In general, the company was founded with the goal to maximize the value of the company. To achieve these objectives and capabilities needed funds in its management. Success or failure of management effort relies heavily on the ability of management to manage the resources and potential of the company’s working capital.
One way to obtain a clear picture of the financial state of a company can use a measuring device, i.e. the ratio. This ratio is used to analyse or interpret financial data with the connecting elements of the various assets and liabilities as well as posts calculation of profit and loss in the financial statements. Analysis of the financial statements will describe the financial condition of the company; among other things determine the position of liquidity, solvency, activity and profitability of the company.
Liquidity ratio analysis illustrates the company’s ability to meet its financial obligations maturing. The analysis of liquidity ratios would be useful for the management to withdraw the confidence of creditors to provide credit or loans. In addition, this ratio can also be used to analyse the use of working capital to finance the company’s operations. Solvency analysis shows the company’s ability to meet all its financial obligations when the company if it were at that time liquidated. In other words, the solvency intended as the company’s ability to pay all his debts both short term and long term. While the profitability ratio shows the ability of a company to generate profit for a certain period.
The results are important for the leadership of the company as a basis in order to better planning, improved monitoring systems and more precise determination of the policy in the future. For the management will be able to know the results and progress achieved as well as the failures suffered in the previous year and the current year.
Not only the head of the company and management companies interested in the results of financial ratios, but the creditor both long term and short term as well as the shareholders who ultimately or at least want to know the prospects of dividend and interest payments in the future.
Realizing the importance of the financial performance of the company to generate profit,
2. THEORETICAL UNDERPINNING KNOWLEDGE
2.1 FINANCIAL STATEMENTS
2.1.1 Understanding Financial Statements
We can determine whether or not a company developing a way to see their financial condition, while the financial condition it can be seen from the financial statements issued by the company. The understanding of the financial statement is as follows:
1. According to Myer in his Financial Statement Analysis said that the definition of financial statements is: “Two of the list compiled by the Accountant at the end of the period for a company. The second list is a list of the balance sheet or financial position list and the list of income or the income list. At the time lately has become a habit for the trusts to add a third list which is a list of surplus or profits not distributed list (retained earnings)”.
2.1.2 Purpose of Financial Statements
According to Harahap, the main purpose of financial statements is to provide information that is useful for economic decision making. The statement users will use it to predict, compare, and assess the financial impact arising from economic decisions are taken. Suppose the value of money is not stable, it should be explained in the financial statements.
Financial statements would be more useful if the reports are not only quantitative aspects, but also includes other explanations are necessary. And this information must be factual and can be measured objectively.
2.1.3 Type of Financial Statements
In fact many of the financial statements, financial statements in accordance with Generally Accepted Accounting Principle but only three, namely:
1. List the balance sheet which describes the company’s financial position at a certain date.
2. The calculation of income which describes the number of results, costs, and profit and loss of the company in a given period.
3. Statement of cash flows. Here published sources and the company’s cash expenditures during the period.
2.2 ANALYSIS OF FINANCIAL RATIOS
Ratio analysis is an analysis method to determine the relationship of certain items in the balance sheet or income statement individually or a combination of the two reports. Based on the data source, the ratio numbers can be distinguished:
1. Balance Sheet Ratio are classified in this category are all ratios are all taken or derived data on the balance sheet, for example, current ratio, acid test ratio.
2. Income Statement Ratio is the ratio in the preparation of all the data taken from the income statement, such as gross profit margin, net operating margin, operating ratio and so forth.
3. Ratio-the ratio between reports is the ratio of all the numbers are in the preparation of the data derived from other data on the balance sheet and income statement, such as inventory turnover, accounts receivable turnover rate, Sales to Inventory, Sales to Fixed Assets and others.
