Introduction

Volkswagen group is the biggest manufacturer of the automobile when it comes to Europe. When it comes to the future of the giant company, it is worth assessing because in the due course of years there will be an immense change in the car industry.  Electric cars will come into operation and self-driving will hit the market. The passenger car segment encompasses the development of vehicles, as well as engines, the production, as well as cars and the strong part business. The commercial vehicle segment is composed of the development, production of large bore engine, compressor, and testing system. The financial services consist of dealer and financing of customer, leasing and insurance activities.     

 The legislation is regularly changing however, there are risks involved too. Evaluation of corporate performance is an important consideration for the success of the company.  To attain a strong growth it is of utmost importance that the growth and management should be in the hands of proper management.

Corporate analysis

There are different reasons to invest in a company. Some vouch for returns, some stress on solid foundations while some go for healthy prospects. While there are companies that look forward to responsibility and stress upon people and the environment.  However, the desired need is to have a company that is able to provide value, create value and stand high in terms of value.  This is the main area that Volkswagen strived to be. The company aligns the business to the main pillars that are digitalization, electrification,  and increment in the value of the shareholder. As per the annual report 2018, it is seen that value addition has been made in spite of the difficult stage. The value is deriving in terms of 10.8 million vehicles that are delivered. It is seen in more than 70 new models that are launched by the brand. For instance, sales climbed to €235.8 billion (Fitch Solution, 2017). On the contrary, the operating profit climbed to €17.1 billion. Further, at 7.3 percent the operating return on sales before special items was seen at the upper circuit of the target. As per the financial performance, it is seen that the group is in a dominating position where the operating business is resilient. When it comes to Europe, the new WLTP procedure of test lead

The introduction of WTLP is a big challenge to the company (Fitch Solution, 2017).  The coming years will be further influenced by the electric campaign. The company is planning to invest around €30 billion in electric mobility in the next 5 years. The main emphasis is on the electric car and by 2025 the company is planning to have 50 new models in operation. The company further aims to have the first vehicle with an electric model that will have a neutral supply chain and production in terms of CO2

Macroeconomic risks and opportunities

The increment in the number of partnership leads to opportunities and risks. The diesel issue leads to risk for the Volkswagen Group and even comprises an influence on the existing risk.  The company uses competitive, as well as environmental analysis to trace the risks and opportunities that can be related with the help of the products and the efficiency with which the company produces goods. The risks, as well as opportunities, are already presented in the medium-term planning and prediction.

The risks are present in the global scenario and turbulence is witnessed in the financial markets due to the deficit in the structure that poses a huge threat to the performance of the economies and the markets that are emerging.  The transition from a monetary policy of an expansion one into a restrictive one calls for risks for the macroeconomic environment. Furthermore, the uncertainty can be witnessed from the withdrawal of the UK from the EU. Moreover, the presence of high private and public sector debt in various places is proving a threat to the growth an might cause the market to respond in a negative manner. The decline in countries, as well as regions, has an instant reaction on the state of the global economy and hence is a central risk (Adra & Barbopoulos, 2018).

Economic performance varies from one region to another. In lieu of this, it can be commented that the challenges in terms of trading and sales like efficient inventory management and a profitable dealer network can be easily meet with the help of appropriate measures. But, the major financing activities by way of bank loans. The company is exposed to rivalry for two causes that are the provision of the regulation of the block exemption that has been applied to after sales service post-June 2010 and secondly, due to the alterations included in EU regulations regarding access of independent market participants to information of technical nature (Laux, 2014). 

Financial analysis

·         Profitability ratio

A profitability ratio is utilized to ascertain the ability of the business to generate earnings in contrast to the expenses and other major costs that are incurred during a specific period of time. For a majority of such ratio, ensuring a higher value in relation to the competitor or the same ratio from the last year period highlights the strong performance of the company (Porter & Norton, 2014). The profitability ratio computed in the case of Volkswagen is the Return on assets, net profit margin, and gross profit margin. After cross-checking the result of the gross profit margin of Volkswagen with that of the industrial average it can be commented that the ratio of Volkswagen stands lower as compared to the industrial average, however, ensured a positive outlook throughout the past five years (Leo, 2011).

