Financial Statements Analysis: Prof. Dr. Bernd Grottel Certified Public Accountant & Tax Advisor

Financial
Statements
Analysis
Prof. Dr. Bernd Grottel
Certified Public Accountant & Tax Advisor
—
Winter term 2021/2022
There is a simple understanding of financial statements …
"There are two sides of the balance sheet – the left

side and the right side.
On the left side, there is nothing right,
and on the right side there is nothing left“
(unbekannt)
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F/S Analysis and Accounting Policy
What is it all about?
Accounting Policy Financial Statement Analysis
Content: Content:
Influence on the annual financial Analysis of published data (e.g. annual/
statements within the legal limits consolidated financial statements)
Purpose: Purpose:
Judgment of the addresses of the Judgment on the economic situation and
information/legal consequences. future development of the company
 Expectations must be anticipated  Accounting policy must be decoded
Module 03 AP Module 02 FSA
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F/S Analysis
Overview
Financial Statements (F/S) Analysis

1 Basics of F/S Analysis
2 Financial-based analysis
3 Performance-based analysis
Strategic-based analysis (not relevant)
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F/S Analysis
Case Study: BMW Group and Daimler Group
BMW AG – Group: Daimler AG – Group:
— Headquarter: Munich — Headquarter: Stuttgart

— Key figures 2019: — Key figures 2019:
- revenues: €104,210 millions - revenues: €172,745 millions
- net profit: €5,022 millions - net profit: €2,709 million
- employees: 122,244 - employees: 298,655
— www.bmwgroup.com — www.daimler.com
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1
Basics of
F/S Analysis
F/S Analysis
Overview

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Overview

Purpose & Types of Preparation Objects

function key figures of F/S analysis of F/S analysis
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1.1 Basics of F/S Analysis – Purpose & function
Term “balance sheet analysis”
„Balance sheet analysis consists of the breaking up of the annual

accounts into its components and an assessment [of the economic
situation and future economic development] of the undertaking on the
basis of the information obtained in this way.“
[Source: Leffson: Bilanzanalyse, 3. Aufl., Stuttgart 1984, p. 3.]
„Balance sheet analysis is the methodological analysis of the

annual accounts and the management report with the aim of
obtaining decision-relevant information on the current economic
situation and the future economic development of a company."
[Source: Baetge/Kirsch/Thiele: Bilanzanalyse, 2. Aufl., Düsseldorf 2004, p. 1.]
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Term “balance sheet analysis”
Balance sheet
Financial statements –
Balance sheet analysis
Financial statements
(= "Balance sheet analysis“

(in a narrow sense)
— Statement of profit or loss and
in a wider sense)
components
other comprehensive income

— Statement of cash flows
Analysis
— Statement of changes in equity
— Notes
Other information, such as:

— Management report
— Strategy information
— Environmental reports
— Sustainability Reports
Strategic
Analysis
— Press releases
— ....
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Purpose and function 1/2

— Shareholders, creditors, suppliers, customers and other stakeholders are able to access
the content of published financial statements (including the management report) through
detailed financial statements analyses, which are usually briefly referred to as balance
sheet analyses.
— The financial statements analysis is strongly based on key figures and key figure
systems as evaluation and presentation tools for time comparisons, business
comparisons, industry comparisons and target-actual comparisons.
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Purpose and function (2/2

— The financial statement analysis is concerned with the company-specific analysis of
the net assets, financial position and results of operations and the decoding of the
accounting policies applied by the company.
— The analysis of the net assets is used to obtain information on the development of the
asset structure, asset turnover and business growth, while the analysis of the capital
structure provides information on forms of financing and financing risks.
— The analysis of the financial position and liquidity sheds light on the current and
future solvency of a company.
— The analysis of the results of operations is intended to show the company-specific

earnings potential, in particular the return on equity generated by an enterprise and the
total return on capital.
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Groups of addressees
External addressees
Stakeholders with contract income
Creditors
Suppliers Focus on financial stability (credit risk)
Employees
Stakeholders with residual income
Shareholders
Focus on profitability (income risk)
Stock options eligible
Internal addressees
Management boards
Supervisory boards Decision-making and behavioral
control
Advisory boards
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Target and analysis levels
Target (system) of the company

Potential for success Success Liquidity
Financial statements analysis

Strategic Analysis
(= Classic "balance sheet analysis")
Business analysis
Source: Based on Coenenberg/Haller/Schultze (2009), page 1014
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Phase concept of value generation
Strategic controlling
Investment Strategic
planning Analysis
Potential for
Investment
success
Financial controlling
Value Success controlling
Liquidity Success
Financing Success
planning measurements
Operational controlling
Source: Based on Coenenberg/Haller/Schultze (2009), page 1016
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Overview


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1.2 Basics of F/S Analysis – Types of key figures
Absolute key figures
Absolute key figures

Absolute key figures enable companies to be
assigned to specific size classes. These are
metrics such as revenues, the number of
employees or net profit or loss.
However, the significance of this information is

small without a comparative standard.
Source: BMW Group Annual Report 2019
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Trend anaysis with absolute key figures
Within-company comparison over time

— Comparison to last year
— Comparison over several years
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Trend anaysis with absolute key figures
Between-company comparison at the

same point of time to peers/competitors
— Comparison to same industry peers and/or
— Comparison to similar size peers
However, the significance of this information is

small without calculating ratios (relative figures)
which are comparable
Source: BMW Group Annual Report 2019 Source: Daimler Group Annual Report 2019
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Absolute vs relative key figures
Absolute key figures Relative key figures (ratios)
Absolute key figures enable companies to be For relative key figures, two absolute figures are
assigned to specific size classes. They also can compared to each other. They raise the
be used for basic trend analysis. However, the significance because they can reveal cause-and-
significance of this information is small without effect relationships and therefore can be used for
suitable benchmarks. root-causes analysis.
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1.2 Basics of F/S Analysis – Types of Key figures
Within-company comparison to last year
7,118 18,063
104,210 104,210
5,022 2,140
104,210 7,118
absolute relative
time comparison
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Between-company comparison
BMW 17,3% Gross profit

Daimler 16,9% margin
relative figures
comparison
absolute
figures
comparison:
decision-
useful?
After-tax
return on BMW 4,8%
sales Daimler 1,6%
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Types of relative key figures
significance of this information is small without effect relationships and therefore can be use for
Breakdown figures Relationship figures Index figures Other metrics
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Breakdown figures
Comparison of partial sizes

to total sizes. They
01.01.2019 represent the relative weight
of partial sizes in relation to
the whole, such as:
2019 2018
Non-current assets
60,3% 59,9% 59,4%
total assets
Liabilities
Total equity and liabilities
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Relationship figures
17,3%
Ratio of different-types of
aggregates which are in a
logical context, such as:
1
Profit before financial result
Total equity and liabilities
3,2%
1 2
Gross profit
Revenues
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Index figures
Index numbers are useful for

representing temporal
changes in a size. The value
of a base time point is set
equal to 100%, all other
values are measured in
relation to this underlying,
such as:
Stock indices
Exchange rate indices
Raw material indices
Source: Reuters / BMW Group Annual Report 2019
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Other metrics
59,907 Ratio of equally ordered

sizes which differ by one
characteristic, such as:
2,8
Debts
Equity
+ 168,127
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Types of relative key figures

significance of this information is small without effect relationships and therefore can be use for
Breakdown figures Relationship figures Index figures Other metrics

Comparison of partial sizes Ratio of different-types of Index numbers are useful Ratio of equally ordered
to total sizes. They aggregates which are in a for representing temporal sizes which differ by one
represent the relative weight logical context,such as: changes in a size. The characteristic, such as:
of partial sizes in relation to value of a base time point is
the whole, such as: set equal to 100%, all other
values are measured in
Non-current assets Profit before financial result relation to this underlying,
Total assets Total equity and liabilities such a:
Stock indices
Liabilities Gross profit Debts
Exchange rate indices
Total equity and liabilities Revenues Raw material indices Equity
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Evaluation methods
Need to keep in mind:

1. Not only list relative key figures, but also the underlying absolute figures. i.e.
— Incorrect: Sales profit rate = 3%
Operating profit 27.000.000
— Correct: Sales profit rate = = = 3%
Sales 900.000.000
2. Most key figures have little significance in themselves. i.e.:

— Within-company comparisons
— Between-company comparisons
 comparative standards are required, such as time comparison, operating comparison, target-
actual comparison
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Overview


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1.3 Basics of F/S Analysis – Preparation of F/S analysis
Different companies – different financial statements
Comparable
figures?
What to do?
? ?
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Mapping to a standardized accounts system: asset-side

BMW Group
Mapping is at 2019
discretion of the Mio. EUR
analyst! 11.729 Intagible assets and goodwill
65.854 Proberty, plant and equipment
– Biological assets
– Investment proberty
3.199 Equity-accounted investees
52.400 Financial assets
2.194 Deferred tax assets
– Employee benefits
2.028 Other non-current assets
= 137.404 Non-current assets
15.891 Inventories
– Contract assets
49.880 Trade and other receivables
1.209 Current tax assets
– Prepayments
It is the secret of 11.614 Other current assets
the analysts 12.036 Cash and cash equivalents
– Assets held for sale
90.630 Current assets
= 228.034 Total assets
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Mapping to a standardized accounts system: liabilities-side
e.g. no BMW Group

2019
adjustments
Mio. EUR EQUITY and LIABILITIES
necessary by
659 Share capital (subscribed capital)
mapping 2.161 Share premium (capital reserves)
-1.163 Reserves and other
57.667 Retained earnings (revenue reserves)
59.324 Equity attributable to owners Company
583 Non-controlling interests (=minority interest)
=
59.907 Total equity
3.335 Provisions for pensions and similar obligations
5.788 Other provisions
70.647 Loans and borrowings
632 Deferred tax liabilities
5.100 Other non-current liabilities
= 85.502 Non-current liabilities
7.421 Other provisions
46.093 Loans and borrowings
10.182 Trade and other payables
963 Current tax liabilities
17.966 Other non-current liabilities
– Liabilities held for sale
=
82.625 Current liabilities
= 228.034 Total equity and liabilities
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Mapping to a standardized accounts system: profit or loss - statement

e.g. adjustments necessary; BMW Group
2019
additional information used
Mio. EUR
from the notes!
104.210 Revenue
-86.147 Cost of sales
18.063 Groos of results (profit/loss)
-5.656 Selling and distribution expenses
-3.711 Administrative expenses
=
1.031 Other operating income
-2.316 Other operating expenses
-10.652 Total operating (profit/loss)
7.411 Operating result (profit/loss)
136 Share of profit (=result) from investments in joint)
-109 Other investment income
7.438 Earnings before interest and taxes (EBIT)
179 Finance income (=interest and similar income)
-499 Finance expenses (=interest and similar expenses)
– Other financial result
-320 Financial result
=
7.118 Profit/Loss before tax
-2.140 Income taxes
4.978 Profit/Loss from continuing operations
44 Profit/Loss from discontinued operations
=
5.022 Profit/Loss for the period
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Basic analytical procedures:

