Financial analysis for Ferrari
- Financial Analysis
Ferrari, originally known as Scuderia Ferrari with its parent company known as Fiat, is a producer of the Italian based sports car. It was founded in the year 1929, its founder being Enzo Ferrari. It is based in Maranello. The company seems to have been founded to last a long period of generations. The company has always been seen to hold up perfectly well financially in all times including global recessions. Ferrari has been observed to manage its operations within the high echelons of the highly regarded sports cars in the market, with a minimum of 450bhp where the least price tugs of the products goes for €140 000 . The company must be operating in the high end financial category as well. This study is indented to investigate on the financial operations of Ferrari.
In an announced result in the realm of the 2010 global recession, the industry experienced an uprising in the market share. The company reported a fall of 7% in the year 2009 in the consolidated returns while still being able to acquire revenue of €245 million. This can be defined as a good performance through a massive economic slump that was experienced in a long period of generations. This company on the other hand experienced a decline that was averaged at 35% in the previous year. This was as a result of football big names, WAGs as well as city types who reined in their financial use. Regardless of this, Ferrari issued a statement that in spite of the shrinking market, there was a rise in the market shares by an average of 15%, on the other hand, and a 5% decrease in the vehicles delivery was experienced.
It can also be concluded that the company’s significant rise in the financial figures is due to a time lag in its orders as well as deliveries. The vehicles delivered in the year 2012 are representatives of historic orders and as such are not the current sales. The order period of the Ferrari cars is a range of 12 to 24 months, where the time duration is dependent on the car model. Those cars that were then delivered in the year 2012 can then be orders between 2009 and 2011. The company also has its tradition of not having the cash of the sales not till the vehicles are delivered to their customers, while on the other hand, the deposits of the orders are kept with the dealers till the moment the client receives the car and approves of it.
The 7% decrease in the total revenue of Ferrari can be attributed to the increase in taxations as well as retail income. Regardless of numerous requests from the company, individual amount in figures for the company’s activities could not be availed.
An external analysis of the firm
According to data obtained by a third party, CAR, the company Ferrari had a delivery of 452 new cars in the United Kingdom in the previous year, this was a decrease of about 30% from the 2011 data that was valued at 644. The company made most of its sales from the model F430 where the total values were registered at 193; the second largest selling car was the California where a total of 180 cars were registered. The model 599 was next with 52 cars and lastly the 612 Scaglietti where a total of 13 vehicles were delivered.
Sample tables for the financial analysis
Table 1. Change in Financials
|Case firm||Current year||Prior year||%change|
|Balance sheet||€12, 335,000||€12,059,000||2.29%|
Common size statement of case firm and closest competitor
|Case firm||%||Closest competitor(s)||%|
|Total assets||€12, 335,000||100%||105,003,000||100%|
Table 2 referencing http://www.fiatspa.com/en-US/investor_relations/financial_reports/FiatDocuments/Bilanci/2012/FiatGroup_Annual_Report_2012_ENG.pdf
Table 3. Financial ratios for the case firm and closest competitor
|ratio||Case firm||Closest competitor(s)|
|Debt to equity ratio||0.7||0.8|
|Debt to total asset ratio||9.8||12.3|
|Inventory turn over||0.8||0.9|
|Total asset profit margin||9.5||13.8|
|Return on asset||0.9||0.8|
|Return on equity||13.2||14.0|
Table reference Fiat Group. At 31 December 2012 Annual reports. PDF File, 2012.<http://www.fiatspa.com/enUS/investor_relations/financial_reports/FiatDocuments/Bilanci/2012/FiatGroup_Annual_Report_2012_ENG.pdf>
- External Analysis
The company should be motivated by the predicted growing economies in other parts of the worlds such as china and India. These countries have shown the tendency of investing heavily on luxury products. As such, development in the infrastructure region as well as the standards of living of the people in the country is perceived to be directly proportional to the sale of these luxurious automotive. Ferrari cars are most targeted to the high end elites in their market regions and as such are advantaged to a rich heritage as well as a legacy to maintain. The car is often perceived as a cult brand and as such comes along with high value brand equity.
The car brand are categorized as one of those with a strong presence in the motor sports, this is a positive attribute that the industry can rely on for more of the development operations of the company. Ferrari is also reputed for an extremely fashionable design as well as an RD department. The material used in the manufacture of the Ferrari cars is an exceptionally light alloy and this gives the best result in the acceleration as well as in the management. The final punch line of the Ferrari cars is the highly endowed world’s high end safety facilities.
