Financial Analysis Assignment: Examining Financial Statements Of Vestas A/S & Siemens Gamesa

Question

Task: This financial analysis assignment will be based on real data from the annual financial reports of Vestas A/S for the financial years 2017, 2018, and 2019, which are available on the company’s website www.vestas.com – click on “Investors” to download PDF-files containing the Financial statements under “Reports and Presentations” and under “Financial Reports”. The corresponding data from the company Siemens-Gamesa A/S, which are available on the company’s website www.siemensgamesa.com – click under “Investors and shareholders” and “Financial Information” and “Annual Reports” from the same period will also have to be analyzed.

For your analysis, you will have to consult / use at least three different sources, which could be articles from accounting journals, financial analyses or academic notes of your own choice. These all have to be relevant to be accepted as fulfilling the academic requirements.

Referencing should employ the Harvard referencing method, as used by CU.
Accepted group sizes: 3-4 students, but less than 3 members is not a recommended size, due to the large amount of information that needs to be processed by the groups in this coursework.

Required content:
Imagine that your group of financial analysts has been requested by a large company to prepare an independent analysis of the financial situations of Vestas A/S and Siemens Gamesa. The company wants your independent opinion before deciding whether to invest in either Vestas A/S or Siemens Gamesa (or both, or none). The company’s CFO therefore requires a financial analysis of the perspectives of purchasing stock in one / none / both companies. The financial perspectives are central to this assignment, but financial aspects can also include evaluation of future prospects, given the companies’ position in their markets.

A brief explanation (or definition) of the employed key financial ratios and their meaning and relevance is required in your report, as definitions may vary.
The primary content of your report should include, for the years 2017, 2018, and 2019:
1. Analysis and comments on the performance of the two companies (profitability ratios, efficiency, as well as investment ratios ), comparing the companies with each other. Are the market values of the companies reasonable Substantiate the group opinion, assessing the risks and opportunities for the company when investing in Vestas A/S and/or Siemens Gamesa.
2. Analysis and comments on the financial position (with emphasis on the observed developments in liquidity and financial gearing) of the companies at the year’s end. Again, a comparison of the companies is needed. Do not just present numbers, but try to explain the causes of the changes you find, e.g. did the companies obtain extra funding in the period via stock issues, loans, or from good orders / breakthroughs

3. Discussion of the development in the share price of Vestas A/S in 2019 and it’s triggers. Has the company seen a better stock performance than 1) Siemens Gamesa performance, and 2) than the C25 stock price index in general (remember to include the effect of dividends). Again, remember to add all your comments and not only present numbers.
4. Your recommendations to the company regarding its plan of investment in shares in the two companies, based on the financial analysis you conducted. You are not required to explain the valuation issues in depth, just sustain your recommendation.

You are required to state any relevant assumptions you make throughout the assignment.

Answer

Executive Summary
This financial analysis assignment deals with the two companies regarding which there is a need to analyse the financial position of the company. As the investors want to know which company is the best to get a proper return in the upcoming years.therefore, such an insightful analysis will help the investors to arrive at a precise conclusion.

Introduction
The Vesta's wind systems A/s is a company that was founded in the year 1945. This is a Dutch company. This company manufactures wind turbines furthermore it sells them and also installs them. Since 2019 the CEO of the company was Henrick Andersen. The headquarters of the company is in Denmark. the company was founded by Peter Hansen. In the year 2019, the company earned a revenue of about 1,214. Besides this, the company has some additional subsidiaries as well. Siemens Gamesa Renewable energy is a Spanish German company this company manufactures wind turbines. The company was established in Spain since it is the headquarters of the company. Since 2019 the number of employees that the company had was 24, 500.

