Masaryk University Faculty of Economics and Administration

M a sa ry k Univ ersity
Fa c ul ty o f E co no mi cs a n d A d mi nis t ra t io n
Field of study: Finance
FINANCIAL ANALYSIS OF
SIEMENS GROUP
Master’s Thesis
Supervisor: Ing. Bc. Jana HVOZDENSKÁ Author: Munkh-Erdene UNDRAL
Brno, 2018
Name and surname of the author: Munkh-Erdene Undral
Master’s thesis title: Financial Analysis of Siemens Group
Department: Finance
Master’s thesis supervisor: Ing. Bc. Jana Hvozdenská
Master’s thesis date: 2018
Annotation
The Master’s thesis: “Financial Analysis of Siemens Group” analyzes the financial
statements of Siemens to find out if the company is able to settle its short and long-term
obligations, whether it is in any kind of financial difficulties or not, and forecast its future
growth. The thesis covers the period of seven (7) financial years, from October 1, 2010 until
September 30, 2017. Ratio analysis, bankruptcy prediction and financial forecasting will be
performed to achieve the thesis objectives.
Keywords
Germany, Siemens, financial analysis, financial forecasting

Declaration
“I certify that I have written the Master’s Thesis: Financial Analysis of Siemens Group by
myself under the supervision of Ing. Bc. Jana Hvozdenská and I have listed all the literary
and other specialist sources in accordance with legal regulations, Masaryk University internal
regulations, and the internal procedural deeds of Masaryk University and the Faculty of
Economics and Administration.”
Brno,
Aut hor’s si gn at ure

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION ............................................................................................................ 9
1.1 Financial Analysis .......................................................................................................................... 9
1.2 Siemens Group ............................................................................................................................. 10
1.2.1 Introduction ........................................................................................................................... 10
1.2.2 Corporate Structure ............................................................................................................... 10
1.2.3 Businesses ............................................................................................................................. 11
1.2.4 Corporate Governance .......................................................................................................... 14
1.2.5 Annual Shareholders’ Meeting ............................................................................................. 15
CHAPTER 2: OBJECTIVES AND METHODOLOGY ....................................................................... 17
2.1 Objectives .................................................................................................................................... 17
2.2 Methodology ................................................................................................................................ 17
2.2.1 Horizontal and Vertical Analysis of Financial Statements ................................................... 18
2.2.2 Revenue and Revenue Growth .............................................................................................. 18
2.2.3 Profitability ........................................................................................................................... 19
2.2.4 Capital Efficiency ................................................................................................................. 20
2.2.5 Liquidity................................................................................................................................ 23
2.2.6 Capital Structure ................................................................................................................... 24
2.2.7 Debt of Siemens .................................................................................................................... 26
2.2.8 Equity of Siemens ................................................................................................................. 27
2.2.9 Weighted Average Cost of Capital ....................................................................................... 31
2.2.10 Bankruptcy Prediction......................................................................................................... 32
2.2.11 Comparison with Competitors ............................................................................................ 33
2.2.12 Financial Forecasting of Siemens ....................................................................................... 33
CHAPTER 3: LITERATURE REVIEW ............................................................................................... 35
CHAPTER 4: FINANCIAL ANALYSIS OF SIEMENS GROUP ....................................................... 37
4.1 Introduction .................................................................................................................................. 37
4.2 Analysis Period and Data ............................................................................................................. 37
4.3 Horizontal and Vertical Analysis ................................................................................................. 38
4.3.1 Horizontal and Vertical Analysis of Balance Sheet .............................................................. 38
4.3.2 Horizontal and Vertical Analysis of...................................................................................... 41
4.4 Revenue and Revenue Growth..................................................................................................... 44
4.5 Profitability .................................................................................................................................. 45
4.5.1 Profitability Ratios ................................................................................................................ 45
4.5.2 Summary of Profitability Ratios ........................................................................................... 49
4.6 Capital Efficiency ........................................................................................................................ 50
4.6.1 Activity Ratios ...................................................................................................................... 50
4.6.2 Summary of Activity Ratios ................................................................................................. 54
4.6.3 Capital Efficiency Ratio Used by Siemens........................................................................... 55
4.7 Liquidity ...................................................................................................................................... 55
4.7.1 Liquidity Ratios .................................................................................................................... 56
4.7.2 Summary of Liquidity Ratios ............................................................................................... 57
4.8 Capital Structure .......................................................................................................................... 58
4.8.1 Debt Management Ratios ..................................................................................................... 60
4.8.2 Summary of Debt Management Ratios ................................................................................ 65
4.8.3 Ratio Used by Siemens for Capital Structure Evaluation ..................................................... 65
4.9 Debt of Siemens .......................................................................................................................... 67
4.9.1 Corporate Credit Ratings of Siemens ................................................................................... 68
4.9.2 Debt of Siemens in FY 2017 ................................................................................................ 69
4.9.3 Cost of Debt of Siemens in FY 2017.................................................................................... 69
4.10 Equity of Siemens ..................................................................................................................... 70
4.10.1 Siemens Shares ................................................................................................................... 70
4.10.2 Share Buyback 2016-2018 ................................................................................................. 73
4.10.3 Share Price of Siemens ....................................................................................................... 74
4.10.4 Market Capitalization of Siemens ...................................................................................... 75
4.10.5 Earnings Per Share (EPS) ................................................................................................... 75
4.10.6 Return on Equity (ROE) ..................................................................................................... 77
4.10.7 Dividend ............................................................................................................................. 80
4.10.8 Cost of Equity of Siemens in FY 2017 ............................................................................... 81
4.10.9 Valuation of Siemens Shares .............................................................................................. 82
4.11 WACC of Siemens in FY 2017 ................................................................................................. 82
4.12 Bankruptcy Prediction ............................................................................................................... 83
4.13 Comparison with Competitors ................................................................................................... 85
4.13.1 Selection of Competitors .................................................................................................... 85
4.13.2 Scope of Comparison and Data Collection......................................................................... 87
4.13.3 General Information and Accounting Principles ................................................................ 87
4.13.4 Comparison of Total Assets ............................................................................................... 88
4.13.5 Comparison of Revenue and Profitability .......................................................................... 89
4.13.6 Comparison of Liquidity .................................................................................................... 92
4.13.7 Comparison of Capital Structure ........................................................................................ 95
4.13.8 Comparison of Shares......................................................................................................... 98
4.14 Revenue Forecast in FY 2018 .................................................................................................. 100
4.14.1 Data Collection ................................................................................................................. 100
4.14.2 Forecasting Method Selection ........................................................................................... 100
4.14.3 Revenue Forecast .............................................................................................................. 102
4.15 Financial Statements Forecast in FY 2018 .............................................................................. 110
4.15.1 Assumptions ...................................................................................................................... 110
4.15.2 Preliminary Calculations ................................................................................................... 111
4.15.3 Proforma Income Statement and Balance sheet in FY 2018 ............................................. 112
4.15.4 Net Income Attributable to Shareholders of Siemens in FY 2018 .................................... 116
4.15.5 EPS in FY 2018 ................................................................................................................ 116
4.15.6 ROE in FY 2018 ............................................................................................................... 117
4.15.7 Limitations and Conclusion .............................................................................................. 117
CHAPTER 5: CONCLUSION............................................................................................................. 119
5.1 Current Financial Condition of Siemens .................................................................................... 119
5.2 Siemens’ Ability to Settle its Short and Long-term Liabilities .................................................. 120
5.2.1 Ability to Settle Short-term Liabilities................................................................................ 120
5.2.2 Ability to Settle Long-term Liabilities ................................................................................ 121
5.3 Problems and Recommendations ............................................................................................... 122
5.4 Siemens in FY 2018 and Beyond ............................................................................................... 123
5.4.1 In FY 2018 .......................................................................................................................... 123
5.4.2 Beyond FY 2018 ................................................................................................................. 124
5.5 Final Remarks ............................................................................................................................ 125
LIST OF REFERENCES ..................................................................................................................... 127
LIST OF TABLES ............................................................................................................................... 133
LIST OF FIGURES ............................................................................................................................. 135
LIST OF APPENDICES ...................................................................................................................... 137
FINANCIAL ANALYSIS OF SIEMENS GROUP
CHAPTER 1: INTRODUCTION
Financial analysis of a company is an evaluation of its current operational and financial
conditions. It will help to identify problems facing the company and to plan for the future. In the
thesis, I will analyze the Siemens Group (hereinafter referred to as “Siemens” or “the company”) by
using financial analysis methods.
In this chapter, general understanding of financial analysis and company introduction of

