FINANCIAL ANALYSIS

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STRATEGIC AUDIT
OF
VOLKSWAGON AG.SID# 1546886/1
WORD COUNT: 4000

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ABSTRACT
This paper represents the individual undertaking of a critical strategic analysis of Volkswagen
Ag. The paper comprising of two parts Part A and Part B. Part A contains data collected and
presented as a group presentation and Part B represents the individual undertakings of the
Author. In this study, the author examines the current strategic position of Volkswagen Ag, based
on an in-depth evaluation of its internal and external environment. The resource competencies
and capabilities are critically appraised together with the macro business environment of the
airline industry to determine where value added lies, and the extent of alignment with its
environment, which can result in the enviable and sustainably competitive position of strategic
fit.
Informed by the findings of the study, a recommendation is offered for the future strategic
direction of Volkswagen Ag. In making this recommendation the author takes into account the
financial implications for Volkswagen. Its feasibility, acceptability and suitability are considered
and are bolstered by a comprehensive implementation plan.

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ACKNOWLEDGEMENT
The author acknowledges the effort and contributions of colleagues as well as the course
facilitator in the production of this material

DELIMITATIONS
The scope of the report has been delimitations of the parameters of the parameters of the
question in application to Volkswagen.

ETHICS
The opinions expressed in this report are a result on an objective interpretation of the data
collected. There was no bias, subjectivity or any interference in the judicial process and objective
criteria

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METHODOLOGY
Research Philosophy
-

Ontological perspective, mixed method approach using data triangulation

Data Collection
-

Primary Key informant interview, Lynch (2009) and Johnson & Scholes (2008);
existing theories

Secondary data Annual Reports, Online Sources, Other published but validated
information

RESEARCH OBJECTIVES
1. To analyze the current situation at Volkswagen Ag through the critical evaluation of its
internal and external business environment
2. To critically assess the strategic resource capabilities of Volkswagen Ag.
3. To examine the extent to which Volkswagen Ag is a strategically fit to deliver its goals
and objectives
4. To provide a critical appraisal of the range of strategic options available to Volkswagen
Ag through the application of available theories, concepts, literature and best practices as
it relates to strategies management
5. To determine a new future strategic direction for Volkswagen Ag.

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Table of Contents
1.0

COMPANY OVERVIEW AND STRATEGIC HISTORICAL PERSPECTIVE.......................1

2.0.............................................................................................................................. 2
3.0

INTERNAL ENVIRONMENTAL ANALYSIS..............................................................3

3.1
3.1.1
3.2
3.2.1
3.3
3.3.1
3.4
3.4.1

Financial Analysis........................................................................................ 3
Financial SWOT Overview........................................................................3
Value Chain Analysis................................................................................... 3
Value Chain SWOT Overview...................................................................3
Mc Kinsey 7S Model.................................................................................... 3
Mc Kinsey 7S SWOT Overview.................................................................3
Cultural Analysis......................................................................................... 3
Turners Cultural....................................................................................... 3

4.0

IMPLICATIONS OF STRENGHTS AND WEAKNESSES............................................3

5.0

EXTERNAL ENVIRONMENTAL ANALYSIS.............................................................3

6.0

5.1

Market Definition and Scope.......................................................................3

5.2

Industry Overview....................................................................................... 3

5.3

PESTTLE...................................................................................................... 3

5.4

Customer Analysis...................................................................................... 3

5.5

Porters Five Forces..................................................................................... 3

5.6

Competitor Analysis.................................................................................... 3

ASSESSMENT OF STRATEGIC RESOURCE CAPABILIITIES....................................3

6.1

Strategic Capabilities..................................................................................4

7.0

IMPLICATIONS OF OPPORTUNITIES AND THREATS.............................................4

8.0

EVALUUATION OF STRATEGIC FIT.......................................................................4

REFERENCES............................................................................................................... 4
APPENDICES............................................................................................................... 6
Appendix II : VW Balance Sheet- Five Year Trend................................................................7
Appendix III : VW Cash Flow Statements- Five Year Trend.....................................................8
Appendix IV: VW Ratio Table- Five Year Trend....................................................................9

