revision

2

Table of Contents

Introduction.......................................................................................................................3

Finance analysis……………………………………………………………………………...…4

Profitability ratio………………………………………………………………………………….4

ROCE…………………………………………………………………………………………….4

Net Profit Margin……………………………………………………………………………......5

Efficiency ratio…………………………………………………………………………………..6

Receivable Turnover……………………………………………………………………………6

Payable Turnover……………………………………………………………………………….8

Gearing/ Financial Risk Ratio…………………………………………………………………9

Debt to Equity Ratio ……………………………………………………………….…………10

Liquidity Ratio………………………………………………………………………………….11

Current Ratio…………………………………………………………………………………..11

Operating Cash Flow to Current Liability……………………………………………………12

Conclusion ……………………………………………………………………………………..14

References……………………………………………………………………………………..15

Appendices……………………………………………………………………………………..16

Appendix 1……………………………………………………………………………………...16

Appendix 2……………………………………………………………………………………...20

Appendix 3……………………………………………………………………………………...23

Financial Report

Introduction

This financial report is an examination of one of the leading car manufacturers, Daimler Incorporation, financial performance. The selected financial ratios (see appendix 1) are compared against other leading car manufacturers in the industry like Mazda, Toyota and BMW. This should provide a clear understanding of Daimler’s profitability, earnings as well as financial risks over the past 4 years using the organization’s financial statements (provided in appendix 3). By comparing Daimler Incorporation against other industrial leaders (shown in appendix 2) this financial report provides a balanced as well as transparent overview of the company’s financial ratios. Moreover, this financial ratio analysis report provides prospective investors with a clear insight as to whether or not they should acquire Daimler Motors Limited a profitable as well as reliable investment.

Financial Ratio Analysis

Profitability Ratios

According to Deegan (2013) profitability ratios demonstrate how an organization’s management has been generating profits. With this regard, this report examines two major ratios – Return on Capital Employed and Operating Profit Margin- to explore Daimler Motor Limited’s profitability over the past 4 years.

Return on Capital Employed (ROCE) is a measure of earnings before interest and tax divided by capital employed multiplied by 100 percent. This ratio is not only easy to calculate, but can also be used to compare an entity’s profitability against the industrial trend (Deegan, 2013). Daimler recorded an improvement in return on capital employed between 2014 and 2015, from 7.73 percent to 8.95 percent. This can be attributed a tremendous increase in revenues, from 129.872 million Euros to 149.467 million Euros between 2014 and 2015. However, the company registered lower return on capital employed in 2016 and 2017 of 7.62 percent and 7.71 percent. Nonetheless, it is important to note that there was a slight increment of 0.09 percent between 2016 and 2017. This is due to a marginal increase in revenues. Daimler Incorporation (2017) associates the increase in sales with the more than 3 percent real growth in the world’s economy. For this reason, Daimler Motors increased its unit sales in the financial year 2017 by 9 percent to 3.3 million motor vehicles, thereby surpassing its growth target. The organization’s revenues for 2016 and 2017 were 153.261 million Euros and 164.330 million Euros respectively. Nonetheless, the industry’s average return on capital employed for the year 2017 was 7.43 percent, which is lower than Daimler’s value of 7.71 percent over the same period. Therefore, Daimler registered higher profitability than the industrial performance in 2017

RETURN ON CAPITAL EMPLOYEED (ROCE) %

Operating profit margin is computed as a margin and it measures how much an organization earns for each amount of money spent (Scott, 2015). In 2014, Daimler earned 7.3 cents for each Euro spent and reached a peak of 8.39 cents for each Euro spent in 2015. However, the operating profit margin decreased slightly to 7.88 percent in 2016 and rose to 7.9 percent in 2017. This is higher than the industry’s average of 7.22 percent in 2017. In particular, Mazda and Toyota registered lower operating profit margins of 3.91 percent and 7.23 percent in 2017. BMW, on the other hand, registered a higher operating profit margin of 9.83 percent over the same period. Daimler Motors associates the increment in earnings before interest and tax for the year 2017 with an increase in unit sales in the Mercedes Benz Cars division, particularly the SUV models as well as the new E-Class model. Also, Daimler Trucks recorded significant earnings compared to the year 2016 due to an increase in sales in NAFTA region as well as the sale of real estate in Japan (Daimler Motors, 2017).

