Volkswagen Group is one of the largest car manufacturers in the world. The document analyzes Volkswagen's financial ratios from 2012-2013. It finds that profitability ratios like return on equity and net profit margin declined, indicating lower profits. Stability ratios like working capital ratio were also below requirements. As a result, the author recommends against investing in Volkswagen due to its unstable financial status and low profitability ratios over the period analyzed.

1. 1
Financial Ratio Analysis
Basic Accounting (FNBE0145)
Assignment 1
Foundation of Natural and Built Environments
2013 July Intake
Yee Algel 0313890
Thun Shao Xun 0315919

2. 2
Content
Topic PAGE
1. Brief history of Volkswagen Group 3-4
2. Profitability Analysis of Volkswagen Group (Year 2012
– 2013)
5-7
3. P/E Ratio 8
4. Investment Recommendation 9
5. Appendix 10-14
6. References 15

3. 3
Volkswagen Group
Volkswagen Group is one of the most famous automobile manufacturer in
the world and it is the largest car manufacturer in Europe. The company operates
in total of 153 countries but the headquarter is located in Wolfsburg, German. It
was founded in 28 May 1937 by German Labour Front. Volkswagen group sells
several type of products which included passenger car, motorcycles and
commercial vehicles. Volkswagen Group owned 12 brand which consist of Audi,
SEAT, ŠKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen
Commercial Vehicles, Scania and MAN. However, every brand is operated in
their own ways and they have different characteristics and specifications. “Das
Auto” is the slogan of Volkswagen Group which means The Car in English.
Besides, Volkswagen Group is also running another business in other
industries like compressors, chemical reactors manufacturing large-bore diesel
engines for marine, stationary applications (turnkey power plants), and
turbochargers. Furthermore, about 572,800 employees worldwide are working for
the Volkswagen Group.
The very first car that was invented in 1937 was Beetle which made
Volkswagen became well known. Volkswagen group grows rapidly in the 1950s
to 1960s. Originally, Volkswagen Group has only 1 brand which is the
Volkswagen. Then, the company grows bigger and stronger, it started to take
over other companies and brands as stated earlier. “Twelve brands with
individual identity and a common goal: mobility. For everyone, all over the world.”
This quote was written in the annual financial report 2013 of Volkswagen Group
and this represents the goal of the company. The mission of Volkswagen Group
is to offer eye-catching, safe and environmentally sound vehicles that are able to
survive and succeeds in the automobile market and set a world grade in its own
style.

4. 4
Recently, Volkswagen Group is
developing new advance technology that could
be applied in our daily life especially vehicles.
Volkswagen Group Research department
explore to improve on the safety, powertrain,
organization, system of automobile. The Future
Research Department focus on the early
recognition of new technology, new social style
and on technology motorway mapping. On the other hand, they also realize that
automobile are instantaneously a driver, mobility system and rely on the traffic.
Hence, the engineers and scientists from Volkswagen Mobility Research
conducted an intensive study into traffic development in Germany until 2020 and
drew up possible solutions aims to reduce and then solve the heavy traffic
problems in Germany. They conclude that interaction of systematic traffic
management, well developed and organized motorway, and further developed
vehicle technology on a complete infrastructure could be the vital way to solve
the problems.

5. 5
Profitability Ratio Analysis of Volkswagen Group of Year 2012-
2013
Profitability Ratio 2012 2013 Interpretation
Return on Equity
(ROE)
(Net profit/Average
owner’s
equity)x100%
=ROE
21881
63354 + 81995
2
× 100% = 30.1%
(Net profit/Average
owner’s
equity)x100%=
ROE
9145
(81995 + 90037)/2
× 100% = 10.6%
During the year of 2012-
2013 period, the ROE of
the business had
decreased from 30.1% to
10.6%. This means the
owner is getting less return
from the investment.
Net Profit Margin
(NPM)
(Net profit/Net
sales)x100%=NPM
21881
192676
× 100%
= 11.3%
(Net profit/Net
sales)x100%=NPM
9145
197007
× 100%
= 4.6%
During year 2012-2013
period, THE NPM has
decreased from 11.3% to
4.6%. This means the
business is getting worse
at controlling its overall
expenses.
Gross Profit Margin
(GPM)
(Gross profit/Net
sales)x100%=GPM
35154
192676
× 100%
= 18.2%
(Gross profit/Net
sales)x100%=GPM
35600
197007
× 100%
= 18.1%
During year 2012-2013
period, the GPM has
decreased from 18.2% to
18.1%. Hence the business
is getting worse at
controlling its cost of goods
sold.
Selling Exp. Ratio
(SER)
(Total selling
expense/Net
sales)x100%=SER
18850
192676
× 100%
= 9.8%
(Total selling
expense/Net
sales)x100%=SER
19655
197007
× 100%
= 10.0%
During year 2012-2013
period, the SER has
increased from 9.8% to
10.0%. The business is
getting worse at controlling
its selling exp.
General Exp. Ratio
(GER)
(Total general
expense/Net
sales)x100%=GER
6220 + 9070
192676
× 100%
= 8.0%
(Total general
expense/Net
sales)x100%=GER
6888 + 7343
197007
× 100%
= 7.2%
During year 2012-2013
period, THE GER has
decreased from 8.0% to
7.2%. Thus, The business
is getting better at
controlling its general exp.
Financial Exp. Ratio
(FER)
(Total financial
expense/Net
sales)x100%=FER
2546
192676
× 100%
= 1.3%
(Total financial
expense/Net
sales)x100%=FER
2366
197007
× 100%
= 1.2%
During the year 2012-
2013 periods, the FER
has decreased from
1.3% to 1.2%. This
means that the business
is getting better in
controlling the financial
expenses.

