Volkswagen group faces several financial issues including overdependence on the Chinese market for 50% of profits, reliance on its more profitable Audi and Porsche brands, and lack of flexibility with over 575,000 employees. The group also lacks a low-cost offering and is dependent on the aging leadership of Ferdinand Piech and Martin Winterkorn. Financially, the group has high debt levels, average profitability ratios compared to competitors, and uses cash flows primarily to fund large investments in new projects and acquisitions. Stock analysis shows the share price is average for the industry but may present a buying opportunity due to expected earnings growth and potential for shareholders to influence strategic decisions.

1. Volkswagen group
Louise-Karolin Bonifait Piuk
Laurine Combasson
Mélodie Schwaller
Elléa Subercaze
Hicham Benfaida
Alexandre Caudin
Sébastien Junca

2. TABLE OF CONTENTS
A. Financial issues
B. Financial structure analysis
C. Competition analysis
D. Cash flows analysis
E. Stock quotes study
F. Conclusion and recommendations
2

3.  VW became sino-dependant : since 50% of group benefits are made in
China.
 VW depends on Porshe and Audi : more profitable brand of the group
 Lack of flexibility: “with 575,000 employees, the group lacks flexibility. In
contrast, Toyota, which sells more cars, employs "only" 350,000
employees ...”
 Low – cost issue: since the launch of the Logan by Renault in 2004, VW
has been seeking to replicate. Ever since then, the group's expansion
has made ​​no offer at low cost.
 A "piëchodépendance“: Ferdinand Piech, 76 years old, and Martin
Winterkorn, 66 years old "take this huge group”.
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FINANCIAL ISSUES

4.  There are resistant markets: North America
 The group is well positioned, but lacks products.
 "He expects to launch a fake 4 × 4 urban midsize to do better.
 Brazil: sales dropped from 17% in 2013, when the market fell by 3%.
 In India: VW is unable to penetrate
 Industrial risk: strategy of platforms and shared modules
 Objective: To assemble 80% of its 300 models with the same modules. A key,
14 billion euros in savings ... Analysts always see it coming.
 Risky policy in case of failure of one or more pieces ..
 Objective 2018 : to become the world leader. For that purpose, the
manufacturer funded 50.2 billion euros to be invested over three years, so
16.7 billion a year.
4
FINANCIAL ISSUES

5. FINANCIAL STRUCTURE ANALYSIS
Solvency and Liquidity approach
In M €
5
2008 2009 2010 2011 2012 2013
Quick ratio 0.28 0.40 0.39 0.33 0.33 0.35
Current
ratio
1.11 1.06 1.07 1.01 1.03 1.00
LT debt to
equity
88.95% 98.83% 76.28% 70.15% 77.57% 68.32%
Total debt
to equity
185.57% 207.31% 158.09% 147.63% 143.50% 134.95%

6. How the company is financed?
• Financing the growth :
• Improved the Financial Services:
• Volkswagen also invests in the quality of their financial services ;
Volkswagen planned to invest €1.3 billion in the Financial Services
Division between 2013 and 2015.
• The gross cash flow will finance 34% of the total capital requirements
of €46.5 billion.
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FINANCIAL STRUCTURE ANALYSIS

7. Capital Employed Analysis ( in M € )
 The capital employed is the sum of the amount devoted by a
business to the operating and investing cycles.
7
2008 2009 2010 2011 2012 2013
Non Current Assets (A) 91,756.0 99,402.0 113,46.0 147,986.0 196,583.0 202,141
Working Capital (B)
(= Current Assets –
Current Liabilities)
7,806.0 4,296.0 5,427.0 0,863.0 3,31.0 (0,107.0)
Capital employed (A+B) 99,562.0 103,698.0 118,887.0 148,849.0 199,893.0 201,971
FINANCIAL STRUCTURE ANALYSIS

8. Capital Employed Analysis (cont’d)
• The capital employed is financed by the invested capital.
• Invested Capital = Shareholders’ equity + Net Debt
8
2008 2009 2010 2011 2012 2013
Shareholders’ equity (C) 37,388.0 37,430.0 48,712.0 63,354.0 81,825.0 87,733.0
Net Debt (D) 56,136.0 53,730.0 52,840.0 69,096.0 91,742.0 89,834.0
Invested Capital (C+D) 93,524.0 91,160.0 101,552.0 132,45.0 173,567.0 177,567.0
FINANCIAL STRUCTURE ANALYSIS