The net profit margin of the company indicates the ability of the company to reap profit after the expenses of the business has been meeting. If the company is making a positive outlook in the net profit margin it means the company is managing the expenses appropriately and that the business is reaping positive yield (Choi & Meek, 2011). In the case of Volkswagen, the net profit has constantly fluctuated and gone by the economic scenario and the scandal that happened. The negative profitability in 2015 is going to the Volkswagen scandal that took place in 2015 and eroded the profit of the company. However, in the present scenario, it is more than the industry average meaning the company is moving in the profitable zone

The ROA indicates the efficiency with which the assets are put to use. When it comes to Volkswagen the ratio has fluctuated and is owing to the macroeconomic issues that have exerted immense pressure on the company (Dacvies & Crawford, 2012). Furthermore, the drop in 2015 is owing to the Volkswagen scandal.  However, the current scenario reveals that the ratio is 2.80% and that ranks below the industrial average.  Hence, by checking the profitability ratio it can be said that Volkswagen is operating under an atmosphere of immense pressure and is making a proper return on investments and profit.

·         Liquidity

Liquidity ratio helps in computing the ability of the business to meet the obligations of short tenure.  The current ratio and quick ratio has been computed for Volkswagen that helps in projecting the liquidity scenario of the business (Dyson, 2010).

The current ratio is the working capital ratio that is computed by dividing the current assets over current liabilities. A higher current ratio is always vouched for, as it indicates the liquidity potential of the company.  The standard ratio if 2:1 however, a ratio of more than 1:1 and close to 2:1 is always desirable (Petty et.. al, 2012). Volkswagen has maintained the current ratio that is more than 2:1, higher than the industry average of 1.62. Therefore, it can be said that the ratio stands more than 3 indicating that a heavy amount of funds is locked up in current assets that can be used by Volkswagen elsewhere to earn interest or profit.

The quick ratio is a better indicator of liquidity as compared to the current ratio because it excludes the inventories. Excluding inventories indicates that the business does not have to include the stock while computing the ratio meaning that the stock will not be sold to pay off the debts. Higher the quick ratio is better for the business (Merchant, 2012). The standard ratio of 1:1 is considered appropriate and helps the business to discharge the obligations. In the case of Volkswagen, it can be said that the acid test ratio is more than 2 in all the years and that is owing to the high volume of current assets. Moreover, the inventories of the company have increased on a regular basis meaning Volkswagen has more units that need to be sold. Moreover, it has exceeded the industrial average that stands at 0.94. Hence, from the computation and a comparison with the industrial average indicates that Volkswagen is better at liquidating the assets to meet the current liabilities.

·         Solvency

The solvency ratio indicates whether the business will be able to service the debts.  Solvency is a measure of the financial leverage and projects the firms activities that are funded by owner in contrast to the creditors fund. A company that has high solvency ratio is prone to heavy risks and hence is at stake (Mersland & Urgeghe, 2011).

Going by the debt-equity ratio of Volkswagen, it can be commented that the ratio stands more than 2 in all the cases that stress upon the fact that heavy reliance on debts is done. The equity component is less for the company. This reveals that the company has to pay higher interest and is near to the industrial average. However, for a giant company like Volkswagen, the same can be feasible owing to the operations.

On the contrary, the debt ratio is less than 1 but more than .50 indicating that the debt component is high.  The liabilities have increased considerably and in the wake of this, it can be commented that Volkswagen is putting pressure on the debt capacity and has high leverage.

Conclusion

After a complete evaluation of Volkswagen, we can comment that the company has positive, as well as a negative impact. Going by the ratio computation that the company ranks low when it comes to return on assets and net profit margin and that is owing to the pressure of the macroeconomic factors. The liquidity of the company is very high and more of the funds is locked up in current assets therefore, it must try to invest the funds elsewhere to generate returns. Further, the company has high leverage and that is one of the risky factor considering the global and macroeconomic situations. It is bound to face tough challenges in the forthcoming times and hence, needs to correct the shortcoming to be more efficient.

References

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