Siemens will be covered, especially more attention will be paid to Siemens. Because it is always wise
to have a better understanding about the company you’re performing the financial analysis on.
Subsequent chapters of the thesis will cover Objectives and Methodology, Literature review,
Financial analysis of Siemens and Conclusion.
1.1 Financial Analysis

What is Financial analysis? There are many definitions of it. But in general, Financial analysis
is the evaluation of business in terms of its profitability, efficiency, stability, solvency and its future
potential, based on analyzing its financial information. The financial information refers to the
company’s financial statements, earnings releases and market data etc. Financial analysis is mainly
performed on the financial statements of a company.
Financial analysis is used to evaluate economic trends, set financial policy, build long-term
plans for business activity and identify projects or companies for investment (Investopedia, n.d.). By
performing financial analysis, strengths and weaknesses, operational efficiency and current financial
situation of a company can be identified. Based on that, we can make fair assumptions about the
company and make short and long-term financial planning. According to Brealey, et al. (2011, p.
704), “knowing where you stand today is a necessary prelude to contemplating where you might be in
the future”. So, we can say that financial analysis have two (2) purposes, one is to know the current
situation of the company, two is to make future decisions based on it.
The most common analysis made are horizontal and vertical analysis and ratio analysis. The
results obtained from performing the financial analysis should be compared with the industry
averages, the company’s competitors or against its own past results. So, a reasonable conclusion can
be made whether the company is performing well or not.
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1.2 Siemens Group

1.2.1 Introduction
Siemens Group comprises Siemens Aktiengesellschaft (hereinafter referred to as “Siemens

AG”), as the parent company, a stock corporation under the Federal Laws of Germany, and its
subsidiaries (hereinafter collectively referred to as “Siemens”) (Siemens, 2017). As of FY 2017,
Siemens AG has 1,031 subsidiaries and 140 associated companies and joint ventures.
Siemens AG is a German conglomerate founded in October 1847. It has its corporate

headquarters in Munich, Germany and has subsidiaries and branches all over the world. Its presence is
felt nearly every part of the world. Siemens AG is a company with rich history, having been operated
for over 170 years. It is a technology company with core activities in the fields of electrification,
automation and digitalization, and has activities in nearly all countries of the world.
Table 1: Siemens overview
Official Name Siemens Aktiengesellschaft /Siemens AG/

October 12, 1847 by Werner von Siemens in Berlin,
Founding
Germany
Headquarters Munich, Germany
Joe Kaeser /CEO/ since May 2006
Key people Jim Hagemann Snabe /Chairman of the Supervisory Board/
since January 2018
Mission We make real what matters
Business Refer to Subsection 1.2.3 Businesses
Total assets 133.804 billion EUR (as of FY 2017)
Revenue 83.049 billion EUR (as of FY 2017)
Net income attributable to shareholders
6.046 billion EUR (as of FY 2017)
of Siemens AG
Siemens AG
Address Werner-von-Siemens-Str.1
80333 Munich, GERMANY
Website https://www.siemens.com
Source: Own research
1.2.2 Corporate Structure
Siemens is managed by the Managing Board and supervised by the Supervisory Board. Refer
to Subsection 1.2.4 Corporate Governance for more information.
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Divisions of Siemens in FY 2017:

1. Power and Gas
2. Power Generation Services
3. Energy Management
4. Building Technologies
5. Mobility
6. Digital Factory
7. Process Industries and Drives
8. Siemens Financial Services (hereinafter referred to as “Financial Services” or “SFS”)
Separately managed entities in FY 2017:

1. Siemens Healthineers (hereinafter referred to as “Healthineers”)
2. Siemens Gamesa Renewable Energy (hereinafter referred to as “Siemens Gamesa” or
“SGRE”)
Reportable segments in FY 2017:

1. Power and Gas
2. Energy Management
3. Building Technologies
4. Mobility
5. Digital Factory
6. Process Industries and Drives
7. Healthineers
8. Siemens Gamesa
9. Financial Services
Notes:
 For financial reporting purposes the financial results of the Power Generation Services
division are included in the financial results of the Power and Gas division.
 Reportable segments from one (1) to eight (8), collectively form the Industrial business of
Siemens.
 SFS supports the activities of the Industrial business and also conducts its own business with
external customers (Siemens, 2017, p. 64).
 As of September 30, 2017, Siemens had around 372,000 employees (Siemens, 2017, p. 64).
1.2.3 Businesses
Siemens conducts its businesses through its 8 Divisions and 2 separately managed entities.
Brief business descriptions are given below:
Power and Gas

The Power and Gas division offers utilities, independent power producers, engineering,
procurement and construction companies, and oil and gas customers a broad spectrum of products and
solutions for the environmentally compatible and resource-saving generation of power from fossil
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fuels and renewable sources of energy and for the reliable transportation of oil and gas (Siemens,
2018. p.31).
Energy Management
The Energy Management division is one of the leading global suppliers of products, systems,
solutions and services for the economical, reliable and intelligent transmission and distribution of
electric power.
The division’s portfolio ranges from systems for the low-voltage and distribution power grid
level to smart grids and energy automation solutions to power supplies for industrial plants and high-
voltage transmission systems (Siemens, 2018. p.32).
Building Technologies
The Building Technologies Division is a leading global provider of safe, energy-efficient and
environmentally friendly building and infrastructure technologies.
As a technology partner, consultant, service provider, systems integrator and supplier, the
Division offers solutions for fire safety, security, building automation, heating, ventilation and air
conditioning as well as energy management (Siemens, 2018. p.33).
Mobility
The efficient, safe and environmentally friendly transportation of people and goods by rail and
road – the Mobility Division bundles all of Siemens’ transportation-related products and services
(Siemens, 2018. p.34). In 2018, Siemens and Alstom, French rail transport company, plan to merge
their mobility businesses.
Digital Factory
The Digital Factory division offers a comprehensive portfolio of seamlessly integrated

