Financial ratio analysis of Volkswagen after the scandal

1. Financial Statement &
Financial Statement Analysis
ESB Business School
Finance
MAB International Management WS 16/17
Presented by: Priya Sarangla , Wolf Wagner, Lexuan Liu

2. Content
1. Financial Statement
- Financial Statements
- HGB, IFRS, and US-GAAP in Comparison
2. Financial Statement Ratios
- Type of Ratio Comparison
- Categories of Ratio Comparison
3. Financial Statement Ratio Case Analysis
- Case 1: Daimler, BMW and Audi (2015)
- Case 2: VW Group (2006-2016)
1. Financial Statement

3. Financial Statement
Change in
Shareholder’s
Equity
Balance
Sheet
Cash Flow
Income
Statement
4 Key Financial Statement Element
• Financial summary of operating results
during a specific financial period
• Summarizes financial position at a
given point in time
• Summarizes firm‘s operating,
investing and financial activities
• Showing changes of shareholder‘s
equity over an accounting period

4. Different historical roots and reasons for their creation:
HGB vs. US-GAAP vs. IFRS
German HGB
Hyperinflation in 1923
→ money lost its value
US-GAAP
Black Thursday in 1929
→ shares lost their value
IFRS
Transparency, accountability
and efficiency to financial
markets around the world
→ need for int’l comparability

5. Main Differences of HGB, US-GAAP, and IFRS
Generaldifferences GermanHGB US-GAAP IFRS
Objective Regulates legal relations of merchants
and provides regulations of accounting
Information about financial position and
capability to generate liquid assets
Information about financial position and
capability to generate liquid assets
Addressee Not stated Investors, shareholders Investors
Relationshipto tax law Determination of income to be taxed is
influenced by trade balance
None None
Accountingprinciple Principle of conservatism Fair presentation Fair presentation
Annualfinancialstatements Balance sheet, income statement,
appendix, status report
Balance sheet, income statement, cash
flow statement, statement of changes in
equity
Balance sheet, income statement, cash
flow statement
Practicalexampleof valuationof
inventories
Balance sheet inventories: a company receives a first delivery of 100 units for the price of 1.000 € and a second delivery of 100
units for 1.200 €. Both deliveries are mixed up. At the end of the fiscal year 100 units are left.
Accountingmethods FIFO: 1.200 €
LIFO: 1.000 €
Weighted-⌀: 1.100 €
Specific indent.: 1.000 € or 1.200 €
FIFO: 1.200 €
LIFO: 1.000 €
Weighted-⌀: 1.100 €
Specific indent.: 1.000 € or 1.200 €
FIFO: 1.200 €
LIFO: not permitted
Weighted-⌀: 1.100 €
Specific indent.: not required
How inventorieswouldbe stated 1.000 €
→ protection of creditors
1.200 € 1.200 €

6. Content
1. Financial Statement
- Financial Statements
- HGB, IFRS, and US-GAAP in Comparison
2. Financial Statement Ratios
- Type of Ratio Comparison
- Categories of Ratio Comparison
3. Financial Statement Ratio Case Analysis
- Case 1: Daimler, BMW and Audi (2015)
- Case 2: VW Group (2006-2016)
2. Financial Statement Ratio

7. Type of Ratio Comparison
Cross Sectional Analysis (Benchmark) Time Series
A
B
Cross-sectional analysis involves the comparison of different firms’
financial ratios at the same point in time.
• Competitor Comparison
• Industry Average Comparison
Years
Sales
Time-series analysis evaluates performance over time.
• Comparison of current to past performance
• Assess the firm’s progress
• Developing trends by using multiyear comparisons.

8. Debt ratioLiquidity ratio
Activity ratio
Market ratio
Profitability ratio
Liquidity ratio
• Current ratio, quick ratio
• Measures a company’s ability to pay debt
obligations
Debt ratio
• Debt ratio, Times interest earned ratio
• Measures the extent of a company’s
leverage
• The higher this ratio, the greater the amount
of other people’s money being used to
generate profits.
Activity ratios
• Inventory turnover, total asset turnover, Average collection period
• Measure a firm’s efficiency in using its resources within its balance sheet into
sales or cash—inflows or outflows.
Profitability ratio
• Gross profit ratio, operating profit ratio, net profit ratio, ROA, ROE
• Assess a company’s ability to generate earnings compared to its expenses and
costs incurred during a specific period of time.
Market ratios
• Price earning ratio, market book ratio
• Compare company’s current share price to certain
accounting values.
• These ratios give insight into how investors in the
marketplace feel the firm is doing in terms of risk and
return.
Categories of Ratio Comparison

