Financial Ratio Analysis

Basic Accounting (FNBE 0145)

Teh Kuan Yon (0313655) Arvindraj a/l Mohan (0303316)

Table of Content
NO. 1 2 CONTENTS Company Background Ratio CalculationsProfitability Ratio 3 Ratio CalculationsStability Ratio 4 5 6 7 8 9 Interpretation of CalculationsProfitability Ratio Interpretation of CalculationsStability Ratio Price or Earning Ratio Interpretation Investment Recommendation Appendix Reference 13 14 15 16 17-18 19 9-12
PAGE(S)

3-4 5-8

Company Background
The Audi AG is a company formed by merging 4 different companies which are Audi, DKW, Horch and Wanderer. In year 1899, August Horch came up with a car manufacturing company which was named Horch in Cologne, Germany. Later in 1904, August Horch withdrew from his own company Horchwerke , and started a new company which he named Audi. The reason he named the company Audi is simply by translating his last name into Latin. Audiwerke Company started operating in 1910 in Zwickau. The third company, DKW was originally known by the name Rasmussen & Ernst in 1904, Chemnitz. Initially, DKW were manufacturers and sold heavy operating machines such as exhaust-steam oil separators and vulcanization equipment. Then in 1919, the company was renamed as Zschopauer Motorenworke and they switched to manufacturing 2-stroke-engines which then lead to the production of motorcycles sold under the brand DKW. Ultimately, they stated manufacturing and selling small motor cars which was in the market since 1928 When its for Wanderer, it was founded by 2 mechanics know as Johann Baptist Winklhofer and Richard Adolf Jaenicke who owned a bicycle repair shop in 1885. As the business grew, they started manufacturing their own bicycles. However, due to high demand, the company began its trade as Wanderer Fahrradwerke AG. Then they produced their first motorcycle in year 1902 and began their first step into automobile production market in 1913 by producing a small sized 2-seater car named Puppchen.In June 29, 1932, Zschopauer Motorenworke, Horchewerke, Audiwerke and DKW merged to form Auto Union AG. The headquarters for Auto Union Ag was in Chemnitz. Due to the merging, Auto Union AG it evolved to be the second largest automobile manufacturer in Germany. These four companies explain the intertwined rings logo which defines the identity of the present Audi. These intertwined symbolise the inseparable and the unity of the four merged companies. After the merge, each of the company was assigned with different automobiles to manufacture. Where, DKW manufactured motorcycles and small cars. Wanderer was responsible to build middle sized cars, Audi was
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assigned to manufacture deluxe middle sized cars and Horch was assigned to produce the top-of the-range deluxe automobiles. After the second world war, Auto Union AG was forced to move to Bavaria. In 1949,Ingolstadt, Bavaria, a new company was founded. It was named Auto Union GmbH, Ingolstadt to uphold the companys four ring emblem. In 1969 Auto Union GmbH of Ingolstadt merged with NSU Motorenwerke AG from Neckarsulm. Originally NSU manufactured knitting machines for twenty years and finally diversified into manufacturing bicycles in 1886. In 1901, NSU started producing motorcycles and subsequently started producing cars in 1906. After an on-an-off production of cars, NSU finally commence producing cars in 1958 permanently. In March 1969, Auto Union GmbH Ingolstadt merged with NSU Motorenwerke AG, leading to a new company name, Audi NSU Auto Union AG. The companys headquarters also moved to Neckarsulm. In March 1977 the company was renamed again. This time, it was simply named as AUDI AG. Once again, the companys headquarters was relocated to Ingolstadt, Bavaria. . In 1998, Audi achieved unit sales of almost 600,000 cars. Making a total sales revenue of 27 billion. The company is running with the power 42,000 employees in total. Now, more than 90 percent of AUDI AGs share is owned by Wolkswagen Group. Currently, Audi is a leading international producer of high quality cars. The company has manufacturing sites in Germany and various other countries, which includes Hungary, China and South Africa too.

Ratio Calculation
Profitability Ratio

Return On Equity (ROE)

+ 2 2

Net Profit (2011) = 6041 Net Profit (2012) = 5956

2011

2012

Net Profit Margin (NPM)

Net Sales (2011) = 44096 Net Sales (2012) = 48771

2011

2012

Gross Profit Margin (GPM)

Gross Profit (2011) = 8096 Gross Profit (2012) = 9803

2011

2012

20.1%

Selling Expense Ratio (SER)

2011

2012

General Expense Ratio (GER)

2011

2012

Financial Expense Ratio (FER)

)

2011

2012

Stability Ratios Working Capital

Total Current Asset (2011) - 24811 (2012) - 22357 Total Debt Ratio (2011) - 15507 (2012) - 15447

2011 22

2012

Total Debt

2011 2

2012

Stock Turnover

+ 2

10

2011

2012

Debtor Turnover
+ 2

2011

2012

11

Interest Coverage +

2011 2 + 2

2012 2+ 2

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Ratio Interpretation
Profitability Ratio Interpretation Return on Equity (ROE)
During the year 2011 to 2012 period the Return on Equity decreased from 43.2% to 42.6%. This means that the owner is lost on his investment.