According to Kashmir (2010), in practice there are several types of financial ratios which can be used to measure the performance of a company. Here are the types of financial ratios, namely:
1. Liquidity Ratio
2. Solvency Ratio (Leverage)
3. Activity Ratio
4. Profitability Ratios
5. Growth Ratio
6. Valuation Ratios
2.2.1 Liquidity Ratio
Fred Weston said that the liquidity ratio is a ratio that describes the company’s ability to meet obligations (debts) of short-term. This means that if the company is billed, it will be able to meet the debt (pay) is primarily debt is due.
The types of liquidity ratios which can be used consist of:
1. Current Ratio
2. Quick Ratio
3. Cash Coverage Ratio
4. Liquidity Index
2.2.2 Solvency Ratio (Leverage)
The solvency ratio, or leverage ratio, a ratio to use to measure the extent of the company’s assets are financed with debt. That is, some of the burden of debt borne by the company as compared to its assets. In a broad sense it is said that the solvency ratio is used to measure a company’s ability to pay all its obligations both short term and long term if the company is dissolved (liquidated).
As for the typeâ€™s solvency ratio, among others:
1. Debt to Equity Ratio
2. Debt Service Coverage Ratio
3. Fixed Charge Coverage
2.2.3 Activity Ratio
Activity ratio is a ratio used to measure the effectiveness of the company’s use of its assets. Or it can also be said this ratio is used to measure the efficiency of utilization of company resources. Efficiency is done for example in the field of sales, preparation, billing, accounts receivable, and efficiencies in other areas. Activity ratio was also used to assess the company’s ability to carry out daily activities.
Types of activity summarized ratio of some financial experts, namely:
1. Turnover Receivables
2. Day Average Billing Accounts Receivable
3. Turnover performed
4. Day Average Billing preparations
5. Working Capital Turnover
6. Fixed Assets Turnover
7. Asset Turnover
2.2.4 Profitability Ratios
Profitability ratio is the ratio for assessing the ability of the enterprise for profit. This ratio also provides a measure of the effectiveness of management of a company. This is demonstrated by the profit generated from sales and investment income. The point is that the use of this ratio addressing the efficiency of the company.
The types of profitability ratios as follows:
1. Profit Margin
2. Return on Investment (ROI)
3. Return on Equity (ROE)
4. Earnings per Share
5. Return on Assets (ROA)
2.2.5 Growth Ratio
Growth Ratio is the ratio that illustrates the company’s ability to maintain its economic position in the middle of economic growth and the business sector. In the analysed ratio is sales growth, net profit growth, growth in earnings per share and dividend per share growth.
2.2.6 Valuation Ratios
Valuation Ratios is a ratio that provides a measure of management’s ability to create value in the business market at the expense of investment, such as:
1. The ratio of stock price to earnings
2. The ratio of stock market value to book value
3. DISCUSSIONS ON VOLKSWAGEN
3.1 PROFILE OF VOLKSWAGEN
The Volkswagen Group is a corporate group from Germany, which is one car manufacturer group number 3 in the world, after Toyota Motor Corporation and General Motors. The company’s main market is Europe, and a subsidiary of the Volkswagen Group has a well-known car brands, such as Volkswagen, Audi, Bentley, Bugatti, Ducati, Skoda Auto, Lamborghini, SEAT, Porsche, MAN SE and Scania AB.
Volkswagen’s second largest market is the People’s Republic of China where its subsidiary, Volkswagen Group China is the biggest foreign car makers. The company originated from the German company which was founded in 1937 as a public concern that the Nazi government of trying to sell the car now legendary VW Beetle. After World War II in 1945, British troops took over the factory bombed and begin production of the Beetle again during the difficult post-war, which must be faced Germany. In 1948, the British Government handed the company back to Germany, where the company is governed by the former head of Opel, Heinrich Nordhoff.
In 2014, the Group increase the number of vehicles delivered to customers to 9.91 million (2013: 9.731 million), corresponding global market grew 2.8 percent in 2014 compared to 2013. In Western Europe, nearly one in four new cars was made by the Volkswagen Group. Group sales revenue in 2014 reached â‚¬ 202 billion, (2013: â‚¬ 197 billion), (2012: â‚¬ 193 billion), while profit after tax of â‚¬ 11 billion, (2013: â‚¬ 9.1 billion) and (2012: â‚¬ 21.9 billion).
