Bmw and Peugeot

pic MBA 503 Managerial Decision Making Financial Analysis Professor Sameer Mustafa pic pic INVESTMENT IN AUTOMOBILE INDUSTRY BMW OR PEUGEOT Section F12N72 Team members Ranjan Saha Sam Khassawneh Elena Dugarova Executive Summary This describe provides a pecuniary epitome and assessment of two automobile companies Bayerische Motoren Werke (BMW Group) and PSA Peugeot Citroen. Methods of analysis include comparison and evaluation of financial ratios, financial SWOT, R&D and cash flow analyses. All calculations can be imbed in the appendices.Results of data study show that twain companies cave in strengths, weaknesses, threats and opportunities, but Peugeot has more strengths and opportunities in call of long-run prospective, than in BMW. After analyzing both companies we recommend to invest in Peugeot. Table of Content 1. macrocosm . .. 2. SOWT Analysis . 1. BMW Strengths 2. BMW Weaknesses . 3. BMW Opportunities 4. BMW Threats . 5. Peugeot Strengths .. 6. Peugeot Weaknesses 7.Peugeot Opportunities . 8. Peugeot Threats .. 3. Comparison of two companies 4. passports 5. Conclusion . 6. Appendices . 7. References .. 1. Introduction This hatch provides data on the financial mail service of two well-known automobile brands, BMW Group and PSA Peugeot Citroen, over 2009 and 2011. The purpose of the explanation is to evaluate the financial situation of these companies in grow out to make an investment decision in any of these companies.First part of the report provides brief description about the companies followed by the situation analysis of both companies. Third part of the report illustrates the comparison followed by recommendation and conclusion. The recommendation will be made based on the outlet of the situation analysis. BMW Group was founded in Germany in 1917. This is unmatchable of the most prospering automobile, motorcycle, and engine manufacturing companies. BMW Group has triplet one of the finest brands in this pains BMW, MINI and R olls-Royce (Annual report, 2011, p. 3).The other telephoner PSA Peugeot Citroen was founded in Paris in 1976. PSA Peugeot Citroen offers automobiles and motorcycles worldwide (PSA Peugeot Citroen, 2012). Nowadays this automobile high society is supplying its products to China, Latin America, Russia and atomic number 63 (Annual report, 2011, p. 4). 2. Situation analysis for BMW and Peugeot The following section will discuss the financial strengths, weaknesses, threats and opportunities of both companies. 2. 1 Strengths of BMW 2. 1. 1 Sustainability of the company Maintaining the positiveness is vital for any firm in order to be remaining sustainable.From the favorableness test, it is apparent that the company improved its profitability over the year 2009 to 2011. Gross profitability step-upd significantly from 13. 96% in 2009 to 24. 38% in 2010 and continued to climb up to 27. 79 by the end of 2011. 2. 1. 2 Excellent creditworthiness BMW has been assigned credit rating status as stable by both sinisters (rating A2) and Standard & Poor (rating A) which indicates the firms sound solvency position to debt (www. bmwgroup. com). In addition, their interest uphold ratio provides rattling positive indication as it append from 3. 36 in 2009 to 9. 54 in 2011.By utilizing this status company will be able to string voltage creditor with lower interest rate. Therefore, their profitability will increase overdue to the lower interest expending. 2. 1. 3 Increase investment in question and development Investment in research and development (R&D) is significantly important in order to interest competitive advantage and continue sustainable growth. BMW is committed to in R&D to meet stream and future adopt. Their expenditure rose up by 13. 3%? to 2,773 one million million from 2010 to 2011. One of the most advantages of BMW is productive production (Annual report BMW, 2011).They invested extensively in the past 3 years towards improving the environment and l essening of the CO2 emissions by 30 %. They also introduced fuel efficient product bed such as BMW i models in order to meet the current take on. Moreover, BMW is searching for alternative energy solution by electrification and utilizing solar energy in their future product range. By introducing new product line BMW could impinge on competitive advantage over it competitors by attracting environmental friendly customers which would maximize their profit as well as their type as innovative company. 2. 