Net Profit Margin (MPG) Gross Profit Margin (GPM) Selling Expense Ratio (SER)

During the year 2011 to 2012 period the Net Profit Margin decreased from 13.7% to 12.2%. This means how bad a business can control its overall expenses. During the year 2011 to 2012 period the Gross Profit Margin increased from 18.4% to 20.1%. This means the ability of the business to control its Cost of Goods Sold is increasing. During the year 2011 to 2012 period, the Selling Expense Ratio has decreased from -8.2% to 9.4%. This means the ability of the business to control its selling expenses is getting better. During the year 2011 to 2012 period, the General Expense Ratio decreased from -0.97 to -1.08. This means the ability of the business to control it general expenses is increasing. During the year 2011 to 2012 period, the Financial Expense Ratio decreased from -0.6% to -0.8%. This means the ability of the business to control

General Expense Ratio (GER) Financial Expense Ratio (FER)

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its financial expenses is getting better.

Stability Ratio Interpretation

During the year 2011 to 2012 period, the Working Capital decreased from 1.6:1 to 1.4:1. This means that the current liabilities is getting worst because it does not satisfied the minimum 2:1 ratio. During the year 2011 to 2012 period, the Total Debt decreased increased from 65.1% to 62.8%. This means that the debt of business id decreasing. However the Total Debt has a maximum 50% limit. During the year 2011 to 2012 period, the Stock Turnover decreased from 44.1days to 40.7days. It means that the business selling inventories faster. During the year 2011 to 2012 period, the Debtor Turnover decreased from 63.4 days to 57.3 days. It means that the business collect money from debtors getting faster. During the year 2011 to 2012 period, the Interest Coverage decreased from 23.9 times to 15.5 times. This means that the business is more insufficient to pay the interest. But the business has reached
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Working Capital

Total Debt

Stock Turnover

Debtor Turnover

Interest Coverage

the 5 times ratio.

Price or Earning Ratio Interpretation

The latest share price of Audi AG company is EUR665.03 per share. The earning per share is EUR97.19. This means that, the inventors need to use around 6 years and 8 months to replace the investments.

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Investment Recommendation
By analysing the profitability of the company, it showed a minimal decrease in the profitability of the company compared to profitability in the previous year. Overall, the company has showed up a decreased in their sales, general and financial expenses. This proves the company is getting better at managing their operating expenses with time. Coming to the financial stability of this company, its determined that the companys stability is not at safe zone. The businesss capability to get over its current liabilities is also not showing improvement but getting worse. Above all, it does not full fill the basic 2:1 ratio for its working capital. However, the company has shown a decrease in its total debt even though the debts are still more than 50 %. Coming to Stock turnover, we can see the inventory is selling fast compared to the year before, this shows that the business has increased its efficiency in settling its debts. Based on the Earning Ratio, it shows that the company is considered to be in a good state which is based on the data, an investor will get his or her investment in a little over six years, which is still way below the 15 years limit that is considered safe for people to invest. In conclusion, we wind up that investing in this, Audi AG company is advisable. Even the profit experiences a slight decrease and the company is still a bit unstable, but the inventory is moving fast. This gives an assurance that people are constantly buying their products and profit is a definite. Another reason that evokes it for investment is because the Earning Ratio is very low just slightly over six years. This is considered a short time when it comes to shares investment.

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Appendix
Balance Sheet of Audi company

P&L Statement of Audi AG company

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The latest stock market report

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References
1) Equities. (2010). Retrieved November 21, 2013, from Audi AGNSUX:GERhttp://markets.ft.com/research/Markets/Tearsheets/Financials?s =NSUX:GER&subview=BalanceSheet

2) Equities. (2010). Retrieved November 21, 2013, from Audi AGNSUX:GER http://markets.ft.com/research/Markets/Tearsheets/Financials?s=NSUX:GER& subview=IncomeStatement

3) Market Watch. (2013, Nov 21) Retrieved November 21, 2013, from AUDI AG: http://www.marketwatch.com/investing/stock/nsu?countrycode=de

4) The Audi Story. (2010). 4 Rings, 370. Retrieved May 23, 2013, from http://www.audijournals.de/eJournals/mz3/default/index_4ringe_en.html#/0

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