NET PROFIT MARGIN (OPERATING PROFIT MARGIN)

Efficiency Ratios:

Receivable Turnover

This ratio, also referred to as the debtors turnover ratio, examines how well an organization is dealing with its receivables and the trend is that the higher the receivable turnover ratio the lower the amount of non-collected money from operations and vice versa. This is to say that the receivable turnover ratio will be lower if an entity is waiting to receive a lot of its revenues (Scott, 2015). In 2014, Daimler Motors had a debt turnover ratio of 100 days which increased to 107 days in 2015. It implies that the organization collected payment from its customers after every 100 days and 107 days in 2014 and 2015 respectively. The company’s debt turnover ratio for the year 2016 was 115 days and 114 days in 2017. The 2016 debt turnover ratio of 115 days is the highest across the four financial periods. A receivable turnover ratio of 114 days is unreasonable compared to the industry’s debt turnover ratio of 68 days in 2017. Mazda and BMW had lower receiver turnover ratios of 25 days and 15 days respectively compared to Daimler’s 97 days. Toyota Motors had the highest debt turnover ratio of 116 days over the same financial years among the four major industrial players.

RECEIVABLE TURNOVER(DAYS)

Payable Turnover Ratio

Payable turnover ratio measures the number of times or days an organizations takes to pay of its suppliers during a given accounting period (Schroeder, Clark & Cathey, 2011). This financial report shows that Daimler Motors paid its payables 35 times a year in 2017 and 2016. In 2014 and 2015 it paid its payable 37 times and 33 times. This is reasonable considering the fact that the industry paid as many as 58 times in 2017. Mazda, BMW and Toyota paid their payables 62 times, 40 times and 95 times respectively in 2017

PAYABLE TURNOVER(DAYS)

Financial Risk Ratios

Gearing Ratio

Gearing ratios, also known as financial risk ratios, look at the equity as well as debt proportions in an organization. Financial leverage looks at an entity’s mix utilization of debt as well as equity capital. Daimler Motors utilizes a traditional capital structure, which, according to Schroeder, Clark and Cathey (2011) results in an optimal capital structure. The traditional capital structure implies that an entity’s cost of capital reduces within a reasonable limit of debt and rises or increases with average. Daimler Motors keeps its gearing ratio below 65 percent. However, this does not help the organization in reducing its cost of capital. The gearing ratio in 2014 was 63.65 percent, which is an indication that debt financing contributed 63.65 percent of the organization’s capital structure. Nonetheless, the gearing ratio for the years 2015, 2016 and 2017 were 61.01 percent, 62.7 percent and 61.24 percent respectively. GEARING RATIO %

The Company used debt financing to refinance its leasing plus sales financing business. For this reason, the organization used a spectrum of different financing instruments in different currencies and markets. These include: bank loans, bonds with medium as well as long maturities, commercial papers, and asset backed securities as well as customer deposits at the company’s bank (Daimler Motors, 2016). The company should focus on shareholder wealth maximization. It should keep minimize its costs as much as possible to increase its revenues, which Mazda and Toyota are doing as evidenced by their lower gearing ratios of 30.04 percent and 43.4 percent respectively. BMW’s gearing ratio of 56.36% is slightly higher than the industry’s average gearing ratio of 47.76 percent.

Debt to Equity Ratio

Debt to equity ratio is a proportion of debt financing to equity financing. A higher ratio is an indication that an organization’s capital structure is mainly made up of debt financing. A lower ratio, on the other hand, is an indication that an entity’s capital structure is mainly made up of equity financing (Williams, 2014). Daimler’s debt to equity ratio for the years 2014 and 2015 were 1.75 and 1.56 respectively. This implies that for every 1 Euro of debt financing equity financing was 7 cents and 56 respectively. In 2016 and 2017, the organization’s debt to equity ratio was 1.68 percent and 1.58 percent respectively. The higher debt to equity ratio can be attributed to the debt financing to refinance the organization’s leasing plus sales financing business. The industry’s debt to equity average for the year 2017 was 1.02 which is slightly lower than Daimler’s value of 1.58 over the same period. Mazda had the lowest debt to equity ratio of 0.43 followed by Toyota Motors, which had a debt to equity ratio of 0.77 in 2017. This implies that for every 1 Euro of equity financing Mazda and Toyota Motors borrowed 43 cents and 77 cents to finance their operations. BMW’s debt to equity ratio was 1.29 over the same period.