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1.0 COMPANY OVERVIEW AND STRATEGIC HISTORICAL

PERSPECTIVE
The Volkswagen AG (VW) is a German multinational automotive manufacturing company,
established in 1946 with its headquarters in Wolfsburg, Germany. VW is one of the worlds
leading automobile manufacturers and the largest carmaker in Europe. It designs, manufactures
and distributes passenger and commercial vehicles, motorcycles, engines, and turbo machinery
and offers related services including financing, leasing and fleet management through it
Financial Services division. VW has approximately 340 subsidiaries, operates 119 production
plants in 31 countries and sells its vehicles in 153 markets. VW has a worldwide staff of
approximately 592,586 and produces the second largest number of vehicles in the world. VW is a
public company and has it primary listing on the Frankfurt Stock Exchange, where it is a
constituent of the Euro Stoxx 50 stock market index, and secondary listings on the London Stock
Exchange, Luxembourg Stock Exchange, New York Stock Exchange and SIX Swiss Exchange.
VW trades under the symbol(VLKAY).
VMOST- Describe company purpose, market position

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2.0 SITUATIONAL ANALYSIS

3.0 INTERNAL ENVIRONMENTAL ANALYSIS
3.1

Financial Analysis

The financial analysis reveals that VW major growth strategy has been acquisitions
and mergers. Although several of these acquisitions were not to drive immediate
financial returns. The analysis revealed that VW core business fdrivers are the
revenues from
The core cost drivers of the business is .
Examilation of VW historical performance limited to the five year period 2010 to
2014 has had positive revenue growth however the impact on profit margins has
been marginal.

3.1.1

Financial SWOT Overview

INTERNAL ANALYSIS- FINANCIAL

ELEMENT

IMPACT ON THHE COMPANY

STRENG

WEAKNE

HT

SS

Product
Portfolio
Price
Strategic
Financial
Analysis
(SFA)
Profitability
Gross Profit

Have been constant over 5 year period as a

Margin

result oof increased revenueas net sales

increased. However have no major impact on

Net Profit

company's profit margins

Inconsistent, with increasse in operating

Margin

expenses mainly as a result of business

expansion and acquisition related cost

YES

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Return on

ROCE grew in 2010 because of the increased net

Assets

earnings due to the recovery of the economy.

However, because of the significant capital outlay
and increased liabilities in 2011-2012 for the
acquisition of Porsches, Ducati and equity on
MAN SE and the yet to be realized earning from
these acquisitions in the short term, the ROCE

Return on

trended downwards.
ROE had a steady incline from 2010 to 2012 with

Stokholder

the growth in net income attributable to increase

Equity

revenue from acquisition activities and recovery

of the economy. However, in 2012 ROE dropped
sharply as VW funded its acquisitions, strategic
growth and investment program by issuing
shares. 2014 saw a modest increase of 3%
indicating the reduction of investment
expenditure.

Liquidity
Current Ratio

Both current ratio and acid test were high in 2010

& Quick

resulting from the positive effect of the capital

increase which increase liquidity in the period. By
2011, there was a decrease in liquidity because
of acquisition activities and related cash outflows.

Activity
Ratio
Accounts

Receivable has been consistent with no

Receivable

fluctuation despite the increase in sales over the

period. VW has strong credit policies and
management.

Account
Payable
Inventory

Although sales increased from the period 2010 to

Turnover

2014, because of the increased stock from the

full consolidation Porsche, MAN SC, the Scania
subsidiaries, inventory increase at a faster rate of
sales thus the inventory turnover trended
downward to 2014

Leverage

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Debt to Assets

Debt to assets is relatively constant withstanding

the accumulation of assets. This suggests that
the debt portion of VW financing portfolio is
decreasing indicating that VW is using more
equity than debt.
Debt to equity rose by 101% in 2010 from debt

Debt to Equity

incurred in the acquisition of Scania, initial

interest in MAN and Porsche as well as the
Capital Increase. The debt to equity moved
downward from 2011 as less debt was used to
finance business growth and investment
activities as these were funded by equity.
Shareholder
Value
Analysis
(SVA)
Price-Earning

Price per share rose steadily in 2011 to 2013 with

an 11% increase in 2012 and 93% increase in
2013 largely driven by the positive measurement
effect from the integration of Porsche SE and
effect of the mandatory convertible note issued
in November 2012 and supplemented in 2013.
Share price surged downwards from 2013 from
fluctuations of the volatile market and overall
underperforming auto industry in that period.

MarketValue
Dividend Ratio

DSP has increased steadily from 2010 to 2014

because of the increase in VW net profit year
over year generated from the business growth
and new acquisitions.