1. Commitment to Employees training The company values its human resources and invests in attracting and training skilled workforce to boost the quality of its products by reducing error rate, waste in production. It will also help BMW to strengthen customer relation as trained employees would able to run with confident by utilizing their knowledge and skills which will increase customer satisfaction. Moreover, due to the training employees will garner authorisation to communicat e more clearly with focal point which will improve the relationship between employee and concern.As a result disputes between bray union and BMW will be reduced (Bloom & Lafleur, n. d. pp 5 9) In 2011 expenditure on basic and further training rose sharply by 37. 4% to 246 million (Annual report BMW, 2011). 2. 1. 5 Social responsibility BMW signed the UN Global Compact and issued a Joint Declaration on Human Rights and Working Conditions which demonstrates that BMW complies with the fundamental working standards of the International Labor Organization (Annual Report BMW, 2011). It also indicates that BMW is a socially responsible firm which will have a positive impact on the image of the company (Murillo & Martinek, 2009).BMWs image as a good citizen would help to attract potential investors, creditors and customers who supervise about social responsibility of any company. 2. 2 Weaknesses BMW 2. 2. 1Operating efficiency Receivable turnover has sharply disintegrationd from 55. 0 4 in 2009 to 15. 93 in 2011. Inventory turnover has also declined from 14. 50 in 2010 to 5. 43 in 2011. twain ratios are below the exertion norm, which indicates that management was not efficient enough to collect its receivables. This also indicates that thoroughgoing(a) sales and foodstuffing department didnt perform well canvas to the competitors to increase the sales. . 2. 2 Sharp decline in sales In 2011 BMWs sales dropped by 37 % in the US which is the largest food grocery store outside Europe. If it continues to decline, BMW may lose market administer significantly which would have a very forbid impact on the profitability as well as it would be a threat to the sustainability of the company. 2. 2. 3 Liquidity BMWs ability to meet the short-term financial obligation is low comparing to the industry norm. If BMW dont pay attention to increase the liquidity, it could turn into a threat from weakness. 2. 2. 4Market shareDecreasing orbiculate market share for BMW. It go es down from 2. 89% in 2005 to 2. 45% in 2010. (www. statista. com). This shows that demand BMWs cars are diminish which is a bad sign for company. 2. 3 Opportunities BMW 2. 3. 1 Utilizing the exist technology to produce more environmental friendly products As this issue became an important for the society. (BMW Annual report, 2011, p. 19) states, In September 2011, SGL Automotive Carbon Fibers a joint venture of the BMW Group and the SGL Group opened a new state-of-the-art carbon lineament manufacturing appoint in Moses Lake, USA.The facility plays a major strategic role in the manufacture of ultra-lightweight carbon- part strengthened plastics (CFRP), which will be used extensively in the BMW i vehicles to be launched by the BMW Group from 2013 forth. BMW group is already having this idea, but they could get more profit if they increase the art carbon fiber plants. 2. 3. 2 Growth in Asia Asian countries are encouraging the foreign investment and they have a cheap labor. In addition, the cost of capital is cheaper than Europe. These factors bear to less cost of production and high revenue.In order to gain this benefit BMW adopted Completely Knocked Down (CKD) assembly to manufacture automobiles with partners in six locations such as Thailand, Malaysia, Russia, Egypt, Indonesia and India (www. bmwgroup. com ). This would help BMW to attract the large Asian market as well as increase market share in the region. 2. 3. 3 Increasing demand on sports car BMW is already produced a few sport cars and they have to increase the number of sport cars and promote them to championships and customers who like this type of cars. In July 2011,BMWpulled the covers off of theBMW M3 DTM Concept Car, a vehicle that was to be the basis of the actual racer that will debate in the 2012 DTM season (www. topspeed. com). 2. 3 Threats BMW 2. 3. 1 Euro district crisis Current economic slowdown along with monarch euro zone crisis may tremendously hurt the company as sales are declining in Europe. It competency pose even greater threat if bigger economies like Italy and Spain has to default like Greece which will lead Europe into a recession ( universe of discourse Economic Forum, 2012).It would not only affect BMWs sales in Europe but also rest of the world because recession in the EU will have adverse effect in the worlds economy (International Monetary fund, 2012). 