DEBT TO EQUITY RATIO

Liquidity Ratios

Liquidity ratios measure an organization’s ability to refinance its short term and long term obligations using its assets. Some of the most common liquidity ratios include current ratios and acid test or quick ratio (Williams, 2014).

Current Ratio

Current ratio measures an organization’s ability to repay its short term financial obligations using its current assets. It indicates how much an organization is protected for each dollar or Euro borrowed (Williams, 2014). Daimler Motors has a balanced current ratio which is desirable for every investor. The organization’s current ratios for 2014, 2015, 2016 and 2017 were 1.75, 1.56, 1.68 and 1.58 respectively. This is an indication that for every 1 Euro of current liability, the organization had 1.58 Euros in current assets in 2017. The industry’s average current ratio for 2017 was 1.19 which is lower than Daimler’s value of 1.58 over the same period. With regards to individual companies, Mazda, BMW and Toyota Motors current ratios were 1.45, 1.04 and 1.03 respectively for the year ending 2017.

CURREN RATIO

Operating Cash Flow to Current Liabilities

Major liquidity ratios are based on an entity’s balance sheet and are easy to manipulate. For this reason, it is important to compute a ratio that relates an organization’s balance sheet to its cash flow in order to avoid manipulations. Operating cash flow to current liabilities is a ratio of net cash flow from operating activities to current liabilities. Current liabilities are mainly paid by cash so investors require this ratio to determine if an organization is generating enough cash from its operations to finance its current liabilities or short term financial obligations. An organization is considered to have generated cash to repay its short term financial obligations if it has a ratio of more than 1 (Accounting Capital, 2018). An analysis of Daimler Motors financial statements indicates that the organization has not had enough cash over the last four years. In 2014 and 2017, the organization registered negative the operating cash flow to current ratios of -0.02 and -0.019. In 2015 and 2016, the operating cash flow to current ratios was 0.003 and 0.044 respectively, which were far much below a ratio of 1:1. Most interestingly, the industry’s average operating cash flow to current ratio in 2017 of 0.12 is much less than 1:1. In particular, Mazda, BMW and Toyota had operating cash flow to current ratios of 0.21, 0.086 and 0.2 respectively in 2017.

OPERATING CASH FLOW TO CURRENT LIABILITY

Conclusion

In conclusion, this report examined Daimler Motors Limited financial annual reports as well as financial statements for the years ending 2014, 2015, 2016 and 2017 to draw conclusion about the organization’s profitability, efficiency, liquidity as well as efficiency. Also, the report compared these key ratios against the industry’s average, especially against Mazda Motors, BMW Motors and Toyota Motors key financial ratios for the year ending 2017.

From the above financial ratio analysis, this recommends that prospective investors may go ahead and acquire Daimler Motors Limited. There is no doubt, that Daimler is one of the world’s largest manufacturers of luxurious cars. It has had a healthy and steady revenue base since 2014 and 2014. An analysis of major ratios indicates that Daimler registered higher profitability than the industrial average performance in 2017. Nonetheless, the company has a receivable turnover ratio of 114 days which is unreasonable if compared to the industry’s debt turnover ratio of 68 days. Most importantly the company should focus on shareholder wealth maximization as evidenced by its higher gearing ratio than the industry’s average gearing ratio. It should keep minimize its costs as much as possible to increase its revenues. However, it is important to note that the organization has a higher gearing ratio because it used debt to refinance its leasing plus sales financing business. For this reason, the organization used a spectrum of different financing instruments in different currencies and markets.