Absolute key figures without comparison
BMW Group BMW Group
2019 2019
ASSETS Mio. EUR EQUITY and LIABILITIES Mio. EUR
Share capital (subscribed capital) 659
Share premium (capital reserves) 2.161
Reserves and other -1.163
Retained earnings (revenue reserves) 57.667
Equity attributable to owners Company 59.324
Non-controlling interests (=minority interest) 583
Intagible assets and goodwill 11.729 Total equity 59.907
Proberty, plant and equipment 65.854 Provisions for pensions and similar obligations 3.335
Biological assets – Other provisions 5.788
Investment proberty – Loans and borrowings 70.647
Equity-accounted investees 3.199 Trade and other payables –
Financial assets 52.400 Deferred tax liabilities 632 no decision-
Deferred tax assets
Employee benefits
2.194
–
Deferred income
Contract liabilities
–
–
useful
Other non-current assets 2.028 Other non-current liabilities 5.100 information
Non-current assets 137.404 Non-current liabilities 85.502
Provisions for pensions and similar obligations –
Biological assets – Other provisions 7.421
Inventories 15.891 Bank overdraft –
Contract assets – Loans and borrowings 46.093
Trade and other receivables 49.880 Trade and other payables 10.182
Current tax assets 1.209 Current tax liabilities 963
Prepayments – Deferred income –
Other current assets 11.614 Contract liabilities –
Cash and cash equivalents 12.036 Other non-current liabilities 17.966
Assets held for sale – Liabilities held for sale –
Current assets 90.630 Current liabilities 82.625
Total liabilities 168.127
Total assets 228.034 Total equity and liabilities 228.034
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Relative key figures without comparison
BMW Group BMW Group
2019 ratio 2019 ratio
ASSETS Mio. EUR % EQUITY and LIABILITIES Mio. EUR %
Share capital (subscribed capital) 659 0%
Share premium (capital reserves) 2.161 1%
Reserves and other -1.163 1%
Retained earnings (revenue reserves) 57.667 25%
Equity attributable to owners Company 59.324 26%
equity-
Non-controlling interests (=minority interest) 583 0% ratio
Intagible assets and goodwill 11.729 5% Total equity 59.907 26%
Proberty, plant and equipment 65.854 29% Provisions for pensions and similar obligations 3.335 1%
Biological assets – – Other provisions 5.788 3%
Investment proberty – – Loans and borrowings 70.647 31%
Equity-accounted investees 3.199 1% Trade and other payables – –
Financial assets 52.400 23% Deferred tax liabilities 632 0%
Deferred tax assets 2.194 1% Deferred income – –
Employee benefits – – Contract liabilities – –
Other non-current assets 2.028 1% Other non-current liabilities 5.100 2%
Non-current assets 137.404 60% Non-current liabilities 85.502 37%
Provisions for pensions and similar obligations – –
Biological assets – – Other provisions 7.421 3%
Inventories 15.891 7% Bank overdraft – –
Contract assets – – Loans and borrowings 46.093 20%
Trade and other receivables 49.880 22% Trade and other payables 10.182 4%
Current tax assets 1.209 1% Current tax liabilities 963 0%
Prepayments – – Deferred income – –
Other current assets 11.614 5% Contract liabilities – –
Cash and cash equivalents 12.036 5% Other non-current liabilities 17.966 8%
Assets held for sale – – Liabilities held for sale – –
Current assets 90.630 40% Current liabilities 82.625 36%
current asset Total liabilities 168.127 74%
Total assets 228.034 100% ratio Total equity and liabilities 228.034 100%
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Relative key figures with time-comparison
BMW Group BMW Group BMW Group BMW Group
2018 ratio 2019 ratio 2018 ratio 2019 ratio
ASSETS Mio. EUR % Mio. EUR % EQUITY and LIABILITIES Mio. EUR % Mio. EUR %
Share capital (subscribed capital) 658 0% 659 0%
Share premium (capital reserves) 2.116 1% 2.161 1%
more useful information Reserves and other -1.338 1% -1.163 1%
by time-comparison Retained earnings (revenue reserves) 55.268 26% 57.667 25%
Equity attributable to owners Company 57.268 27% 59.324 26%
Non-controlling interests (=minority interest) 526 0% 583 0%
Intagible assets and goodwill 10.971 5% 11.729 5% Total equity 57.797 27% 59.907 26%
Proberty, plant and equipment 60.422 29% 65.854 29% Provisions for pensions and similar obligations 2.330 1% 3.335 1%
Biological assets – – – – Other provisions 5.530 3% 5.788 3%
Investment proberty – – – – Loans and borrowings 66.744 32% 70.647 31%
Equity-accounted investees 2.624 1% 3.199 1% Trade and other payables – – – –
Financial assets 49.323 23% 52.400 23% Deferred tax liabilities 1.762 1% 632 0%
Deferred tax assets 1.640 1% 2.194 1% Deferred income – – – –
Employee benefits – – – – Contract liabilities – – – –
Other non-current assets 1.586 1% 2.028 1% Other non-current liabilities 5.293 3% 5.100 2%
Non-current assets 126.566 60% 137.404 60% Non-current liabilities 81.659 39% 85.502 37%
Provisions for pensions and similar obligations – – – –
Biological assets – – – – Other provisions 5.871 3% 7.421 3%
Inventories 14.248 7% 15.891 7% Bank overdraft – – – –
Contract assets – – – – Loans and borrowings 39.260 19% 46.093 20%
Trade and other receivables 47.921 22% 49.880 22% Trade and other payables 9.669 5% 10.182 4%
Current tax assets 1.378 1% 1.209 1% Current tax liabilities 1.158 1% 963 0%
Prepayments – – – – Deferred income – – – –
Other current assets 9.749 5% 11.614 5% Contract liabilities – – – –
Cash and cash equivalents 10.979 5% 12.036 5% Other non-current liabilities 15.826 7% 17.966 8%
Assets held for sale 463 0% – – Liabilities held for sale 64 0% – –
Current assets 84.738 40% 90.630 40% Current liabilities 71.848 34% 82.625 36%
Total liabilities 153.507 73% 168.127 74%
Total assets 211.304 100% 228.034 100% Total equity and liabilities 211.304 100% 228.034 100%
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Relative key figures with changes and with time-comparison
BMW Group BMW Group BMW Group BMW Group
2018 ratio 2019 ratio delta delta 2018 ratio 2019 ratio delta delta
ASSETS Mio. EUR % Mio. EUR % Mio. EUR % EQUITY and LIABILITIES Mio. EUR % Mio. EUR % Mio. EUR %
Share capital (subscribed capital) 658 0% 659 0% 1 0%
detailed time-comparison with Share premium (capital reserves) 2.116 1% 2.161 1% 43 2%
Reserves and other -1.338 1% -1.163 1% 175 -13%
absolute and relative figures Retained earnings (revenue reserves) 55.268 26% 57.667 25% 1.837 3%
 more useful information Equity attributable to owners Company 57.268 27% 59.324 26% 2.056 4%
Non-controlling interests (=minority interest) 526 0% 583 0% 54 10%
Intagible assets and goodwill 10.971 5% 11.729 5% 758 7% Total equity 57.797 27% 59.907 26% 2.110 4%
Proberty, plant and equipment 60.422 29% 65.854 29% 5.432 9% Provisions for pensions and similar obligations 2.330 1% 3.335 1% 1.005 43%
Biological assets – – – – – – Other provisions 5.530 3% 5.788 3% 258 5%
Investment proberty – – – – – – Loans and borrowings 66.744 32% 70.647 31% 3.903 6%
Equity-accounted investees 2.624 1% 3.199 1% 575 22% Trade and other payables – – – – – –
Financial assets 49.323 23% 52.400 23% 3.077 6% Deferred tax liabilities 1.762 1% 632 0% -1.130 -64%
Deferred tax assets 1.640 1% 2.194 1% 554 34% Deferred income – – – – – –
Employee benefits – – – – – – Contract liabilities – – – – – –
Other non-current assets 1.586 1% 2.028 1% 442 28% Other non-current liabilities 5.293 3% 5.100 2% -193 -4%
Non-current assets 126.566 60% 137.404 60% 10.383 9% Non-current liabilities 81.659 39% 85.502 37% 3.843 5%
Provisions for pensions and similar obligations – – – – – –
Biological assets – – – – – – Other provisions 5.871 3% 7.421 3% 1.550 26% !
Inventories 14.248 7% 15.891 7% 1.543 12% Bank overdraft – – – – – –
Contract assets – – – – – – Loans and borrowings 39.260 19% 46.093 20% 6.833 17%
Trade and other receivables 47.921 22% 49.880 22% 1.959 4% Trade and other payables 9.669 5% 10.182 4% 513 5%
Current tax assets 1.378 1% 1.209 1% -169 -12% Current tax liabilities 1.158 1% 963 0% -195 -17%
Prepayments – – – – – – Deferred income – – – – – –
Other current assets 9.749 5% 11.614 5% 1.865 19% Contract liabilities – – – – – –
Cash and cash equivalents 10.979 5% 12.036 5% 1.057 10% Other non-current liabilities 15.826 7% 17.966 8% 2.140 14%
Assets held for sale 463 0% – – -463 -100% Liabilities held for sale 64 0% – – -64 -100%
Current assets 84.738 40% 90.630 40% 5.892 7% Current liabilities 71.848 34% 82.625 36% 10.777 15%
Total liabilities 153.507 73% 168.127 74% 14.620 10%
Total assets 211.304 100% 228.034 100% 16.730 8% Total equity and liabilities 211.304 100% 228.034 100% 16.730 8%
equity ratio increase in total capital 8%

although equity in vs increase in total equity 4%
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Relative key figures with changes with time-comparison
BMW Group BMW Group
2018 ratio 2019 ratio delta delta
Mio. EUR % Mio. EUR % Mio. EUR %
Revenue 96.855 100% 104.210 100% 7.355 8%
Cost of sales -78.477 81% -86.147 83% -7.670 10%
Groos of results (profit/loss) Gross profit margin 18.378 19% 18.063 17% -315 -2%
Selling and distribution expenses -5.848 6% -5.656 5% 192 -3%
Administrative expenses -3.720 4% -3.711 4% 9 -0%
Other operating income 774 1% 1.031 1% 257 33%
Other operating expenses -651 1% -2.316 2% -1.665 256%
Total operating (profit/loss) -9.445 10% -10.652 10% -1.207 13%
Operating result (profit/loss) 8.933 9% 7.411 7% -1.522 -17%
Share of profit (=result) from investments in joint) 632 1% 136 0% -496 -78%
Other investment income 51 0% -109 0% -160 -314%
Earnings before interest and taxes (EBIT) EBIT-margin 9.616 10% 7.438 7% -2.178 -23%
Finance income (=interest and similar income) 397 0% 179 0% -218 -55%
Finance expenses (=interest and similar expenses) -386 0% -499 0% -113 29%
Other financial result – – – – – –
Financial result 11 0% -320 0% -331 -3.009%
Profit/Loss before tax 9.627 10% 7.118 7% -2.509 -26%
Income taxes -2.530 3% -2.140 2% 390 -15%
Profit/Loss from continuing operations 7.097 7% 4.978 5% -2.119 -30%
Profit/Loss from discontinued operation -33 0% 44 0% 77 -233%
Profit/Loss for the period Profit margin 7.064 7% 5.022 5% -2.042 -29%
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Overview


