GENERAL TRENDS PROFITABILITY Daimlers net profit margin oscillated between 2006 and 2010.

From 2006 to 2007 Daimlers N.P.M. improved by 4.22% (5.9% to 10.11%). However, from 2007 until the end of 2009 this ratio decreased by almost 7% (2.77% in 2008 and -1.92% in 2009), its greatest growth occurred in 2010 when the companys net profit margin rose to 7.44% fro -1.92% (more than 9%). The 5-year average of the companys profit margin is 4.26% meaning it is producing 0.0426 (euros) for every euro of sales. The companys average N.P.M. is higher than the industry average, which is 3.56%, conveying Daimlers superior efficiency and stronger sales than industry as a whole. The Gross Profit Margin is the difference between revenues and costs; this is crucial to understanding the operational efficiency of a Company. Analyzing the latest results over the last five years, it is clear to see Daimler is facing a volatile period. From 2006 to 2007, the Group experienced a considerable increase in operational results, but suffered consecutive decreases until 2009 when it registered the biggest increase from 16.92% in 2009 to 23.30% in 2010. Daimlers G.P.M. is higher when compared to the industry average, by almost 5 % (16.92% to 21.572%) which reflects its efficacy in covering all the operating expenses with its revenues. The ROCE ratio shows the return on Investment gained from Daimler during each of the five years. Daimler registered positive results in ROCE from 2006 until 2008, thus conveying its success in managing shareholders investment through turning a profit. Despite this, a negative result occurred in 2009 (-1.86%) due to the economic recession. However the return on capital employed returned to positive values in 2010, registering a growth of almost 9 % ( -1.86 to 8.80%).

EFFICIENCY According to the efficiency ratios from the years 2006-2010, we can draw general trends on the performance of Daimler Group during this time. The Average Inventories Turnover Period has been reduced from 121.91 days in 2006 to 66.65 days in 2010, showing either an increase in sales performance of the group or an increase in efficiency of production within Daimler throughout this period.

On the other hand, the Average Settlement Period for Trade Receivables has risen from 17.72 days in 2006 to 26.8 days in 2010. This means it is taking approximately 9 days longer for the company to receive the money for their sales. These figures could be a result of the financial crisis or the selling of Chrysler, as the change is significant and sudden, and occurred during the time period of these internal and external events. When analysing the Average Settlement Period for Financial Trade Receivables, the company has incrementally increased efficiency throughout the period going from 136,57 days in 2006 to only 64,21 days in 2010. This is a significant change, and could be a result of two things: either the company has become extremely more efficient in getting their payments back, or during the credit crunch they have issued fewer loans, due to consumers reluctance to purchase cars in the financial crisis, thus the payment period is reduced as a result of spreading the average over fewer loans. ADD REDUCTION IN FINANCIAL TRADE SERVICES. For Sales Revenue to Capital Employed, the general trend has been downwards from 1.32 times to 1.18 times, however if one scrutinises this in relation to revenue, the revenue of the company has decreased from 151589 million in 2006 to 97761 in 2010. The proportionate decrease in revenue is more than the relative decrease in sales revenue to capital employed, thus showing they have in fact allocated capital resources more efficiently over the period despite the decrease in the ratio. The Sales Revenue per Employee ratio grows a 4.97% in the period 2006 to 2010, rising from 357,200/employee in 2006 to 375,859.30/employee in 2010. This is good and seems that they have improved a bit in efficiency, but taking into account that the sales revenue has fallen by a 55% (from 151,589 to 97,761), we can say that it could have been much worse. LIQUIDITY: To measure Daimlers ability to meet its short term financial duty you can look at two different liquidity ratios, the current ratio as well as the acid test. The current ratio in 2006 is 0,95, which means that Daimler wasnt able to cover the short-term debt with shortterm assets. The Acid test draws a similar picture but due to its nature, it looks worse and is 0,72, thus clearly below 1. Moreover the change in 2007 is remarkable. The current ratio is 1,27 and shows a better ability of Daimler to meet its short term debt duty. Again the increase of the Acid test ratio looks similar and is close to 1 at 0,984, which means (excluding inventories) Daimlers current assets nearly match its short term debts. This means a large reduction in the companys risk, thus becoming increasingly illiquid, therefore creditors risk is reduced.

