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Sharif University of TechnologyGraduate School of Management and Economics

Reza Esmaeili

30 Dec 2015

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Worldwide automobile production from 2000 to 2014

Million vehicles

According to a forecast by PwC, in 2017 a total of 102 million vehicles will be manufactured worldwide.

One of the world's most important economic sectors by revenue

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China; 0.2643; 26%

European Union; 0.1892; 19%

United States; 0.1299; 13%

Japan; 0.1089; 11%

Iran; 0.0122; 1%

Rest of the World; 0.2955; 30%

motor vehicle production

Motor vehicle production by countries

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Who exported Cars in 2012?

This map shows only gross export amount.

USA was the largest net importer, also UK and France are net importers.

Net Export Worth: 645B USD

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Leading automobile manufacturers worldwide

ToyotaVolkswagon

GMRenault-Nissan

Hyundai-KiaFord

Fiat-ChrystlerHonda

PSASuzuki

DaimlerBMW

MazdaDongfengChangan

MitsubishiBAICTata

0 2 4 6 8 10 12

10.2310.14

9.928.47

7.716.32

4.754.36

2.942.88

2.532.12

1.381.191.15

1.081.04

0.97

Leading automobile manufacturers in 2014, based on vehicle sales

Million units

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Revenue of the leading automotive manufacturers worldwide

VolkswagonToyota

DaimlerGM

FordFiat-Chrysler

HondaBMW

NissanHyundaiPeugeotRenault

KiaSuzuki

MazdaMitsubishi

0 50 100 150 200 250202.46

188.16129.87

128.82119.03

96.0987.36

80.479.35

67.5653.61

41.0635.65

21.1920.77

15.25

Revenue of the leading automotive manufacturers worldwide in 2014

Billion euros

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Worlds most valuable brand in automotive industry (Forbes 2015)

12345678910Lexus # 66 $8 B

Brand World Rank

Brand Value

Volkswagen # 67 $8 B

Toyota # 8 $37.8 BBMW # 16 $27.5 BHonda # 23 $22.6 BMercedes-Benz # 24 $22.5 BAudi # 39 $12.8 BFord # 41 $12.5 BChevrolet # 62 $9 BHyundai # 64 $8.4 B

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The BMW Group

Bayerische Motoren Werke

Type: Aktiengesellschaft (AG)Industry: AutomotiveFounded: 1916Headquarters: Munich, Bavaria, GermanyArea served: WorldwideProducts: Luxury vehicles, sports

cars, motorcyclesServices: Financial Service

2014 Overview

Production output: 2.12 million cars123,000 motorcycles

Revenue: €80.40 billionOperating income: €8.71 billionTotal assets: €154.80 billionNo of employees: 116,324Diversity: 30 production facilities

in 14 countriesSales Network: 142 countries

Global Ranking (Forbes 2015) #16 Most Valuable Brands#45 Biggest Public Companies#52 in Sales#61 in Profit#151 in Assets#7 America's Best Employers

Mission Statement

To be the most successful premiummanufacturer in the industry.

Slogan "Sheer Driving Pleasure“ (Worldwide)"The Ultimate Driving Machine“ (United States)"The Ultimate Driving Experience“ (Canada)

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17.4

16.7

12.6

53.3

Stefan Quandt

Johanna Quandt

Susanne Klatten

Free Float

Age: 89Matriarch of BMW Clan77th richest person in the world

Age 53 Net Worth 15.3 billion USDthe richest woman in Germanythe 54th richest person in the world.