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1.4 Basics of F/S Analysis – Objects of F/S analysis
General business cycle
Market Company Industry
Business model
Allocation
Equity
Investment Assets Capital Financing
Debts
Realization
Source: Based on Männel (2004), page 41
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General business objectives
Profitable growth Value-oriented

Minimization of the
controlling
tax present value Profit stabilization
(e.g. shareholder value
(discounted tax payments)
Profit maximization concepts)
Success
Asset Profitability
Earnings policy
turnover objectives
Investment and
Assets financing
Capital
Asset structure policy Allocation policy Capital structure policy

Minimization of capital commitment; Degrees of liquidity Optimization
Reduction of non-operational Investment coverage of the equity ratio
resources as well as unnecessary Maturity congruence
liquidity reserves and non-value-
added assets
Source: Based on Männel (2005), page 108
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Central questions for financial statements analysis
How safe is the future solvency? What is the future profitability?
Financial-based analysis Performance-based analysis
(1) Investment analysis (1) Analysis of earnings sources
(2) Financing analysis (2) Profitability analysis
(3) Liquidity analysis (3) Analysis of earnings structure
Static
Dynamic
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Objects of financial statement analysis
Analytical objects
Asset structure Capital structure Liquidity Earnings-
(asset-side) (liabilities-side) structure structure
Analysis of the
Analysis of the type, Analysis of the
Analysis of long-term coverage of
composition and binding cleaned-up
debt/equity ratios capital and assets
time of the assets operating profit
(Investment coverages)
Analysis of short-term
Analysis of the structure Analysis of the
Analysis of the asset liabilities and assets
and development of earnings sources and
turnover (congruence of time
equity capital earnings structure
limits)
Analysis of the structure

Analysis of the Analysis of the Profitability
and development of
investment cash flows analysis
debt capital
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Objects of financial statement analysis

Balance sheet Income statement
Investment Financing Earnings

Profitability
(asset-side) (liabilities-side) structure
Earnings
Liquidity
sources
Cash flow statement
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Objects of financial statements analysis


Profitability
Earnings
Liquidity
sources
Cash flow statement
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2
Financial-
based
analysis
F/S Analysis
Overview

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Profitability
Earnings
Liquidity
sources
Cash flow statement
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Significant methods

„point-of-time“-oriented analytical methods „periode-of-time“-oriented analytical methods
(balance sheet ratios) (cash flow ratios)
Vertical structural Horizontal structural

Cash flow statement
analysis analysis
Asset Capital Investment Congruence

Structure Structure coverages structure
Investment Financing
static liquidity analysis
analysis analysis dynamic liquidity analysis
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Overview

Balance sheet Cash flow

ratios ratios
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2.1 Financial-based analysis – Balance sheet ratios
Balance sheet structure analysis – Expectations
Investment coverage
Statement of financial position

Asset structure Capital structure
Non-current assets(a) Equity
Equity
Non-current
Expectations of liabilities Expectations of
future Total future
Assets
Current assets liabilities
Cash-inflows Current Cash-outflows
(debts)
Debts
liabilities
Total assets Total capital
Liquidity
(a) Thereof: fixed assets = Intangible assets + PPE + leased assets
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Balance sheet structure analysis – Questions
Which assets are covered by

which degree of capital/liabilities?
Statement of financial position How long have

How long is the the funds been
capital tied up? Non-current assets(a) Equity made available?
 Liquidity Non-current  Leverage-
potential liabilities structure
Total
 Disposition Current assets liabilities  Financial-
Current (debts)
elasticity liabilities economic
risks
How is the congruence of time limits?
The longer assets are tied up,

The longer the capital remains
the later are the
available, the later are the
corresponding cash-inflows
corresponding cash-outflows.
generated.
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Asset-side structure analysis – KPIs

How long is the
capital tied up? Non-current assets(a) Equity
 Liquidity Non-current
potential liabilities
Total
 Disposition Current assets liabilities
Current (debts)
elasticity liabilities
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Key ratios: asset structure
Measure Definition Interpretation
Key figures on asset structure

The higher the asset intensity, the longer financial funds are locked
Fixed assets x 100 up and – as a rule – the higher the associated fixed costs. The
Fixed asset intensity Total assets smaller this ratio, the less capital is tied-up over the long term. The
ratio provides information on the company`s ability to adapt to
changing market conditions. When considering the asset intensity,
Fixed asset = Intangible assets + PPE + leased assets the company`s respective industry must also be considered.
It shows the percentage of total capital which is locked-up in current

assets. A high ratio is generally to be viewed positively, as current
Current assets x 100 assets can be liquidated quickly. However, an extremely high ratio
Current asset intensity can indicate excessive stock levels, which push up warehousing
Total assets costs. More detailed analysis of the current assets should cover the
level of receivables and inventories in greater detail.
Both ratios show a company`s stability or flexibility, however

Non-current assets x 100 typical asset structures in the respective industry should also be
Asset structure considered.
Current assets
A low asset structure ratio can mean two things:
- A low level of fixed assets allows the company to react more

flexibly to changes on the market and fixed costs are lower due to
Fixed asset x 100 shorter capital lock-up period for all assets.
Fixed asset structure Current assets
- A company is working with assets that have already been written
Fixed asset = Intangible assets + PPE + leased assets off. This allows to assume that the technology used is out of date.
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Template for explanations about a key figure
Formula Sample calculation

Fixed assets x 100 xxx
Total assets
Formula
xxx
Advantages Disadvantages
xxx xxx
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Key ratios BMW Group: asset structure

Fixed asset = Intangible assets + Property, plant and equipment (PPE)
39 %
Fixed asset
structure
15 %
Fixed asset 152 %
intensity Asset structure
40 % Current asset intensity

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Fixed asset = Intangible assets + PPE + Leased products
Always have in mind, how a ratio is defined!
39 % 86 %
Fixed asset Fixed asset
structure structure
15 % 34 %
Fixed asset Fixed asset
intensity intensity
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BMW Group BMW Group
ASSETS Mio. EUR % Mio. EUR % Mio. EUR %
Intensity
Intensity ratios
Intagible assets and goodwill 10.971 5% 11.729 5% 758 7% ratios 2018
Proberty, plant and equipment 60.422 29% 65.854 29% 5.432 9%
Biological assets – – – – – – 2019
Investment proberty – – – – – –
Equity-accounted investees 2.624 1% 3.199 1% 575 22%
Financial assets 49.323 23% 52.400 23% 3.077 6%
Deferred tax assets 1.640 1% 2.194 1% 554 34%
Employee benefits – – – – – –
Other non-current assets 1.586 1% 2.028 1% 442 28%
Non-current assets 126.566 60% 137.404 60% 10.383 9%
Biological assets – – – – – –
Inventories 14.248 7% 15.891 7% 1.543 12%
Contract assets – – – – – –
Trade and other receivables 47.921 22% 49.880 22% 1.959 4%
Current tax assets 1.378 1% 1.209 1% -169 -12%
Prepayments – – – – – –
Other current assets 9.749 5% 11.614 5% 1.865 19%
Cash and cash equivalents 10.979 5% 12.036 5% 1.057 10%
Assets held for sale 463 0% – – -463 -100%
Current assets 84.738 40% 90.630 40% 5.892 7%
Total assets 211.304 100% 228.034 100% 16.730 8%
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Asset structure: industry averages
Fixed asset Curren asset

Industry intensity intensity
in% in%
Traffic 69,4 30,6
Energy 43,3 56,7
Manufacturing 37,0 63,0
Trade 31,3 68,7
Construction 8,3 91,7
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BMW Group vs Daimler Group
(in %) 2017 2018 2019 2020

Fixed asset intensity 33% 34% 34% 35%
Current asset intensity 37% 40% 40% 38%
Asset structure 170% 149% 152% 165%
Fixed asset structure 90% 84% 86% 93%
(in %) 2017 2018 2019 2020

Fixed asset intensity 35% 34% 35% 35%
Current asset intensity 42% 43% 42% 40%
Asset structure 139% 132% 137% 148%
Fixed asset structure 84% 78% 82% 86%
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Liabilities-side structure analysis – KPIs
Statement of financial position How long have

the funds been
Non-current assets(a) Equity made available?
Non-current  Leverage-
liabilities structure
Total
Current assets liabilities  Financial-
Current (debts)
liabilities economic
risks
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Key ratios: capital structure
Key figures on capital structure

The more equity a company has available the better its credit-
worthiness, the higher its financial stability and the more independent
Equity ratio Equity x 100 the company is from lenders. However, as equity is more expensive
(intensity) Total capital*) than debt, a high equity ratio, depresses the return on capital
employed.
The debt ratio also allows assumptions to be made about a

Debt (leverage) ratio Total liabilities*) (Debts) x 100 company`s financial stability. The growth of this ratio should always
be considered together with the company`s assets. It these include
(intensity) Total capital*) hidden liabilities as a result of lower market values, this has a
negative impact on the leverage ratio.
This ratio expresses what percentage of total liabilities will acutally

lead to a cash outflow to external creditors on a short-term basis.
Current liabilities x 100 Companies in danger of insolvency show an increased percentage of
Leverage structure leverage structure that solvent companies. For an ongoing analysis
Total liabilities the maturity and conditions of all liabilities components should be
taken into account.
This ratios shows the relationship between a company`s debt and

equity financing. In general, the higher the gearing ratio, the more
Debt gearing ratio Total liabilities x 100 dependent a company is on external creditors. However, the gearing
(static) equity ratio should never be considered alone, but always in connection
with the company`s earnings position (leverage-effect!)
*) Note: Financial analysts often only use total liabilities as the sum of interest-bearing liabilities plus the capitalized value of future leasing commitments; and therefore those
liabilities are included in the total capital. In the lecture, there will be no differentiation!
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Key ratios BMW Group: capital structure
281 %
Debt gearing ratio
26%
Equity
ratio
49 %
Leverage
structure
+ Total liabilities
74 %
Debt leverage ratio
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Key ratios BMW Group: capital structure