2. 3. 2 Changes in disposition Recent trend in the usage of car, where wealthy large number prefer cheaper/affordable cars instead of deluxe car (24/7 Wall Street, 2012). Due to this trend, BMW as a luxurious car manufacturer efficacy lose sales revenue and market share. Ultimately, it would have negative impact on the sustainability of the company. 2. . 3 Disputes with ram union Labour union in Germany is very strong where firing employee is very costly (Global engagement Index, 2012). Any dispute with the labour union could have significantly negative impact on the furrow operati on as union could go for strike which will break the whole supply chain. 2. 4 PSA Peugeot Citroen 2. 4. 1 Strengths Peugeot 2. 4. 2 Sustainability of the company Companys overall profitability significantly change magnitude from very negative profitability in 2009(gross profit on sale -3. 0% and excrete on sale -5%) to a positive profitability in 2011 (gross profit on sale 17. 10% and return on sales 1. 50%), which demonstrates managements extraordinary execution to bring the company linchpin into a sustainable position. 2. 4. 3 Operating Efficiency Over the years from 2009 to 2011 Peugeot demonstrated continuous rise of its operating efficiency as management was improved efficiency to collect receivables (receivable turnover 20. 63 in 2009 and 26. 98) as well as increased inventory turnover (7. 14 in 2009 and 9. 06 in 2011) which is higher than industry norm (6. 4).Though receivables turnover is lower than industry norm (34), Peugeots continuous improvement indicates that mana gement is paying attention to improve in order to produce the capacity of operating assets. 2. 4. 4 alter disdain departments Diversification in the business segment reduces the endangerment of failure as it reduces companys dependency on one single segment (The Economics Times, 2012) The Groups operations are organized in five main business segments the Automotive Division, the Automotive Equipment Division, the Transportation & Logistics Division, the Finance Division and other businesses. These segments increased revenue by 6. % from 56061million in 2010 till 59912 million in 2011 (Annual report BMW, 2011). Due to the diversified business segments Peugeot will be able to offset of one segments loss from other segments profit. 2. 4. 5 Investment in research and development To meet the current and future demand Peugeot invest heavily in research and development. This French auto manufacturer has maintained its R reckon at 2152 million in 2011, or 3. 6% of revenue in order to secure sustainability in the future (www. peugeot. com). In 2011, PSA Peugeot Citroen was the most active patent filer in France with 1,237 patents in all.This performance demonstrates the positive outcome of its exceptional investment in R. tender patents would enhance the innovative product line which would differentiate Peugeots product from its competitors in order to gain competitive advantage. This indicates better future for Peugeot. 2. 4. 6 Affordable charge with good quality PSA Peugeot Citroen offers high quality distinctive cars for affordable price and specifically targets middle class (annual presentation 2010 PSA Peugeot Citroen). It would help Peugeot to gain market share accelerated in the emerging market such as China, Brazil and India where the number of middle class is very large.Higher market share in the emerging markets would strengthen Peugeots position in the global automotive industry. 2. 5 Weaknesses Peugeot 2. 5. 1 citationworthiness Recently, Peugeot s credit rating has been downgraded from stable to negative by both transnational credit rating agency Standard & Poor and Moodys which would negative impact on creditors confidence. As a result, their interest rate will increase as creditors competency feel uncertain to invest (Mustafa, 2012, Class lecture). However, French governments 7b credit guarantee for Peugeot might help to maintain creditors confidence which will keep the interest expense stable. . 5. 2 Declining sales in Europe Peugeots sales declined by 5. 75% in 2010 in Europe, its largest market and it remained stable in 2011. Moreover, sales dropped further by 10. 