hardware, software and technology-based services to support manufacturing companies worldwide in
enhancing the flexibility and efficiency of their production processes and in reducing the time to
market their products (Siemens, 2018. p.35).
Process Industries and Drive
The Process Industries and Drive Division helps customers go to market with their products
much faster. They do that by providing innovative, integrated technologies for the entire lifecycle, that
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measurably increase productivity, shorten time-to-market, and improve reliability, safety, and
efficiency of products, processes and plants.
The division is advancing the digitalization of the process industry – from integrated
engineering to integrated operation and digital services (Siemens, 2018. p. 36).
Siemens Healthineers
Siemens Healthineers is a separately managed business. It was formerly known as Healthcare,
and it became a separately managed business from October 01, 2014 (Siemens, 2014. p. 174).
Healthcare was renamed into Healthineers in May 2016 (Siemens, 2016. p. 3).
Healthineers enables healthcare providers around the world to deliver high-quality patient
care. As a leading global healthcare company, Healthineers is continuously developing its portfolio,
expanding its medical imaging and laboratory diagnostics offerings and augmenting them with a
growing range of healthcare management, consulting and IT services – such as advanced therapeutic
solutions and molecular in-vitro diagnostics (Siemens, 2018. p. 37).
In 2018, Healthineers plan to launch their Initial Public Offering (hereinafter referred to as
“IPO”) of its stock.
Siemens Gamesa Renewable Energy
In June 2016, Siemens Wind Power and Gamesa Corporación Tecnológica, S.A. (hereinafter
referred to as “Gamesa”) reached agreement on 59:41 merger of their wind turbine businesses
(Wikipedia, n.d.). As per the agreement, the shareholders of Gamesa received a cash payment of 3.75
euro per share funded by Siemens (Siemens, 2016).
In April 2017, with the merger of Gamesa and Siemens Wind Power, Siemens Gamesa
Renewable Energy was created (Siemens Gamesa, n.d.). It is a separately managed business and a
leading supplier of reliable, environmentally friendly, and cost-efficient renewable energy solutions.
Its wind power solutions deliver clean, renewable energy from onshore and offshore installations all
over the world (Siemens, 2018. p. 38).
Financial Services
The Financial Services division helps enterprise customers implement investment projects by
providing project-related and structured financing as well as leasing and equipment financing
(Siemens, 2018. p. 39).
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1.2.4 Corporate Governance
As a German stock corporation with registered offices in Berlin (registry number HRB 12300)
and Munich (registry number HRB 6684) (Siemens, 2017. p. 64), Siemens is subject to German
Corporate Law. Consequently, the Company has a two-tier management and oversight structure
consisting of a Managing Board and a Supervisory Board.
Figure 1: Two-tier board structure of Siemens
Source: Corporate Governance – Siemens Global Website. [online] Available at:

https://www.siemens.com/investor/en/corporate_governance.htm.
Managing Board
As the company’s top management body, the Managing Board is committed to serving the
interests of the company and achieving sustainable growth in company value. The members of the
Managing Board are jointly responsible for the entire management of the company and decide on the
basic issues of business policy and corporate strategy as well as on the company’s annual and multi-
year plans.
The Managing Board prepares the Company’s Quarterly Statements and Half-year Financial
Report, the Annual Financial Statements of Siemens AG, the Consolidated Financial Statements of the
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Siemens Group and the Combined Management Report of Siemens AG and the Siemens Group. In
addition, the Managing Board ensures that the Company adheres to statutory requirements, official
regulations and internal Company policies and works to achieve compliance with these provisions and
policies within the Siemens Group.
Supervisory Board
The Supervisory Board has twenty (20) members. As stipulated by the German
Codetermination Act, half of the members represent Company shareholders, and half represent
Company employees (Siemens, 2017, p. 139).
The Supervisory Board oversees and advises the Managing Board in its management of the
Company’s Business. At regular intervals, the Supervisory Board discusses business development,
planning, strategy and strategy implementation. It reviews the Annual Financial Statements of
Siemens AG, the Consolidated Financial Statements of the Siemens Group and the Combined
Management Report of Siemens AG and the Siemens Group.
1.2.5 Annual Shareholders’ Meeting
Shareholders exercise their rights in the Annual Shareholders’ Meeting. An ordinary Annual
Shareholders’ Meeting normally takes place within the first four months of each fiscal year. The
Annual Shareholders’ Meeting decides, among other things, on the appropriation of unappropriated
net income, the ratification of the acts of the Managing and Supervisory Boards, and the appointment
of the independent auditors (Siemens, 2017, p. 144).
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CHAPTER 2: OBJECTIVES AND METHODOLOGY

2.1 Objectives
The aim of the thesis is to find out if Siemens is able to settle its short and long-term
liabilities, if the company is in any kind of difficulties and recommend how to solve the problems of
the company. Evaluation of whether Siemens is in stable financial condition and forecast its future
growth.
To fulfill the thesis objectives, I will divide the thesis into two (2) parts: theoretical and
practical part. Theoretical part will cover the theoretical aspects of the financial analysis methods to be
used to perform the financial analysis (hereinafter referred to as “analysis”) of Siemens. Theoretical
aspects of the analysis will be detailed in the Section 2.2 Methodology, including the formulas to be
used for calculations.
Practical part will put the theory into practice. It will be detailed in Chapter 4: Financial
Analysis of Siemens Group.
2.2 Methodology
In this section, theoretical aspects of the methods to be used in the analysis will be covered.
Horizontal and vertical analysis, financial ratio analysis, DuPont analysis, company valuation model,
bankruptcy prediction model and financial forecasting model will be used for the analysis, and most of
the analysis will be performed by ratio analysis. By utilizing the mentioned analyis methods, below
aspects of the company will be studied:
 Revenue and revenue growth
 Profitability
 Capital efficiency
 Liquidity
 Capital structure
- Debt
- Equity
 Solvency or bankruptcy
After obtaining results for the abovementioned areas of the company, I will compare some
results, with the same results of Siemens’ competitors. By doing so, I will be able to see where
Siemens stands among its competitors. In the end, financial forecasting will be done to predict how
Siemens will perform in FY 2018.
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2.2.1 Horizontal and Vertical Analysis of

Financial Statements
This analysis will show how items of financial statements of Siemens changed year over year,
in the last seven (7) FYs. Having performed the analysis, I can compare the results and find out what
caused the changes.
Horizontal analysis, also known as trend analysis, is a financial statement analysis technique
that shows changes in the amounts of corresponding financial statement items over a period of time
(Accounting for Management, n.d.). It is calculated as below:
Absolute change = Amount of the item in comparison year – Amount of the item in base year
Absolute change
Percentage change = Amount of the item in base year × 100
Vertical analysis, also known as common-size analysis, is a financial statement analysis that
shows each item on a statement as a percentage of a base figure within the statement (Accounting for
Management, n.d.). It is calculated as below:
Amount of individual item

Percentage of item = Amount of base
× 100
2.2.2 Revenue and Revenue Growth
Revenue is the amount of money that a company actually receives during a specific period,
including discounts and deductions for returned goods (Investopedia, n.d.). It is calculated as:
Revenue = Amount of goods/services sold x Price of goods/services
Revenue figure can be found on the top line of Income statement. It should be noted that
depending on the accounting method employed by the company, revenue is calculated differently. For
example, in accrual basis accounting, revenue is recognized when it is earned. On the contrary, in cash
basis accounting, revenue is recognized when the cash is received.
Revenue growth is the increase or decrease of revenue of a company in a period from the
previous period. It is expressed in percentage and should be watched very carefully. This growth can
show how efficiently and profitable the company is operating, compared to the previous period. It is
calculated as:
R1 − R 0
Revenue growth = × 100
R0
Notes:
 R0 – revenue in previous period
 R1 – revenue in current period
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2.2.3 Profitability
Profitability of a company is its ability to turn sales into profit. I will use Profitability ratios
defined below to measure Siemens’ ability to turn sales into profit.
Profitability ratios show a company’s overall efficiency and performance. They are divided
into two (2) types: margins and returns. Ratios that show margins represent the company’s ability to
turn sales into profits at various stages of measurement, and returns represent the company’s ability in
generating returns to shareholders (thebalancesmb, n.d.).
Margin Ratios
Gross profit margin:
Also known as Gross margin, is a financial metric that shows the portion left over from
revenue after accounting for the Cost of Goods Sold (hereinafter referred to as “COGS”)
(Investopedia, n.d.). It is expressed in percentage and calculated as below:
Revenue − COGS
Gross profit margin =
Revenue
*The larger the gross profit margin, the better for the company.
Operating profit margin:
Also known as Operating margin or Return on Sales (hereinafter referred to as “ROS”),