BMW Group BMW Group
EQUITY and LIABILITIES Mio. EUR % Mio. EUR % Mio. EUR % 26 %
Share capital (subscribed capital) 658 0% 659 0% 1 0%
Reserves intensity
Share premium (capital reserves)
Reserves and other
2.116
-1.338
1%
1%
2.161
-1.163
1%
1%
43 2%
175 -13%
+
Retained earnings (revenue reserves) 55.268 26% 57.667 25% 1.837 3%
Equity attributable to owners Company 57.268 27% 59.324 26% 2.056 4%
Non-controlling interests (=minority interest) 526 0% 583 0% 54 10%
Total equity 57.797 27% 59.907 26% 2.110 4%
Provisions for pensions and similar obligations 2.330 1% 3.335 1% 1.005 43%
Other provisions
Loans and borrowings
5.530
66.744
3%
32%
5.788
70.647
3%
31%
258
3.903
5%
6%
Equity ratio
Trade and other payables – – – – – –
Deferred tax liabilities 1.762 1% 632 0% -1.130 -64% equity ratio increase in total capital 8%
Deferred income – – – – – – although equity in
vs increase in total equity 4%
Contract liabilities – – – – – – absolute figures
Other non-current liabilities 5.293 3% 5.100 2% -193 -4%
Non-current liabilities 81.659 39% 85.502 37% 3.843 5%
Provisions for pensions and similar obligations – – – – – –
Other provisions 5.871 3% 7.421 3% 1.550 26% !
– – – – – –
4%
Bank overdraft
Loans and borrowings 39.260 19% 46.093 20% 6.833 17%
Trade and other payables 9.669 5% 10.182 4% 513 5% Provision intensity
Current tax liabilities 1.158 1% 963 0% -195 -17%
Deferred income – – – – – –
Contract liabilities – – – – – –
Other non-current liabilities 15.826 7% 17.966 8% 2.140 14%
Liabilities held for sale 64 0% – – -64 -100%
Current liabilities 71.848 34% 82.625 36% 10.777 15%
Total liabilities 153.507 73% 168.127 74% 14.620 10% Debt leverage ratio
Total equity and liabilities 211.304 100% 228.034 100% 16.730 8%
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From a creditor point of view, a higher degree of reserves offers
security for existing and additional loans. Thus, the higher the
percentage of reserves to total capital, the lower the risk of non-
Capital reserves + retained earnings x 100 performing loans for the lender. Over the time the external analyst is
Reserve intensity able to tell whether the ratio, and thus the company`s capital base,
Total capital increases or decreases. A decrease may eventually lead to a total
loss of shareholders`s equity and thus endanger a company`s
existence.
The ratio indicates to which degree a company finances itself through

provision equivalents. Provisions – although they are financially
(Non-current pensions and similar obligations clearly defined as liabilities – may have equity character when they
Provision intensity + non-current provisions) x 100 are structured on a long term basis. Financing by pension
equivalents is possible by immediately registering the expense for
making provisions in the income statement. The actual payment is
Total capital postponed until future fiscal years, In the meantime, this amount is
available for the production process.
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(in %) 2017 2018 2019 2020

Equity ratio 28% 27% 26% 28%
Debt (leverage) ratio 72% 73% 74% 72%
Leverage structure 50% 47% 49% 46%
Debt gearing ratio 255% 266% 281% 252%
(in %) 2017 2018 2019 2020

Equity ratio 26% 23% 21% 22%
Debt (leverage) ratio 74% 77% 79% 78%
Leverage structure 46% 45% 44% 45%
Debt gearing ratio 291% 326% 381% 359%
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Balance sheet structure analysis – KPIs
Which assets are covered by

which degree of capital/liabilities?
Non-current assets(a) Equity
Non-current
liabilities
Total
Current (debts)
liabilities
How is the congruence of time limits?
The longer assets are tied up, Liquidity ratios

the later are the long-term assets short-term assets available, the later are the
corresponding cash-inflows £1 ³1
long-term capital short-term capital corresponding cash-outflows.
generated.
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Balance sheet structure analysis – KPIs
Fixed assets
£1
Total equity
Golden balance sheet rule
Non-current assets(a) Total equity
Non-current
liabilities
Total
Current (debts)
liabilities
The longer assets are tied up, Golden financing rule

the later are the
Current liabilities available, the later are the
corresponding cash-inflows £1 corresponding cash-outflows.
generated. Current assets
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Key ratios: static liquidity analysis (I)
Key figures for static (point-of-time) liquidity analysis (I)

Fixed assets This ratio demands that the capital lock-up period does not exceed
„Golden balance £1 the period for which the capital has been made available, i.e. that the
Total equity assets tied in to the company for the long-term are covered by long-
sheet rule“ term capital. It a company does not uphold this rule, it may become
(Investment coverage) Fixed assets forced to sell assets in order to service current liabilities. Long-term
£1 capital can be defined exclusively by equity or in broader sense with
Total equity + non-current liabilities non-current liabilities.
Total equity x 100 This ratio is the counterpart to the investment coverage ratio above.
Asset coverage ratio Fixed assets It answers the question of the extent to which the fixed assets, which
should be available to the company over the long term, are covered
(Principle of matching by equity that remains in the company for an equally long term. The
maturities) (Total equity + non-current liabilities) x 100 higher the ratio is, the better, as this means that parts of the current
Fixed assets assets are also being financed long-term.
Current liabilities These ratios state that the terms between obtaining and repaying
£1 capital on the one hand and the use of capital on the other should be
“Golden financing rule” Current assets in line with each other. According to this rule, capital may not be tied
(Principle of matching up in assets for a longer period that the capital is available to the
maturities) Total equity + non-current liabilities ³1
company. If a company finances a long-term investment (e.g. a
machine) with short-term financing, the loan become due before the
Non-current assets income reuiqred to repay the loan has been generated.
Fixed asset = Intangible assets + PPE
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Key ratios BMW Group: liquidity and coverage analysis (I)
Fixed assets(a)
77,583
Golden balance
sheet rule (alt. 1)
1,3 £ 1
Golden balance
sheet rule (alt. 2)
0,5 £ 1
Golden finance
rule (alt. 2)
1,1 ³ 1
Golden finance
rule (alt. 1)
0,9 £ 1
x = recommendation
Source: BMW Group Annual Report 2019 (a) per definition (voluntary)
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(in % / multiple) 2017 2018 2019 2020

Golden balance sheet rule (alt. 1) 1,2 1,2 1,3 1,2
Asset coverage ratio 85% 81% 77% 81%
Golden financing rule (alt. 1) 1,0 0,8 0,9 0,9
(in % / multiple) 2017 2018 2019 2020

Asset coverage ratio 73% 69% 60% 63%
Golden financing rule (alt. 1) 0,8 0,8 0,8 0,9
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Key ratios: static liquidity analysis (II)
Key figures for static (point-of-time) liquidity analysis
All ratios are often used for evaluating a company`s creditworthiness.

Cash ratio Cash and cash equivalent * 100 They show the relationship between liquid assets to payment
(Liquidität 1. Grades) Current liabilities commitments. Liquid or current assets include cash and cash
equivalents, marketable securities, total receivables and total
inventory etc. The various ratios show the extent to which the current
liabilities are covered by current assets.
As a rule of thumb, a current ratio of less than 100% is being

regarded as threatening the company`s existence.
Quick ratio (Current assets – inventories) x 100
(Liquidität 2. Grades) Current liabilities Bankers use the quick ratio to determine how quickly a company
can pay off its current liabilities in case assets need to be converted
into cash.
The quick ratio differs from the current ratio in that it excludes
inventory. The logic behind this is that while inventory may have
been paid for and has value, it may not necessarily be converted into
Current ratio Current assets x 100 cash quickly. As a rule of thumb, the quick ratio should exceed
100%, thus current liabilities are covered by the company`s cash
(Liquidität 3. Grades) Current liabilities position and its total receivables.
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Key ratios BMW Group: liquidity and coverage analysis (II)
Quick ratio
90 %
Cash ratio
15 %
Current ratio
110 %
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(in %) 2017 2018 2019 2020

Cash ratio 13% 15% 15% 19%
Quick ratio 85% 98% 90% 93%
Current ratio 104% 118% 110% 114%
(in %) 2017 2018 2019 2020

Cash ratio 14% 16% 18% 23%
Quick ratio 93% 94% 93% 89%
Current ratio 123% 124% 121% 115%
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Key ratios: static liquidity analysis (II )

It expresses the proportion of current assets working for a company
(i.e. that is generating sales), without generating capital costs in the
Current Assets closer sense of the word. It is thus the portion of current assets with
Working Capital ./. Cash and cash equivalents long-term financing. The higher the working capital, the more secure
the liquidity position. From an analyst´s perspective, negative working
./. Current, non-interest-bearing liabilities capital may be viewed positively, as suppliers pre-finance the
company`s sale.
Net debt shows the amount of a company`s debt, if all liabilities were
to be repaid using liquid funds. For example, if a company`s liquid
Interest-bearing liabilities funds are greater than its actual debt, then the company is, in fact,
debt-free and it exploits the positive effects on its return on equity via
Net debt (here: loans and borrowings) the leverage effect. However, one must bear in mind that a high level
of cash in turn brings a low return and is thus not reasonable from
./. Cash and cash equivalents the investor`s perspective. In order to be able to properly interpret net
debt, this figure should be considered in connection with the cash
flow (dynamic gearing).
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Key ratios BMW Group: liquidity and coverage analysis (II )
Net debt.
- 104,704
+
+
Working capital -
42,062 -
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(in € Mio.) 2017 2018 2019 2020

Working Capital 34.596 41.235 42.062 35.293
Net debt 85.609 95.025 104.704 92.839
(in € Mio.) 2017 2018 2019 2020

Working Capital 65.237 78.998 81.039 65.506
Net debt 126.574 139.081 152.761 131.392
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Overview

Balance sheet Cash flow

ratios ratios
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2.2 Financial-based analysis – Cash flow ratios
Cash flow analysis: Which company would you invest in?
A B C D
Gross cash flow 20 10 20 10
Change in net working capital 0 10 -10 0
(1) Cash flow from operating activities 20 20 10 10
(2) Cash flow from investing activities -15 -15 -15 -5
(3) Cash flow from financing activities 5 5 15 5
(4) Change in cash and cash equivalents 10 10 10 10
C B/C
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(Simplified) Structure of the statement of cash flows

Net profit/loss for the period
+ Depreciation/amortization (- reversals)
+ Increase (- decrease) provisions
– Increase (+ decrease) in working capital
= Net cash flow from operating activities (net cash flow, operating cash flow) [1]
– Payments for investments
+ Proceeds from divestments
= Net cash flow used in investing activities (investment cash flow) [2]
= Net cash after investment (free cash flow) [1 + 2]
+ Increase (-reduction) of paid-in equity
+ Increase in financial debt
– Payouts for dividends and profit transfers
– Disbursements for repayment of financial debts
= Net cash flow from financing activities (financing cash flow) [3]
= Net change in cash and cash equivalents [1 + 2 + 3]
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(in € Mio.) 2018 2019 2020 2018 2019 2020

Gross cash flow 11.566 10.442 8.764 12.992 8.737 12.598
Change in net working capital -6.821 -7.070 4.049 -14.029 -2.051 7.951
Operating cash flow 4.745 3.372 12.813 -1.037 6.686 20.549
Investing cash flow -7.193 -7.193 -3.473 -8.541 -9.405 -4.638
Free cash flow -2.448 -3.821 9.340 -9.578 -2.719 15.911
Financing cash flow 4.432 4.989 -7.979 13.226 5.628 -10.747
Change in cash and cash equivalents 1.984 1.168 1.361 3.648 2.909 5.164
C B/C
Be aware: - Because of mapping to the analyzing-tool there might be differences to the published cash flows;
- Change in cash and cash equivalents before exchange rate effects!
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Key ratios: dynamic liquidity analysis (IV)
Key figures for dynamic (period-of-time) liquidity analysis

The free cash flow refers to the free funds available to the
Operating cash flow company. These funds describe the company`s potential value
Free cash flow for investors and creditors and are available for reinvestment of
./. Investment cash flow profits, or the payment of interest or credit redemption.
This ratio shows how many years a company would need to be

