Individual assignment

Financial analysis - Volvo

Income Consolidated Income Statement (In MSEK) % of sales ('19) % of sales ('20)

statement Total sales

Production expenses
2019
431980
326895
100,00%
75,67%
2020
338446
259319
100,00%
76,62%
Gross income 105085 24,33% 79127 23,38%
The Income statement of Volvo Shows an
absolute total sales growth of 1,6% from Research and development expenses -18539 -4,29% -16798 -4,96%
2017 to 2020. In 2020 the net sales have Selling expenses -34329 -7,95% -26510 -7,83%
decreased by 18% and the reason for this is Administrative expenses -5901 -1,37% -4621 -1,37%
the pandemic. Sales have decreased in all Other operating income and expenses -221 -0,05% -5459 -1,61%
departments and in the truck and buss Income/loss from investments in joint
department in decreased the most. 33% in ventures and associated companies 1859 0,43% 1749 0,52%
the bus department and 21% in the truck Income/loss from other investments 285 0,07% -3 0,00%
department. Operating income (EBIT) 49531 11,47% 27484 8,12%
The decrease in earning has mostly to do
with lower amount of vehicles produced and
Interest income and similar credits 320 0,07% 299 0,09%
lower capacity utilization in the operation
department. Interest expenses and similar charges -1,674 0,00% -1,349 0,00%
The financial income decreased due to the Other financial income and expenses -1,345 0,00% -518 -0,15%
decrease in income from financial income Income after financial items (EBT) 46,832 0,01% 25,917 0,01%
and operating income. However, the
expenses also decreased. Taxes -10,337 0,00% -5,843 0,00%
Net Income for the year 36,495 0,01% 20,074 0,01%
Balance sheet- Consolidated Income Statement (In % of sales % of sales
Assets MSEK) 2019 ('19) 2020 ('20)

Assets
The total amount of assets has decreased Cash & Short Term Investments 61661 85419
compared to the year before and the total 11,54% 16,43%
amount in 2020 was 519,8 Billion SEK. Total Accounts Receivable 131110 24,53% 112776 21,69%
Compered to the year before it has decreased
15 billion SEK. The company regarding the Inventories 56644 10,60% 47625 9,16%
assets ahs not only decreased. Currency effects Other Current Assets 34296
from revaluation of assets resulted in and 32772 6,13% 6,60%
positive operating cash flow and was for the Total Current Assets 282187 52,79% 280116 53,88%
most part increased in the cash and cash
equivalents. 0,00% 0,00%
Net Property Plant & Equipment 96759 18,10% 87015 16,74%
In 2020, the Volvo Group Industrial business' Accumulated Depreciation 100058 18,72% 98890 19,02%
net financial assets (excluding post-employment
benefits and provision for lease liabilities) Total Investments and Advances 14282 2,67% 17933 3,45%
increased by SEK 12.1 billion to a net financial
asset position of SEK 74.7 billion as of 31 Long-Term Note Receivable 80036 14,97% 78872 15,17%
December 2020. The impact of positive Intangible Assets 36668 6,86% 34578 6,65%
operating cash flow of SEK 18.5 billion was
partially offset by dividends paid to non- Other Assets 1663 0,31% 1712 0,33%
controlling shareholders of SEK 800 million and
negative exchange rate movements of SEK 2.2 Total Assets 534532 100,00% 519879 100,00%
billion.
Balance sheet- Liabilities

Equity and Liabilities ST Debt & Current Portion LT Debt

Short Term Debt
56136 10,50%
54381 10,17%
58258 11,21%
56706 10,91%
Current Portion of Long-Term Debt 1755 0,33% 1552 0,30%
Accounts Payable 66866 12,51% 59611 11,47%
Net assets and liabilities held for sale increased
by SEK 700 million during the year to SEK 23 Income Tax Payable 3493 0,65% 4599 0,88%
billion, mainly related to the intention to Other Current Liabilities 79822 14,93% 81009 15,58%
transfer ownership of the global UD truck
business to Isuzu Motors. Investments in joint Total Current Liabilities 206317 38,60% 203477 39,14%
ventures and associates increased by SEK 200 Long-Term Debt 101616 19,01% 95166 18,31%
million during the year, mainly driven by profits
from Dongfeng Commercial Vehicle Co., Ltd. Net Deferred Taxes 8899 1,66% 733 0,14%
assets and liabilities related to pensions and Provision for Risks & Charges 34573 6,47% 29347 5,64%
similar obligations stood at SEK 16.7 billion as at
31 December 2020, down by SEK 1.6 billion Other Liabilities 36311 6,79% 12926 2,49%
from the end of 2019. The Volvo Group's total Total Liabilities 392855 73,50%
share capital at 31 December 2020 was SEK 371737 71,50%
148.1 billion, compared to SEK 141.7 billion at
the end of 2019. The ratio is 29.0% (27.0). On
Common Equity (Total) 138594 25,93% 145295 27,95%
the same date, the equity ratio of the Industrial
business was 35.8% (33.1). Total Shareholders' Equity 138594 25,93% 145295 27,95%
Total Equity 141677 26,50% 148142 28,50%
Liabilities & Shareholders' Equity 534532 100,00% 519879 100,00%
Balance sheet – Working
Capital and Asset
Turnover Vovlo 2020 2019 2018 2017