measures how much profit a company makes after paying for variable costs such as wages and raw
materials etc., but before paying interest and taxes (Investopedia, n.d.). It is expressed in percentage
and calculated as below:
Operating income
Operating profit margin =
Revenue
Note:
 Operating income, also known as Earnings Before Interest and Taxes (hereinafter referred to
as “EBIT”), is the income that is left after all operating costs are subtracted from Gross
income. It is calculated as below:
EBIT = Gross income – (Operating expenses + Depreciation)
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Net profit margin:
Also known as Profit margin or Net margin, is the portion of revenue left after accounting for
all expenses, interest and taxes. It is expressed in percentage and calculated as below:
Net income
Net profit margin =
Revenue
Returns Ratios
Return on Assets:
Return on Assets (hereinafter referred to as “ROA”) measures the profitability of a company

in relation to its total assets. It indicates how well a company is performing by comparing the profit
it’s generated to the capital it’s invested in assets. The higher the return, the more productive and
efficient the management is utilizing its assets (CFI, n.d.). It is expressed in percentage and calculated
as below:
Net income
ROA =
Total assets
Net income
ROA =
Average total assets
Return on Equity:
Return on Equity (hereinafter referred to as “ROE”) is measured as the income to shareholders

per dollar invested (Brealey, et al., 2011, p. 712). It is expressed as percentage and calculated as
below:
Net income
ROE =
Shareholders′ equity
Net income
ROE =
Average shareholders′ equity
2.2.4 Capital Efficiency
Capital efficiency is the ability of how well a company is utilizing its capital in generating
revenue. I will use Efficiency ratios, also known as Activity ratios, to show Siemens’ ability to
generate revenue by using its capital.
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Activity Ratios
Total assets turnover:
This ratio shows how much revenue is generated by utilizing total assets (Brealey, et al., 2011,
p. 713). It is calculated as below:
Revenue
Total assets turnover =
Fixed assets turnover:
This ratio indicates how well or efficiently a company uses its fixed assets to generate revenue
(CFI, n.d.). It is calculated as below:
Revenue
Fixed assets turnover =
Average net fixed assets
Inventory turnover:
This ratio shows how many times a company’s inventory is sold and replaced over a period of
time (Investopedia, n.d.). There are two (2) approaches to calculate this ratio:
Revenue
[1] Inventory turnover =
Average inventory
COGS
[2]Inventory turnover =
Average inventory
*It is considered that second approach is more accurate to use for the calculation of Inventory
turnover.
Inventory turnover (days):
This ratio indicates how many days a company needs on average to turn its inventory into
sales or revenue (Finstanon, n.d.). It is expressed in days and calculated as below:
Revenue
[1] Inventory turnover (days) =
Daily COGS
365
[2] Inventory turnover (days) =
Inventory turnover
Notes:
 Daily COGS is calculated as below:
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- Daily COGS = COGS/365

 Both calculations give the same result.
Accounts receivable turnover:
This ratio measures a company’s revenue as a proportion of its receivables (Brealey, et al.,
2011, p. 714). It is calculated as below:
Annual net credit sales

[1] Accounts receivable turnover =
Average accounts receivable
Revenue
[2] Accounts receivable turnover =
Note: It is more accurate to compute this ratio by the formula [1], but not every company gives its
information about credit sales. So, if the information on its credit sales is not available, it is advisable
to use the formula [2].
Average collection period:
This ratio indicates the average length of time for customers to pay their bills (Brealey, et al.,
2011, p. 714). It is expressed in days and calculated as below:

[1] Average collection period =
Annual net credit sales/365
365
[2] Average collection period =
Accounts receivable turnover
Note: Both calculations give the same result.
*Recommended Average collection period is the common due date of an invoice.
Accounts payable turnover:
This ratio measures how many times per period the company pays its average accounts
payable amount (Investopedia, n.d.). It is calculated as below:
Total supplier purchases

Accounts payable turnover =
Average accounts payable
Note: Total supplier purchases is calculated as follows:
 Total supplier purchases = COGS – Beginning inventory + Ending inventory
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Average payment period:
This ratio measures the average number of days for a company to pay off its average accounts
payable amount. It is expressed in days and calculated as below:
Average accounts payable

[1] Average payment period =
Annual credit purchases/365
365
[2] Average payment period =
Accounts payable turnover
Note: Both calculations give the same result.
*Longer Average payment period is preferred.
2.2.5 Liquidity
According to Investopedia (n.d.), Liquidity describes the degree to which an asset or security
can be quickly bought or sold in the market without affecting the asset’s price. Accounting liquidity
measures the ease with which a company can meet its financial obligations with their liquid assets
(Investopedia, n.d.). Liquid assets are the type of assets that can be quickly turned into cash. Cash and
cash equivalents are the most liquid assets. Also, marketable securities and accounts receivable are
also considered quite liquid.
The most common way to measure a company’s short-term liquidity is Net Working Capital
(hereinafter referred to as “NWC”). It is the aggregate amount of all current assets and current
liabilities of a company (AccountingTools, 2017). It is calculated as below:
NWC = Current assets – Current liabilities
If the current assets exceed the current liabilities, the NWC will be positive and vice versa.
Positive NWC indicates that the company has enough current assets to cover its current liabilities.
Usually, the NWC is positive for companies.
Also, there is Liquidity ratios, which can be used to measure a company’s liquidity. I will use
such ratios to measure Siemens’ ability to meet its short-term financial obligations with its liquid
assets.
Liquidity Ratios
Current ratio:
Also known as the Working capital ratio, measures a company’s ability to meet its current
liabilities or short-term liabilities with its current assets. It is calculated as below:
23
Current assets
Current ratio =
Current liabilities
*Current ratio of at least 1.0 is preferred.
Quick ratio:
Also known as Acid-test, measures a company’s ability to meet its current liabilities with its
most liquid current assets. Some current assets are closer to cash, so less liquid assets are excluded
from in this ratio (Brealey, et al., 2011, p. 719). It is calculated as below:
Cash and cash equivalents + Marketable securites + Receivables

[1] Quick ratio =
Current liabilities
Current assets − Inventories
[2] Quick ratio =
Current liabilities
Note: Marketable securities are liquid financial instruments that can be quickly converted into cash at
a reasonable price (Investopedia, n.d.).
*Formula [2] is more widely used in practice, as it is easier to find necessary information as external
user. The higher the ratio, the better for the company.
Cash ratio:
This ratio measures a company’s ability to meet its current liabilities with its most liquid
assets. It is calculated as below:
Cash and cash equiavalents