Debt Gearing ratio Net debt able to repay its (net) debt from its free cash flow. It is also
known as net debt service or duration of debt redemption. A
Dynamic) Free cash flow factor of greater than ten or even a negative cash flow over
several periods may lead to the danger of insolvency.
It expresses the percentage of operating cash flow that was re-

Cash-orientated Investment cash flow x 100 invested. This ratio is dynamic and thus more difficult to impact
than static ratios.
investment rate Operating cash flow
Measure of domestic financing power of the company. A ratio

Cash-orientated Investment cash flow x 100 higher than 100% would indicate further expansion. This ratio`s
growth rate Depreciation/amortization (intangibles/PPE) greatest added value is that the analyst has a figure he can use
to gain a felling for new investments.
Depreciation ratio Depreciation/amortization (intangibles/PPE) It shows the company's ability to “earn” the depreciation/
at Cash Flow Operating cash flow amortization on its own.
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(in % / € Mio.) 2018 2019 2020 2018 2019 2020

Operating cash flow 4.745 3.372 12.813 -1.037 6.686 20.549
Investing cash flow -7.193 -7.193 -3.473 -8.541 -9.405 -4.638
Free cash flow -2.448 -3.821 9.340 -9.578 -2.719 15.911
Financing cash flow 4.432 4.989 -7.979 13.226 5.628 -10.747
Depreciation 5.113 6.017 6.139 6.305 7.751 8.957

Net debt 95.025 104.704 92.839 139.081 152.761 131.392
Cash-orientated investment rate 152% 213% 27% n.a. 141% 23%

Cash-orientated growth rate 141% 120% 57% 135% 121% 52%
Depreciation ratio at operating cf 1,1 1,8 0,5 n.a. 1,2 0,4
Be aware: because of mapping to the analyzing-tool there might be differences to the published cash flows
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It expresses the percentage of operating cash flow that was re-

Cash-orientated Investment cash flow x 100 invested. This ratio is dynamic and thus more difficult to impact
than static ratios.
investment rate Operating cash flow
Measure of domestic financing power of the company. A ratio

Cash-orientated Investment cash flow x 100 higher than 100% would indicate further expansion. This ratio`s
growth rate Depreciation/amortization (intangibles/PPE) greatest added value is that the analyst has a figure he can use
to gain a felling for new investments.
Depreciation ratio Depreciation/amortization (intangibles/PPE) It shows the company's ability to “earn” the depreciation/
at Cash Flow Operating cash flow amortization on its own.
Investment ratio Investment cash flow x 100 It expresses the percentage of revenue that was re-invested.
This ratio is dynamic and thus more difficult to impact than static
at Revenue revenues ratios.
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Key ratios: dynamic liquidity analysis (V)

Total capital-related Free cash flow
free cash flow rate Total equity + interest-bearing liabilities
Total equity-related Free cash flow

free cash flow rate Total equity
Payment-oriented Total equity-related free cash flow rate

leverage index Total capital-related free cash flow rate
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3
Performance-
based
analysis
Overview

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Profitability
Earnings
Liquidity
sources
Cash flow statement
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3.1 Performance-based analysis
Overview

Earnings Profitability Key figures Value-added

Analysis analysis systems analysis
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3.1 Performance-based analysis – Earnings Analysis
Overview
Financial Statement (F/S) Analysis

Earnings
Analysis
Key earnings figures
Structural earnings analysis
Sources of earnings Structure of earnings

(absolute key figures) (relative key figures)
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3.1.1 Performance-based analysis – Earnings Analysis – Key earnings figures
Key earnings figures: From Top-line to Bottom-line

IA = Intangible assets; PPE = Property, plant and equipment
Cost of
Sales
(variable)
Fixed cost excl.
interest, deprecia-
tion, amortization
EBITDA Depreciation
(PPE) and
Revenues
(Sales)
E arnings amortization (IA)
Gross B efore EBIT Interest

profit
I nterest, EBT
T ax, E arnings Tax
D epreciation and Before E arnings Net profit/loss
A mortization I nterest and B efore

(=net result; net
T ax, T ax
income)
Source: Prof. Dr. Ernstberger
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Key earnings figures BMW Group
Revenues
Gross profit
EBITDA ?
EBIT (broader sense) ?
EBT
Net profit/Loss
Always have in mind, how a ratio is defined!
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(in € Mio.) 2017 2018 2019 2020

Revenues 98.678 96.855 104.210 98.990
Gross profit 19.934 18.378 18.063 13.582
EBIT 10.866 9.616 7.438 5.564
Net Profit 8.706 7.064 5.022 3.857
(in € Mio.) 2017 2018 2019 2020

Revenues 164.330 167.362 172.745 154.309
Gross profit 34.331 33.067 29.165 25.588
EBIT 14.899 10.907 4.575 6.957
Net Profit 10.864 7.582 2.709 4.009
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Overview

Earnings
Analysis

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3.1.2 Performance-based analysis – Earnings Analysis – Structural earnings analysis – Sources
Key earnings sources: Earnings split
Revenues
Gross Profit
EBIT
Costs of sales - Operating result (narrow sense)
EBT
EBIT
Selling and distri-
bution expenses
(wider sense) -
Total operating
Administrative costs -
expenses Income Taxes
Other operative Other financial Other financial
income income result
-
Net profit/loss
Other operating Other financial - -
expenses expenses from continous
Interest income operations
Interest result
Interest expense - Net profit/loss
from disconti-
nued operations
Net profit/loss
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Key earnings sources BMW Group
104,210
18,063
7,438
-86,147 - 7,411 (narrow sense)
7,118
EBIT
5,656 (wider sense) -
-10,652 -
3,711
-2,140
1,031 136 27 -
4,978
2,316 - -
-109 from continous
179 operations
-320
-489 - 44
from disconti-
nued operations
5,022
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100 %
17%
7%
83 % - 7% (narrow sense)
7%
EBIT
5% (wider sense) -
-7% -
4%
-2%
1% 0% 0% -
5%
2% - -
0% from continous
0% operations
0%
0% - 0%
from disconti-
nued operations
5%
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3.2.1 Performance-based analysis – Profitability analysis – Key profitability margins – Statement of P/L

BMW Group BMW Group
Revenue 96.855 100% 104.210 100% 7.355 8%
Cost of sales -78.477 81% -86.147 83% -7.670 10%
Groos of results (profit/loss) 18.378 19% 18.063 17% -315 -2%
Operating result (profit/loss) 8.933 9% 7.411 7% -1.522 -17%
Earnings before interest and taxes (EBIT) 9.616 10% 7.438 7% -2.178 -23%
Income taxes -2.530 3% -2.140 2% 390 -15%
Profit/Loss for the period 7.064 7% 5.022 5% -2.042 -29%
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Earnings segmentation HGB vs. IFRS
Segmentation rules
German commercial law IFRS
Listed parent
Large corporation IFRS 8
company
§§ 285 Nr. 4, § 297 Abs. 1 Satz 2

Segmentation by
HGB
314 Abs. 1 Nr. 3 HGB Management Approach
Segmentation
Sales by region and Extensive reporting
according to
product obligations
international standards
DRS 3
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Purpose of segment reporting
Enable a differentiated assessment of a group by:

— better understanding of profitability and financial strength, as well as
— more accurate assessment of the opportunities and risks of the heterogeneous business
Units
— Insight into the structure of the business portfolio
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Key segment information
DRS 3 IFRS 8
Segment result X X
Segment income or revenue with third parties X X(b)
Intersegment segment income and/or revenue X X(b)
Depreciation X X(b)
Interest expense and income X(a) X(b)
Earnings contributions from equity investments X X(b)
Tax expense or income X(a) X(b)
(Material) Non-cash expenses and income
Ð except depreciation and amortization – X X(b)
Segment assets X X
Segment debt X X
Segment investments X X(b)
(a) obligation to disclose, provided that it is part of the segment result (c) disclosure requirement, provided that the asset data are used in the internal control
(b) Conditional disclosure obligation in accordance with IFRS 8.23f
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Key earnings sources by segments BMW Group

Total Key segments
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Overview

Earnings
Analysis

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3.1.2 Performance-based analysis – Earnings Analysis – Structural earnings analysis – Structure
Basic structure of the statement of profit or loss:

total cost method vs cost of sales method
Total cost method Cost of sales method
Revenues Revenues
+/- Changes in the stock of unfinished and finished products - Production costs of the services sold
+ capitalized own services - Sellling and distribution costs
- Operating expenses (material, personnel, depreciation/amortization) - General administrative costs
+ Other operating income + Other operating income
- Other operating expenses - Other operating expenses
Operating result (=EBIT in a broader sense) Operating result (=EBIT in a broader sense)
+ Financial income + Financial income
- Financial expenses - Financial expenses
Financial result Financial result
EBT EBT
- Income taxes - Income taxes
Net profit/loss Net profit/loss
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Structure of the statement of profit or loss: Total cost method

(simplified)
Revenues
± Changes in stock and other capitalized own services
= Operating performance (not gross profit!!!)
– Cost of materials
– Personnel expenses
– Depreciation and amortization
+ Other operating income
– Other operating expenses
= Operating result (=EBIT in a broader sense)
± Financial result
= Earnings before tax (EBT)
– Income taxes
= Net profit/loss (=net result)
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Key ratios: Earnings structure analysis (total cost method)
Key figures for earnings structure analysis (total cost method)
Cost of materials
Material expense ratio Knowledge of manufacturing depth and dependence on suppliers
Operating performance
Personnel expenses Measure of the dependence of the performance of personnel costs.