6. 6
Stability Ratio Analysis of Volkswagen AG of Year 2012-2013
Stability Ratio 2012 2013
Working
Capital Ratio
(WCR)
(Total current assets/Total
current liabilities)= Working
Capital 113061/105526=
1.07:1
(Total current assets/Total
current liabilities)= Working
Capital 122192/118625= 1.03: 1
Total Debt
Ratio (TDR)
(Total liabilities/Total
assets)x100%= Total Debt
227522
309518
× 100% = 73.5%
(Total liabilities/Total
assets)x100%= Total Debt
234297
324333
× 100% = 73.2%
Stock
Turnover
365days/(Cost of goods
sold/Average Inventory)=
Stock Turnover
365 ÷
157522
27551 + 28674
2
= 65.1𝑑𝑎𝑦𝑠
365days/(Cost of goods
sold/Average Inventory)= Stock
Turnover
365 ÷
161407
28674 + 28653
2
= 64.8𝑑𝑎𝑦𝑠
Debtor
Turnover
365days/(Credit
sales/Average debtors)=
Debtor turnover
365 ÷
192676/2
10479 + 10099
2
= 39.0𝐷𝑎𝑦𝑠
*Credit sales not found
365days/(Credit sales/Average
debtors)= Debtor Turnover
365 ÷
197007/2
10099 + 11133
2
= 39.3𝐷𝑎𝑦𝑠
*Credit sales not found
Interest
Coverage
(Interest expense + Net
profit)/Interest Expense=
Interest Coverage
1398 + 21881
1398
= 16.7𝑡𝑖𝑚𝑒𝑠
(Interest expense + Net
profit)/Interest Expense= Interest
Coverage
1513 + 9145
1513
= 7.0𝑡𝑖𝑚𝑒𝑠

7. 7
Stability Ratio Interpretation
Working Capital During year 2012-2013 period, the WCR decreased from
1.580:1 to 1.375:1. This means the business’s ability to pay
current liabilities with current assets is getting worse. In
addition, the business does not satisfy the minimum
requirement of 2:1.
Total Debt During year 2012-2013, the TDR increased from 42.7% to
49.0%. This means the business total debt is increase.
However, it still stay in the safe limit of under 50%
Stock Turnover During year 2012-2013 period, the STR increase from 21.8
days to 22.1 days. Therefore, the business is selling its
inventory slower
Debtor Turnover During year 2012-2013 period the DTR increased from
39.0days to 39.3days. This means that the business is
collecting its debtor at a slower rate.
Interest
Coverage
During year 2012-2013 period, the ICR decreased from 16.7
times to 7.0 times. However, the business is still fulfill the
minimum requirement of 5.0times. As a result, the business
has the ability to pay off its interest expenses.

8. 8
P/E Ratio
Profit/Earnings Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑠ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
= 194.20/ 18.63
=10.4years
The share price of Volkswagen Group at 27 May 2014 is 194.20EUR.
According to the financial report 2013 of Volkswagen Group, the earning per
share is 18.63EUR. By using the above formula, we found that the P/E ratio of
Volkswagen Group was 10.4 times.
In a nutshell, if an investor wants to buy Volkswagen Group’s share, it will
take about 10.4years to recoup back his/her investments.

9. 9
Investment Recommendation
During the year 2012-2013 period, there was a drastic changed in the
return on equity (ROE). The ROE was decreased from 30.1% to 10.6%. This
shows Volkswagen Group was getting less profits from the investments. Besides,
the net profit margin ratio also decreased from 11.3% to 4.6%. This was caused
by weak management of overall expenses. Consequently, Volkswagen Group
earned less return in the year 2013 compared to the year 2012.
On the stability ratio side, working capital is slightly decreased from 1.07:1
(year 2012) to 1.03: 1 (year 2013). However, both of the ratios did not meet the
minimum requirement of 2:1. Furthermore, the total debt of the company was
decreased from 73.5% to 72.2% but it still exceeded the maximum limit of 50%.
From other perspective, the interest coverage ratio of year 2013 is decreased
from 16.7times to 7times but it still maintain the minimum requirement which
makes it able to pay off its interest expenses. According to the analysis and the
result, Volkswagen Group has an overall low stability ratio.
As a conclusion, Volkswagen group did not shows a potential or decent
financial profitability ratio and stability ratio in their investment. Hence, I think that
it is not wise to invest in the Volkswagen group as investor requires 10.4 years to
get back the investment and the financial status of the company is not stable.
Other than that, the share price of Volkswagen Group is quite high, 194.20EUR
per share.

10. 10
Appendix

11. 11

12. 12

13. 13

14. 14

15. 15
References
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http://www.volkswagenag.com/content/vwcorp/content/en/the_group.html
CNBC Symbol Lookup. (n.d.). CNBC.com. Retrieved May 27, 2014, from
http://data.cnbc.com/quotes/VOW-DE%2C%20
Volkswagen AG. (n.d.). Yahoo! Finance. Retrieved May 26, 2014, from
http://finance.yahoo.com/q?s=VOW.DE
Publications. (n.d.). Volkswagen Group publications_overview. Retrieved May
23, 2014, from
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/public
ations.html
Businessweek. (n.d.). Volkswagen Ag (VOW:XETRA). . Retrieved May 25, 2014,
from
http://investing.businessweek.com/research/stocks/financials/financials.asp?ticke
r=VOW:GR
VOLKSWAGEN. (n.d.). Volkswagen Group Annual Report 2013. . Retrieved May
22, 2014, from
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2014/0
3/Y_2013_e.bin.html/binarystorageitem/file/GB+2013_e.pdf
VOLKSWAGEN. (n.d.). Volkswagen Group Annual Report 2012. . Retrieved May
22, 2014, from
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2013/0
3/Y_2012_e.bin.html/binarystorageitem/file/GB+2012_e.pdf