turnover Ratio states that BMW

would be getting their debts for debtors about 6.5 days later than

before. Lastly for the stability ratio, the Interest Coverage

increased by 1.4 times, meaning that BWW’s ability to pay interest

is getting better compared to 2013 though it does not satisfy the

minimum limitations of 5 times.

In conclusion, the company is a good company to invest in as it is

financially stable and is able to make good profit at the same time.

Its Price Earnings Ratio is 11.73 years meaning that investors will

have to wait for 11.73 years before recouping his or her

investments, which is lower than what a conservation investor

would pay ­ 15 years.

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6) Appendices

Appendix A: Consolidated Balance Sheet: (from

http://www.bmwgroup.com/bmwgroup_prod/e/0_0_www_bmwgroup_co

m/investor_relations/finanzberichte/12611_BMW_AG_Jahresabschluss

_2014_en_Online.pdf )

17

Appendix B: Consolidated Statements of Income

(fromhttp://www.bmwgroup.com/bmwgroup_prod/e/0_0_www_b

mwgroup_com/investor_relations/finanzberichte/12611_BMW_A

G_Jahresabschluss_2014_en_Online.pdf)