Personnel expense ratio This ratio can also be used to review how economically labor is being
Operating performance employed.
Depreciation and amortization

Depreciation ratio Measure of the wear and tear of fixed assets.
Operating performance
Income taxes
Tax rate Reference to the tax burden and the design of the tax
Earnings before taxes
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Structure of the statement of profit or loss: Cost of sales method

(simplified)
Revenues
– Cost of sales
= Gross profit
– Selling and distribution expenses
– Administrative expenses
– Research expenses
± Financial result
– Income taxes
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Key ratios: Earnings structure analysis (cost of sales method)
Key figures for earnings structure analysis (cost of sales method)
Cost of sales
Production cost ratio Share of manufacturing costs in revenues
Revenues
Selling and distribution Selling and distribution expenses Measure of the importance of selling and distribution in generating
cost ratio Revenues sales
Administrative expenses Measure of the importance of general administrative in generating

Administrative cost ratio sales
Revenues
Research expenses
Research cost ratio Measure of the importance of research in generating revenue.
Revenues
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Key ratios (cost of sales method) BMW Group
104,210
Production cost ratio

83 %
Selling and distribution Ratio

5,656 5%
Administrative Ratio
3,711 4%
Research expenses not explicitly shown on the face

of the BMW statement of profit or loss! > notes
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(in %) 2017 2018 2019 2020

Production cost ratio 80% 81% 83% 86%
Selling and distribution cost ratio 6% 6% 5% 5%
Administrative cost ratio 3% 4% 4% 4%
(in %) 2017 2018 2019 2020

Production cost ratio 79% 80% 83% 83%
Selling and distribution cost ratio 8% 8% 7% 7%
Administrative cost ratio 2% 2% 2% 2%
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Overview


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3.2.1 Performance-based analysis – Profitability analysis – Key profitability margins
Overview

Profitability analysis
Key profitability margins
Statement of profit or loss Statement of cash flows
Key profitability return – ratios
Key profitability turnover – ratios
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Structure of the statement of profit or loss: Cost of sales method

(simplified)
Revenues
– Cost of sales
= Gross profit
– Selling and distribution expenses
– Administrative expenses
– Research expenses
± Financial result
– Income taxes
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Key ratios: Profitability analysis (cost of sales method)
Key figures for profitability analysis (cost of sales method)
Percentage of the profit contribution of products/services sold. The

Gross profit growth of this indicator shows how a company`s procurement prices
Gross profit margin have changed. It also offers information on the possible latitude
Revenues available for price cuts if competition becomes more intense.
Contribution to earnings from operating activities before considering

the financial performance. This indicator provides information on a
company`s earnings power. The higher the EBIT margin, the stronger
the impact of a change in sales will be on earnings. It no positive
Operating profit margin EBIT EBIT margins are generated over a longer period, then in the case of
established companies, the business model must be questioned. The
(=EBIT margin) Revenues EBIT margin is suitable for use as a relative indicator in international,
cross-industry comparisons of companies. When considered over
time, this indicator provides information on whether a company has
been able to increase its earnings power.
This indicator is a meaningful figure, within a company when

Profit margin comparing individual group units, to assess which unit was able to
Net profit generate which return. This allows a differentiation to be made
(=Return on between profitable and non-profitable business units. However,
Revenues
Revenues/Sales) profits are highly subject to fluctuations, which means that the EBIT
margin is more meaningful than the return on sales.
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Key ratios BMW Group: Profitability analysis on group level
18,063 Gross profit

= margin
104,210 17 %
7,411 EBIT
= margin
104,210 7%
5,022 Profit
= margin
104,210 5%
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Key ratios BMW Group: Profitability analysis with time-comparison

BMW Group BMW Group
Revenue 96.855 100% 104.210 100% 7.355 8%
Cost of sales -78.477 81% -86.147 83% -7.670 10%
Groos of results (profit/loss) Gross profit margin 18.378 19% 18.063 17% -315 -2%
Operating result (profit/loss) EBIT margin 8.933 9% 7.411 7% -1.522 -17%
(in a broader sense)
Earnings before interest and taxes (EBIT) EBIT margin 9.616 10% 7.438 7% -2.178 -23%
Income taxes -2.530 3% -2.140 2% 390 -15%
Profit/Loss for the period Profit margin 7.064 7% 5.022 5% -2.042 -29%
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Key ratios BMW Group: Profitability analysis on segment level
Revenue contribution
! >100 % 88 % 2% 28 %
Gross profit margin 17% 14% 19% 12%
EBIT margin 7% 5% 8% 8%
61 % 3% 31 %
EBIT contribution
Profit margin 5% 3% 6% 6%
63 % 3% 32 %
Profit contribution Difference to 100% =
other segment & eliminations
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Segment Key Figures
Segment revenues
Revenues (Sales) contribution ratio =
Revenues of the group
Segment EBIT
EBIT contribution ratio =
EBIT of the group
Segment profit
Profit contribution ratio =
Profit of the group
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(in %) 2017 2018 2019 2020

(in %) 2017 2018 2019 2020

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3.2.1 Performance-based analysis – Profitability analysis – Key profitability margins
Overview

Key profitability margin – ratios
Income Statement Cash flow statement
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3.2.1 Performance-based analysis – Profitability analysis – Key profitability margins – Statement of cash flows
(Simplified) Structure of the statement of cash flows

Net profit/loss for the period
+ Depreciation/amortization (- reversals)
+ Increase (- decrease) provisions
– Increase (+ decrease) in working capital
= Net cash flow from operating activities (net cash flow, operating cash flow) [1]
– Payments for investments
+ Proceeds from divestments
= Net cash flow used in investing activities (investment cash flow) [2]
= Net cash after investment (free cash flow) [1 + 2]
+ Increase (-reduction) of paid-in equity
+ Increase in financial debt
– Payouts for dividends and profit transfers
– Disbursements for repayment of financial debts
= Net cash flow from financing activities (financing cash flow) [3]
= Net change in cash and cash equivalents [1 + 2 + 3]
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3.2.1 Performance-based analysis – Profitability analysis – Key profitability margins – Statement of cash flows
Key ratios: Profitability analysis (with the statement of cash flows)
Key figures for profitability analysis
Net cash from operating activities (=net cash flow)

Cash flow margin
Revenues
Cash flow margin

72,9%
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3.2.2 Performance-based analysis – Profitability analysis – Key profitability return – ratios
Overview

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Approaches to profitability analysis by return ratios
Addressees Shareholder Investor
Valuation
approach
Carrying amount II. Return on total capital =

I. Return on equity
(Accounting-oriented Return on investment
(RoE)
profitability analysis) (RoI)
Fair value III. Return to shareholder

IV. Market value
(Market-oriented (RtS)
multiples
profitability analysis)
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Key ratios: Accounting-oriented profitability analysis

(shareholder perspective)
Key figures for (accounting orientated) profitability analysis (shareholder perspective)

Measures how much income is earned for the shareholders on their
invested capital. A company’s target must be to generate a return
Return on Equity Net profita) that corresponds to the interest rate on the capital markets plus an
(RoE) Æ Equityb) industry-dependent risk premium (in generally 5 – 10 %). Given
constant profits, the return on equity increases the lower the level of
equity employed is (leverage effect!)
Return on assets Net profita) Measures how profitably a firm uses its assets. Alternative
numerators: EBT, EBIT, EBITDA).
(RoA) Total Æ assets
a) Theoretically correct is the term: net result, as this comprises net profit or net loss; however in practice net profit is used assuming that companies normally
have a profit as a result of its activities. Therefore, in the lecture the term net profit is used.
b) In practice, the average values (=(value at the end of the period + value at the beginning of the period)/2) is taken to correspond to the period-of-time figure.
For reasons of simplifications, in the lecture the point-of-time value at the end of the period is used.
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(investor perspective)
Key figures for (accounting orientated) profitability analysis (investor perspective)
Return on Investment EBIT Interest on the total capital used. This indicator is generally used as a
(RoI) Total Æ capitala) starting point for all further analyses using profitability indicators.
EBITb)
Æ Capital employed Measures how much a firm earns on long term external financing.
Return on Capital However, the problem with RoCE is that the indicator is based on
employed Common definition for Capital employed: residual book values. This means that the returns would always
increase over time, even if the company made no further
(RoCE) Simplified: Total assets ./. Current liabilities investments.
Alternative: Fixed assets, necessary for
operations + working capital)
a) In practice, the average values (=(value at the end of the period + value at the beginning of the period)/2) is taken to correspond to the period-of-time figure.
b) In practice, also net profit is taken instead of EBIT
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Key ratios BMW Group: RoI and RoE
RoE
8,4 %
RoI
2,2 %
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Key ratios: IFRS (diluted) earnings per share
Net profit – preferred dividends This indicator is used most often to describe a company`s
(Basic) Earnings per performance over time and is one of the basics of company
Weighted average of total common shares valuation. The calculation depends on the regulation in the
Share (EPS)
outstanding accounting standards (IFRS, US-GAAP)
Net profit – preferred dividends + Interest This indicator takes into consideration the potential impact of
(Diluted) Earnings per expenses for convertible bonds( t-1) corporate actions (e.g. capital increases) and/or stock option plans.
As soon as stock options or convertible bonds are converted into
Share (EPS) Weighted average of total common shares stocks, the number of total shares outstanding rises, which results in
outstanding + converted shares a negative impact on earnings per share, diluted.
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Disclosures to Earnings per share in the notes
on the face
: of the
: statement
of profit of
= loss
=
Explanation of the calculation of the

Earnings per share – rations in the notes
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(in % / in €) 2017 2018 2019 2020

Return on Assets 4,5% 3,3% 2,2% 1,8%
Return on Equity 16,0% 12,2% 8,4% 6,3%
Return on Investment 5,6% 4,6% 3,3% 2,6%
Basic earning per share (in €) 13,12 10,60 7,47 5,73
(in %) 2017 2018 2019 2020

Return on Assets 4,3% 2,7% 0,9% 1,4%
Return on Equity 16,6% 11,5% 4,3% 6,4%
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Key ratios: Market-orientated profitability analysis

Key figures for (market-orientated) profitability analysis (shareholder – perspective)

(year-end closing price – prior year-end closing price This indicator shows the (theoretical) return
Return to Shareholder
+ dividend per share) x 100 a shareholder earned in the period by
(RtS) dividends + change of the share price.
prior year-end closing price
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The book value of equity represents the
quality of the company`s assets. However,
one must consider that hidden assets may
Market capitalization show book values which are significantly
Market-to-book ratio
(=Total common shares outstanding x price per share) below their current fair value. In general, a
(=price to book ratio) low market-to book value indicates that a
Equity company is valued low. As a rule, the ratio
is greater 1, i.e. the shareholder pays a
premium for the positive prospects.
This ratio expresses the factor by which the

company`s current profits are valued on the
stock market. At the same time, a high ratio
can mean that the quality of profits in future
years is increasing strongly and that the
Price per share ratio will decrease accordingly in the
Price earnings ratio futures. It is suitable for a quick comparison
(Diluted) Earnings per share within one year and on industry. In general,
one talks of overvaluation (>10) or
undervaluation (<10) of the stock market.
The ratio is a highly volatile indicator that is
strongly based on external expectations
and influences.
Why is the market capitalization of healthy companies higher than equity? Because the market capitalization also reflects
expectations for the company's growth. In addition, the additional value that cannot be accounted for, such as brand
value, is included in the market capitalization.
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Stock and capital markets key performance indicators (KPIs)
Try to find out!