Age 49 Net Worth 13.4 billion USDthe 59th richest person in the world

Shareholder Structure

Deceased: August 3, 2015

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New Shareholder Structure

25.8

20.9

53.3

Stefan Quandt

Susanne Klatten

Free Float

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BMW Group in Figures A big financial picture of BMW performance 2010-2014, For people who are not interested in details of the report

Report of Supervisory Board

Joachim Milberg

Statement of Chairman of the Board of Management

Norbert Reithofer

Combined Management Report

General Information on the BMW Group

Group Financial Statement

Statement on Corporate Governance

Other Information

BMW Annual ReportIssued: 31 Dec 2014

General Information on the BMW Group

• Business Model

• Management System

• Financial and Non-financial Performance Indicators

• Review of Operations

• Events after the End of the Reporting Period

• Risks and Opportunities

• Financial Reporting Process

• BMW Stock and Capital Markets in 2014

Group financial Statements

• Income Statements

• Balance Sheets

• Cash Flow

• Statement of Changes in Equity

• Notes to the Financial Statements

Statement on Corporate Governance

• Company’s Governing Constitution

• Members of the Boards

• Composition and Work Procedures

• Practices beyond Mandatory Requirements

• Responsibility Statement

• Auditor’s Report

Other Information

• BMW Group Ten-year Comparison

• BMW Group Locations

• Glossary

• Index

• Financial Calendar

• Contacts

Who are these guys?

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Profitability of BMW?!

The answer is EVA…

Is it beneficial to run BMW?First Question…!

If yes

By how much?!

What is it?Economic value added (EVA) is an internal management performance measure that compares net operating profit to total cost of capital.

How is it calculated?EVA = Net Operating Profit After Tax (NOPAT) – Cost of Capital

Cost of Capital = Capital Invested x WACC

WACC: weighted average cost of capitali.e.Economic Value AddedOrEconomic Profit

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Profitability of BMW?!

The pre-tax average weighted cost of capital for the BMW Group in 2014 was 12 %, unchanged from the previous year.

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BMW comparison with two other prominent brands

Revenue 157,236,030 $ 97,341,491 $ 227,096,000 $

Revenue per Employee 561,000 $ 836,000 $ 670,000 $

Total Assets 229,591,095 $ 187,419,992 $ 397,997,000 $

No of Employees 279,972 116,324 338,875Production (Units) 2,530,000 2,120,000 10,230,000Net Profit 8,428,893 $ 7,019,639 $ 18,122,000 $ Do not Panic!

It’s only a mellow ratio!

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Liquidity Measurement Ratios

Current Ratio

Profit Margin Analysis Cash Flow To Debt Ratio

Quick Ratio

Cash Conversion Ratio

Cash Ratio

Profitability Indicator Ratios

Effective Tax Rate

Debt Ratios

Return On Assets

Return On Capital Employed

Return On Equity

Overview of Debt

Debt Ratio

Debt-Equity Ratio

Interest Coverage Ratio

Capitalization Ratio

Operating Performance Ratios

Fixed Asset Turnover

Sales/Revenue Per Employee

Operating Cycle

Operating Cash Flow/Sales Ratio

Cash Flow Indicator Ratios

Free Cash Flow/Operating Cash Ratio

Cash Flow Coverage Ratio

Investment Valuation Ratios

Dividend Payout Ratio

Per Share Data

Price/Book Value Ratio

Price/Earnings To Growth Ratio

Price/Cash Flow Ratio

Price/Sales Ratio

Dividend Yield

Enterprise Value Multiple

Price/Earnings Ratio

Financial Ratios

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Liquidity Measurement Ratios

Current Ratio

Profit Margin Analysis

Quick Ratio

Profitability Indicator Ratios

Effective Tax Rate

Debt Ratios

Return On Assets

Return On Equity

Debt Ratio

Interest Coverage Ratio

Operating Performance Ratios

Fixed Asset Turnover

Investment Valuation Ratios

Price/Earnings Ratio

Financial Ratios

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Current Ratio

What you need: Balance Sheet The formula: Current Ratio = Current Assets / Current Liabilities What it means: The current ratio measures a company's ability to pay its short-term liabilities with its short-term assets. If the ratio is over 1.0, the firm has more short-term assets than short-term debts. But if the current ratio is less than 1.0, the opposite is true and the company could be vulnerable to unexpected bumps in the economy or business climate.