[1] Cash ratio =
Current liabilities
Cash and cash equiavalents + Marketable securities
[2] Cash ratio =
Current liabilities
*Formula [1] is more widely used in practice. The higher the ratio, the better for the company. But
Brealey, et al. (2011) argue that a low cash ratio may not matter if the company can borrow on short
notice.
2.2.6 Capital Structure
Every company has resources and sources for that resources. Resources are represented as
assets, and sources are represented as liabilities and equity in a company’s balance sheet. Capital
structure is the composition or structure of that source of funding (Wikipedia, n.d.).
24
Generally, there are two (2) ways to finance the company’s operations and its growth. It is
either through debt or equity. Debt comes in the form of bonds, bank loans and other financial
obligations, while equity is classified as common stocks, preferred stocks and retained earnings etc.
(Investopedia, n.d.). Capital structure of the company can be defined as below:
Assets = Debt + Equity
I will find the capital structure of Siemens based on their information available in the Annual
Reports. Also, I will use Debt management ratios, also known as Leverage ratios or Solvency ratios, to
further support the findings on Siemens’ capital structure and measure Siemens’ ability to settle its
long-term liabilities.
Debt Management Ratios
Financial leverage:
Also known as Equity multiplier, is a measure of how much assets a company holds relative to
its shareholders’ equity. A high ratio indicates the company is using more debt and other liabilities to
finance its assets (wikinvest, n.d.). It is calculated as below:
Total assets
Financial leverage =
*The higher the financial leverage, the riskier the company compared to other companies with lower
financial leverage.
Debt ratio:
This ratio shows the company’s debt level as percentage of its total assets. It is expressed in
percentage and calculated as below:
Total liabilities
Debt ratio =
Total assets
*A result of 1 or less indicates that the company has less debt than its assets.
Equity ratio:
This ratio shows how many percentage of a company’s total assets are financed by equity. It is
expressed in percentage and calculated as below:
Equity ratio =
Total assets
25
Debt-to-equity ratio:
This ratio indicates how much debt a company has relative to the value of its shareholders’
equity (Investopedia, n.d.). It is calculated as below:
Total liabilities
Debt to equity ratio =
Times interest earned ratio:
Also known as Interest coverage ratio, shows how many times interest obligations are covered
by earnings (Brealey, et al., 2011, p. 717). It is calculated as below:
EBIT
Times interest earned =
Interest expense
*Times interest earned ratio less than 1.0 implies that the company is not generating enough money to
cover its interest expense. A high times interest earned ratio is preferred. Typically, a ratio less than
2.5 is a warning sign (Wikipedia, n.d.).
2.2.7 Debt of Siemens
In this part, I will be focusing on debt financing of Siemens. Debt is one part of the capital
structure of a company, the other being equity. It is considered that debt is relatively cheaper financing
method than equity. So, companies use as much debt financing as possible.
Terms debt and liabilities are used interchangeably. Because they both represent the
company’s financial obligations that arise during its operations (Investopedia, n.d.). But liability is a
broader term, it includes trade payables, bank loans, deferred income and accrued expenses etc. So, I
will narrow down the liabilities and only focus on short and long-term debt of Siemens.
I will be researching Siemens’ past 7 FYs debt levels. Especially, more attention will be paid
to FY 2017’s debt level, as it is the most recent FY that ended.
Cost of Debt
I will also calculate the cost of debt of Siemens. Cost of debt is defined by Corporate Finance
Institute website as the return that a company pays to its creditors. Cost of debt shows how much the
company is paying in interest to its creditors. It is calculated as below:
1. Find all interest expenses of total debt by multiplying each type of debt by its respective
interest rate.
2. Find the total interest expenses by finding the sum of interest expenses of all debt.
26
3. Divide the total interest expenses by the total debt.
Above calculation will give before tax or pre-tax cost of debt. Since the interest expense is tax
deductible item, we also need to find after tax cost of debt as follows:
After tax Cost of debt = Pre-tax cost of debt x (1 – Tax rate)
2.2.8 Equity of Siemens
Equity is another part of capital structure. But equity is different from debt due to its
entitlement to ownership of the company. In other words, equity is the money invested in the
company by its shareholders. We can define equity as:
Equity = Total assets – Total liabilities
In this part, I will focus on the equity side of Siemens. Equity consists of several items such as
capital stock, capital reserve and retained earnings etc. Capital stock is the sum of a company’s
common stock and preferred stock that a company is authorized to issue (Accounting Coach, n.d.). I
will analyze more closely the issued capital stock. Capital stock and issued capital can be defined as
below:
Capital stock = Issued capital + Unissued capital
Issued capital = Shares outstanding + Treasury shares
I will focus on below areas to analyze the equity of Siemens:
- Siemens shares
- Share buyback of Siemens
- Share price of Siemens
- Market capitalization of Siemens
- Earnings per share (hereinafter referred to as “EPS”)
- ROE
- Price to earnings
- Dividend
- Cost of equity
- Valuation of Siemens shares
Siemens Shares
I will research general information of Siemens shares and calculate the number of shares
outstanding and treasury shares in the past 7 FYs.
27
Shares outstanding are the shares that are purchased and held by investors (Wikipedia, n.d.).
Treasury shares are stocks which were bought back by the issuing company (Wikipedia, n.d.). Shares
outstanding is calculated as below:
Shares outstanding = Issued capital – Treasury shares
Share Buyback
Share buyback is the re-acquisition of its shares by the company (Wikipedia, n.d.). The
company then decides to cancel the shares repurchased or keep them as treasury shares.
Share price of Siemens
A share price is the price of one share of a number of saleable stocks of a company
(Wikipedia, n.d.). The share price is continuously changing due to buying and selling of the stock by
investors and traders. I will research the current market price per share of Siemens, and also the high,
low and the price at the end of FY in the past 7 FYs.
Market Capitalization of Siemens
Market capitalization (hereinafter referred to as “Market cap”) is the total market value of a
company’s outstanding shares. It is calculated by multiplying the company’s shares outstanding by the
current market price of one share (Investopedia, n.d.):
Market cap = Current market price per share x Number of shares outstanding
I will calculate the current market cap of Siemens, and the market cap of Siemens in the past 7
FYs as well.
Earnings Per Share (EPS)
Earnings Per Share (hereinafter referred to as “EPS”) is the portion of net income for one (1)
outstanding share of a company (Wikipedia, n.d.). It is calculated as below:
Net income − Dividends on preferred stock

EPS =
Number of shares outstanding
It is a very important indicator of profitability of a company. There are two (2) types of EPS.
One is Basic EPS and the other is Diluted EPS.
28
Basic EPS is the amount of net income available to one common share during the reporting
period (AccountingTools, 2017). It is calculated as below:
Net income − Dividend on preferred stock

Basic EPS =
Weighted average number of common shares outstanding
Diluted EPS is a EPS if all convertible securities are exercised (Investopedia, n.d.).
Convertible securities are investments that can be changed into another form such as common stock
(Investopedia, n.d.). It is calculated as below:
Net income − Dividend on preferred stock

Diluted EPS =
Weighted average number of shares outstanding − diluted
I will calculate basic and diluted EPS of Siemens in the past 7 FYs.
Return on Equity (ROE)
I defined ROE in Subsection 2.2.3: Profitability. I will use the DuPont analysis to examine
the ROE of Siemens in this part.
DuPont Analysis, also known as DuPont Identity, is a method of performance measurement

that was started by the DuPont Corporation in the 1920s. It analyses Return on Equity (ROE) to
identify what exactly is generating the company’s return. According to DuPont Analysis, ROE is
affected by three things: Profitability, which is measured by Profit Margin; Asset Efficiency, which is
measured by Total Asset Turnover; and Financial Leverage, which is measured by the Equity
Multiplier.
It is calculated as below:
Net Income
ROE=Average Shareholders′ Equity ;
Let’s multiply and divide the above equation with Sales and Average Total Assets.
Net Income Sales Average Total Assets

ROE= × × ;
Average Shareholders′ Equity Sales Average Total Assets
We can change the above equation as below:

Net Income Sales Average Total Assets
ROE= Sales
× Average Total Assets × Average Shareholders′ Equity ;
Now we can rewrite the equation as below:
ROE=Net Profit Margin × Total Assets Turnover × Financial Leverage;
29
From above equation we can identify which of Profitability, Asset Efficiency and Financial Leverage
affected the most for ROE. We should examine changes in these figures over time and match them to
corresponding changes in ROE.
I will analyze the ROE of Siemens in the past 7 FYs by using the DuPont analysis.
Dividend
Dividend is a distribution of a portion of a company’s earnings to its shareholder

(Investopedia, n.d.). Decision to pay out dividend is made by the board of directors.
In this part, I will research dividend per share (hereinafter referred to as “DPS”), dividend
yield and dividend growth rate of Siemens.
DPS is the amount of dividend attributed to one common share of the company (CFI, n.d.). It
is calculated as below:
Total dividends paid