The reason for the improvement of these ratios is the better cash position (7136 to 15631) resulting from the sale of Chrysler to Cerberus. After 2007 the Current ratio decreases to a little over 1 which shows Daimlers ability to still match the short term liabilities with its current assets. The acid test shows a sharp decrease below 1 again. The decrease of both ratios results from a reduction of the cash position, which increases creditors risk of lending money to Daimler. This is a result of the increased risk of Daimler being illiquid and hence resulting in a lower credit rating. INVESTMENT: Despite the numerous fluctuations that occurred throughout the last 5 years, Daimler has managed to decrease its financial gearing from 70.70% in 2006 to 51% in 2010. This decrease indicates that Daimler has reduced its financial borrowing, suggesting that the company is now in a better position to support itself primarily through its shareholders equity. This is also an indicator that the company begun to recover from the economic crisis and that is now in a superior position than before. Not necessarily true, as need to compare with ROSF, because the company could be more profitable with a higher gearing ratio. Also the reason for the decrease in the gearing ratio could be due to the selling of Chrysler, and the release of debt from that part of the company, I am unsure of this! Unfortunately Daimlers investment position has been quite unstable the last few years and it is still in a friable situation. The proportion of earnings pay out to shareholders has decreased from 48.13% in 2006 to 43.80% in 2010, however the earnings available for dividend can now cover the actual dividend by 2.28 times instead of 2.08 times in 2006. On the one hand, this is a positive sign as the company is now in a better position to cover a greater amount of the dividend proportion distributed to the shareholders. Conversely, this is not enough. The Price/earnings of the company has taken a deep decrease, falling from 14.9 times in 2006, to -14.56 times in 2010, indicating that the capital value of the companys share is 14.56 lower than its current level of earnings. This is not the most positive result, as this decrease might endanger any opportunities Daimler might have for short-term investment.

2006-2007 TRENDS: PROFITABILITY: Profitability is essential for every company. Dailmers profitability has increased from 2006 to 2007; ROCE has almost doubled from 5.90% to 10.11%; net profit went up from 5% to 8.76% and gross profit from 21% to 24.14%. The main reason for these changes was Chryslers operations and its disposal.

ROCE (Return on capital employed ratio) is directly related, to the performance of a business. Despite the fact that Daimlers operating profit was 332 million higher in 2006 relative to 2005 (2006 Annual Report, p.43), the companys operating profit was influenced a great deal by the significant contraction of the North American market transferred into a lack of profitability in the Chrysler Group. In 2006 there was an enormous shift in the market demand of Chrysler Group indicating a huge reduction in sales, and operating profit (2006 Annual Report, p.40). This shift was due to the fact that the automotive market expansion slowed down in 2006, especially in the United States where the sales of passenger and commercial vehicles decreased by 3 million units (2006 Annual Report, p. 39) due to an increase in borrowing costs, which led to a change in customer preferences. The companys initial reaction was to promote some new designs of cars in the USA market during 2007 that would meet consumer demand. Unfortunately, the decline of the US market continued in 2007 as well, ultimately forcing Daimlers decision to sell 80.1% of Chryslers shares to Cerberus, and keep only the 19.9% of the company (2006 Annual Report, p.9). The sale of Chrysler led to an increase of 75.2% in the operating profit margin from 2006 to 2007. The company also benefited from the increased unit sales in Mercedes-Benz Cars, showing a 3% increase, swelling the companys operating profit to 8710 million, which was transferred into large increases in both net profit and ROCE ratios. EFFICIENCY: The efficiency ratios convey a contrary picture to the profitability ratios. The sales to inventory ratio dropped from 8,54 times in 2006 to 7,05 times in 2007. This reduction is due to the sale of Chrysler. Due to this event the companys sales dropped from 151,589 bn. to 99,399 bn. but the inventories remain constant when compared to this change, merely declining from 17,750 bn. to 14,086 bn. The Average Inventory Turnover Ratio displays similar conclusions with an increase from 53,56 to 78,6 days due to a sharp decrease in the cost of sales from 125,673 to 75,404 bn. The revenue to Capital Employed ratio decreased due to a proportionately sharper reduction of sales when compared to the decrease of non-current liabilities and an increase in equity. The revenue per employee drops as well from $ 420630 to $ 364925 per employee. Generally, the efficiency ratios decreased significantly in 2007, excluding the average settlement period for trade receivables. This ratio includes the financial receivables and shows after Daimler and Chrysler split up that it collected its receivables faster. Whilst it took DaimlerChrysler in 2006 154,56 days to collect its money it takes just

