Financial ratio analysis is one of the most popular tools used to analyze the historical activity of a company and its competitors. Besides, ratios are tools to provide useful insight into underlying conditions that can be within a company. The purpose of this report is to assess the financial analysis of Daimler Company. This paper will cover Daimler’s Profitability, Liquidity, Leverage and Activity Ratios for a 4 years period.
| Ratios | 2007-12 | 2008-12 | 2009-12 | TTM | Industry | Ford | |
| Profitability ratios % | |||||||
| Gross profit Margin % | 24.14 | 22.49 | 16.92 | 22.26 | 6.24 | 15.45 | |
| Operating Profit Margin% | 7.91 | 5.44 | -1.92 | 6.73 | 1.69 | 4.91 | |
| Net Profit Margin % | 4 | 1.1 | -3.35 | 3.43 | 1.25 | 5.52 | |
| Return on Assets % | 2.45 | 0.79 | -2.02 | 2.38 | 1.11 | 3.81 | |
| Return on Equity % | 11.22 | 3.12 | -8.57 | 9.56 | 4.81 | -7.71 | |
| Liquidity ratios | |||||||
| Current Ratio | 1.27 | 1.06 | 1.14 | 1.1 | 0.35 | 7.33 | |
| Quick Ratio | 0.93 | 0.63 | 0.82 | 0.83 | 0.29 | 6.95 | |
| Inventory to Net Working Capital | 1.12 | 5.24 | 1.9 | 2.67 | N/A | 0.08 | |
| Cash Ratio | 0.32 | 0.13 | 0.21 | 0.2 | N/A | 0.29 | |
| Leverage Ratios | |||||||
| Debt/Equity% | 149.7 | 187.8 | 192.63 | 158.13 | 22.81 | N/A | |
| Long-Term Debt to equity ratio % | 23.21 | 17.35 | 109.9 | 83.35 | 23.37 | N/A | |
| Debt/total assets | 0.4 | 0.44 | 0.45 | 0.4 | N/A | 0.66 | |
| Times Interest Earned | 4.06 | 3.08 | 2.2 | 2.67 | N/A | 2.13 | |
| Activity Ratios | |||||||
| Receivables Turnover | 6.62 | 4.09 | 5.3 | 4 | 3.71 | 3.13 | |
| Inventory Turnover | 4.73 | 4.82 | 4.41 | 5.19 | 2.82 | 16.56 | |
| Fixed Assets Turnover | 2.9 | 2.76 | 2.4 | 1.3 | N/A | 1.3 | |
| Asset Turnover | 0.61 | 0.72 | 0.6 | 0.69 | 0.25 | 0.69 |
Profitable ratio
| Ratios | 2007-12 | 2008-12 | 2009-12 | TTM | Industry | Ford |
| Gross profit Margin % | 24.14 | 22.49 | 16.92 | 22.26 | 6.24 | 15.45 |
| Operating Profit Margin% | 7.91 | 5.44 | -1.92 | 6.73 | 1.69 | 4.91 |
| Net Profit Margin % | 4 | 1.1 | -3.35 | 3.43 | 1.25 | 5.52 |
| Return on Assets % | 2.45 | 0.79 | -2.02 | 2.38 | 1.11 | 3.81 |
| Return on Equity % | 11.22 | 3.12 | -8.57 | 9.56 | 4.81 | -7.71 |
1) Gross profit Margin: Daimler had been decreasing its gross profit margins from 2007 to 2009; however, its gross profit margin has increased from 16.92% in 2009 to 22.26% in 2010. Its gross profit margin is also higher than the industry average as much as 16.02% and is higher than Ford as much as 6.81% as the year of 2010. A higher gross profit margin of Daimler reflects greater efficiency in managing costs to increase income. This is a good indication that the company generates sufficient revenue to cover operating expenses and yield a profit. Overall, 22.26% gross profit margin means that for every one dollar generated in sales, Daimler has 22.26 cents left over to cover basic operating costs.
2) Operating Profit Margin:
Daimler had been decreasing its operating profit margins from 2007 to 2009; however, its operating profit margin has increased from -1.92% in 2009 to 6.73% in 2010. Its operating profit margin is higher than the industry average as much as 5.04% and is higher than Ford as much as 1.82% as the year of 2010. A high operating profit margin means that the company has good cost control and/or that sales are increasing faster than costs, which is the optimal situation for the company. Overall, the company has an operating margin of 6.73%; this means that it makes $0.0673 (before interest and taxes) for every dollar of sales.
3) Net margin:
Daimler had been decreasing its net profit margins from 2007 to 2009; however, its net profit margin has increased from -3.35% in 2009 to 3.43% in 2010. Its net profit margin is higher than the industry average as much as 2.18% and is lower than Ford as much as 2.09% as the year of 2010. Daimler has a higher the net profit margin compared to industry, means it is more effective at converting revenue into actual profit. Overall, the company has a net profit margin of 3.43%; this means that it makes $0.0343 (after interest and taxes) for every dollar of sales.