3.2

Value Chain Analysis

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3.2.1
3.3

Value Chain SWOT Overview

Mc Kinsey 7S Model

Pursuant to the Mc Kinsey 7S model, the soft areas can be likened to the internal
forces described in the Turner 7 model, Turner (1999).

3.3.1
3.4

Mc Kinsey 7S SWOT Overview

Cultural Analysis
3.4.1

Turners Cultural

4.0 IMPLICATIONS OF STRENGHTS AND WEAKNESSES

Overalll VW main strengths lie in its global presence and the strength of its brand
and strong brand portfolio with the inclusion of Bugatti, Audi, Lamborghini, Porsche, and
Volkswagen. The ability to benefit from synergy created between the separate brands, VW has
benefitted fron shared R&D and serviciig costand distribution channel optimization. Its strong
research and development section which thoroughly works on new public demand, designs, and
technological inventions of the cars. The company is in a stable financial position and hold more the
20% of the Chinese market. However, its position in markets such as India and the

United States is merely 3% and 4.8% market share respectively. The company cars
are also not environmentally friendly with three of its most active brands emitting
excessive carbon-dioxide... These factors have resulted in value loss
and does not align to the business goals and objectives

5.0 EXTERNAL ENVIRONMENTAL ANALYSIS

5.1

Market Definition and Scope

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5.2

Industry Overview

5.3

PESTTLE

5.4

Customer Analysis

5.5

Porters Five Forces

5.6

Competitor Analysis

6.0 ASSESSMENT OF STRATEGIC RESOURCE CAPABILIITIES

6.1

Strategic Capabilities

Source

7.0 IMPLICATIONS OF OPPORTUNITIES AND THREATS

8.0 EVALUUATION OF STRATEGIC FIT

Source: http://fba.aiub.edu/Files/Uploads/MGT110044.pdf
6

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REFERENCES
Berman, K. Knight, J. Cass, J., And Financial Intelligence: A Manager's Guide to Knowing What
the Numbers Really Mean. USA: Business: Literacy Institute
Gurufocus., n.d. Where are WE with Market Valuations. [online]. Available at:
http://www.gurufocus.com/stock-market-valuations.php [Accessed 12 January 2016
Standards and Poor Research., 2012. Summary: Volkswagen AG. [online]. Available at:
http://www.volkswagenag.com/content/vwcorp/content/de/investor_relations. [Accessed 14
January 2016]
Volkswagen AG , 2010. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2010
Volkswagen AG , 2014. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2014]
Volkswagen AG , 2013. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2013]
Volkswagen AG , 2011. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2011]
Volkswagen AG , 2012. Annual Financial Statements of Volkswagen AG. [online] Available at:
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Annual_Fin
ancial_Statement.[Accessed 10 December 2012]
Volkswagen, n.d., News. [online]. Available at:
http://www.volkswagenag.com/content/vwcorp/content/en/homepage.html. [Accessed 12
January 2016]

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APPENDICES
Appendix I : VW Income Statement- Five Year Trend

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Appendix II : VW Balance Sheet- Five Year Trend

10

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Appendix III : VW Cash Flow Statements- Five Year Trend

11

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Appendix IV: VW Ratio Table- Five Year Trend

VW AG Ratios
Profitability
Gross margin
Net Profit Margin
Operating Profit Margin
Return on Capital Employed (ROCE)
Return on Equity (ROE)
Liquidity
Current Ratio
Quick Test Ratio
Efficiency
Receivable Turnover
Total Assets Turnover
Inventory Turnover
Solvency
Debt to Equity
Debt to Assets
Interest Cover
Market Analysis/Shareholder
P/E Ratio
Dividend Per Share

2010

2011

2012

2013

2014

16.9
5.7
0.0
10.2
16.1

17.6
9.9
7.1
12.7
18.8

18.2
11.4
6.0
7.8
20.2

18.1
4.6
5.9
5.7
11.2

18.0
5.5
6.3
5.8
11.6

1.1
0.9

1.0
0.8

1.1
0.8

1.0
0.8

1.0
0.8

1.1
0.0
6.4

1.0
0.7
5.8

1.1
0.7
5.6

1.0
0.6
5.8

1.0
0.6
5.2

0.8
0.0
3.3

1.6
0.2
5.5

1.5
0.2
0.0

1.1
0.2
0.0

1.2
0.2
0.0

7.2
0.3

4.9
0.6

5.5
0.8

10.6
1.0

8.2
1.0

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