The Group consists of twelve brands from seven European countries: Volkswagen Passenger Cars, Audi, SEAT, Skoda, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania and MAN. Each brand has its own character and operates as an independent entity on the market. Spectrums of products are ranging from motorbikes, low consumption of small cars and luxury vehicles. At the commercial vehicle sectors, including the product range of pick-ups, buses and heavy trucks.
The Volkswagen Group is also active in other business areas, manufacturing of large-bore diesel engines for marine and stationary applications (turnkey power plants), turbochargers, turbomachinery (steam and gas turbine), compressors and chemical reactors. It also produces vehicle transmissions, special gear units for wind turbines, slide bearings and couplings as well as test systems for the mobility sector. In addition, the Volkswagen Group offers a wide range of financial services, including dealer and consumer financing, leasing, banking and insurance activities, and fleet management.
3.2 ANALYSIS REPORT OF VOLKSWAGEN
1. Current Ratio
Current ratio is the ratio between current assets of the company’s balance sheet to current liabilities. This analysis included in the liquidity analysis, which aim to evaluate the company’s ability to meet its short term obligations using its current assets.
CR = Current Assets / Current Liabilities
Current Ratio is the ratio of liquidity. Current Ratio is the ability to pay debts that must be met with current assets. This ratio is most commonly used to measure the ability to pay short-term debt in total, because it shows how much short-term creditor demands can be met by the assets that are expected to become cash within a similar period with a maturity of these demands.
Current assets can be used to pay / meet short-term obligations. Current assets consist of anything? Usually, the form of cash and bank accounts, accounts receivable, inventory, or short-term investments in shares of other companies. The bottom line is all heading in the balance sheet of companies that can immediately be used as currency to pay off short-term liabilities.
What is included short-term liabilities of the company? Yes could be short-term bank loans (instalment loans), trade payables to suppliers (purchases on credit), taxes payable, debt salaries of employees (estimated employee salaries next month of the financial statements).
At the Volkswagen Company in 2014 known as follows:
Current Assets 131,102
CR = = = 1.00
Current debt 130,706
Current Ratio of 1.00 which means that every â‚¬ 1 current debts are immediately due, secured by current assets â‚¬ 1.00.
Current Ratio must be > 1 because the current ratio < 1 indicates the company has no assets that can be immediately used the money to meet short-term obligations. Of course this is affecting the company’s business. Supplier could no longer will to supply the goods in the future, or employees are disappointed because payday delayed. Working capital has been affected by financial crisis especially in this year 2014, the working capital has experimented decrease which is 0.12 points below the industrial average (1.12). However, maintaining the current ratio is too high is also not recommended, because it is usually inefficient.
2. Debt to Equity Ratio (DER)
DER = Total Debt / Total Equity
This ratio shows how much the company’s portion of funding coming from debt compared to equity capital. Analysis of this ratio is included in the analysis of Leverage. Rather difficult to find the equivalent of the word “leverage”. Some books translate as leverage ratios. Yes, essentially how the assets of the company ‘prying’ into a better position, whether through debt or equity.
Which includes a debt component in any analysis of this ratio? Everything, itâ€™s like long-term debt or short-term. But not included as a component of debt if there is a debt to shareholders who are treated as sub-ordinated loan, which is in a state of default / bankruptcy, paid off debts late in comparison to the other party.
The greater this ratio the more unfavourable for creditors, because the owners of capital guarantees to the debt gets smaller. Ratios above 100% is very dangerous for the lender because the amount of debt is greater than the owners of capital, although there is the possibility of the debt paid off by using the existing operating.
At the Volkswagen Company in 2014 known as follows:
Total Debt 261,020
DER = = = â‚¬ 2.89 = 289%
Total Equity 90,189
A ratio of 289%, which means a huge amount of debt, exceeds the owner’s capital.