9. Content
1. Financial Statement
- Financial Statements
- HGB, IFRS, and US-GAAP in Comparison
2. Financial Statement Ratios
- Type of Ratio Comparison
- Categories of Ratio Comparison
3. Financial Statement Ratio Case Analysis
- Case 1: Daimler, BMW and Audi (2015)
- Case 2: VW Group (2006-2016)
3. Financial Statement Ratio Case Analysis

10. Benchmark Comparison for Year
2015
Automobile Industry
• Automobile is not only one of the strongest industry in
Germany, but also one of the world's most
important economic sectors by revenue.
• The automobile industry has surged ahead worldwide in
recent years, with particularly sharp growth, especially
financially.
• Industry radical changes: e-mobility, connectivity and
autonomous driving.
• Daimler, Audi and BMW are the top 3 premium
automobile manufacture.
149.47
58.42
92.16
Total Revenue 2015
Daimler Audi BMW
Sample Case 1

11. Ratios Calculation DAIMLER 2015 AUDI 2015 BMW 2015 Industry Average
Current Ratio Current assets
Current Liabilities 1.19 1.43 0.94 1,84
Quick ratio Current Assets-Inventory
Current Liabilities 0.88 1.14 0.67 0,5
Inventory turnover Cost of Goods sold
Inventory 4.95 7.45 6.68 10,61
Total assets turnover Sales
Total Assets 0.69 1.03 0.56 1,15
Average collection period Accounts Receivable
Average sales per day 32.14 25.6 38.16 30
Debt Ratio Total Liabilities
Total Assets 0.75 0.62 0.8 1
Times interest earned ratio Earnings before Interest &tax
Interest 3.27 5.35 22.81 10
Gross profit margin % Gross profit
Sales 21% 19.47% 19.67% 19,75%
Operating profit margin % Operating Profit
Sales 7.52% 8.28% 10.41% 7,99%
Net profit margin % Earnings for common Stockholder
Sales 6% 7.36% 6.91% 4,78%
Earning per share (Euro) Earnings for common Stockholder
No. of share of common stockholder
outstanding
7.87 97.78 9.7 10
Return on total assets % Earnings for common Stockholder
Common stock Equity 4% 7.57% 3.9% 5,59%
Return on Equity % Net Income
Stockholders Equity 16.43% 19.73% 15.97% 17,74%
Price earning ratio Market price per Share of common stock
EPS 8.29 6.91 7.7 7
Market/book ratio Market price per Share of common stock
Book Value Per share of common stock 1.53 1.33 1.5 1.20
Cross Section Ratio Calculation 2015

12. Liquidity Ratio & Activity Ratio
1.19
0.88
1.43
1.14
0.94
0.67
1.13
0.50
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Current Ratio Quick Ratio
Liquidity Ratio
DAIMLER AUDI BMW Automotive Average
4.95
0.69
7.45
1.03
6.68
0.56
10.61
1.15
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Inventory Turnover Total Assets Turnover
Activity Ratio
DAIMLER AUDI BMW Automotive Average

13. Debt Ratio & Market Ratio
8.29
1.53
6.91
1.33
7.70
1.50
7.00
1.20
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Price Earning Ratio Market/Book Ratio
Market Ratio
DAIMLER AUDI BMW Automotive Average
0.75
0.62
0.80
1.00
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Debt Ratio
Debt Ratio
DAIMLER AUDI BMW Automotive Average

14. 21.00%
7.52%
6.00%
4.00%
16.43%
19.47%
8.28%
7.36% 7.57%
19.73%
19.67%
10.41%
6.91%
3.90%
15.97%
19.75%
7.99%
4.78%
5.59%
17.74%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Gross profit margin % Operating profit margin % Net profit margin % Return on total assets % Return on Equity %
Profitability Ratio
DAIMLER 2015 AUDI 2015 BMW 2015 Automotive Average
Profitability Ratio
%

15. Financial Statement RatioTime Series Analysis
• Leading global automotive group with extensive brand portfolio.
• The recent scandal will make it fascinating to look at the financial analysis. A considerable
uncertainty about the future outlook.
VW Group
Sample Case 2