8% by the end of September 2012 (European Automobile Manufacturers Association, 2012) It indicates a potential threat for Peugeot to losing market share in Europe, if it continues further. However, increase sales outside Europe 39% in 2011 compare to 32% in 2010 (Annual Report Peugeot, 2011) could help Peugeot to maintain market share in the global automot ive industry. 2. 5. 3 Liquidity Since 2009 to 2011 Peugeots liquidity has declined from 1. 07 to 1. 4 which even lower than the industry norm. falloff in liquidity could have negative impact on the operating activities as firm might run out of cash to meet short term obligations. 2. 6 Threats Peugeot 2. 6. 1 Unionized labour market French labour market is strongly unionized which give labour union a very strong bargaining power. The recent announcement by Peugeot to cut 8000 business concerns in their French plant (BBC News, 2012) might create disputes with the union. Therefore, there is a huge risk that union could go for strike due to the dispute with Peugeot which might disrupt their supply chain and cost a considerable amount for the company.However, French governments announcement to provide credit guarantee in exchange to keep these jobs (The New York Times, 2012) would help Peugeot to avoid dispute with the union. 2. 6. 2 Euro zone crisis Economic downturn and euro zone cri sis had a very negative impact on Peugeots sales in Europe as the market demand declined sharply which resulted a decline in sales by 5% in 2010 and. If it continues may be the sales will drop further. 2. 6. 3 Competition from other producers Increasing market share gained by other affordable car producers such as Hyundai could hurt Peugeot. There is a risk that French firm could lose market share. . 7 Opportunities Peugeot 2. 7. 1 New Trend Peugeot would be able to attract customers with high income people due to the new trend as more rich people spoil affordable price car (24/7 Wall Street, 2012) This is a very positive indicator for Peugeot to increase market share by attracting this large segments. 2. 7. 2 Market shift to globalization Peugeot is focusing on specific markets in the world. Since globalization is facilitating world trade, Peugeot would benefit significantly from its expansion to the emerging markets in Asia, Latin America and kernel East (The New York Times, 201 2). . 7. 3 Increase the demand of hybrid galvanising cars PSA Peugeot has a joint venter with GM to produce hybrid cars. The joint arrangement understanding was signed on 25 October 2011. The Group is committed to providing total capital of 63 million, of which 13 million had been paid as of 31 December 2011. Registered in the Netherlands. (Peugeot annual report 2011) 3. Comparison of BMW and Peugeot This section compares and contrasts of both company in order to identify the better option for investment. 3. 1 Sustainability Both BMW and Peugeot improved their gross profit.BMW is around 10% more profitable in terms of gross profit ratio compare to Peugeot. However, Peugeot had higher return on sales which indicates that management of Peugeot was more capable to control its changeable cost. Peugeot was also able to generate higher return from its asset compare to BMW as well as industry norm this demonstrates the managements ability to utilize its asset in order maintain sustainab le profit. 3. 2 Management efficiency Management efficiency is lower than the industry norm for both companies. However, Peugeots management is more efficient than BMW in collecting receivables.It is also more efficient in inventory turnover, which indicates that Peugeots sales, and marketing department is performing better than BMW. 3. 3 Diversified business segments Peugeots business segments is more diversified that BMW this would help Peugeot to reduce the risk because it can cover the loss of one segment from another segments profit. 3. 4 Market share Even though BMW has higher market share in certain market. However, it has declined gradually over the past several years while Peugeot has increased market share in the emerging markets such as China, Russia, India and Latin America. This indicates better future for Peugeot. . 5 Credit ratings BMWs credit ratings are better than Peugeot because BMWs credit ratings have been improved from negative to stable. On the other hand, Peu geots credit ratings have been downgraded in 2012 (Moodys 2012) As a result Peugeots borrowing cost might increase while BMW will benefit from the lower interest rates. 3. 6 Interest coverage ratio BMWs interest cover ability is considerably better than Peugeot, which is 9. 