Solution in the
lecture
= 7,0%
Return
to shareholder
In accordance with
IFRS
Profit distribution to shareholders
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Stock and capital markets key performance indicators (KPIs)
31.12.2019 31.12.2018
73,14 - 70,70 + 2,50

70,70
x 100
= 7,0%
Return
to shareholder
In accordance with
IFRS
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(in % / multiple) 2017 2018 2019 2020

Return to Shareholder 2,3% -14,5% -12,9% 4,9%
Market - to - book ratio (multiple) 1,0 0,7 0,7 0,7
Price earnings ratio (year-end) 6,6 6,7 9,8 12,6
(in % / multiple) 2017 2018 2019 2020

Return to Shareholder 5,4% -30,6% 9,5% 18,9%
Market - to - book ratio (multiple) 1,2 0,7 0,8 1,0
Price earnings ratio (year-end) 7,2 6,8 22,2 17,0
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Market value multiples
Net valuation Gross valuation
Earnings-oriented Cash flow-oriented
Market value of the Market value of the

Market value of equity
entity entity
EBT EBIT EBITDA
Market value of equity = Price per share * Number of common shares outstanding
Market value of entity = Market value of equity + Net financial debt
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3.2.2 Performance-based analysis – Profitability analysis – Key turnover return – ratios
Overview

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3.2.3 Performance-based analysis – Profitability analysis – Key profitability turnover – ratios
Turnover – ratios and Runtime – ratios
Period - of – time figure

Turnover-ratio =
(Averaged) period – of – point figure
Income statement figure

Turnover-ratio =
(averaged) balance sheet figure
Have in mind: Runtime-ratios/Outstanding – Ratios are the counterpart of turnover – ratio
Runtime – ratio 1
=
(Outstanding – ratio) Turnover – ratio
Runtime – ratio 365

=
(Outstanding – ratio) Turnover – ratio
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Key ratios: Turnover

Key figures for the analysis of the profitability – turnover ratios
The ratio provides information on the speed
Cost of sales at which inventories are sold and provides
Inventory turnover Æ inventories*)
observers with an indicator which can be
used to calculate the company`s
performance.
The lower the indicator, the greater the

danger for the company that, if a customer
becomes unable to make payment, the
company itself will run into liquidity
Revenues problems. When analyzing this indicator,
Receivables turnover Æ trade receivables one must also consider the number of
debtors over which the receivables are
distributed on average. If the ratio is too
low, this can generally be optimized by
active credit control.
This ratio shows the company`s payment

practices in the period under review. A
reduction over a specific period can mean
that the company’s ability to make payment
Cost of sales x (1+VAT) is deteriorating and that it is tending to pay
Payables turnover Æ trade payables*)
liabilities at an increasingly later date.
However, a reduction can also represent a
positive development if the company is
making increasing use of payment targets
and thus means more profitable use of its
own liquidity.
*) In practice, the average values (=(value at the end of the period + value at the beginning of the period)/2) is taken to correspond to the period-of-time figure.
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Key ratios: Runtime

Key figures for the analysis of the profitability – runtime ratios
Æ inventories*) x 365 This ratio shows how many days a
Day inventory outstanding Cost of sales
company needs to sell the inventories it has
bought in.
It shows the average number of days it

takes for a receivable to be paid (customer
target). The longer this period, the worse for
Æ trade receivables*) x 365 the company, as the debtor is granted a
Days sales outstanding Revenues
interest-free loan for this period. An
increase in this ratio can also be due to
large sales being booked just before the
end of the year or customers delaying
payment to the upcoming fiscal year.
The ratio shows the average number of

days needed for trade liabilities to be paid
by the company. A long turnover period at
Æ trade payables*) x 365 first improves the company’s liquidity. On
Days payables outstanding Cost of sales x (1+VAT)
the other hand, if a company does not have
professional cash management, financing
by means of trade payables can become
very expensive when the company does not
take advantage of discounts.
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(multiple / days) 2017 2018 2019 2020

Inventory turnover (multiple) 6,2 5,5 5,4 5,7
Days inventory outstanding (in days) 59 66 67 64
Days sales outstanding (in days) 129 155 154 142
Days payables outstanding (in days) 38 38 36 31
(multiple / days) 2017 2018 2019 2020

Inventory turnover (multiple) 5,1 4,6 4,8 4,9
Days inventory outstanding (in days) 72 80 76 75
Days sales outstanding (in days) 114 127 133 126
Days payables outstanding (in days) 29 32 27 29
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Overview


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3.3 Performance-based analysis – Key figures systems
Analysis of Return on Equity (=RoE) (shareholder perspective)
Return on Equity
Net profit Revenues
x
Equity Revenues
Net profit Revenues

= x
Revenues Equity
Profit margin
(Return on revenues/Sales)
x Equity turnover
Statement of profit or loss Statement of financial position
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Example: Analyse of Return on Equity (=RoE) (shareholder perspective)
A B C
Net profit 10 Mio. 12 Mio. 8 Mio.
Equity 50 Mio. 120 Mio. 80 Mio.
Return on Equity 20% 10% 10%
Revenues 100 Mio. 120 Mio. 160 Mio.
Return on sales (=Profit margin) 10% 10% 5%
Equity turnover 2 1 2
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Example: Analyse of Return on Equity (=RoE)
Return on sales (=profit margin)
20%
15%
10% A
B Return on
Equity
5% 20%
C
10%
1 2 3 4 Equity turnover
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Analysis of Return on Investment (=RoI) (investor perspective)
Return on Investment
(Return on total capital)
EBIT Revenues
x
Total capital Revenues
EBIT Revenues
= x
Revenues Total capital
EBIT margin x Capital turnover
Statement of profit or loss Statement of financial position
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Revenues The tact that a company turns over its

Capital turnover assets quickly generates margin. A
Æ Total capital*) company with an equal return on revenues
but a lower ratio of revenues to total capital
would generate lower profits due to the
higher fixed costs and capital lock-up costs.
Equity turnover Revenues It is also true that the higher this ratio, the
Æ Equity*) lower the amount of capital required (due to
the shorter pre-financing period)
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Analysis of Return on Investment (RoI)
Cost of materials Selling and distribution expenses
Administrative expenses
Personnel expenses Operating costs
R&D expenses Operating
Cost of Sales - result
External service costs Other income & expenses (EBIT) EBIT
margin
Cost for Tooling Gross profit :
-
PPE and intangible assets,
Revenues x
Non-current assets
financial assets
Return on
Raw materials
: Capital
Investment
(RoI)
turnover
Total
Auxiliary and consumables
+ capital
Inventories
Unfinished products
Current assets
Finished products
Trade receivables -
Trade payables
Cash and cash equivalents
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Key figure system: BMW Group
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. BMW Group vs Daimler Group
(in % / multiple) 2017 2018 2019 2020

EBIT margin 11,0% 9,9% 7,1% 5,6%
Capital turnover (multiple) 0,5 0,5 0,5 0,5
(in % / multiple) 2017 2018 2019 2020

EBIT margin 9,1% 6,5% 2,6% 4,5%
Capital turnover (multiple) 0,6 0,6 0,6 0,5
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Du Pont Key figures system
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Key figure system for a market-oriented share profitability analysis
Analysis of share profitability

Dividend yield Price-to-earnings ratio
Dividend per share * 100 Price per share
Price per share Earnings per share
Dividend per share Earnings per share

Net profit attributable to common
Dividends paid
: Price per share : shareholders
Common shares outstanding Common shares outstanding
Dividend coverage ratio

x Net profit attributable to common shareholders =
Dividends paid
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Key market-oriented share ratios

Key figures for the analysis of the market-oriented share profitability
By comparing the dividend per share to its
Dividend paid actual share price the interest can be
Dividend per share Common shares outstanding compared to other peer group companies
for evaluating a company`s attractiveness.
It shows the effective interest rate for the

capital invested in shares. It is particularly
Dividend per share x 100 important, especially for comparisons with
Dividend yield Price per share other forms of investment such as bonds.
However, investor must consider the fact
that dividend payments are much less
certain than coupon payments for bonds.
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Market-oriented share profitability analysis BMW Group
31.12.2019 31.12.2018
73,14 - 70,70 + 2,50

70,70
x 100
= 7,0%
Return
to shareholder
In accordance with
IFRS
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Market-oriented share profitability analysis BMW Group
Price per
share
73,14
Dividend
-yield
3,4%
Price-to
earning
ratio
9,8
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(in % / in € / multiple) 2017 2018 2019 2020

Dividend per share (in €) 4,00 3,50 2,50 1,90
Year-end closing price (in €) 86,83 70,70 73,14 72,23
Dividend yield 4,6% 5,0% 3,4% 2,6%
Price-to earnings ratio (multiple) 6,6 6,7 9,8 12,6
(in % /multiple) 2017 2018 2019 2020

Dividend per share (in €) 3,65 3,25 0,90 0,90
Year-end closing price (in €) 70,80 45,91 49,37 57,79
Dividend yield 5,2% 7,1% 1,8% 1,6%
Price-to earnings ratio (multiple) 7,2 6,8 22,2 17,0
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Overview


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3.4 Performance-based analysis – Value-added analysis
Overview
Shareholder Stakeholder
Profit Value added
Productivity
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Use of income and recipients of income in value added accounting
Value
usage
Withholding Distribution
Value
receivers
1. Employees Wages, salaries, royalties,

Investment wage
(Income from work) social levies, pensions
2. State (public sector)

Deferred taxes Effective taxes(- Subsidies)
(Common income)
3. Debt investors (finance sector)

– Interest
(Borrowing income)
4. Equity investors (shareholders)

Profit retention Profit distribution
(Equity income)
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Simplified: Value added statement

Work performed: Total ouput
Value
usage – Bought-in costs
= Gross value added
– Depreciation/amortization
= Net value added
Allocation: Employees
+ State
+ Debt investors
+ Equity investors
+ others
= Net value added
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Value added statement BMW Group
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Linking value-added and profitability analysis
Labour productivity Capital productivity Profitability

Value added Total capital
Value added Net profit Net profit
Number of = Number of x x =
Total capital Value added Total capital
employees employees
= =
Revenue
Net profit
Number of
employees Revenue
x x
Value added Revenue
Revenue Total capital
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Matrix of labour and capital productivity
Capital productivity
2018 2019
Value added (Mio. €) 24,542 22,189
Value added
Total capital (Mio. €) 211,304 228,034 Total capital
Capital productivity 11,6% 9,7%
Number of employees 134,682 133,778

Increasing staying Decreasing
Labour productivity (%) 18,2% 16,6%
Labour productivity
to be determined
Increasing Very good good
more closely
Value added
Number of employees staying Well Static Bad
Value added
to be determined
Decreasing Bad Very bad
Number of hours more closely
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Thank you
for listening
Prof. Dr. Bernd Grottel

Mitglied des Vorstands
T +49 89 28644-5110
M +49 173 5764310
BGrottel@kpmg.com
KPMG Bayerische Treuhandgesellschaft AG

Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft
Ganghoferstraße 29
80339 München
Appendix:
Key ratios
relevant for
exams!
Key ratios: asset structure
Key figures on asset structure

The higher the asset intensity, the longer financial funds are locked
Fixed assets x 100 up and – as a rule – the higher the associated fixed costs. The
Fixed asset intensity Total assets smaller this ratio, the less capital is tied-up over the long term. The
ratio provides information on the company`s ability to adapt to
changing market conditions. When considering the asset intensity,
Fixed asset = Intangible assets + PPE + leased assets the company`s respective industry must also be considered.
It shows the percentage of total capital which is locked-up in current

assets. A high ratio is generally to be viewed positively, as current
Current assets x 100 assets can be liquidated quickly. However, an extremely high ratio
Current asset intensity can indicate excessive stock levels, which push up warehousing
Total assets costs. More detailed analysis of the current assets should cover the
level of receivables and inventories in greater detail.
Both ratios show a company`s stability or flexibility, however

Non-current assets x 100 typical asset structures in the respective industry should also be
Asset structure considered.
Current assets
A low asset structure ratio can mean two things:
- A low level of fixed assets allows the company to react more

flexibly to changes on the market and fixed costs are lower due to
Fixed asset x 100 shorter capital lock-up period for all assets.
Fixed asset structure Current assets
- A company is working with assets that have already been written
Fixed asset = Intangible assets + PPE + leased assets off. This allows to assume that the technology used is out of date.
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The more equity a company has available the better its credit-
worthiness, the higher its financial stability and the more independent
Equity ratio Equity x 100 the company is from lenders. However, as equity is more expensive
(intensity) Total capital*) than debt, a high equity ratio, depresses the return on capital
employed.
The debt ratio also allows assumptions to be made about a