References

Accounting Capital. (2018). What is operating cash flow ratio? Retrieved from. https://www.accountingcapital.com/ratios/what-is-operating-cash-flow-ratio/

Daimler AG. (2016). Annual report. Retrieved from. https://www.daimler.com/.../reports/annual- report/daimler/daimler-ir-annualreport-2016

Daimler AG. (2017). Annual report. Retrieved from. https://www.daimler.com/.../reports/annual- report/daimler/daimler-ir-annual-report-2017...

Deegan, C. (2013). Financial accounting theory. Sydney, Australia: McGraw-Hill Education Australia. Scott, W. R. (2015). Financial accounting theory. Upper Saddle River, NJ: Prentice Hall.

Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2011). Financial accounting theory and analysis: text and cases. Hoboken, NJ: John Wiley and Sons.

Williams, J. (2014). Financial accounting. New York, NY: McGraw-Hill Higher Education.

Appendix 1

Profitability Ratios

Operating Profit Margin = (Operating profit/Sales) x 100%

2014 = 9,479/129,872 x 100% = 7.3%

2015 = 12,543/ 149,467 x100% = 8.39%

2016 = 12,074/ 153,261 x100% = 7.88%

2017 = 12,984/ 164,330 = 7.9%

Return on Capital Employed = {Operating Profit / (Shareholders’ Fund + Non-Current Liabilities)} x 100%

2014 = [9,479/(44,584+78,077)]x 100% = 7.73%

2015 = [12,543/(54,624+85,461)] x100% = 8.95%

2016 = [12,074/(59,133+99,398)] x 100% = 7.62%

2017 = [12,984/(65,314+103,186)] x 100% = 7.71%

Efficiency Ratios:

Receivable Turnover = (Accounts Receivables/Sales) x 365 days

2014 = (35,403/129,872) x 365 = 100 days

2015 = (44209/149,467) x 365 = 107 days

2016 = (48240/153,261) x 365 = 115 days

2017 = (51364/164,330) x 365 = 114 days

Payable Turnover = (Accounts Payable/Cost of Sales) x 365

2014 = (10,178/101,688) x 365 = 37 days

2015 = (10,548/117,670) x 365 = 33 days

2016 = (11,567/121,298) x 365 = 35 days

2017 = (12,474/129,999) x 365 = 35 days

Gearing Ratios:

Gearing Ratio = (Long term debt/long term debt + Equity) x 100%

2014 = [78,077/(78,077+44,584)]x 100% = 63.65%

2015 = [85,461/(85,461+54,624)] x 100% = 61.01%

2016 = [99,398/(99,398+59,133)] x 100% = 62.7%

2017 = (103,186/(103,186+65,314)] x 100% = 61.24%

Debt to Equity Ratio = (Long Term Debt/Equity) x 100%

2014 = 78,077/44,584 = 1.75

2015 = 85,461/54,624 = 1.56

2016 = 99,398/59,133 = 1.68

2017 = 103,186/65,314 = 1.58

Liquidity Ratios:

Current Ratio = Current Assets/ Current Liabilities

2014 = 77,145/66,974 = 1.15

2015 = 91,847/77,081 = 1.19

2016 = 102,052/84,457 = 1.21

2017= 106,735/87,105 = 1.23

Operating Cash Flow to Current Liabilities = Net cash flow from operating activities/current liabilities

2014 = -1,274/66,974 =-0.02

2015 = 222/77,081= 0.003

2016 = 3,711/84,457 = 0.044

2017 = -1,652/87,105 = -0.019

Ratio	2014	2015	2016	2017
Operating Profit Margin	7.3%	8.39%	7.88%	7.9%
Return on Capital Employed	7.73%	8.95%	7.62%	7.71%
Receivable Turnover	100 days	107 days	115 days	114 days
Payable Turnover	37 days	33 days	35 days	35 days
Gearing Ratio	63.65%	61.01%	62.7%	61.24%
Debt to Equity Ratio	1.75	1.56	1.68	1.58
Current Ratio	1.15	1.19	1.21	1.23
Operating Cash Flow to Current Liabilities	-0.02	0.003	0.044	-0.019

