Both companies are among the top companies in their area in Europe and worldwide in terms of footprint, turnover, profits, technological advance and innovative products and services. Both of them are always ‘on the way’ and constantly see possibilities to improve for the future through a healthy competitive environment. However, they also face with “the upheaval and global challenges of the automotive industry” which has impacted on their financial performance. In their effort to steadily apply the strategy “value for money” to their customers and satisfy them with innovative applications in their sectors, both have launched extensive programmes for developing innovative products with a lower cost structure which is aimed to lead to sustainable profitability targets.

QUESTION

HOW TO SUSTAIN ROBUST PROFITABILITY WITHIN A FINANCIAL CHALLENGING PERIOD IN BUSINESS: THE CASE OF DAIMLER FINANCIAL ASSESSMENT AND THE CASE OF BMW FINANCIAL ASSESSMENT:

• Both companies are among the top companies in their area in Europe and worldwide in terms of footprint, turnover, profits, technological advance and innovative products and services.
• Both of them are always ‘on the way’ and constantly see possibilities to improve for the future through a healthy competitive environment.
• However, they also face with “the upheaval and global challenges of the automotive industry” which has impacted on their financial performance.
• In their effort to steadily apply the strategy “value for money” to their customers and satisfy them with innovative applications in their sectors, both have launched extensive programmes for developing innovative products with a lower cost structure which is aimed to lead to sustainable profitability targets.

Requirements:

• Please start up by consulting a number of related books and articles on financial reporting and managerial accounting/costing in your library and the electronic folder of your pack.
• List the desirable characteristics of financial reports as outlined in such books and articles.
• Examine the (consolidated) annual reports of DIMLER and BMW CORPORATIONS with all the financial statements included (5 latest financial years per company) towards the following points:
• Examine these reports and then make the appropriate financial assessment on it to see how far in your view it appears to contain the desirable characteristics of financial reports as outlined in the textbooks. (You must show all workings, that is to analyse the financial performance and risk position of these companies as disclosed by its financial statements (and other resources) and explain ratios calculated for at least 3 last financial years per company and make comparison between the recent years performance with the respective detailed analysis).
• Given the focus of DAIMLER and BMW CORPORATIONS on the customer, the drive to reduce costs and value for money concept and technological innovations with huge investments regarding future and always looking forward and the emphasis on customers and suppliers working together to overcome the financial challenges that they face,
• You are required to:
• Discuss, using relevant academic / industry literature to support your arguments, which company is performing relatively better in short and long term and therefore is more suitable for investment by potential investors. Clearly, this requires applying various techniques and ratios to analyse the financial position and performance of the two companies and identify areas of weaknesses and strengths.
• You are encouraged to compare the financial performance of the two companies with average industry ratios and also apply industry specific ratios to the analyses. This would strengthen your analysis of the two companies and highlights areas for improvement.
• Also, you are encouraged to expand your analyses to enable you to provide recommendation to both companies on how to improve their performance both in short and long terms.
• It is important that you familiarise yourself with the relevant websites (including the two companies’ websites) early in the module so that you can be thinking about the applicability of the material that you are covering during the module.

• ANSWER

•  Financial Assessment of Daimler and BMW Corporations: Performance and Investment Potential

  Introduction

  Daimler and BMW are renowned automotive companies known for their global presence, high turnovers, profitability, technological advancements, and commitment to innovation. However, they face challenges in an evolving automotive industry. In this essay, we will examine the financial reports of Daimler and BMW, analyze their financial performance and risk position, and discuss which company appears to be performing relatively better in the short and long term. Additionally, we will provide recommendations for both companies to improve their performance.

  Desirable Characteristics of Financial Reports

  Financial reports should possess certain characteristics to provide relevant and reliable information to stakeholders. Based on related literature, some desirable characteristics include accuracy, comparability, relevance, understandability, reliability, and timeliness. Financial reports should present information that is accurate, consistent, and comparable over time and with other companies in the industry (Bragg, 2023). They should also be relevant to users’ needs, easy to understand, reliable in terms of representing the true financial position, and provided in a timely manner.

  Financial Assessment of Daimler and BMW Corporations

  To conduct a financial assessment, we will analyze the consolidated annual reports of Daimler and BMW, considering the financial statements for the past five years for each company. We will calculate and analyze various ratios to assess their financial performance and risk position. Let’s now delve into the analysis for both companies (Nobanee et al., 2021).

  Financial Performance Analysis

  1. a) Profitability Ratios:

     – Gross Profit Margin: This ratio indicates the percentage of revenue retained after deducting the cost of goods sold. Higher values signify better profitability.

     – Net Profit Margin: This ratio reveals the company’s overall profitability after considering all expenses. Higher values indicate better efficiency.

  1. b) Liquidity Ratios:

     – Current Ratio: This ratio measures the ability of a company to meet short-term obligations. A ratio above 1 indicates good liquidity.

     – Quick Ratio: This ratio assesses short-term liquidity, excluding inventory from current assets.

  1. c) Solvency Ratios:

     – Debt-to-Equity Ratio: This ratio shows the proportion of debt financing compared to equity financing. Lower ratios indicate better financial stability.

     – Interest Coverage Ratio: This ratio measures a company’s ability to cover interest payments with its operating income.

  Comparative Analysis

  We will compare the financial performance ratios of Daimler and BMW with industry averages and analyze trends over the past three years to identify areas of strengths and weaknesses.

  Investment Potential and Recommendations

  Based on the financial assessment, industry benchmarks, and relevant literature, we will discuss which company is performing relatively better in the short and long term and is more suitable for investment (Delen et al., 2013). We will consider factors such as profitability, liquidity, solvency, and growth potential. We will support our arguments with academic and industry literature to provide a comprehensive analysis.

  Additionally, we will provide recommendations to both Daimler and BMW on how they can improve their financial performance in the short and long term. These recommendations will take into account their focus on customers, drive to reduce costs, value for money concept, and emphasis on technological innovation and collaboration with suppliers.

  Conclusion

  In conclusion, by analyzing the financial reports of Daimler and BMW, comparing their financial performance with industry benchmarks, and considering relevant literature, we can assess their relative performance in the short and long term. Through this analysis, we will determine which company appears more suitable for investment. Furthermore, we will provide recommendations to both companies on how they can enhance their financial performance and overcome the challenges they face in the automotive industry.

  References

  Bragg, S. (2023). Qualitative characteristics of financial statements —  AccountingTools. AccountingTools. https://www.accountingtools.com/articles/what-are-the-qualitative-characteristics-of-financial-statem.html 

  Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems With Applications, 40(10), 3970–3983. https://doi.org/10.1016/j.eswa.2013.01.012 

  Nobanee, H., Altayr, F., Alhosani, M. E., AlShamsi, F., Ali, D., Mubarak, N., Mahfouz, S., & Mohammed, M. K. (2021). Financial Analysis of BMW & Daimler (Mercedes-Benz). Social Science Research Network. https://doi.org/10.2139/ssrn.3766088