Capital employed/invested
From 2017 to 2020 the working capital, financial Working Capital 223410 227806 200207 154953
debt and capital employed has been quite stably 58258 56136 48646 53771
Financial debt
growing in Volvo. This acquired growth in all three
years was also financed by financial debt, which Captal employed 206400 197813 174477 161573
explains the peaks in the according years. Turnover rates
The company also managed to pay its suppliers on
short notice, although this had to be relativized AR Turnover 3,00 3,29 3,21 3,08
because the company, as a service company with no
production, did not receive significant supplies. AR Days Outstanding 122 111 114 119

The Volvo Group's net financial debt structure is

Inventory turnover 5,45 5,77 4,61 0,48
affected by fluctuations in market interest rates.
Changes in the level of interest rates may affect the
Group's net income and cash flows or the value of IT Days 67 63 79 760
financial assets and liabilities. Still striking is the high
AR days compared to the Swedish average, which Account payable TO 4,35 4,89 41,22 0,39
could be an area for future improvement. However,
given Volvo's global reach, the AR outstanding ACP TO Days 84 75 9 942
balance of around 122 days must be relativized. Asset TO Ratio 65,10% 80,81% 79,79% 77,08%
However, improvements in this area will lead to Net WC % of Rev 24,97% 24,41% 42,03% 24,87%
improved cash flow, reducing the time requirement
between inflows and outflows.
Asset turnover 0,65 0,81 0,80 0,77
 Balance Sheet Side (In MSEK)
Growth I – Acquired 600000

Growth 519879
534532

489811
500000

431654
The graph to the right shows the successive
growth Volvo´s did achieved during the 400000
period of 2017 to 2019 and the affect covid
had in 2019 to 2020.
Volvo's strategy of continuous growth and 300000 223410
the years of alternating growth and
integration are reflected in company figures. 227806
161573
Construction activity has also gradually 200207
200000
improved in most markets following the 206400 197813
spring closures. During the year, we 174477
continued to strengthen our market share 154953
position in China, the largest market in the 100000
58258 56136 48646
world, with very good growth during the 53771
year
0
2020 2019 2018 2017

Working capital Financial Debt Total Assets Capital emplyed

Growth II – Organic Income Statement Side (in MSEK)
Growth 60000

49531
46832
50000

The Volvo Group has undergone a major

restructuring process in recent years to
reduce structural costs and increase 40000
36495
34478
30327
efficiency and is currently at a stage focused 32148
on organic growth and increased 25917
28254
profitability through continuous 30000 27484
improvement and innovation. 24897

In 2020, the operating margin was 8.1% 20074 20484

(11.5). Adjusted operating margin was 8.4%, 20000
return on equity was 8.3%, and equity ratio
was 8.0%.
This resulted in the decrease in organic 10000
growth where the pandemic was the reason
and the operating income decreased.
0
2020 2019 2018 2017

EBIT EBT Net Income

 Volvo

Margins 2020 2019 2018 2017

Profitability Gross-margin 23,38% 24,33% 22,35% 23,90%

EBIT-margin 8,12% 6,36% 7,03% 8,26%

Profit-margin(EBT) 7,66% 10,84% 8,23% 8,49%

Looking at the margins on the table, Volvo shows
Net profit-margin 5,93% 8,45% 6,37% 6,16%
a stable increase of its profitability over the
period of 2017-2019 but due to the pandemic it ROE 13,55% 25,76% 19,79% 19,00%
decreased in 2020. Sales and thereby net profit ROA 3,92% 6,89% 5,12% 4,78%
have increased due to acquired and organic ROIC 13,46% 25,20% 19,87% 18,87%
growth according to the company’s strategy Isuzu
described before. Margins
Gross-margin 16,23% 17,33% 17,40% 16,40%
Compared to two peers from Isuzu from Japan EBIT-margin 6,76% 8,23% - 7,50%
and Daimler from Germany. Volvo's profit and Profit-margin(EBT) 4,93% 6,42% 6,14% 5,54%
net margin in 2020 were higher than its peers. Net profit-margin 3,91% 5,28% 5,10% 4,81%
Although Isuzu managed to achieve a high EBIT ROE 7,17% 10,16% 9,73% 9,76%
margin, its lower interest income and higher ROA 3,77% 5,32% 5,11% 4,99%
finance costs and gross margin resulted in lower ROIC N/A N/A N/A N/A
final profit and net profit margin. Volvo has also Daimler
shown a solid and steady positive development Margins
of its return in a similar fashion, with higher Gross-margin 15,68% 18,79% 18,95%
return on assets, return on invested capital and EBIT-margin 0,11% 4,97% 5,72%
return on equity. Profit-margin(EBT) 0,36% 3,78% 4,21%
Net profit-margin 0,40% 3,74% 4,14%
ROE 1,64% 16,73% 19,37%
ROA 0,29% 3,13% 3,62%
ROIC N/A N/A N/A
Solvency