There has been a growing global prestige in one owning a Ferrari among the elites who take pride in high end automobiles, this is one factor that the company can take pride in and market its produce to a large market clientele around the world. The company also has the opportunity of venturing into a hybrid as well as apotential future car division. Ferrari is privilege to have the opportunity to leveraging the individual possessor network in order to cover all the potential clients. It is also necessary for the company to put the various portfolios in separate divisions so as to be able to take care of the various market needs. The need to differentiate the distribution from the service networks is an important factor for the company to consider in its pursuits of endeavor
With all the Ferrari’s shining glamour, the high end brand comes with comes with an extremely huge price tag and as such a limited potential clientele base is experienced in a wide range of market. The company also has a small allocation as well as service region; this has resulted in a very limited expertise in the production and service professionals in many regions of the world.There as well some factors that need to be taken into consideration as to their effects in the global markets, in some countries, there are legal procedures that would make the purchase and acquisition of the Ferrari products very difficult to obtain. In other instances, the customers would be filled with very high expectations of the products and this might turn out to be a disappointing factor. There can as well be a merchandise innovation as well as parsimonious engineering activities by the competitors.
3.1 Value Chain Analysis
1) Primary Activities
It is worth noting that the fiat manufacturing and procedure technology was upgraded to a very high level and as such the gap between Triad productions was reduced. In relation to the international trends, manufacturing was developed to befurtherincorporated as a global value chain and lastly different market segregation to produce value chains. In theoretical observations, a value chain involves all the activities as well as the processes that are involved in the production and that which adds value to the final manufactured produce. A complete value chain is mainly composed of two sections:
- Primary activities involved with: (1) a product’s physical creation, (2) a product’s sale and distribution to buyers, and (3) the product’s service after the sale;
- Support activities that provide the support necessary for the primary activities to take place.
In the primary level, the very initial step was to develop a regional mechanism of modernization as well as internationalization mechanisms was laid out so as to achieve a standardized produce that has a distinct specification that would be used in all the subsidiaries in the whole world. The very next step was to put into operation an endogenous mechanism of modulation, a mechanism that would be responsible for sorting out the products into separableparts, this was necessary so as to facilitate the accountability of the cost of production for each different parts this enabling economic activities dispersed in various manners in relation to the regional as well as in the global value chains. The other important factor was to develop a universal database where all the information regarding the cost of production and all the related data would be collected and processed and as such all the parts production would be assigned in the different subsidiaries at the different regions. Compatibility in all the products as well as endogenous modularity would be emphasized in order to facilitate the movements from one region to the other and this also affected shifts in the parts cost due to different exchange fluctuations. Presence of information in the databank always ensured compatibilities of modules as well as the vehicle parts is a very important factor in the production as there was always the necessary pressure in all the various Fiat subsidiaries.
2) Support Activities
The management of Ferrari in the business as well as the execution of the company’s mechanisms is directly linked to various risks that the company must get into. Some of these risks involves direct incorporation of the board and otherwise when appropriate, investigated and tackled by relevant strategies.
The company has had its determination on hiring qualified recruiting from the grounds that a pleased and a well-qualified individual is the beginning of a successful progress. As a result, the company is determined in providing for its employees an appropriate working environment where one is encouraged while the progressive development of the employees is encouraged as well through wide-ranging instruction schedules when necessary is availed. The company has an equal opportunity employment policy while making sure that all the employees have equal rights and are treated fairly regardless of the different ranks in the job area, race, or gender. Training programs are availed to all the employees as employee development and career building remains a major goal in the industry.
The Ferrari Companymakes use of financial avenues like bank loans andoverdrafts, hire purchase systems, some of the company’s sources of funding come from new and utilized cars stocking loans in order to manage its functionalities as well as taking care of the interest gained, the liquidity challenges that may be from the activities and those accrued from the various sources of finance. Despite the fact the company has its policy of not basing its activities on the financial instruments. The major challenges experienced from the company’s financial interests are issues such as the interest rates that may at times go overwhelmingly high, liquidity challenges as well as credit risks. The company’s board of directors continually investigates and gets to a conclusion for managing the respective financial challenges.
The company’s aims and goals involved in the management processes are mean to direct the company to stay focused in order to continue experiencing more of the revenues that is useful to the shareholders. The company keeps track of its capital by evaluations and reviewing of is cash flow. So as to be able to update its capital structure, the company has to adjust its value of dividends issued out to the stakeholders, the return capital paid to the stakeholders, give out new shares or sell out some of the assets so as to minimize its debt accrued. The company does not have or employ capital requirements.
The company gives out donations as well and for the year 2011 the donations values was 37,000 Euros. The cash was further subdivided as 1000 Euros being donated to medical research 2000 euros was donated to the local charities and the rest went to children charities. The donation was not made to any political affiliations.
- Internal Analysis
Ferrari is privileged to have a wide range of product choice. Ferrari operates under the umbrella of various divisions of business such as the Ferrari group automobiles, FPT, as well as the Magneti Marelli (Harris 148). These various umbrellas, under which the company operates manufacture, deliver as well as sell their products from the Ferrari name, Alfa Romeo as well as the Lancia and Abarth trade names. While these different avenues that the companies operates was responsible for a total of 45%of the returns in the year 2009, while the CNH section of the company was responsible for a 21.5% of the total returns of the same year. The Magneti Marelli section of the company is also responsible for producing high end technology products as well as machineries for the cars. The division is also responsible for the manufacture as well as the distribution for the cars spare parts in various market regions, this section of the company claimed a total of 5.5% of all the gathered revenues (Evans 32).