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015 INDUSTRY

1.02 0.96 1.15 1.09 1.27

• current assets are not sufficient to cover short term liabilities• ratio is below the lowest permitted level

• if the current ratio is higher than the industry standard level, there is an insufficient use of the resources

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Quick Ratio

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

INDUSTRY

0.83 0.77 0.84 0.96 0.63

What you need: Balance Sheet The formula: Quick Ratio = (Current Assets - Inventory) / Current Liabilities What it means: The quick ratio (also known as the acid-test ratio) is similar to the current ratio in that it's a measure of how well a company can meet its short-term financial liabilities. However, it takes the concept one step further. The quick ratio backs out inventory because it assumes that selling inventory would take several weeks or months. The quick ratio only takes into account those assets that could be used to pay short-term debts today.

• they are not able to settle their current liabilities instantaneously• a low quick ratio suggests liquidity risk, or, better credit terms with suppliers than the competitors• these three companies have higher ratio than the industry average, it proves their superiority over other brands.

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Total Assets Turnover

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

INDUSTRY

0.55 0.52 0.68 0.57 0.91

What you need: Balance Sheet The formula: Total assets turnover = Sales / Total AssetsWhat it means: A higher number is preferable, since it suggests that the company is using its assets efficiently to make money. A lower number may convince a company to try other methods to help maximize the efficiency of its assets. Nevertheless, this ratio varies between industries and can only be compared effectively between businesses in the same sector.

• lower than the industry standard• Reasons could be excess production capacity, poor inventory management, lax collection methods• improvement could be done via increasing sales, decreasing fix assets, or decreasing working capital

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Debt Ratio

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

0.74 0.76 0.76 0.65

What you need: Balance Sheet The formula: Total debt / Total assetsWhere: Total Debt = Non-current provisions and liabilities + Current provisions and liabilities = Total Equity and Liabilities - EquityWhat it means: Measures the extent to which borrowed funds have been used to finance the firm's operations. The higher this ratio, the more leveraged the company is, implying greater financial risk. At the same time, leverage is an important tool that companies use to grow, and many businesses find sustainable uses for debt.

• lower value of debt ratio is favorable• great value indicates:1. higher portion of company’s assets are claimed by its creditors2. difficult to obtain loans for new projects

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Interest Coverage Ratio

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

INDUSTRY

24.85 22.36 26.18 127.29 8.38

What you need: Income Statement The formula: Interest Coverage Ratio = EBIT / Interest Expense What it means: Both EBIT (aka, operating income) and interest expense are found on the income statement. The interest coverage ratio, also known as times interest earned (TIE), is a measure of how well a company can meet its interest payment obligations. If a company can't make enough to make interest payments, it will be forced into bankruptcy. Anything lower than 1.0 is usually a sign of trouble.

advisable to maintain an interest coverage of at least 2 times• interest cover of lower than 1.5 times: fluctuations in profitability and potential to delays in interest payments

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Revenue Sales (revenue) $20,438

Operating expenses Cost of goods sold $7,943

Selling, general and administrative expenses $8,172

Depreciation and amortization $960

Other expenses $138

Total operating expenses $17,213

Operating income $3,225

Non-operating income $130

Earnings before Interest and taxes (EBIT) $3,355

Financial income $45

Income before interest expense (IBIE) $3,400

Financial expense $190

Earnings before income taxes (EBT) $3,210

Income taxes $1,027

Net income $2,183

Exam

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s)Profitability Ratios

Profitability Ratios

Basically, it is the amount of profit (at the gross, operating, pretax or net income level) generated by the company as a percent of the sales generated.