Debt (leverage) ratio Total liabilities*) (Debts) x 100 company`s financial stability. The growth of this ratio should always
be considered together with the company`s assets. It these include
(intensity) Total capital*) hidden liabilities as a result of lower market values, this has a
negative impact on the leverage ratio.
This ratio expresses what percentage of total liabilities will acutally

lead to a cash outflow to external creditors on a short-term basis.
Current liabilities x 100 Companies in danger of insolvency show an increased percentage of
Leverage structure leverage structure that solvent companies. For an ongoing analysis
Total liabilities the maturity and conditions of all liabilities components should be
taken into account.
This ratios shows the relationship between a company`s debt and

equity financing. In general, the higher the gearing ratio, the more
Debt gearing ratio Total liabilities x 100 dependent a company is on external creditors. However, the gearing
(static) equity ratio should never be considered alone, but always in connection
with the company`s earnings position (leverage-effect!)
*) Note: Financial analysts often only use total liabilities as the sum of interest-bearing liabilities plus the capitalized value of future leasing commitments; and therefore those
liabilities are included in the total capital. In the lecture, there will be no differentiation!
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Key ratios: static liquidity analysis (I)
Key figures for static (point-of-time) liquidity analysis (I)

This ratio demands that the capital lock-up period does not exceed
the period for which the capital has been made available, i.e. that the
„Golden balance assets tied in to the company for the long-term are covered by long-
Fixed assets £1
sheet rule“ term capital. It a company does not uphold this rule, it may become
Total equity forced to sell assets in order to service current liabilities. Long-term
(Investment coverage) capital can be defined exclusively by equity or in broader sense with
non-current liabilities.
This ratio is the counterpart to the investment coverage ratio above.

Asset coverage ratio It answers the question of the extent to which the fixed assets, which
Total equity x 100 should be available to the company over the long term, are covered
(Principle of matching by equity that remains in the company for an equally long term. The
Fixed assets
maturities) higher the ratio is, the better, as this means that parts of the current
assets are also being financed long-term.
These ratios state that the terms between obtaining and repaying
capital on the one hand and the use of capital on the other should be
“Golden financing rule” in line with each other. According to this rule, capital may not be tied
Current liabilities £1
(Principle of matching up in assets for a longer period that the capital is available to the
Current assets company. If a company finances a long-term investment (e.g. a
maturities) machine) with short-term financing, the loan become due before the
income reuiqred to repay the loan has been generated.
Fixed asset = Intangible assets + PPE
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Key ratios: static liquidity analysis (II)
All ratios are often used for evaluating a company`s creditworthiness.

Cash ratio Cash and cash equivalent * 100 They show the relationship between liquid assets to payment
(Liquidität 1. Grades) Current liabilities commitments. Liquid or current assets include cash and cash
equivalents, marketable securities, total receivables and total
inventory etc. The various ratios show the extent to which the current
liabilities are covered by current assets.
As a rule of thumb, a current ratio of less than 100% is being

regarded as threatening the company`s existence.
Quick ratio (Current assets – inventories) x 100
(Liquidität 2. Grades) Current liabilities Bankers use the quick ratio to determine how quickly a company
can pay off its current liabilities in case assets need to be converted
into cash.
The quick ratio differs from the current ratio in that it excludes
inventory. The logic behind this is that while inventory may have
been paid for and has value, it may not necessarily be converted into
Current ratio Current assets x 100 cash quickly. As a rule of thumb, the quick ratio should exceed
100%, thus current liabilities are covered by the company`s cash
(Liquidität 3. Grades) Current liabilities position and its total receivables.
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Key ratios: static liquidity analysis (II )

It expresses the proportion of current assets working for a company
(i.e. that is generating sales), without generating capital costs in the
Current Assets closer sense of the word. It is thus the portion of current assets with
Working Capital ./. Cash and cash equivalents long-term financing. The higher the working capital, the more secure
the liquidity position. From an analyst´s perspective, negative working
./. Current, non-interest-bearing liabilities capital may be viewed positively, as suppliers pre-finance the
company`s sale.
Net debt shows the amount of a company`s debt, if all liabilities were
to be repaid using liquid funds. For example, if a company`s liquid
Interest-bearing liabilities funds are greater than its actual debt, then the company is, in fact,
debt-free and it exploits the positive effects on its return on equity via
Net debt (here: loans and borrowings) the leverage effect. However, one must bear in mind that a high level
of cash in turn brings a low return and is thus not reasonable from
./. Cash and cash equivalents the investor`s perspective. In order to be able to properly interpret net
debt, this figure should be considered in connection with the cash
flow (dynamic gearing).
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Key ratios: Earnings structure analysis (cost of sales method)
Key figures for earnings structure analysis (cost of sales method)
Cost of sales
Production cost ratio Share of manufacturing costs in revenues
Revenues
Selling and distribution Selling and distribution expenses Measure of the importance of selling and distribution in generating
cost ratio Revenues sales
Administrative expenses Measure of the importance of general administrative in generating

Administrative cost ratio sales
Revenues
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Key ratios: Profitability analysis (cost of sales method)
Key figures for profitability analysis (cost of sales method)
Percentage of the profit contribution of products/services sold. The

Gross profit growth of this indicator shows how a company`s procurement prices
Gross profit margin have changed. It also offers information on the possible latitude
Revenues available for price cuts if competition becomes more intense.
Contribution to earnings from operating activities before considering

the financial performance. This indicator provides information on a
company`s earnings power. The higher the EBIT margin, the stronger
the impact of a change in sales will be on earnings. It no positive
Operating profit margin EBIT EBIT margins are generated over a longer period, then in the case of
established companies, the business model must be questioned. The
(=EBIT margin) Revenues EBIT margin is suitable for use as a relative indicator in international,
cross-industry comparisons of companies. When considered over
time, this indicator provides information on whether a company has
been able to increase its earnings power.
This indicator is a meaningful figure, within a company when

Profit margin comparing individual group units, to assess which unit was able to
Net profit generate which return. This allows a differentiation to be made
(=Return on between profitable and non-profitable business units. However,
Revenues
Revenues/Sales) profits are highly subject to fluctuations, which means that the EBIT
margin is more meaningful than the return on sales.
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Measures how much income is earned for the shareholders on their
invested capital. A company’s target must be to generate a return
Return on Equity Net profita) that corresponds to the interest rate on the capital markets plus an
(RoE) Æ Equityb) industry-dependent risk premium (in generally 5 – 10 %). Given
constant profits, the return on equity increases the lower the level of
equity employed is (leverage effect!)
Return on assets Net profita) Measures how profitably a firm uses its assets. Alternative
numerators: EBT, EBIT, EBITDA).
(RoA) Total Æ assets
a) Theoretically correct is the term: net result, as this comprises net profit or net loss; however in practice net profit is used assuming that companies normally
have a profit as a result of its activities. Therefore, in the lecture the term net profit is used.
b) In practice, the average values (=(value at the end of the period + value at the beginning of the period)/2) is taken to correspond to the period-of-time figure.
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Key figures for (accounting orientated) profitability analysis (investor perspective)
Return on Investment EBIT Interest on the total capital used. This indicator is generally used as a
(RoI) Total Æ capitala) starting point for all further analyses using profitability indicators.
a) In practice, the average values (=(value at the end of the period + value at the beginning of the period)/2) is taken to correspond to the period-of-time figure.
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(year-end closing price – prior year-end closing price This indicator shows the (theoretical) return
Return to Shareholder
+ dividend per share) x 100 a shareholder earned in the period by
(RtS) dividends + change of the share price.
prior year-end closing price
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Revenues The tact that a company turns over its

Capital turnover assets quickly generates margin. A
Æ Total capital*) company with an equal return on revenues
but a lower ratio of revenues to total capital
would generate lower profits due to the
higher fixed costs and capital lock-up costs.
Equity turnover Revenues It is also true that the higher this ratio, the
Æ Equity*) lower the amount of capital required (due to
the shorter pre-financing period)
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Key market-oriented share ratios

Key figures for the analysis of the market-oriented share profitability
By comparing the dividend per share to its
Dividend paid actual share price the interest can be
Dividend per share Common shares outstanding compared to other peer group companies
for evaluating a company`s attractiveness.
It shows the effective interest rate for the

capital invested in shares. It is particularly
Dividend per share x 100 important, especially for comparisons with
Dividend yield Price per share other forms of investment such as bonds.
However, investor must consider the fact
that dividend payments are much less
certain than coupon payments for bonds.
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Financial Statements Analysis: Prof. Dr. Bernd Grottel Certified Public Accountant & Tax Advisor

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Financial

"There are two sides of the balance sheet – the left

What is it all about?

Accounting Policy Financial Statement Analysis

 Expectations must be anticipated  Accounting policy must be decoded

Module 03 AP Module 02 FSA

Financial Statements (F/S) Analysis

Strategic-based analysis (not relevant)

Case Study: BMW Group and Daimler Group

BMW AG – Group: Daimler AG – Group:

— Headquarter: Munich — Headquarter: Stuttgart

Financial Statements (F/S) Analysis

Strategic-based analysis (not relevant)

Financial Statements (F/S) Analysis

Purpose & Types of Preparation Objects

Term “balance sheet analysis”

„Balance sheet analysis consists of the breaking up of the annual

„Balance sheet analysis is the methodological analysis of the

Term “balance sheet analysis”

Balance sheet analysis

(= "Balance sheet analysis“

— Statement of profit or loss and

other comprehensive income

Other information, such as:

Purpose and function 1/2

Purpose and function (2/2

— The analysis of the results of operations is intended to show the company-specific

Target and analysis levels

Target (system) of the company

Financial statements analysis

Source: Based on Coenenberg/Haller/Schultze (2009), page 1014

Phase concept of value generation

Source: Based on Coenenberg/Haller/Schultze (2009), page 1016

Financial Statements (F/S) Analysis

Purpose & Types of Preparation Objects

Absolute key figures

Absolute key figures

However, the significance of this information is

Source: BMW Group Annual Report 2019

Trend anaysis with absolute key figures

Within-company comparison over time

Source: BMW Group Annual Report 2019

Trend anaysis with absolute key figures

Between-company comparison at the

However, the significance of this information is

Absolute vs relative key figures

Absolute key figures Relative key figures (ratios)

Within-company comparison to last year

BMW 17,3% Gross profit

Types of relative key figures

Absolute key figures Relative key figures (ratios)

Breakdown figures Relationship figures Index figures Other metrics

Comparison of partial sizes

Source: BMW Group Annual Report 2019

Source: BMW Group Annual Report 2019

Index numbers are useful for

Source: Reuters / BMW Group Annual Report 2019

59,907 Ratio of equally ordered

Source: BMW Group Annual Report 2019

Types of relative key figures

Breakdown figures Relationship figures Index figures Other metrics

Need to keep in mind:

2. Most key figures have little significance in themselves. i.e.: