Valuation of a Company in the Automotive Industry under the Risk Terms

Li Peng

Master's thesis

Abstract:

The aim of this thesis is to estimate the probability distribution of the market value of BMW Group at the end of year 2014 through two – stage DCF method. There are five chapters in this thesis. The first chapter is the basic introduction of the whole thesis. Second chapter is the theoretical part, which include financial plan, regression analysis, Monte Carlo simulation, financial plan, sensitivity analysis and probability distribution. Third chapter is focus on the introduction of BMW Group. In this chapter we will describe the basic characteristic of BMW Group, and have a comprehensive analysis of development prospect of automotive industry. Fourth chapter is the practical part and is also the most important part for this thesis. First of all, we will apply regression analysis to regress out the sales function. Secondly, we will use Monte Carlo simulation to create 10,000 random scenarios to support predict the independent variables. After that, we compute the financial plan, weighted average cost of capital to estimate the expected market value of BMW Group by two-stage DCF method. At last, we use sensitivity analysis to research the result, and make some suggestions and conclusions. Last part is the conclusion of the thesis. In this part, we will conclude the results which we estimated at fourth part with comments. As for conclusion，firstly from financial analysis we can concluded that BMW Group has ability to operate longer. Specifically, the profitability of BMW is around the industry level, and the ability to cover its short-term liabilities is stable. What’s more through financial crisis 2008 we can state that, BMW Group has an excellent ability of financing in financial market. So from the financial analysis we can concluded that BMW Group has the potential to expand and operate for a longer period. Then to sum up the estimation of the valuation of BMW Group, the expected value of BMW equals to €373062 million， and compared with the book value €154803 million， BMW Group is undervalued. So we infer the company have huge development space, and operating well. Finally, from the sensitivity analysis we can state that, the growth rate of BMW Group is a vital items for its valuation, and the relationship between growth rate and expected value is positive. What’s more, although the greater growth rate will exist more possible to achieve higher expected value, but at same time the possibility of develop stable will decrease. In other words, high growth rate followed higher risk. Broadly speaking, BMW Group has a healthy financial condition with strong ability to operate longer period, and the expect value is greater than the book value. So, we can conclude that BMW Group is a promising company with huge expand space.

Abstract:

The aim of this thesis is to estimate the probability distribution of the market value of BMW Group at the end of year 2014 through two – stage DCF method. There are five chapters in this thesis. The first chapter is the basic introduction of the whole thesis. Second chapter is the theoretical part, which include financial plan, regression analysis, Monte Carlo simulation, financial plan, sensitivity analysis and probability distribution. Third chapter is focus on the introduction of BMW Group. In this chapter we will describe the basic characteristic of BMW Group, and have a comprehensive analysis of development prospect of automotive industry. Fourth chapter is the practical part and is also the most important part for this thesis. First of all, we will apply regression analysis to regress out the sales function. Secondly, we will use Monte Carlo simulation to create 10,000 random scenarios to support predict the independent variables. After that, we compute the financial plan, weighted average cost of capital to estimate the expected market value of BMW Group by two-stage DCF method. At last, we use sensitivity analysis to research the result, and make some suggestions and conclusions. Last part is the conclusion of the thesis. In this part, we will conclude the results which we estimated at fourth part with comments. As for conclusion，firstly from financial analysis we can concluded that BMW Group has ability to operate longer. Specifically, the profitability of BMW is around the industry level, and the ability to cover its short-term liabilities is stable. What’s more through financial crisis 2008 we can state that, BMW Group has an excellent ability of financing in financial market. So from the financial analysis we can concluded that BMW Group has the potential to expand and operate for a longer period. Then to sum up the estimation of the valuation of BMW Group, the expected value of BMW equals to €373062 million， and compared with the book value €154803 million， BMW Group is undervalued. So we infer the company have huge development space, and operating well. Finally, from the sensitivity analysis we can state that, the growth rate of BMW Group is a vital items for its valuation, and the relationship between growth rate and expected value is positive. What’s more, although the greater growth rate will exist more possible to achieve higher expected value, but at same time the possibility of develop stable will decrease. In other words, high growth rate followed higher risk. Broadly speaking, BMW Group has a healthy financial condition with strong ability to operate longer period, and the expect value is greater than the book value. So, we can conclude that BMW Group is a promising company with huge expand space.

Keywords

Valuation, Financial analysis, regression analysis, Monte Carlo simulation, Financial plan, sensitivity analysis, probability distribution, BMW Group.

Keywords

Valuation, Financial analysis, regression analysis, Monte Carlo simulation, Financial plan, sensitivity analysis, probability distribution, BMW Group.

Language used: English

Date on which the thesis was submitted / produced: 22. 4. 2016

Thesis defence

• Date of defence: 24. 5. 2016
• Supervisor: Petr Gurný
• Reader: Aleš Kresta

VŠB - Technical University of Ostrava

Ekonomická fakulta

Master programme / field:
Hospodářská politika a správa / Finance