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Working capital trade-offs of. Porsche AG, Daimler AG, and BMW.
Finance & Accounting
Pages 12 (3012 words)
Based on the concept of working capital, it can be said that if the company chooses liquidity, then they would be willing to have adequate working capital in hand and less profit. On the other hand if the company wishes to take risk and generate more profit…
This section would be discussing the working capital trade-offs of three luxury car manufacturing companies Porsche AG, Daimler AG, and BMW.
Porsche AG is a German luxury car company which was established in the year 1931. The company generated €10,928 million in the year 2011 as revenue. The working capital of the company was estimated to be around €65.8 billion in 2011, which was derived from the receivable from the customers, increasing leasing and renting charges of assets, etc (Volkswagen AG, 2011). Porsche AG met its working capital requirement through credit from banks when they were in Volkswagen Group (Porsche Automobil Holding SE, 2013). However, now the net liquidity position has improved with a 15 percent rise in sales and about 21 percent rise in the return on equity. So it can be said that Porsche no more has to rely on bank credits for working capital, but the company in 2011 negotiated with banking syndicate for extending a credit of €2.5 billion. This reveals that Porsche AG has to trade profitability for liquidity because the working capital requirement for running operational function is more important than investing the working capital. The company was running short of cash or cash equivalents due to which they had to keep provisions for credit from banks (Porsche SE, 2011).
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