DPS =
Number of shares outstanding
Dividend yield is the ratio that indicates how much a company pays out in dividend
relative to its share price (Investopedia, n.d.). It is expressed in percentage and calculated as below:
DPS
Dividend yield =
Share price
Dividend growth rate is the annualized percentage of growth of dividend over a period of time
(Investopedia, n.d.).
Cost of Equity
Cost of equity is the return a company pays to its shareholders to compensate for the risk they
undertake by investing their capital (Wikipedia, n.d.). I will use Capital Asset Pricing Model
(hereinafter referred to as “CAPM”) to calculate the cost of equity.
CAPM is a model that describes the relationship between expected return and risk of a
security (CFI, n.d.). It is the most widely used financial model to estimate the cost of equity. This
model was developed by William Sharpe, John Lintner, Jack Treynor and Jan Mossin in 1960s
(Wikipedia, n.d.). In 1990, Harry Markowitz, Merton Miller and William Sharpe were jointly awarded
1990 Alfred Nobel Memorial Prize in Economic Sciences “for their pioneering work in the theory of
financial economics” (Nobelprize.org, 1990). Formula for CAPM is as below (Brealey, et al., 2011, p.
217):
30
𝐸(𝑅𝑖 ) = 𝑅𝑓 + 𝛽(𝐸(𝑅𝑚 ) − 𝑅𝑓 )
Notes:
 E(Ri): expected rate of return on equity
 Rf: risk free rate
 β: sensitivity of a security in comparison to the market
 E(Rm): expected return on the market portfolio
 E(Rm) – Rf : equity risk premium
I will use CAPM to estimate the cost of equity of Siemens in FY 2017, as it is the latest FY that
ended.
Valuation of Siemens share
In this part, I will try to find out the intrinsic value of Siemens shares. To do that, I will use
Dividend Discount Model (hereinafter referred to as “DDM”).
The DDM, also known as the Gordon Growth Model, is a method of valuing a company’s
stock price based on the theory that the stock is worth the sum of its future dividend payments,
discounted back to the present value (Wikipedia, n.d.). The model makes below assumptions
(Vernimmen, et al., 2005, p. 434):
- The dividend growth rate and the cost of equity are constant.
- The dividend growth rate cannot exceed the cost of equity.
Based on above assumptions, the equation of DDM is as follows:

∞
(1 + 𝑔)𝑡 𝐷0 × (1 + 𝑔) 𝐷1
𝑃 = ∑ 𝐷0 𝑡
= =
(1 + 𝑟) 𝑟−𝑔 𝑟−𝑔
𝑡=1
Notes:
 P: value of equity
 g: dividend growth rate
 r: cost of equity
 D: dividend
2.2.9 Weighted Average Cost of Capital
The company Cost of capital is “the expected return on a portfolio of all the company’s
existing securities” (Brealey, et al., 2011, p. 214). In other words, it is the minimum rate of return
required by investors in the company’s assets. If the company has no outstanding debt, then the cost of
capital is only the expected rate of return on equity or cost of equity (Brealey, et al., 2011, p. 214). But
companies use debt and equity to finance their assets. So, the cost of capital is estimated as a blend of
the cost of debt and the cost of equity (Brealey, et al., 2011, p. 216). That blend is called the Weighted
31
Average Cost of Capital (hereinafter referred to as “WACC”). We can define market value of debt and
equity as below (Brealey, et al., 2011, p. 216):
V=D+E
Notes:
 V: market value of firm
 D: market value debt
 E: market value of equity
Based on above equation WACC can be calculated as below:
𝐷 𝐸
𝑊𝐴𝐶𝐶 = × 𝑟𝐷 × (1 − 𝑇𝑐 ) + × 𝑟𝐸
𝑉 𝑉
Notes:
 rD: return on debt or cost of debt
 rE: expected return on equity or cost of equity
 Tc: corporate tax rate
I will calculate the WACC of Siemens in FY 2017, as it is the latest FY that ended.
2.2.10 Bankruptcy Prediction
According to Wikipedia (n.d.), bankruptcy prediction is “the art of predicting bankruptcy and
various measures of financial distress of public firms”. There are many bankruptcy prediction models,
but the most widely used is Altman Z Score model. I will use this model to predict the bankruptcy of
Siemens.
Altman Z Score
Altman’s Z Score uses five financial ratios that can be calculated from the data, found on the
company’s annual report (Plandor & Landryová, 2012, p. 162).
It is calculated as below:
𝑍 = 1.2 × 𝑋1 + 1.4 × 𝑋2 + 3.3 × 𝑋3 + 0.6 × 𝑋4 + 0.999 × 𝑋5 ;
X1= (Net Working Capital)/(Total Assets);
X2= (Retained Earnings)/(Total Assets);
X3= (Earnings Before Interest and Tax)/(Total Assets);
X4= (Market Value of Equity)/(Book Value of Total Liabilities);
X5= Sales/(Total Assets);
32
Interpretation of the total Z Score:
Z≤1.81 – Bankruptcy zone
1.81<Z≤2.99 – Grey area
Z>2,99 – Safe zone
2.2.11 Comparison with Competitors
Comparing your results with your competitors will help you to know how well you’re
performing. So, I will compare certain results I’ve calculated so far with the same results of Siemens’
competitors. The competitors and results to compare will be detailed in Section 4.13: Comparison
with Competitors, in Chapter 4.
2.2.12 Financial Forecasting of Siemens
Financial forecast is an estimate of future financial performances of a company using

historical accounting and sales data, in addition to economic market and economic indicators
(Wikipedia, n.d.). Companies use financial forecast to determine how to allocate their budgets or plan
for anticipated expenses for an upcoming period (Investopedia, n.d.).
I will forecast Siemens’ financial performance using forecasting methods detailed below. This
part will be divided into two (2) subparts. First will be revenue forecast and second will be financial
statements forecast.
Revenue Forecast
I will forecast Siemens’ revenue in FY 2018 by using Holt-Winters method, also known as
Triple Exponential Smoothing method. This method is one of the most widely used model to forecast
time-series data.
The Holt-Winters method is used when the data or time-series shows both trend and
seasonality (Engineering Statistics Handbook, n.d.). The Holt-Winters methods comprises the forecast
equation and three (3) smoothing equations (OTexts, n.d.). Necessary components of the model are
listed below:
 Number of periods in one season, denoted as p.
 Forecast equation, denoted as Ft.
 Level or expected sales equation, denoted as Lt, with its smoothing parameter, denoted as α.
 Trend equation, denoted as Tt, with its smoothing parameter, denoted as β.
 Seasonality or seasonal component, denoted as St, with its smoothing parameter, denoted as γ.
33
The model has two versions, depending on the seasonality:

1. Additive seasonal model
2. Multiplicative seasonal model
Additive seasonal model:
This model is used when time-series exhibit additive seasonality. It is additive seasonality if
the amplitude of the seasonal pattern is independent of the sales level (Winters, 1960, p. 327).
Equations for this model is given below:
[1] 𝐿𝑡 = 𝛼(𝑌𝑡 − 𝑆𝑡−𝑝 ) + (1 − 𝛼)(𝐿𝑡−1 + 𝑇𝑡−1 )
[2] 𝑇𝑡 = 𝛽(𝐿𝑡 − 𝐿𝑡−1 ) + (1 − 𝛽)𝑇𝑡−1
[3] 𝑆𝑡 = 𝛾(𝑌𝑡 − 𝑇𝑡 ) + (1 − 𝛾)𝑆𝑡−𝑝 )
[4] 𝐹𝑡+𝑚 = 𝐿𝑡 + 𝑚𝑇𝑡 + 𝑆𝑡−𝑝+𝑚
Note: m – number of periods ahead to forecast
Multiplicative seasonal model:
This model is used when time-series exhibit multiplicative seasonality. It is multiplicative