Appendix 2

Industrial Ratio Analysis

Operating Profit Margin		Daimler	Mazda	BMW	Toyota	Industry Average
	2014	7.3%	4.02%	7.82%	7.1%	(7.3+4.02+7.82+7.1)/4years =6.56%
	2015	8.39%	4.22%	8.01%	6.92%	6.89%
	2016	7.88%	4.0%	7.9%	7.21%	6.75%
	2017	7.9%	3.91%	9.83%	7.23%	7.22%
ROCE
	2014	7.73%	7.83%	7.85%	6.93%	7.6%
	2015	8.95%	7.95%	8.14%	7.41%	8.1%
	2016	7.62%	7.61%	7.74%	6.38%	7.34%
	2017	7.71%	7.73%	7.82%	6.44%	7.43%
Receivable Turnover
	2014	100 days	20 days	11 days	100 days	58 days
	2015	107 days	15 days	16 days	108 days	62 days
	2016	115 days	22 days	14 days	117 days	67 days
	2017	114 days	25 days	15 days	116 days	68 days
Payable Turnover
	2014	37 days	62 days	35 days	75 days	52 days
	2015	33 days	40 days	33 days	60 days	42 days
	2016	35 days	55 days	40 days	75 days	51 days
	2017	35 days	62 days	40 days	95 days	58 days
Gearing Ratio
	2014	63.65%	30.9%	57.3%	45.3%	49.3%
	2015	61.01%	30.03%	56.66%	44.9%	48.15%
	2016	62.7%	31.1%	56.45%	44.4%	48.66%
	2017	61.24%	30.04%	56.36%	43.4%	47.76%
Debt to Equity Ratio
	2014	1.75	0.53	1.29	0.78	1.09
	2015	1.56	0.49	1.31	0.75	1.03
	2016	1.68	0.44	1.29	0.76	1.04
	2017	1.58	0.43	1.29	0.77	1.02
Current Ratio
	2014	1.15	1.45	1.03	1.03	1.17
	2015	1.19	1.41	1.05	1.02	1.17
	2016	1.21	1.43	1.04	1.02	1.18
	2017	1.23	1.45	1.04	1.03	1.19
Operating Cash Flow to Current Liabilities
	2014	-0.02	0.21	0.086	0.21	0.12
	2015	0.003	0.19	0.078	0.2	0.12
	2016	0.044	0.22	0.081	0.18	0.13
	2017	-0.019	0.21	0.086	0.2	0.12

Daimler AG 2014 2015 2016 2017 100 107 115 114 Industry 2014 2015 2016 2017 58 62 67 68 Daimler AG 2014 2015 2016 2017 37 33 35 35 Industry 2014 2015 2016 2017 52 42 51 58 Daimler AG 2014 2015 2016 2017 0.63649999999999995 0.61009999999999998 0.627 0.61240000000000006 Industry 2014 2015 2016 2017 0.49299999999999999 0.48149999999999998 0.48659999999999998 0.47699999999999998 Daimler AG 2014 2015 2016 2017 1.75 1.56 1.68 1.58 Industry 2014 2015 2016 2017 1.0900000000000001 1.03 1.04 1.02 Daimler AG Category 1 Category 2 Category 3 Category 4 1.1499999999999999 1.19 1.21 1.23 Industry Category 1 Category 2 Category 3 Category 4 1.17 1.17 1.18 1.19 Daimler AG 2014 2015 2016 2017 -0.02 3.0000000000000001E-3 4.3999999999999997E-2 -1.9E-2 Industry 2014 2015 2016 2017 0.12 0.12 0.13 0.12 Daimler AG 2014 2015 2016 2017 7.7299999999999994E-2 8.9499999999999996E-2 7.6200000000000004E-2 7.7100000000000002E-2 Industry 2014 2015 2016 2017 7.5999999999999998E-2 8.1000000000000003E-2 7.3400000000000007E-2 7.4300000000000005E-2 Daimler AG 2014 2015 2016 2017 7.2999999999999995E-2 8.3900000000000002E-2 7.8799999999999995E-2 7.9000000000000001E-2 Industry 2014 2015 2016 2017 6.5600000000000006E-2 6.8900000000000003E-2 6.7500000000000004E-2 7.22E-2