Volvo's solvency figures are shown on the right. Solvency 2020 2019 2018 2017
Volvo has shown fairly solid and steady positive
development, with a decline in financial debt-to- Financial leverage 0,72 0,73 0,74 0,75
equity and debt-to-capital ratios, as well as an Debt to equity ratio 2,51 2,77 2,89 3,00
increase in the multiples of interest earned since
Financial debt to equity ratio 0,39 0,40 0,39 0,50
2020. As mentioned, does the decline in debt-to-
equity ratios indicate Volvo's risk aversion as Debt to capital ratio 0,28 0,28 0,28 0,33
they prefer lower financial leverage as their
competitors. Volvo appears to be trying to Times inteest earned 20,60 29,78 20,91 16,46
reduce their risk, which can be seen in the
financial leverage and lower debt-to-equity ratio. Isuzu 2020 2019 2018 2017
Compared to its peers, Volvo remains solvent Solvency
and has the ability to survive in the long run. The
Financial leverage 0,47 0,48 0,47 0,49
small change from 2019 to 2020 can certainly be
explained by the company's need to rebuild after Debt to equity ratio 0,90 0,91 0,90 0,95
the pandemic. Although Volvo's solvency looks Daimler 2020 2019 2018
stable. The asset-liability ratio, asset-liability Solvency
ratio, financial liability ratio and financial
leverage ratio decreased slightly. Financial leverage 0,83 0,81 0,08

Debt to equity ratio 4,74 4,35 0,44

Liquidity
Volvo 2020 2019 2018 2017

The two liquidity ratios on the right show that Current Ratio 1.38 1.37 1.21 1.09
Volvo's liquidity improved steadily and steadily
between 2017 and 2020. From 2017 to 2020, Quick Ratio 1.14 1.09 0.87 0.80
liquidity was stable and on an upward trend.
Even with the pandemic, the liquidity ratio has
continued to increase, which shows that Volvo Cash Ratio 0.42 0.30 0.24 0.20
has handled the outbreak well and is well
prepared. However, Securitas are still better and
healthier compared to their peers, but Isuzu's Isuzu
are better than Volvos. Even at this point, none Liquidity ratios 2020 2019 2018 2017
of them seem to have liquidity problems, but Current Ratio 1.86 1.78 1.72 1.72
Daimler is the worst by comparison. Quick Ratio 1.32 1.29 1.27 1.26
Daimler
Liquidity ratios 2020 2019 2018
Current Ratio 1.19 1.27 1.23
Quick Ratio 0.90 0.93 0.86
ROE-analysis
Taking into account the leverage formula, its
Volvo
return on assets and return on equity increased
relatively steadily during 2017-2019. In 2020
though we saw a decline. The increase in return
on equity was on the one hand due to a
decrease in the cost of debt and an increase in Leverage Formula
return on assets, while in 2020 the opposite
was true. On the other hand, however, the Return on assets 3,92% 6,89% 5,12% 4,78%
decline in the debt-to-equity ratio runs counter
to the two aforementioned factors. Volvo could Cost of Liabilities 0,36% 0,43% 0,46% 0,57%
achieve a higher return on equity by using more
debt to finance its business, using higher
financial leverage and being compensated for Liabilities/Equity 2,51 2,77 2,89 3,00
taking higher risks. However, these figures
suggest that there is some risk aversion, and Return on Equity 13,55% 25,76% 19,79% 19,00%
Volvo will not take greater financial risk. Given
the predictable changes in returns on assets
and the cost of liabilities, Volvo finances its
business by reducing debt, and its expected
returns are less likely to change.
ROA-analysis
Volvo 2020 2019 2018 2017
By utilizing the Sven-Erik Johansson Du Pont
Formula, it very well may be seen that the Operating Margin (EBIE) 20,60 29,78 20,91 16,46
expanding return on resources is mostly
brought about by an expansion in resource Asset turnover 65,10% 80,81% 79,79% 77,08%
turnover and this further discloses it because of
its lessening in 2020 where both decline.. Volvo Return on Assets 3,92% 6,89% 5,12% 4,78%
thusly figured out how to execute its gained
Isuzu 2020
resources and create benefit out of them. The
organization consequently has a Slower Operating Margin (EBIE) 51,223791
turnover of its abilities than its companions Asset turnover 96,65%
with Higher resource turnover. Likewise, on Return on Assets 3,77%
working benefit does Volvo create a lower EBIT
and monetary pay comparative with deals than Daimler 2020
both of its friends. This implies, that Volvo
Operating
utilizes its abilities more regrettable by offering
its types of assistance increasingly slow it Margin
produces a lesser edge, for example a lesser (EBIE) 0,704225
benefit for each help it gives than the two its Asset
rivals. All in all, Volvo's better yield on resources turnover 72,04%
is accomplished by offering types of assistance Return on Assets 0,29%
quicker. Notwithstanding, the pandemic might
have been an explanation this changes for the
peers.
Cash Flow Cash Flow (in MSEK)
Operating Activities
Net Income before Extraordinaries
2020
27484
2019
49531
2018
34478
2017
30326