4) Return on Assets:
Return on assets measures a company’s earnings in relation to all of the resources it had at its disposal (the shareholders’ capital plus short and long-term borrowed funds) (Kennon). Daimler had been decreasing its return on assets from 2007 to 2009; however, its return on assets has increased from -2.02% in 2009 to 2.38% in 2010. Its return on assets is higher than the industry average as much as 1.27% and is lower than Ford as much as 1.43% as the year of 2010. Overall, Daimler has a ROA of 2.38%; it means that the company earned $0.0238 for each $1 in assets.
5) Return on Equity:
Daimler had been decreasing its return on equity from 2007 to 2009; however, its return on equity has increased from -8.57% in 2009 to 9.56% in 2010. Its return on equity is higher than the industry average as much as 4.75% and is higher than Ford as much as 17.27% as the year of 2010. Daimler has a high return on equity means it is capable of generating cash internally. Overall, Daimler has a ROE of 9.56%; it means that the company earned $0.0956 in profit for each $1 in equity.
Liquidity/Financial Health
| Ratios | 2007-12 | 2008-12 | 2009-12 | TTM | Industry | Ford |
| Current Ratio | 1.27 | 1.06 | 1.14 | 1.10 | 0.35 | 7.33 |
| Quick Ratio | 0.93 | 0.63 | 0.82 | 0.83 | 0.29 | 6.95 |
| Inventory to Net Working Capital | 1.12 | 5.24 | 1.90 | 2.67 | N/A | 0.08 |
| Cash Ratio | 0.32 | 0.13 | 0.21 | 0.20 | N/A | 0.29 |
1) Current Ratio:
Daimler’s current ratio in latest quarter is 1.10 which is higher than industry’s current ratio as much as 0.75 and is lower than Ford’s current ratio as much as 6.32 as the year of 2010. This ratio shows the ability of the company to pay off short term obligation without relying on the sale of its inventories. The Daimler’s current ratio is high means it is more capable of paying its obligations or turning its product into cash than other competitors. Daimler’s current ratio is 1.10 which is above 1 suggests that the company would be able to pay off its obligations if they came due at that point.
2) Quick ratio:
Daimler’s quick ratio in latest quarter is 0.83 which is higher than industry’s quick ratio as much as 0.54 and is lower than Ford’s quick ratio as much as 6.12 as the year of 2010. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. Daimler’s quick ratio is high which means it has a more liquid current position than other competitors. Overall, Daimler’s quick ratio is 0.83 indicates that it had $0.83 in hand to pay off every $1.00 owed without selling its inventories.
3) Inventory to Net Working Capital:
The trend of inventory net working capital from 2007 to 2009 is decreasing; however, it has increased from 1.90 in 2009 to 2.67 in 2010. Daimler’s inventory to net working capital is higher than its competitor – Ford as much as 2.59. Daimler has a high inventory to net working capital, means that a company is carrying too much inventory in stock. It is not favorable for management because excessive inventories can place a heavy burden on the cash resources of a company. Overall, inventory to net working capital is 2.67 means $2.67 of a company’s fund is tied up in inventory for every dollar of working capital (Swathen, 2010).
4) Cash Ratio:
Daimler has been decreasing its cash ratio from 2007 to 2010. Daimler’s cash ratio is lower than its competitor – Ford as much as 0.09. Daimler has a low cash ratio means that a company’s ability to repay its short-term debt is low. Overall, cash ratio is 0.20 means that Daimler can pay off $ 0.20 for every dollar of current liability.
Leverage Ratios
| Ratios | 2007-12 | 2008-12 | 2009-12 | TTM | Industry | Ford |
| Debt/Equity% | 149.70 | 187.80 | 192.63 | 158.13 | 22.81 | N/A |
| Long-Term Debt to equity ratio % | 23.21 | 17.35 | 109.90 | 83.35 | 23.37 | N/A |
| Debt/total assets | 0.40 | 0.44 | 0.45 | 0.40 | N/A | 0.66 |
| Times Interest Earned | 4.06 | 3.08 | 2.20 | 2.67 | N/A | 2.13 |
1) Debt/Equity:
Daimler has been increasing its debt to equity from 2007 to 2009; however, it has decreased from 192.63 in 2009 to 158.13 in 2010. Daimler’s debt/equity in latest quarter is 158.13 which is extremely higher than industry’s debt/equity as much as 135.32. The debt-to-equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. Daimler’s debt/equity ratio is high means that it has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. Overall, Daimler’s debt/equity is 158.13 means that for every dollar of the company owned by the shareholders, the company owes $158.13 to creditors.
