Valuation of Bmw

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Bachelor Thesis

Department of Business Studies Århus, the 3rd of May 2010

Valuation of BMW
- Financial & Strategic Analysis

Authors Rasmus Ramshøj Pløen Exam no. 282821 BSc (B/IM) Mikkel Kronborg Olesen Exam no. 283755 BSc (B)

Academic Advisor Nicolai Borcher Hansen ASB Aarhus School of Business

TABLE OF CONTENTS 1 PREFACE ................................................................................................................................................................ 4 1.1 1.2 1.3 1.4 1.5 1.6 2 EXECUTIVE SUMMARY ................................................................................................................................................ 5 BRIEF INTRODUCTION ................................................................................................................................................. 6 PROBLEM STATEMENT ................................................................................................................................................ 8 STRUCTURE .............................................................................................................................................................. 9 DELIMITATIONS AND ASSUMPTIONS ............................................................................................................................ 10 METHODS .............................................................................................................................................................. 12

HISTORICAL FINANCIAL ANALYSIS........................................................................................................... 13 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 REARRANGING THE BALANCE SHEET - ANALYZING INVESTED CAPITAL .................................................................................. 13 REARRANGING THE INCOME STATEMENT – ANALYZING NOPLAT ...................................................................................... 14 ANALYZING THE FREE CASH FLOW .............................................................................................................................. 15 REINVESTMENT RATIOS ............................................................................................................................................. 16 RETURN ON INVESTED CAPITAL (ROIC) ........................................................................................................................ 16 ANALYSIS OF REVENUE GROWTH ................................................................................................................................. 17 CAPITAL STRUCTURE – OPTIMAL CAPITAL STRUCTURE .................................................................................................... 18 PEER GROUP FINANCIAL RATIOS .................................................................................................................................. 20 CONCLUSION ON THE FINANCIAL ANALYSIS ................................................................................................................... 21

3

THE COST OF CAPITAL ................................................................................................................................... 21 3.1 3.2 3.3 3.4 3.5 ESTIMATING MARKET VALUE WEIGHTS & TAX .............................................................................................................. 21 ESTIMATING THE COST OF EQUITY .............................................................................................................................. 23 THE CAPM EQUATION............................................................................................................................................. 24 ESTIMATING THE COST OF DEBT ................................................................................................................................. 28 CONCLUSION...
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