121,7 days in 2007. This could be due to the nature of the American market, where Chrysler is focused. Here cars are sold with longer payment periods and credit sales are pushed more aggressively, than in the European market where Daimler concentrates. This faster collection of receivables improves Daimlers cash position further, adding to the strengthening from the sale of 80% of Chryslers shares in 2007. This efficient collection of receivables compensates for the reduction in efficiency illustrated by the other ratios, especially in terms of inventory turnover. A reasonable explanation for the overall decrease of the other efficiency ratios could be the reduction in synergies and economies of scope after the sale of Chrysler. For example before this event both parts of the company could use the same component inventories, whilst after this event Daimler has to keep its own inventories, and thus has to keep proportionately higher levels of stock relative to the amount of sales previously. Nevertheless this ratio seems misleading if it is compared to the profitability. Obviously the synergy effects of Daimler working together with Chrysler did not compensate the overall unprofitable business of Chrysler. Hence the decision to split the company is justified by the improvement of profitability. Probably the synergy effects were overestimated in 1998, hence making the 2007 decision reasonable from Daimlers perspective, even if the efficiency ratios decreased. LIQUIDITY: When analysing Daimlers liquidity ratios, it is clear to see major changes in both Current Ratio and Acid Test Ratio, resulting from the disposition of Chrysler in 2007. In 2006, Daimlers Current Ratio was 0.90 and the Acid Test ratio was 0.69. As both of these are under 1.00, this demonstrates low levels of liquidity, which could prove detrimental to the businesss operations. After the sale of Chrysler, the financial reports from the end of 2007 show much improved liquidity levels, with a significant increase from their 2006 levels of 0.90 and 0.69, to 1.27 (for the Current Ratio) and 0.98 (for the Acid Test Ratio). We cannot fully assess how suitable these liquidity levels are, as different industries and companies require different liquidity levels. However it is obvious that the risk of illiquidity has been largely offset, most probably due to the cash injection attained from the sale of Chrysler. For the Financial ratios during this period, we can assess Daimler groups level of gearing, and what this may mean for the company. In 2006 Daimler groups level of gearing was 69.6%. This significantly shifted downward to 55.6% in 2007. This reduction in gearing could have resulted from the disposal of Chrysler in 2007, and thus the disposal of debt associated with that part of the company. This is possible because in the American market, there is a greater trend towards buying cars through finance. Moreover, the Chrysler part of Daimler, was not successful in the years before selling, and so Daimler

group may have had to refinance Chryslers operations using loans. When we compare this reduction in gearing levels to ROSF, we can see that shareholders gained an increase in return from 8.8% in 2006 to 10.82% in 2007 (need to reassess figures), thus showing that the reduction of gearing levels has proved successful for Daimler, in terms of shareholder return. Conversely, because they have lowered the gearing ratio, any further change in profitability will have a reduced effect on ROSF, thus reducing risk and return.

INVESTMENT: Daimlers changes in 2007 proved profitable, as they increased almost all of their investment ratios. The dividend payout ratio grew by 2%, which means that the company spent a higher percentage of its earnings on dividends. Thus, they invested less into the companys growth. However due to the increase in cash, resulting from the sale of Chrysler in 2007, it is not surprising that a higher dividend was paid. Despite the companys higher payout ratio, the Dividend cover ratio remained roughly constant, registering a variation of merely 0.12%, hence proving Daimlers ability to cover the annual dividend with its earnings despite the higher payout ratio. Therefore showing increased profitability. This value gives long run confidence to shareholders, by indicating consistent dividend payments, and generally shows signs of successful performance. Daimler increased the entities value from the sale of Chrysler in 2006, represented by the increase of the Earnings per Share, which expresses the companys financial wealth and success in increasing its profits (NEED MORE FIGURES RELATED TO YEARS!). The P/E ratio expresses the confidence investors have in the company. Daimlers P/E ratio grew between 2006 and 2007 meaning that investors are willing to pay more for each euro of annual earnings. The growth of the P/E ratio displays the markets expectation that Daimlers profits will grow in the following years, proving once again that the sale of Chrysler was a sensible decision in terms of increased market value of the group.