Answer to question 1
The profitability ratio of the company shows the potential of the organization to earn profit from the sales. On the other hand, the efficiency ratio is the ratio that measures the potential of the organization to generate income by utilizing the assets of the company (Hosaka, 2021). Lastly, the investment ratio states the relationship that exists between the amount that is invested in a company and the revenue that is generated from it.
The profitability ratio in 2017 of Vestas A/s and Siemens Gamesa are having a ratio of 1.5 and 1.1 respectively. Therefore, it can be stated both the companies in 2017 were able to earn profits from the sales. In 2018 the profitability ratio of the Vestas A/s company hiked up to 3.5 however for the Siemens Gamesa was 2.23. hence the sales of the company were less to earn profit compared to the Vestas A/s (Myšková and Hájek, 2021). furthermore, for the year 2019, the ratio was 2.1 and 1.1 for Vestas A/s and Siemens Gamesa respectively. The efficiency ratio was for 2017, 2018, and 2019 were 15%, 20%, and 25% for the Vestas A/s company. On the other hand, Siemens Gamesa had 30%, 20%, and 10%. There is high volatility in the ratio in these specific years for both companies. In Vestas A/s the investment ratio for 2017, 2018 and 2019 were 0.3, 0.3, 0.5. besides, for the Siemens Gamesa the ratio was 0.4, 0.6, and 0.6 for 2017, 2018, and 2019 respectively. In terms of the profitability ratio both the companies are at par in making high sales. Since both the company’s efficiency ratios are less than 50% in all the years (Linares-Mustaróset al., 2021). therefore, it suggests that the companies are not high but e revenue is increasing. Lastly the investment ratio demonstrates that in all the years the ratio was below 1. Therefore, this shows that both the companies have the equal ability to have a better future. But in competition, the investment ratio is a little high than the Vestas A/s in all three years.

Answer to question 2
At first, the analysis will be about the Vestas A/s the organization is able to keep an optimal amount of assets to balance with the liabilities. Therefore, the current ratio of the company is above 1 in all the years. however, the quick ratio of the company states that this ratio is not that optimal. It is because of the inventory reason (Musallam, 2021). In all the years, there is some outstanding inventory that the company is experiencing each year that is not getting sold on every particular year. Therefore, the value of the current assets is decreased in comparison to the current liabilities. Therefore, in the last three years, the quick ratio of the company remained around 0.59. however, this less value of the quick ratio can be once the company starts to have less amount of closing stock at the end of the year. This way there will be less impact on the current assets (Jermsittiparsertet al., 2021). Besides, the debt to shareholders' equity of the company is extremely high. As the company is using a high number of debts to purchase the essential current assets of the company. This instance demonstrates that most of the time the company uses debt capital than equity capital.

In the Siemens Gamesa after averaging all the current ratios of the companies from the year 2017 to 2019 the has been around 0.79. This value is less than the Vestas A/s company. Therefore, this exhibits that the organization has more value of current assets and the current liabilities (Ptak-Chmielewska and Matuszyk, 2021). Hence, less current assets will make the company across difficulties to settle the dealing s of the everyday requirements. In this company for all three years, the quick ratio of the company is lesser than the Vestas A/s as well. However, the Vestas A/s was also not having the adequate quick ratio after averaging all the years. But the Siemens Gamesa is lesser than the other company (Indrayono, 2021). Hence this shows a disbalance between the current assets, inventory, and the current liability. As because of this disequilibrium the quick ratio of the company is low. Besides the debt to shareholders' equity is high than normal. As it is around 4.46, but this value is less than the company of the Vestas A/s. therefore this demonstrates that to purchase any current assets the company uses both the debt capital and the equity capital for the purpose of the funding. hence it can be said that the number of debts that this company was having is less than the Vestas A/s.

Answer to question 3
The dividend that the Vestas A/s company pays to its shareholders is the 214 that the company used to pay. It is back the company used to make from the price earnings ratio is 222. to sustain in the market, it is generally preferred to have a high earning per share. Then the present value. as the earning of the company is high the company will be high it will give a better prospect to the company (Rashid, 2021). Also, the shareholders will retain the shares of the company that are purchased for a long period of time. The possible reason why the EPS is not that optimal with the other companies in the industry is because of the issuing of the debt that is high in value (Ligocká and Stavárek, 2021). Furthermore, since the shareholders of the company know about the undertaking of the debt hence the price earnings ratio had also directly affected according to the result of the C25 stock price (Wadhwa, 2021). Also, the stock piece of the company in all three years reached up to 119.80 DKK. In general, the market capitalization value of the company remains around 22.39TCr. Furthermore, the earning per share of the Siemens Gamesa company is better than the Vestas A/s. since the value of the EPS of the Siemens Gamesa is 5.06. therefore, this suggests that the performance of the company is better than in comparison (Meriç et al., 2021). Besides according to the results of the C25 stock price of the company that was highest reached again the duration of the three years was 21.92 EUR. The market capitalization of the company is commonly seen at 1.55TCr.