seasonality if the amplitude of the seasonal pattern is proportional to the sales level (Winters, 1960, p.
327). Equations for this model is given below:
𝑌𝑡
[1] 𝐿𝑡 = 𝛼 ( ) + (1 − 𝛼)(𝐿𝑡−1 + 𝑇𝑡−1 )
𝑆 𝑡−𝑝
[2] 𝑇𝑡 = 𝛽(𝐿𝑡 − 𝐿𝑡−1 ) + (1 − 𝛽)𝑇𝑡−1
𝑌
[3] 𝑆𝑡 = 𝛾 ( 𝑡 ) + (1 − 𝛾)𝑆𝑡−𝑝
𝐿𝑡
[4] 𝐹𝑡+𝑚 = (𝐿𝑡 + 𝑚𝑇𝑡 )𝑆𝑡−𝑝+𝑚
Financial Statements Forecast
In this part, I will forecast Income statement and Balance sheet of Siemens. I will use
Percentage of Sales Model, which assumes that certain items in Income statement and Balance sheet
are proportional to sales. These items should be items which have historical record that have strong
relationship with sales. Below two (2) steps will be done to apply the model:
1. Previous period’s items which were assumed to be proportional to sales will be restated as
percentage of sales. Other items can be carried forward with the same amounts.
2. Projections of the items will be calculated based on the sales forecast.
I will use this model to create Proforma income statement and Proforma balance sheet of Siemens
in FY 2018.
34
CHAPTER 3: LITERATURE REVIEW

The Literature review of the thesis will cover academic papers, related to the methods to be
used in the financial analysis, published in peer-reviewed academic journals. Main focus of the
literature review will be studies on financial ratio analysis, bankruptcy prediction and financial
forecasting.
In 1968, James O. Horrigan wrote a paper, “A Short History of Financial Ratio Analysis”, on
the development of ratio analysis. According to Horrigan (1968, p. 284), the origin of ratio analysis
was in about 300 B.C. by Euclid in his Book V of Elements. But the adoption of ratios as a tool for
financial analysis is a recent development. The ratio analysis developed for two (2) different purposes:
(1) creditor purposes; and (2) managerial purposes. Ratio analysis for creditor purposes focused on the
ability of a company to pay back, whereas ratio analysis for managerial purposes emphasized on the
profitability of a company (Horrigan, 1968, pp. 284-285). And credit analysis approach dominated the
general development of ratio analysis. Between the period 1900-1919, three (3) endogenous and two
(2) exogenous developments happened. In 1913 and 1914, the passage of the first Federal income tax
code and the establishment of the Federal Reserve System occurred, respectively. These developments
increased demand for financial statements and led to improvements in their content, resulting in
further development in ratio analysis (Horrigan, 1968, p. 285). In 1930’s, two (2) important
developments occurred, directly related to ratio analysis: (1) publication of industry average ratios by
Roy A. Foulke; and (2) studies on the efficiency of ratios as predictors of business financial
difficulties (Horrigan, 1968, p. 288). Professor Horrigan (1968, p. 294) stated the negative side of the
ratio analysis was lack of its explicit theoretical structure and the positive side was the usage of the
ratio analysis to compare financial statements between firms and over time periods. He also noted that
evidence suggests that financial ratios have predictive abilities, at least in respect to financial
difficulties (Horrigan, 1968, p. 294).
Predictive abilities of financial ratios were studied by William H. Beaver (1966), Melvin C.
O’Connor (1973) and many others. Beaver studied the predictive abilities of financial ratios for failure
of companies. He defined failure as “the inability of a firm to pay its financial obligations as they
mature” (Beaver, 1966, p. 71). He found that not all ratios predict equally well. For example: cash
flow to total debt ratio has excellent predictive ability, whereas liquid asset ratios have weaker
predictive power (Beaver, 1966, p. 101).
O’Connor (1973) evaluated the usefulness of financial ratios to assist investors in ranking
common stock by future rate of return. Unfortunately, he found little usefulness of financial ratios to
predict the future rate of return. As per O’Connor (1973, p. 351), “The evidence provided by the
analysis of the predictive abilities of the various ratio-rate of return models casts strong doubt upon
the usefulness of financial ratios, alone, to investors in common stock”.
35
Another person to study the predictive power of the ratios in corporate bankruptcy, was
Edward I. Altman. In 1968, he published a paper: “Financial Ratios, Discriminant Analysis and the
Prediction of Corporate Bankruptcy”. In the paper, he used a Multiple Discriminant Analysis to
evaluate the predictive abilities of a set of financial ratios for bankruptcy (Altman, 1968, p. 589). The
study was conducted on data of sixty-four (64) manufacturing firms classified equally into two (2)
groups: (1) bankrupt and (2) non-bankrupt (Altman, 1968, p. 593). He introduced Z score model in
the paper. It is the sum of five (5) ratios, each multiplied by corresponding coefficients. These five (5)
ratios represent five standard ratio categories: (1) liquidity; (2) profitability, (3) leverage, (4) solvency;
and (5) activity ratios. The model predicted the bankruptcy of the initial sample, with 94% accuracy.
Also, the model proved to be quite accurate in several secondary samples introduced to test the
reliability of Z Score model. Professor Altman (1968, p. 609) concluded that the model can predict
accurately the bankruptcy up to two (2) years in advance and the accuracy rapidly diminished after
two (2) years.
In 1960, Peter R. Winters published a paper: “Forecasting Sales by Exponentially Weighted

Moving Averages”, on sales forecast. He expanded on earlier exponential forecasting method written
by Charles C. Holt in 1957, “Forecasting Seasonals and Trends by Exponentially Weighted Moving
Averages”. Winters introduced Triple Exponential Smoothing method in the paper. Many products
show long-term trends as well as seasonal patterns. Winters’ method extended earlier exponential
method by computing expected sales, trend and seasonal factors separately. In the paper, Winters
compared three (3) forecasting methods: (1) his exponential smoothing model; (2) naïve model; and
(3) simple forecasting model. As per Winters (1960, p. 326), his exponential model makes more
accurate forecasts, requiring less storage and a little bit more time to compute, than other two (2)
models. Indeed, the exponential model proposed by Winters had greater forecasting ability. This
method later became to be known as Holt-Winters method or Triple Exponential Smoothing method.
36
CHAPTER 4: FINANCIAL ANALYSIS OF
SIEMENS GROUP
4.1 Introduction
In this chapter, I will put theoretical aspect of the thesis into practice. Before performing the
financial analysis, I will give some information regarding Siemens which will be relevant to
subsequent sections of the chapter.
Siemens has a FY end on September 30 of every year. If September 30 of a year is on either

Saturday or Sunday, the FY will end on the last business day of the year.
Financial statements of the reportable segments of Siemens are consolidated and reported in
Annual Report of Siemens every year. Based on my observation, the Annual Report is prepared and
presented at the end of November or the beginning of December of the year. The Annual Report is
published on their website.
Consolidated Financial Statements of Siemens (hereinafter referred to as “Financial

Statements”) are prepared in accordance with International Financial Reporting Standards (hereinafter
referred to as “IFRS”), issued by the International Accounting Standards Board (hereinafter referred to
as “IASB”), as well as with additional requirements set forth in Section 315a (1) of the German
Commercial Code (HGB) (Siemens, 2017. p. 64). From FY 2018, Siemens will adopt IFRS 15
(Siemens, 2017. p. 6).
Siemens prepares and reports its financial statements in euros (hereinafter referred to as
“EUR”) and due to rounding, numbers presented in the financial statements may not precisely add up
to totals provided (Siemens, 2017. p. 64).
4.2 Analysis Period and Data