16. Volkswagen Time series Analysis from 2006 to 2016
Period 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Current Ratio 1.14 1.22 1.18 1.12 1.12 1.05 1.07 1.03 1 0.98 1.00
Quick acid ratio 0.91 0.96 0.86 0.9 0.88 0.77 0.79 0.78 0.75 0.74 0.76
Inventory T/o 7.26 7 6.07 5.74 6.64 5.82 5.6 5.63 5.52 5.39 9.40
Total assets T/o 0.78 0.77 0.73 0.61 0.67 0.7 0.68 0.62 0.6 0.58 0.55
Average collection period 33.42 34.07 35.47 39.65 39.41 40.1 38.92 39.9 41.3 40.69 43.72
Debt Ratio 1.07 0.92 0.97 1.05 0.81 0.77 0.82 0.7 0.75 0.82 0.71
Times interest earned
ratio
2.13 4.97 4.64 1.56 3.14 10.25 0.82 4.12 8.74 0.2 1.50
Gross profit margin % 13.21 14.96 15.11 12.91 16.9 17.55 18.25 18.07 18.04 15.9 18.09
Operating profit margin% 1.92 5.65 5.56 1.76 5.63 7.07 5.97 5.92 6.27 -1.91 0.58
Net profit margin% 2.62 3.78 4.18 0.91 5.39 9.67 7.11 2.79 5.36 -0.74 0.15
Earning per share(Euro) 1.4 2.07 2.37 0.47 3.03 6.62 9.28 3.72 4.36 -0.64 0.12
Return on Equity % 10.89 14.02 14.21 2.73 16.82 29.77 20.29 6.65 12.21 -1.78 0.36
Return on total assets % 2.04 2.92 3.03 0.56 3.63 6.8 4.86 1.73 3.21 -0.43 0.08
Price earning ratio 12.21 15.1 15.63 32.31 7.97 3.49 3.78 10,92 8,43 -43,3 6.95
Market/book ratio 1.25 1.97 3.03 0.87 1.09 0.3 0.99 1.06 0.92 0.81 0.72
Time Series Ratio 2006 - 2016

17. VW Group (2006 – 2016) Liquidity
Ratio
1.14
1.22
1.18
1.12 1.12
1.05 1.07
1.03 1 0.98 1
0.91
0.96
0.86
0.9 0.88
0.77 0.79 0.78 0.75 0.74 0.76
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Current Ratio Quick Acid Ratio

18. 7.26
7
6.07
5.74
6.64
5.82
5.6 5.63 5.52 5.39
9.4
0.78 0.77 0.73 0.61 0.67 0.7 0.68 0.62 0.6 0.58 0.55
0
1
2
3
4
5
6
7
8
9
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Inventory Total Asset
9,4
VW Group (2006 – 2016) Activity Ratio
6,64

19. 0.00
0.20
0.40
0.60
0.80
1.00
1.20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Debt Ratio
Debt Ratio
VW Group (2006 – 2016) Debt Ratio
1.07 0.92 0.97 1.05 0.81 0.77 0.82 0.7 0.75 0.82 0.71
2.13
4.97
4.64
1.56
3.14
10.25
6.1
4.12
8.74
0.2
1.5
0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Debt Ratio Times interest earned ratio
10,25
8,74
0,2

20. VW Group (2006 – 2016) Market Ratio
12.21
15.1 15.63
32.31
7.97
3.49 3.78
10.92
8.43
-43.3
6.95
1.25 1.97 3.03
0.87 1.09 0.3 0.99 1.06 0.92 0.81 0.72
-50
-40
-30
-20
-10
0
10
20
30
40
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Price Earning Ratio Market/Book Ratio
-43,3
32,31

21. 10.89
14.02 14.21
2.73
16.82
29.77
20.29
6.65
12.21
-1.78
0.36
-5
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Return on Equity %
VW Group (2006 – 2016) Profitability Ratio (2/2)
2.04
2.92 3.03
0.56
3.63
6.8
4.86
1.73
3.21
-0.43
0.08
-1
0
1
2
3
4
5
6
7
8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Return on total Asset %
-1,78
29,77
6,8
-0,43

22. -20,000 €
10,000 €
40,000 €
70,000 €
100,000 €
130,000 €
160,000 €
190,000 €
220,000 €
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Overall Performance
Net Income Gross Profit Revenue
VW Group (2006 – 2016) Profitability
Mio.€

23. Summary
• The different accounting methods of HGB, US-GAAP, and IFRS can lead to
different results when calculating financial ratios.
• Financial Statement ratios are useful management tool for investors,
creditors and managers inside of a company to understand financial result and
trends over time.
• Interpretation of ratios requires consideration of a company’s holistic
business activities. Lower ratio does not necessarily mean bad performance,
the company‘s investment, financial activities have also impact on their
long/short term ratios.

24. Thank you for your attention!