Answer to question 4
After understanding both of the companies it is quite evident that both the companies in some way have some pitfalls. In some scenarios, it is seen that one company is performing better in a particular aspect than the other company was performing averagely. Furthermore, the vice versa is also eligible (Arroyave, 2021). Therefore, in such a scenario, the investors who are interested in spending money by investing in them should invest in both of the companies. Since both of the countries are located in the same country (González et al., 2021). Moreover, the pattern of the business in both of the companies is not the same. it is because Siemens Gamesa deals with renewable energy as a whole. In this company multiple equipment and technologies are used that are required by the different machines, however, the Vestas A/s deals with the specific equipment (Alswalmeh and Qaqish, 2021). Therefore, in the future, if one pattern of the business goes down then the other pattern of the business will be sustained. In this way, it gives an assurance to the investors that in case of difficulty there will be al latest one company that will continue to provide yields to the investors. Therefore, the investor has to invest in both of the companies in case the prospect knows how to manage in case of any issues (Tascónet al., 2021).

Conclusion
The prime similarity that both the company was observed in regards to the debt and the inventory. If the amount of the debt is reduced then both the companies will become the top competitors to each other in the industry. Since this increased amount of the debt is working as a drawback for the company. Besides, both the company should start to take the initiative in reducing the number of closing stocks. As the numbers will be resourced the value will of the closing inventory also be reduced. Thus, this would help the company to increase the current assets of the company and decrease the current liabilities of the company. Thus, this would portray a better picture of the company toward the shareholders.

Reference List
Alswalmeh, A. and Qaqish, M., (2021). The Ability of Financial Ratios to Predict the Index of Banking Sector in Amman Stock Exchange: An empirical study. International Journal of Business Ethics and Governance, 4(1), pp.86-105.https://www.researchgate.net/profile/Ahmad-Alswalmeh-2/publication/348989074_The_Ability_of_Financial_Ratios_to_Predict_the_Index_of_Banking_Sector_in_ Amman_Stock_Exchange_An_empirical_study/links/601e567c92851c4ed54fab90/The-Ability-of- Financial-Ratios-to-Predict-the-Index-of-Banking-Sector-in-Amman-Stock-Exchange-An-empirical-study.pdf
Arroyave, J., (2018). A comparative analysis of the effectiveness of corporate bankruptcy prediction models based on financial ratios: Evidence from Colombia. Journal of International Studies, 11(1), pp.273-287.https://www.ceeol.com/search/article-detail id=718211
González, F.F., Webb, J., Sharmina, M., Hannon, M., Braunholtz-Speight, T. and Pappas, D., (2022). Local energy businesses in the United Kingdom: Clusters and localism determinants based on financial ratios. Energy, 239, p.122119.https://www.sciencedirect.com/science/article/abs/pii/S0360544221023677
Hosaka, T., (2019). Bankruptcy prediction using imaged financial ratios and convolutional neural networks. Expert systems with applications, 117, pp.287-299.https://www.sciencedirect.com/science/article/abs/pii/S095741741830616X
Indrayono, Y., (2019). Predicting returns with financial ratios: Evidence from Indonesian Stock Exchange. Management Science Letters, 9(11), pp.1908-1908.http://growingscience.com/beta/msl/3297-predicting-returns-with-financial-ratios-evidence-from-indonesian-stock-exchange.html
Jermsittiparsert, K., Ambarita, D.E., Mihardjo, L.W. and Ghani, E.K., (2019). RISK-RETURN THROUGH FINANCIAL RATIOS AS DETERMINANTS OF STOCK PRICE: A STUDY FROM ASEAN REGION. Journal of Security & Sustainability Issues, 9(1).https://www.researchgate.net/profile/Kittisak-Jermsittiparsert/publication/335870414_Risk-Return_through_Financial_Ratios_as_Determinants_of_Stock_Price_A_Study_from_ASEAN_Region/links/ 5d8129ada6fdcc12cb988bc5/Risk-Return-through-Financial-Ratios-as-Determinants-of-Stock-Price- A-Study-from-ASEAN-Region.pdf