2) Long-Term Debt to equity ratio:
Daimler has been increasing its long term debt to equity from 2007 to 2009; however, it has decreased from 109.90 in 2009 to 83.35 in 2010. Daimler’s long-term debt/equity ratio in latest quarter is 83.35 is higher than that of industry as much as 59.98. Long term debt to equity and debt to equity ratios indicate what proportion of equity and debt the company is using to finance its assets. Daimler’s long-term debt/equity ratio is too high, so it may signify future liquidity problems. This ratio also indicates that Daimler is less a well-managed company with a high debt exposure than other competitors in the industry. Overall, Daimler’s long term debt/equity is 83.35 means that for every dollar of the company owned by the shareholders, the company owes $83.35 (long-term debt) to creditors.
3) Debt/total assets:
Daimler has been increasing its debt to total assets from 2007 to 2009; however, it has decreased from 0.45 in 2009 to 0.40 in 2010. Daimler’s debt/equity in latest quarter is 0.40 which is lower than its competitor – Ford as much as 0.21. A ratio of 0.40 which is under 1 means a majority of Daimler’s assets are financed more through equity rather than debt. Overall, Daimler’s debt to assets is 0.40 means that debt covers $0.40 for every dollar of assets.
4) Times Interest Earned:
Daimler has been decreasing its times interest earned from 2007 to 2009; however, it has increased from 2.20 in 2009 to 2.67 in 2010. Daimler’s times interest earned in latest quarter is 2.67 which is higher than its competitor as much as 0.54. The higher the number, the better the firm can pay its interest expense on debt .A ratio of 2.67 means the company has 2.67 times to cover its interest charges on a pretax basis.
Activity ratios
|
Ratios |
2007-12 | 2008-12 | 2009-12 | Latest Qtr | Industry | Ford |
| Receivables Turnover | 6.62 | 4.09 | 5.3 | 4.0 | 3.71 | 3.13 |
| Inventory Turnover | 4.73 | 4.82 | 4.41 | 5.19 | 2.82 | 16.56 |
| Fixed Assets Turnover | 2.90 | 2.76 | 2.40 | 1.30 | N/A | 1.30 |
| Asset Turnover | 0.61 | 0.72 | 0.60 | 0.69 | 0.25 | 0.69 |
1) Receivables Turnover:
Daimler had been decreasing its receivables turnover from 2007 to 2010. Its receivables turnover is higher than the industry average as much as 0.29 and is higher than Ford as much as 0.87 as the year of 2010. Receivables turnover ratio is used to quantify a firm’s effectiveness in extending credit as well as collecting debts. Daimler has a high ratio which implies either that it operates on a cash basis or that its extension of credit and collection of accounts receivable is more efficient than its competitors.
2) Inventory Turnover:
Daimler’s inventory turnover has increased from 4.41 in 2009 to 5.19 in 2010. Its inventory turnover is higher than the industry average as much as 2.37 and is lower than Ford as much as 11.37 as the year of 2010. Inventory turnover is a ratio showing how many times a company’s inventory is sold and replaced over a period. Daimler has a higher inventory turnover than that of industry means it is either stronger sales or higher inventory efficiency; however, comparing to Ford, it is less efficiency of inventory management. Overall, Daimler’s inventory turnover ratio is 5.19, which is significantly high and means that the company will need 0.19 years to deplete the existing inventory.
3) Fixed Assets Turnover:
Daimler’s fix assets turnover has been decreasing from 2007 to 2010. Its fixed assets turnover in latest quarter is 1.30 which is equal its competitor – Ford. A lower fixed-asset turnover ratio shows that the company has been less effective in using the investment in fixed assets to generate revenues. Overall, the ratio of 1.30 means the company is able to generate $1.30 in sales for every $1.00 invested in fixed assets.
4) Asset Turnover:
Daimler’s asset turnover has increased from 0.60 in 2009 to 0.69 in 2010. Its asset turnover is higher than the industry average as much as 0.44 and is equal Ford as the year of 2010. Asset turnover means the amount of sales generated for every dollar’s worth of assets. Daimler has a higher asset turnover than that of industry means it is more efficiency at using its assets in generating sales or revenue than other competitors. Overall, Daimler’s assets turnover ratio is 0.69 means that for every dollar of assets, Daimler is generating 0.69 cents in sales.
References
Kennon, J. (n.d.). Return on Assets. Retrieved 01 20, 2011, from About.com: http://beginnersinvest.about.com/od/incomestatementanalysis/a/return-on-assets-roa-income-statement.htm
Swathen. (2010, 05 13). Inventory to Working Capital Analysis . Retrieved 01 25, 2011, from wikicfo.com: http://www.wikicfo.com/Wiki/Default.aspx?Page=Inventory%20to%20Working%20Capital&NS=&AspxAutoDetectCookieSupport=1
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