9. Capital Employed Analysis (cont’d)
 ROE: measures a corporation’s profitability by revealing how much profit a
company generates with the money shareholders have invested.
 ROCE: return On Capital Employed (ROCE) measures the profitability of
the capital employed, considering operating profit after tax (NOPAT).
 ROA : is an indicator of how profitable a company is relative to its total
assets. ROA gives a idea as to how efficient management is at using its
assets to generate earnings.
9
2008 2009 2010 2011 2012 2013
ROE 14,21.0 2,73.0 16,82.0 29,77.0 32,16.0 10,96.0
2008 2009 2010 2011 2012 2013
ROCE 5,49.0 1,77.0 6,77.0 11,86.0 12,96.0 4,99.0
2008 2009 2010 2011 2012 2013
ROA 3,03.0 0,56.0 3,63.0 6,80.0 7,71.0 2,86.0
FINANCIAL STRUCTURE ANALYSIS

10. GLOBAL FINANCIAL ANALYSIS
Financial leverage ( in M € )
Ratios that measures the company leverage:
10
2008 2009 2010 2011 2012 2013
Debt service ratio 6,620 1,771 5,703 9,627 8,075 8,141
Debt to capital 64,98% 67,46% 61,25% 59,62% 58,93% 57,44%
Net debt to capital 52,58% 46,71% 42,03% 44,04% 45,95% 42,47%
Net debt to equity 150,14% 143,54% 108,47% 109,06% 111,89% 99,77%

11. GLOBAL FINANCIAL ANALYSIS
Margin Analysis ( in M € )
11
2008 2009 2010 2011 2012 2013
Gross margin 15.11 12.91 16.90 17.55 18.25 18.07
EBITDA margin 13.05 10.36 13.13 13.41 12.67 13.69
Operating
margin
5.86 1.93 5.18 6.92 5.86 6.25
Net income
margin
4.18 0.91 5.39 9.67 11.27 4.60

12. COMPETITION ANALYSIS
Liquidity
Sales
revenue EBIT Growth Debt/Equity
Volkswagen 16.9 197.0 12.3 4,80% 135%
Renault 12,2 40.9 1.2 2,72% 149%
Mercedes
(daimler) 15,3 75.5 10.8 3.37% 184%
Hyundai 64.6 8.3 3.21% 88.99%
Market growth
= 1,5%
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Comparison of some relevant Volkswagen ratios with those of
competitors ( in B € )

13. CASH FLOWS
Cash flow from operating activities: cash that the company produces
internally ( in M € ):
Cash flow from investing activities: cash that supports the efficient
operation and competitiveness of the company ( in M € ):
Cash flow from financial activities: cash used to pay dividends to
shareholders ( in M € ):
13
2008 2009 2010 2011 2012 2013
Operating Cash Flows
(A)
7,744.0 13,460.0 14,557.0 8,500.0 7,210.0 12,595.0
2008 2009 2010 2011 2012 2013
Investment Cash
Flows (B)
(14,614.0) (10,392.0) (14,150.0) (18,631.0) (19,482.0) (16,890.0)
2008 2009 2010 2011 2012 2013
Financial Cash Flows (C) 6,399.0 5,724.0 (415.0) 8,398.0 13,570.0 8,511.0

14. CASH FLOWS
 Free cash flows: difference between operating and investment
cash flows ( in M € ):
 The net increase in cash: sum of net cash flows from operating,
financing and investing activities ( in M € ):
14
2008 2009 2010 2011 2012 2013
Free Cash Flows
(A) – (B)
(6,87.0) 3,068.0 1,407.0 (10,131.0) (12,272.0) (4,295.0)
2008 2009 2010 2011 2012 2013
Net Increase in cash
(A + B + C)
(471.0) 8,792.0 (8.0) (1,733.0) 1,298.0 4,216.0

15. USES OF FREE CASH FLOW
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Free cash flow
Retain
Invest in New
Projects
Increase Cash
Reserves
Pay Out
Repurchase
shares
Pay dividends

16. STOCK QUOTES
 The P/ER ratio: the price earning ratio
 Beta: how the price of a security responds to market forces ?
 Average return
16
VW Industry Sector
P/ER 7.77 13.60 13.26
P/ER high ( last 5 years) 24.41 20.80 28.67
P/ER low ( last 5 years) 3.49 12.87 13.34
VW Industry Sector
Beta 1.47 1.20 1.20
2008 2009 2010 2011 2012 2013
Return 14.21 2.73 16.82 29.77 32.11 10.96
AR on 5 years 21.32%

17. RECOMMENDATIONS
 Lending money
 New equipments
 Strategy of platforms
 Shared modules between VW brands and segments
 New range of product => China and US market
 Reduce long-term debt
 Buy new shares:
 More earnings
 Better decision power as a shareholder
 Counterbalance the lack of flexibility and reduce cost
 Virtous circle of development
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SALES
RETURN
EARNINGS
INVESTMENT

18. EXPONENTIAL MOVING AVERAGE
18
Buy
Sell

19. 19