From the latest financialnews of thecompany, it looks like that the Volkswagen group have recovered well from the 2015 crisis and made a net profit of 2.5%. In 2016, results for return on asset and return on equity are 1.4% and 6% respectively. Volkswagenis incapableof maintaining its efficiency in the current year as well because of increase in the days of inventory turnover and account receivable turnover, althoughthere is slight efficiency regarding account payable in comparison with 2015.
An analysis on Profitability of the Group
Profitability ratio is used to measure profits of the company to evaluate its performance regarding the corewants. Gross profit margin measures the percentage of profit bydeducting thecost of goods only against the sales made. Net profit margin measures the remaining profit after deducting all expenses against the sales made. Return on asset measures that how efficiently a company produces income against its asset and similarly return on equity states the effectiveness income generates over its equity.
Volkswagen’s close competitor Toyotais still higher on all profitables,i.e., G.P. Margin, N.P. Margin, ROA, ROE but lower in rank due to lower capacitycomparatively.Volkswagen thus needs to improve its efficiency in retaining profits. Through increasing sales or reducing thehigh cost of sales and other operating expenses. (See appendix 2)
From 2015 to 2016, there is a satisfactory growth in sales, gross profit and net profit of 1.9%, 20.9% and respectively, which shows the progress of the company. However, still beside the market and its close competitor.
Considering sales performance of each company separately in the latest financials, Volkswagen group shows that SKODA, Scania and Volkswagen commercial have performed well in the recent year pushing growth rate above 7%. Brands like AUDI, SEAT, BENTLEY, PORSCHE have also shownwellhaving growth rate above 3% while Volkswagen passenger cars andman power engineering still facing decay in the latest financial which also facescollapse in operating margins of these two companies including Audi aswell. Weak units need to be focusedon the group for enhancing their profitability which will ultimately affect to improve whole ratios.
An analysis of liquidity position of the group.
Liquidity ratios measure the efficiency of the company to pay off its debt and available safety margin. And computation for this metrics is performed through current ratio and quickratio which assumes highly liquid current assets only excluding inventory and prepaid expense as less likeable. This ratio can be analyzed and compared internally and externally aswell. A measure of 1 means that assets can be cashed on the equal amount owed by the company. The ideal liquidity depends on the nature of business and industry.
Volkswagen acid test ratio hasdecreased to 0.66:1 from 0.74:1 and current asset ratiohas decreased to 0.88 :1 from 0.98 :1, the reason of this adversative ratio is that there is a rise in liability with more proportion than the increase in thecurrent and quick assetwhich means that Volkswagen currently not capable enough to pay all current debts.Some of thecurrentassetsare improved by 10,338 million euros due to amajor increase in inventory, service receivables and marketable securities. While the increase in total current liability was by 29,026 million euros and mainly comprise of tax provision and fiscalresponsibility………………
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