Analysis Depreciation, Depletion & Amortization

Other Funds
Funds from Operations
16129
678
44291
16960
-9208
57283
15144
5272
54894
13941
-1961
42306
Changes in Working Capital -13681 -18236 -23707 -4705
The cash flow on the right further Net Operating Cash Flow 30610 39047 31187 37601
underscores Volvo's strategy of alternating Investing Activities
growth and integration phases. 2017-2020 Capital Expenditures -17320 -22009 -20868 -19234
showed positive cash flow from investing Net Assets from Acquisitions -10 - -170 -
and financing as part of consolidation
Sale of Fixed Assets & Businesses 6781 8761 6201 6320
activities (eg reductions in fixed assets).
However, 2020 has been characterized by Purchase/Sale of Investments -462 92 970 2182
lower investments leading to lower cash Other Uses - -1033 - -
flow as acquisitions took place during this Other Sources 1070 - 69 1586
phase. Cash flow from operations and Net Investing Cash Flow -9941 -14189 -13798 -9146
financing was positive due to new short- Financing Activities
term and long-term liabilities as part of
Cash Dividends Paid - Total - -20335 -8636 -6603
investment financing. During 2017-2020,
investment cash flow decreased, but only Issuance/Reduction of Debt, Net 7321 9342 1943 -8996
negative cash flow. Volvo obtains positive Other Funds -877 176 -6 -44
cash flow from financing through cash Net Financing Cash Flow 6444 -10817 -6699 -15643
payments and calculates operating and cash Exchange Rate Effect -3368 487 150 -667
flow accordingly. Miscellaneous Funds - - 1 -1
Net Change in Cash 23745 14528 10841 12144
Free Cash Flow 16313 20992 14065 20373
 Volvo

Conclusion
12,00%

10,16%
9,73% 9,76%
10,00%
After analyzing Volvo's financials, it can be concluded
that the company achieved steady and solid growth
between 2017 and 2019, mainly due to acquisitions
and organic growth. The company has implemented 8,00%
a strategy of alternating growth and integration 7,17%
phases, thus ensuring a sound financial position in
terms of profitability, solvency and liquidity. As such,
the positive and stable trend is likely to continue. In 6,00%
the above three areas, Volvo has shown steady 5,28% 5,10%
development, and 2020 is better than its peers Isuzu 4,81%
and Daimler. Still, Volvo can only achieve a lower
return on equity, even though it outperforms both 3,91%
4,00% 5,32%
peers in terms of return on assets. Although in 2020,
peers have better ROA and ROE. The reason is 5,11% 4,99%
Volvo's lower debt-to-equity ratio, so it takes less risk 3,77%
by using less financial leverage and doesn't get as
2,00%
much compensation as its two rivals.
Shareholders more or less determine their level of
risk aversion and the returns they expect due to the
company's higher return on assets, compared to
0,00%
Daimler. Isuzu's return on assets is higher. Volvo 2020 2019 2018 2017
could improve tracking of customers, thereby
reducing the number of outstanding receivable days, ROE ROA Net profit-margin
although one has to take into account the different
credit days granted in countries other than Sweden.
However, by making improvements in this area, Volvo 2020 2019 2018 2017
Volvo can improve its operating cash inflow and real 2,51 2,77 2,89 3,00
Debt to equity ratio
liquidity, as real cash is always better than just
legitimate claims made to customers, which may not Quick Ratio 1,14 1,09 0,87 0,80
materialize in the worst-case scenario.