54 and 1. 68 respectively. Due to higher interest coverage ratio it will create more confidence in BMW, which will reduce interest expense. 3. 7 Liquidity Liquidity for both companies is below industry average.However, Peugeot has higher liquidity than BMW. This indicates that Peugeot has better ability to cover the short-term obligations. 3. 8 New trend bespeak for Peugeot cars would be higher than BMW due to the changes in trend and customers preferences as wealthy people are buying cheaper cars. However, increasing demand for sports car would provide benefit to BMW. 3. 9 Euro zone crisis Euro zone crisis has significantly affected on both companies. However, Peugeot has increased sales outside Europe from 32% in 2010 to 39% in 2011 while BMW lost 37% sales in 2011 in the US which is their biggest market.Due to the increasing sales outside Europe, Peugeot will be able to maintain overall sales revenue though there is decline in sales revenue in the European market. 3. 10 Political risk Political risk could negatively effect on both companies. However, BMW is more vulnerable in the Middle Eastern countries which are one of their biggest market due to Arab spring. 3. 11 R Both companies invested heavily in R but Peugeot was able to generate more patents than BMW. In 2011 Peugeot had in total 1237 patents (Annual Report 2011 Peugeot).Higher power of invention would provide competitive advantage to Peugeot as it will be able to meet the consumers demand. 4. Recommendation The above analysis illustrates that both companies has strengths and weaknesses. However, Peugeot has more strength and opportunities than BMW. Peugeots strengths and opportunities are better sustainability, higher managem ent efficiency, diversified business segments, better match with new trend and increasing market share in the emerging market. These strengths demonstrate that investment in Peugeot would be a better choice as the companys future seems to be stronger and more sustainable than BMW.These also indicate that investment in Peugeot would be less risky. Therefore, we recommend investing in Peugeot. 5. Conclusion In conclusion, different factors were investigated in order to come up with right decision regarding the investment in BMW or Peugeot. Some of these factors are related to profitability, efficiency, debt, R & D and market position. Some other factors are related to their products quality and customer satisfaction. All of these factors were analyzed for three years starting from 2009 to 2011. In addition, the SWOT analysis played an important role in our decision-making.However, after analyzing both companies situation and looking at their strengths and opportunities, Peugeot was th e best choice to invest in. References BBC News (2012) Peugeot Citroen plans 8000 job cuts. Available at http//www. bbc. co. uk/news/business-18808662 accessed 11 November 2012 Bloom, M. R. & Lafleur, B. (n. d. ) Turning Skills into Profit Economic Benefit of Workplace commandment Program. The Conference Board. Available at http//www. conferenceboard. ca/Libraries/EDUC_PUBLIC/Skills_Profits. sflb accessed 10 November 2012 Murillo, R. H. & Martinek,C. J. (2009) Corporate Social Responsibility Can Be Profitable.The Regional Economist. Available at http//research. stlouisfed. org/publications/regional/09/04/socialresponsibility. pdf accessed 8 November 2012 The Economics Times (2012) Nine Diversified Companies ar these firm attractive investment proposition. Available at http//economictimes. indiatimes. com/features/slideshows/et-slideshows-made-here/nine-diversified-companies-are-these-firms-attractive-investment-propositions/nine-diversified-companies-are-these-firms-attractive-inv estment-propositions/quickiearticleshow/7390833. cms accessed 5November 2012 The New York Times (2012) France to back Peugeot With 7 one thousand million euro in credit.Available at http//www. nytimes. com/2012/10/24/business/global/france-to-back-peugeot-with-7-billion-euros-in-credit-guarantees. html? _r=0 accessed 11 November 2012 World Economic Forum (2012) Global Competitiveness Report. Available at http//www3. weforum. org/docs/WEF_GCR_Report_2011-12. pdf accessed 25 October 2012 International Monetary Fund (2012) Debt Crisis, as it happened. Available at http//www. telegraph. co. uk/finance/debt-crisis-live/9681567/Debt-crisis-as-it-happened-November-16-2012. html accessed 16 November 2012 Appendices pic ensure 1 Source pic Figure 2 Source PSA Peugeot Citroen 2011 pic