2008-2010 Trends: PROFITABILITY:

After the economic downturn starting in 2008 the profitability ratios decreased and reached a low in 2009 where the financial and economic crisis reached its peak. Whereas sales decreased in 2007 to 2008 slightly from 99,399 bn. to 95,873 bn. the sales nearly collapsed in 2009 to 78,924 bn. Daimler was not able to react successfully in reducing the cost of sales by the same proportion, thus affecting the gross profit margin which decreased from 2007 with 22,5% to 16,9% in 2009. This reduced Gross Profit margin was not sufficient to cover operating expenses, finally resulting in a negative EBIT in 2009. Therefore the operating profit margin decreased sharply from 8,8 % in 2007 to 1,9 % in 2009. As the Capital employed was stable throughout these years the ROCE change was due to the EBIT change, which was affected by the sharp differences in sales. Hence Daimlers profitability is at risk when sales decrease because it seems that the operating expenses are not flexible enough to react to sharp economic downturns and the resulting decrease in demand. The 2008-2010 operating expenses were stable over these years compared to the sales. Hence for the future the profitability depends heavily on the economic condition as well as on the management of the operating expenses. Another fact strengthens this conclusion. From the 2009 to 2010 change where demand increased, the profitability improved considerably as well, because sales revenues increased more than cost of sales. If you compare the decrease of revenues and Cost of Sales from 2008 to 2009 and on the other hand the increase from 2009 to 2010 you notice that these figures fluctuate in the same proportion. Hence the key for increasing EBIT is a decrease of the operating expenses, which would improve the ROCE as well as the Operating profit Margin. An imperfect management of the operating expenses resulted in the different EBIT and therefore in very different profitability ratios in 2008 and 2010. The gross profit and the gross profit margin are comparable but ROCE as well as Operating Profit margin are very different. The reasons for this difference are again the operating expenses in this case, for example the selling expenses as well as general administrative expenses. Maybe need industry figures. EFFICIENCY: The economic crisis took hold during the second half of 2008 and caused Daimler to suffer a deeper setback during the first half of 2009. The efficiency and liquidity of Daimler was affected mainly in 2009 when the company was facing the most serious conditions of the economic recession that influenced the whole automotive industry. The inventories turnover period increased to 82.5 days during 2009, indicating that inventories were held in the manufacturing plants for a longer period

of time, due to the lack of car demand in the different markets that the company was operating. The same occurred with the settlement period for trade and financial services receivables, which increased by 17.88 days in 2009, reaching 107.38 days, thus demonstrating the difficulty for consumers to pay. LIQUIDITY: Daimlers Gearing Ratio grew when the crisis started in 2009 by more than 1%, which is negligible. This means their debt funding increased with the recession. Daimlers policy was to pay a higher dividend to the shareholders, than to funding their investments with their own equity, which could be an attempt to keep shareholders confidence. Interest Cover ratio - -0.788 , are you sure that this value is correct? This is one of the ratios that Daimler should be aware about because as they got a negative Interest Cover Ratio in 2009 they probably wont be able to pay their interest obligations, their net profits are lower than the interest they have to pay, meaning that the company is in serious Risks of not fulfilling its obligations As far as the companys liquidity was concerned, there were some small fluctuations with the current ratio moving from 1.06 in 2008 to 1.14 in 2009 and again back to 1.07 in 2010. The small fluctuation during 2009 was due to the economic crisis. NEED MORE HERE.

INVESTMENT: The investment ratios throughout the period 2008-2010, exactly illustrate the effects on Daimlers performance of the economic crisis. The Earnings per Share ratio and the price/earning ratio can demonstrate this fact. In 2008 the EPS was 1.41, conveying a more than 50% decline from the 2007 level of 3.83. This illustrates the start of the financial and economic crisis, and the resulting contraction of demand. Furthermore, in 2009, the EPS further declined to -2.63, showing a considerable loss per share in the stock market. This ultimately reflects the economic climate during this period, but also demonstrates Daimlers inability to manage expenses, so to absorb the loss of sales. The P/E ratio paints the same picture, but with even more dramatic results. In 2008 the P/E figure increased marginally from 2007 to 18.9 times, and then decreased significantly to 14.15 times in 2009. This demonstrates investors belief at this time that Daimler was going to make losses in the future, thus for every share bought at this time, investors paid -14.15 times one of Daimlers net income to own a share. This conveys extremely negative performance during this period, which is predominantly down to the volatile

economic conditions, but can also be blamed in mismanagement of expenses and efficiency. However Daimler recovered extremely successfully in 2010, with EPS rising to 4.28 and P/E rising to 11.85 times, thus showing, once again Daimlers excellent performance, as the highest EPS in the 5 year period is recorded, and the P/E ratio almost recovered to its pre-crisis level, showing faith from investors in Daimlers future profitability. Furthermore 2009 was an extremely good time to buy Daimler stocks, as at this point they were undervalued 14.15 times, and in one year they rose to a premium of 11.85, demonstrating both superior recovery and goodwill from investors in Daimler as a successful company.