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Operating Margin

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

INDUSTRY

10.29% 11.18% 7.20% 10.71% 12.40%

What you need: Income Statement The formula: Operating Margin (Return on Sale) =Profits before taxes and interest / Sales What it means: Operating margin measures a company's pricing strategy and operating efficiency. Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc.

the BMW’s operating margin is quite high it is preferred because the company make more moneyfor each euro of sales• BMW is more profitable than BENZ and TOYOTA

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Net Profit Margin

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

INDUSTRY

6.97% 7.21% 5.36% 7.98% 10.38%

What you need: Income Statement The formula: Profit Margin = Net Income / Sales What it means: Profit margin calculates how much of a company's total sales flow through to the bottom line. As you can probably tell, higher profits are better for shareholders, as is a high (and/or increasing) profit margin.

• net profit margin of BMW is higher than BENZ butlower than TOYOTA and the average of cars industry• It implies the lower tax rate in Japan than in Germany

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Return On Equity (ROE)

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

14.96% 15.55% 15.94% 12.95%

What you need: Income Statement, Balance Sheet The formula: ROE = Net Income / Average Stockholder Equity What it means: Equity is another word for ownership. ROE tells you how good a company is at rewarding its shareholders for their investment. For example, if Company B reported $10,000 of net income and its shareholders have $200,000 in equity, its ROE is 5%. For every $1 of equity shareholders own, the company generates $0.05 in profits each year. As with ROA, higher is better.

• BMW is outperforming TOYOTA

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Return On Assets (ROA)

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

3.93% 3.96% 3.89% 4.53%

What you need: Income Statement, Balance Sheet The formula: ROA = Net Income / Average Total Assets What it means: A company buys assets (factories, equipment, etc.) in order to conduct its business. ROA tells you how good the company is at using its assets to make money. For example, if Company A reported $10,000 of net income and owns $100,000 in assets, its ROA is 10%. For ever $1 of assets it owns, it can generate $0.10 in profits each year. With ROA, higher is better.

• for ROA, it’s important to consider the industry and the sector of company

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Price/Earnings Ratio

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

10.50 10.20 10.58 10.13

What you need: Income Statement, Most Recent Stock Price The formula: P/E Ratio = Price per Share / Earnings Per Share What it means: Think of the price-to-earnings ratio as the price you'll pay for $1 of earnings. A very, very general rule of thumb is that shares trading at a "low" P/E are a value, though the definition of "low" varies from industry to industry.

• BMW shows a desirable value, but TOYOTA’s status is more promissing

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Effective Tax Rate

BMWDEC.2013

BMWDEC.2014

BENZDEC.2014

TOYOTAMAR.2015

34.1 % 33.6 % 32.0 % 30.8 %

What you need: Income StatementThe formula: Income Tax Expense / Pretax IncomeWhat it means: The average rate at which an individual or corporation is taxed. The effective tax rate for individuals is the average rate at which their earned income is taxed.

• Toyota incurs less tax rate

Effective Tax Rate

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“The BMW Group remained firmly on the road to success in 2014 with record figures.”

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I. www.bmw.com

II. https://www.daimler.com

III. www.toyota.com

IV. http://www.forbes.com/powerful-brands/list/

V. http://www.statista.com/statistics/262747/worldwide-automobile-production-since-2000/

VI. http://csimarket.com/Industry/Industry_Data.php?ind=404

VII. https://en.wikipedia.org/wiki/Automotive_industry

VIII.https://en.wikipedia.org/wiki/Earnings_before_interest_and_taxes

IX. http://www.hl.co.uk/shares/shares-search-results/b/bayerische-motoren-werke-ag-eur1

X. http://www.gurufocus.com/term/pe/DDAIF/P%252FE%2BRatio/Daimler%2BAG

XI. http://www.gurufocus.com/term/pe/TM/P%252FE%2BRatio/Toyota%2BMotor%2BCorp

References

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Thanks to my wife, Samira,who helped me all the way.

Contact:

Esmaeili_reza@gsme.sharif.edu

Esmaeili.rza@gmail.com