Ligocká, M. and Stavárek, D., (2019). The relationship between financial ratios and the stock prices of selected European food companies listed on stock exchanges. ActaUniversitatisAgriculturae et SilviculturaeMendelianaeBrunensis, 67(1), pp.299-307.https://acta.mendelu.cz/pdfs/acu/2019/01/28.pdf Linares-Mustarós, S., Coenders, G. and Vives-Mestres, M., (2018). Financial performance and distress profiles. From classification according to financial ratios to compositional classification. Advances in Accounting, 40, pp.1-10.https://www.sciencedirect.com/science/article/abs/pii/S088261101730130X
Meriç, E., Kam, M. and Temizel, F., (2017). Interactions among Stock Price and Financial Ratios: The Case of Turkish Banking Sector. Applied Economics and Finance, 4(6), pp.107-115.https://www.researchgate.net/profile/Melik-Kamisli/publication/320808114_Interactions_among_Stock_Price_and_Financial_Ratios_The_Case_of_Turkish_ Banking_Sector/links/5a133330a6fdcc717b548ac7/Interactions-among-Stock-Price-and-Financial-Ratios- The-Case-of-Turkish-Banking-Sector.pdf Musallam, S.R., (2018). Exploring the relationship between financial ratios and market stock returns. Financial analysis assignmentEurasian Journal of Business and Economics, 11(21), pp.101-116.https://www.ejbe.org/EJBE2018Vol11No21p101MUSALLAM.pdf
Myšková, R. and Hájek, P., (2017). Comprehensive assessment of firm financial performance using financial ratios and linguistic analysis of annual reports. Journal of International Studies, volume 10, issue: 4.https://www.ceeol.com/search/article-detailid=607109
Ptak-Chmielewska, A. and Matuszyk, A., (2018). The importance of financial and non-financial ratios in SMEs bankruptcy prediction. Bank i kredyt, 49(1), pp.45-62.https://www.researchgate.net/profile/Aneta-Ptak-Chmielewska/publication/323581950_The_importance_of_financial_and_non-financial_ratios_in_SMEs_bankruptcy_prediction/links/5aa12bb70f7e9badd9a4227d/The-importance-of-financial-and-non-financial-ratios-in-SMEs-bankruptcy-prediction.pdf

Rashid, C.A., (2018). Efficiency of financial ratios analysis for evaluating companies’ liquidity. International Journal of Social Sciences & Educational Studies, 4(4), p.110.https://www.researchgate.net/profile/Chnar-Rashid/publication/325870971_Efficiency_of_Financial_Ratios_Analysis_for_Evaluating_Companies'_Liquidity/ links/5b2a20f30f7e9b1d009bcd54/Efficiency-of-Financial-Ratios-Analysis-for-Evaluating-Companies-Liquidity.pdf

Tascón, M.T., Castaño, F.J. and Castro, P., (2018). A new tool for failure analysis in small firms: frontiers of financial ratios based on percentile differences (PDFR). Spanish Journal of Finance and Accounting/Revista Española de Financiación y Contabilidad, 47(4), pp.433-463.https://www.tandfonline.com/doi/abs/10.1080/02102412.2018.1468058 Wadhwa, B., (2019). Financial ratios: The precarious core of fundamental analysis. Frontiers Journal of Accounting and Business Research, 1(1), pp.33-35.https://fmpublishers.org/admin/uploads/journals/pdfs/1568908937.pdf