In banking, DER analysis will show how far the company to finance its business customers, whether by itself or with debt capital. If most of the debt, the company feared would be difficult to meet its obligations to the bank in the future. However, the debt of equity has experimented increase 0.81 points above the industrial average (2.09) and the financial result we can see how the liabilities affect the profits. So, thanks to liabilities and it gives Volkswagen a way to have more profits. Furthermore, how big is the debt-to-equity ratio? 2 times debt generally more than the capital (DER = 2) is a common benchmark that is ideal for various companies.
3. Return on Assets (ROA)
Return on Assets is one form of the profitability ratio to measure a company’s ability to generate profits by using existing and total assets after capital costs (the cost of which is used to fund assets) are excluded from the analysis. This ratio shows how much net profit obtained by the company when measured by the value of its assets. ROA is the ratio of net profits tax also means a measure to assess the extent of the rate of return on assets owned by the company.
ROA = Profit after tax / Total assets
The greater ratio is better because the company considered able to use effectively its assets to generate earnings. Return on assets (ROA) is an important ratio that can be used to measure the ability of companies with investments made (its assets) to make a profit. Return on assets (ROA) became one of the considerations of investors in investing in the shares on the stock exchange. The level of profitability is the level of profit achieved information or information regarding the company’s operational effectiveness.
At the Volkswagen Company in 2014 known as follows:
Profit after tax 11,068
ROA = = = â‚¬ 0.03
Total assets 351,209
Return on Assets in 2014 of 0.03 means that every â‚¬ 1 in the use of its assets will generate a profit of â‚¬ 0.03. However, the ROA experiments decrease 0.01 point below the industrial average (4%).
Return on Assets (ROA) which positively shows that from the total assets used for operating the company is able to provide profits for the company. Conversely, if a negative ROA shows total assets used do not provide profit / loss.
3.3 RISK ANALYSIS
Volkswagen admits that the recent revelations about the manipulation of the results of the emission test cars Volkswagen products in the United States could affect 11 million cars in the world. Mean that the scandal related to the “apparent irregularities” in emission levels between testing and use on the road. Estimates that Volkswagen would need a budget of up to â‚¬ 78 billion or US $ 87 billion to overcome the scandal of the diesel vehicle emissions. The investment bank noted, since the news of the scandal emissions revealed on September 18, 2015, Volkswagen shares have undergone a correction by 37 percent. An emission scandal is now in danger has â‚¬ 1.8 billion of loans from the European Investment Bank remembered. Bank will check to see if Volkswagen used one of the loans extended to cheat on tests of emissions for diesel vehicles. For this incident, the investors need to be aware for taking additional risk.
From the results of the financial statements that have been made, the following is the conclusion of the analysis using the Current Ratio, Return on Assets and Debt to Equity Ratio in the Volkswagen Group. Current Ratio of 1.00 which means that every â‚¬ 1 current debts are immediately due, secured by current assets â‚¬ 1.00. This indicates the company has assets that can be immediately used the money to meet its short term obligations.
Debt to Equity Ratio at 2.89 or 289%, which means a huge amount of debt, exceeds the owner’s capital. It is very dangerous for creditors Volkswagen because the amount of debt is greater than the owners of capital, although there is the possibility of the debt paid off by using the existing operating income.
Return on Assets in 2014 amounted to 0.03 which means that every â‚¬ 1 in the use of its assets will generate a profit of â‚¬ 0.03.
However, currently the automotive world is shocked by the news of the scandal emission diesel engine Volkswagen. Although the centre buffeted by problems, but it does not make interest for Volkswagen declined in Germany. Proven by studies conducted by the European brand consultant, Prophet recently, declared when 65% of Germans are still going to buy a car Volkswagen in the future. Based on research conducted 1,000 Germans polled still believe Volkswagen made by them. In fact, based on research that many are saying that if the emission scandal exaggerated media, where two-thirds of them believe that if this issue will recede in a year later.
After doing this analysis it can say is a good company to invest and I recommend it for two reasons: Firstly, it has a good ROA and also profitable with its assets. Lastly, the liabilities allow the group to grow but without taken too much risk.
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