Analysis of the Key Financial Value Drivers of Automotive Companies in Selected EU Countires

Abstract

Increased environmental regulation together with other challenges (such as the self-driving evolution and connected technologies) is affecting the entire value chain within the automotive industry.

From the perspective of income based (ex ante) approach, the value of a company equals to the sum of capital employed and present value of future economic value added (EVA). The difference between the market value of a company at the valuation date and the capital employed (net operating assets) is the market value added (MVA). In our research we compare the MVA of 4 989 automotive companies in the Czech Republic, Slovakia and Germany - the countries for which the automotive industry is the most important for the national economy between EU-27 countries.

Our aim is to uncover the differences between value creation in the countries in question by decomposing EVA created by automotive companies into its key financial value drivers.

Our analysis updates the results of our previous research, and its main conclusion is the same – the highest MVA is generated by the Czech Automotive, and it is about two times higher than the MVA of automotive companies in Slovakia. However, the Slovak automotive is decreasing the lead of Czechia significantly. The operating profit margins are increasing in Slovakia, and local companies use their fixed assets and net working capital more efficiently compared to the Czech automotive. Our key finding relates to the EVA of Germany, which is negative in the long run. German automotive companies seem to be destroying the value of previous shareholder investments. The low efficiency of asset utilization (according to the capital employed turnover) outweighs relatively high level of operating profit margin and low cost of capital reached thanks to the utilization of the high share of low-cost debt in the capital structure.