The company has put a lot of attention in the strategic acquisition in order to maximize its operations. The Tritec Motors that previously belonged to Chrysler changed ownership to the Ferrari and it was renamed FPT. The division was acquired together with its production unit as well as the manufacturing lines as well as the licenses that enable it to manufacture the products currently manufactured at the unit. This acquisition has enabled the company to realize its two core objectives. That is to bring into their market domain those customers who are non-captive for their products and to expand their produce portfolio, while giving an ultra-modern as well as competitive product (Frank 60).
Regardless of the unstable market conditions experienced in the year 2008, the company reportedly added a variety of products to its already existing market. The need to manufacture high end products as well as techniques was propelled by innovation of new pursuits. Manufacturing innovation revolved around six main strong points; new age cars, best fuel conservative, best quality and the can surroundings, cost friendly products for frames, high security cars, as well as a new age in the telematics system (Gereffi and Donald 43).
The global automotive that Ferrari competes with are cars such as Bugatti, Lamborghini, Porsche, BMW and Mercedes. The company experiences intense pressure in all its production areas. Working in such a competitive environment has subjected with the challenge to increase its prices in almost all its production areas. As such there are the pressures of giving discounts as well as a price margin pressure (Frank 60). This has severely affected the company’s chances of increasing or otherwise maintaining the prices of the cars (Harris 148).
|Firm Name||Strategy highlights||Rationale for strategy||Pros and cons|
|Focal firm||Formation of coalition with other well performing brand||Enable a large market acquisition||Accounting for the large market would be challenging|
|Competitor 1||Production of a wide range of market affordable cars||To capture a large market while targeting all classes of people||Could lead to loss of market value|
|Competitor 2||Production of a wide range of affordable and partner up with other producers||To be able to widen their market margins||It is hard satisfying each and every market needs due to diversity.|
Table reference; Fiat Group.At 31 December 2012 Annual reports.PDF File, 2012.<http://www.fiatspa.com/enUS/investor_relations/financial_reports/FiatDocuments/Bilanci/2012/FiatGroup_Annual_Report_2012_ENG.pdf>
- Identification of the firm’s strategy and its competitors’ strategies
The strategic fiat alliance and GM is a significant market impact for the two companies. This alliance targets the biggest automotive markets being Europe and the Latin America. Analyst predict that this coalition between the different locomotive industries has the abilities to initiate a significant market value for the companies through various synergies in the given different locations as a speculated cost reduction on the parts, optimization of the operations that pertain to power train operations,reliable and enhanced financial accountability, cross sharing of information, universal platforms as well as architecture (Frank 60). It is very well evident that globalization has defined a new dimension of competition in the automotive global market as well as sharing of labor in the two coalitions between Fiat and GM and their distributers as well as the suppliers. Regardless of the perceived advantages, there are various challenges that have been reported by the wide market establishment. It is noted that
- Innovating a system where one sells where the product is produced, which involves establishing an industrial base in almost all the market regions
- Coming up with a wide product base and products that is able to efficiently satisfy a fragmented as well as a differentiated market needs while taking into consideration the market niche and its opportunities.
- Managing a cost efficiency in the design, acquisition as well as production
- Minimizing the challenges that accompany a large organization as well as financial measures that meet the international requirements by dividing labor to the suppliers(Gereffi and Donald 43)..
While it is evident that general motors is the largest auto producer, registering an yearly produce of over 9 million cars, a figure that translates to an average of 15% of the global manufacture, and the largest employment number of about 386, 000, and a profit range of 185 US dollar billions, where a 88% of the revenue was from the sales of vehicles, and as such, it is perceived as the most successful automobile producer from a global competitive perspective. The general motors success can be acknowledged in all the strong hold regions (Hall 138).
This study carried out in respect to the Ferrari actives, it can concluded that the company should put more emphasis on the opportunities presented to it while putting more strength in the section of the company diversification as well as in the innovative products.
A company should have adequate financial records that have to be kept by the parent company as well or otherwise the returns should be documented for audit purposes and they should be consolidated at the parent company and as such the firm’ssubsidiaries should be able to send their statements in right time (Chandler Hikino and Chandler 47). These financial reports as well as the manager’s reports should be audited in the attempt to increase the efficiency in documentations. Through the study it was noted that some of the director’s remuneration that should be stated in relation to the law were not stated and as such provides inadequate information for the sake of research purposes (Gereffi and Donald 43).
On the other hand, is worth noting that success of the company in the oligopolistic configurationmarket is directly pegged on the binding agreement with an appropriate partner. This comes with the advantage of avoiding agreements of the intended partner with other competitors as well. From this point of reasoning, any given coalition has a secure position unlike any antagonist agreements which prove to be so hard to resistant.
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