Financial Analysis of the multinational company Škoda Auto

Bc. Rimpal Rajeshkumar Soni

Master's thesis

Abstract:

Financial Analysis of Multinational Company, Škoda AutoAbstractThe diploma thesis focuses on the financial analysis of the company Škoda Auto. The company focuses on vehicles for public transport and for railways. The first part of the thesis explains the main terms related to the financial analysis. It starts with the objective and methodology of the study conducted, different methods of the analysis. In addition, the literature review contains the importance of ratio analysis, types of debts and the importance of financials to obtain the debts. Lastly, there is a brief explanation of the current situation in the Czech automobile market. The main part of the diploma thesis, the practical part, focuses on the analysis itself. The analysis is done for five years: 2014 – 2018. The analysis is based on an annual report, in order to analyze the financials in a horizontal and vertical manner. This analysis gives us a deep look into the individual items. The mentioned financial statements in the annual reports are considered to calculate the ratio analysis, which shows some of the important indicators. Furthermore, it is subsequently compared with the values of industry averages. There is a regression analysis of the relationship between sales of the company and the amount of investment of the state into infrastructure.ObjectivesThe objectives of a theoretical part of this diploma thesis is to determine and explain the main terms that are related to the financial analysis and to describe the methods to conduct the analysis.The practical part of the thesis aims to evaluate the financial situation of the chosen company, that is Škoda. It is calculated with the help of ratio analysis, derived from the annual report of the Škoda company. The financial analysis is done during the time period: 2014-18. Herewith, we have compared the financials of these years. In the practical part we have also conducted a regression analysis of the types of the automobile sector in the mentioned years. Results and DiscussionThe observed company Škoda, is a manufacturer and distributor of cars and other transport vehicles in the automobile industry. In the Czech Republic, the company stands at the first position in terms of car sales, employment and its contribution to GDP. In 2015, the company had a market share of around 35%. According to OICA data, Asia had approximately half of the car sales. Europe had one-quarter of the share in the car sales, followed by the Americas and the Middle East. Czech Republic also is known to export 15.2% of its production. Thus, the selection of the company for the study is clear as it is of high importance in terms of employment generation in the Czech Republic and the implementation of a regulatory framework.The data for analysis was collected from the annual reports of the company for the year 2014-18. Operating profit has increased by 9.4% in the studied time period. Sales have increased by 6.8% CAGR during the selected time period. Profit before tax has increased the most at 10.5%, which is much higher than the competitors in the automotive industry. The cost of sales has increased by 7.1%, Whereas, gross profit and net profit have increased by 5.2% and 9.4% respectively. Inventory of the company has increased by 10.4% which is not an ideal sign as too high of an inventory leads to the cost of keeping it running. Table 9: Ratio in terms of investment, equity, non-current assets and operating profit20142015201620172018Investment Ratio6.4%5.0%4.2%4.6%5.4%Equity Ratio56.5%58.0%60.3%46.8%50.9%Non-Current assets to equity ratio95.1%109.1%131.1%110.1%93.9%Operating Profit7.2%11.2%8.9%9.9%8.1%Source: Calculated from Škoda annual report, 2014-18Investment ratio and equity ratio is steadily increasing, as the up-gradation in the automotive sector is demanding investment and the stakeholders have higher hopes with the company as it follows all the regulatory frameworks. Operating profit was highest in 2

Abstract:

015 as the economy at the global level had reached a stable place, wherein the government was also interested in developing the state infrastructure by injecting money in the infrastructure sector.As there is a close relationship between the operating profit and the expenditure done by the state infrastructure. In the study, we have run a correlation and regression analysis. The analysis has stated that around 50 percent of the increase in operating profit can be explained through the expenditure of the state infrastructure. Thus, the analysis includes ratio analysis using the financial of the company, regression analysis of the company, the rank of the company in the industry and the share of the industry in terms of employment, export and GDP of the country.ConclusionThe aim of this thesis was to evaluate the financial stability of the selected company Škoda a.s. The sources of the financial data, which was used in this thesis for the main calculating, such as balance sheet and income statement, were obtained by the annual reports of the company with the data of the construction of the financial years 2014 – 2018.The theoretical part of this diploma thesis did explain the main terms related to the financial analysis, including the financial statements as sources of the data for the analysis. It explained the methods of the financial analysis such as analysis of the absolute indicators followed by the ratio analysis. There were also briefly explained the situation on the automobile market in the Czech Republic.The main part of this thesis is however the practical part. In this part, there wereapplied the methods of the financial analysis that were discussed in the theoretical part to the real data of the chosen company. The two main financial statements, that were used, are the balance sheet and income statement. The data were analyzed across five financial years 2014-18. From the first view on the financial statement, specifically onthe profits of these four years, it was evident that the years will vary on a large scale. Owing to varying financial situations of the company throughout the years, it is possible to identify the strengths and weaknesses of this company.From the vertical and horizontal analysis of the income statement and balance sheet, the company is performing at a good pace. It does not pose any threat to the company in the near future. The profit of the company was during these four years always increasing in comparison with the previous year, which is of course the aim of the business. Over the years, profit before tax has increased by 10.5% as compared to 9.4% for operating profit. During the 2014-18 period, net profit has increased at 9.4%.The current assets are growing at a rate of 7.0% during the analyzed period. There is a current liability has grown by 8.5%, during the period. Inventories have increased at a rate of 10.4%, which is more than total assets (4.4%) and total liabilities (7.7%). There is also an increase in the receivables, which is caused by the increase in contracts. However, it should not be such high, and the management should improve the strategy of receiving the money for the work. A huge difference is also analyzed in the accounts of inventories; this difference is mainly made by the low amount of the work-in-progress at the end of 2018. However, the liabilities have to be controlled in order to be in the range of 4 to 6. Concerning the ratio analysis, in almost every ratio, the company is above average.The biggest difference between the value of the company and the industry average is in the investment turnover ratios. They have too much of the liabilities, in the comparison with the assets. It is definitely not necessary to have such a liquid asset. This is one ofthe most important things that the management should improve. They should invest some of the money, so they might be making higher profits. As far as profitability ratio, the company is again almost always above average, but it is not such a significant difference as at the investment turnover ratios. For the higher profitability, they should focus on the return on assets, since it was the lowest value out of the rest of the profitability ratio. However, it is important to mention that even the lowest ratio of ROA is still above the industry average. Activity ratios are quite stable. The one unstable activity ratio is Inventory turnover. It is caused by the different amount of work-in-progress at the end of the years.

Keywords

Financial performance, Financial Statements, Ratio Analysis, Financial Condition, Skoda, Automobile Company, Profitability, Efficiency, Stability

Language used: English

Date on which the thesis was submitted / produced: 30. 11. 2020

Thesis defence

• Supervisor: Ing. Pavel Srbek, Ph.D.

Czech University of Life Sciences Prague

Faculty of Economics and Management

Master programme / field:
Economics Policy and Administration / Business Administration