In the thesis, financial statements covering the period from October 1, 2010 to September 30,
2017 or FY 2011 – 2017, will be used. I will be focusing and performing the analysis mostly on
Consolidated Statements of Income (hereinafter referred to as “Income statement” or “IS”) and
Consolidated Statements of Financial Position (hereinafter referred to as “Balance sheet” or “BS”).
Also, quarterly earnings release and financial results of Siemens and some market data regarding
Siemens shares and other necessary information, will be used.
Most of the data were collected directly from the Siemens website, which can be accessed at:
https://www.siemens.com/investor/en/index.php. Other sources were also used to collect necessary
data such as Siemens share price and DAX 30 index price etc.
37
4.3 Horizontal and Vertical Analysis
4.3.1 Horizontal and Vertical Analysis of Balance Sheet
Balance Sheet of Siemens
Table 2: Balance sheet of Siemens:
(in millions of EUR)
2011 2012 2013 2014 2015 2016 2017

Assets
Current assets 52,813 52,129 46,937 48,076 51,442 55,329 58,429
Non-current assets 51,430 56,152 54,999 56,803 68,906 70,388 75,375
Total assets 104,243 108,282 101,936 104,879 120,348 125,717 133,804

Liabilities
Current liabilities 43,560 42,637 37,868 36,598 39,562 42,916 43,394
Non-current liabilities 28,527 34,343 35,443 36,767 45,730 47,986 45,884
Total liabilities 72,087 76,980 73,312 73,365 85,292 90,901 89,278

Equity
attributable to shareholders of
31,530 30,733 28,111 30,954 34,474 34,211 43,089
Siemens
Non-controlling interests 626 569 514 560 581 605 1,438
Total equity 32,156 31,302 28,625 31,514 35,056 34,816 44,527
Total liabilities and equity 104,243 108,282 101,936 104,879 120,348 125,717 133,804
Source: Annual Reports of Siemens between FY 2011 and FY 2017
Please refer to Appendix A for complete Consolidated Statements of Financial Position of Siemens
between FY 2011 and FY 2017.
38
Horizontal Analysis of Balance Sheet
Table 3: Horizontal analysis of Balance sheet
2012/2011 2013/2012 2014/2013 2015/2014 2016/2015 2017/2016

absolute percentage absolute percentage absolute percentage absolute percentage absolute percentage absolute percentage
change change change change change change change change change change change change
Assets
Current assets (684) -1.30% (5,192) -9.96% 1,139 2.43% 3,366 7.00% 3,887 7.56% 3,100 5.60%
Non-current assets 4,722 9.18% (1,153) -2.05% 1,804 3.28% 12,103 21.31% 1,482 2.15% 4,987 7.09%
Total assets 4,039 3.87% (6,346) -5.86% 2,943 2.89% 15,469 14.75% 5,369 4.46% 8,087 6.43%
Liabilities
Current liabilities (923) -2.12% (4,769) -11.19% (1,270) -3.35% 2,964 8.10% 3,354 8.48% 478 1.11%
Non-current liabilities 5,816 20.39% 1,100 3.20% 1,324 3.74% 8,963 24.38% 2,256 4.93% (2,102) -4.38%
Total liabilities 4,893 6.79% (3,668) -4.76% 53 0.07% 11,927 16.26% 5,609 6.58% (1,623) -1.79%
Equity
attributable to
(797) -2.53% (2,622) -8.53% 2,843 10.11% 3,520 11.37% (263) -0.76% 8,878 25.95%
shareholders of Siemens
Non-controlling interests (57) -9.11% (55) -9.67% 46 8.95% 21 3.75% 24 4.13% 833 137.69%
Total equity (854) -2.66% (2,677) -8.55% 2,889 10.09% 3,542 11.24% (240) -0.68% 9,711 27.89%
Total liabilities and
4,039 3.87% (6,346) -5.86% 2,943 2.89% 15,469 14.75% 5,369 4.46% 8,087 6.43%
equity
39
Vertical Analysis of Balance Sheet
Table 4: Vertical analysis of Balance sheet
(in percentage)
2011 2012 2013 2014 2015 2016 2017

Assets
Current assets 50.66% 48.14% 46.05% 45.84% 42.74% 44.01% 43.67%
Non-current assets 49.34% 51.86% 53.95% 54.16% 57.26% 55.99% 56.33%
Total assets 100% 100% 100% 100% 100% 100% 100%

Liabilities
Current liabilities 41.79% 39.38% 37.15% 34.90% 32.87% 34.14% 32.43%
Non-current liabilities 27.37% 31.72% 34.77% 35.06% 38.00% 38.17% 34.29%
Total liabilities 69.15% 71.09% 71.92% 69.95% 70.87% 72.31% 66.72%

Equity
attributable to shareholders of
30.25% 28.38% 27.58% 29.51% 28.65% 27.21% 32.20%
Siemens
Non-controlling interests 0.60% 0.53% 0.50% 0.53% 0.48% 0.48% 1.07%
Total equity 30.85% 28.91% 28.08% 30.05% 29.13% 27.69% 33.28%

Total liabilities and equity 100% 100% 100% 100% 100% 1000% 100%
Source: Own calculation
40
4.3.2 Horizontal and Vertical Analysis of
Income Statement
Income Statement of Siemens
Table 5: Income statement of Siemens
2011 2012 2013 2014 2015 2016 2017
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Cost of sales (51,388) (56,092) (55,053) (51,165) (53,789) (55,826) (58,021)
Gross profit 22,127 22,204 20,829 20,755 21,847 23,819 25,029

Research and development
expenses (3,925) (4,238) (4,291) (4,065) (4,483) (4,732) (5,164)
SG&A expenses (10,297) (11,162) (11,286) (10,424) (11,409) (11,669) (12,225)
Other operating income, net 53 240 76 462 87 (99) 52

Income (loss) from
investments accounted for
using the equity method, net 147 (266) 510 582 1,235 134 43
Interest income (expense), net 491 506 159 294 442 325 436
Other financial income
(expense), net 646 (5) (154) (177) (500) (373) 135
Income from continuing
operations before income
taxes 9,242 7,279 5,843 7,427 7,218 7,404 8,306
Income tax expenses (2,231) (2,094) (1,630) (2,028) (1,869) (2,008) (2,180)
operations 7,011 5,184 4,212 5,400 5,349 5,396 6,126
Income (loss) from
discontinued operations, net of
income taxes (690) (595) 197 108 2,031 188 53
Net income 6,321 4,590 4,409 5,507 7,380 5,584 6,179
Non-controlling interests 176 132 126 134 98 134 133
Shareholders of Siemens 6,145 4,458 4,284 5,373 7,282 5,450 6,046
41
Horizontal Analysis of Income Statement
Table 6: Horizontal analysis of Income statement
2012/2011 2013/2012 2014/2013 2015/2014 2016/2015 2017/2016
absolute percentage absolute percentage absolute percentage absolute percentage absolute percentage absolute percentage
change change change change change change change change change change change change
Revenue 4,781 6.50% (2,414) -3.08% (3,962) -5.22% (83,049) -115.47% 4,008 5.30% 3,405 4.28%
Cost of sales (4,704) -9.15% 1,039 1.85% 3,888 7.06% 58,021 113.40% (2,037) -3.79% (2,195) -3.93%
Gross profit 77 0.35% (1,375) -6.19% (74) -0.36% (25,029) -120.59% 1,972 9.03% 1,210 5.08%
Research and development expenses (313) -7.97% (53) -1.25% 226 5.27% 5,164 127.04% (249) -5.55% (432) -9.13%
SG&A expenses (865) -8.40% (124) -1.11% 862 7.64% 12,225 117.28% (260) -2.28% (556) -4.76%
Other operating income, net 187 352.83% (164) -68.33% 386 507.89% (52) -11.26% (186) -213.79% 151 152.53%
Income (loss) from investments
accounted for using the equity
method, net (413) -280.95% 776 291.73% 72 14.12% (43) -7.39% (1,101) -89.15% (91) -67.91%
Interest income (expense), net 15 3.05% (347) -68.58% 135 84.91% (436) -148.30% (117) -26.47% 111 34.15%
Other financial income (expense), net (651) -100.77% (149) -2980.00% (23) -14.94% (135) -76.27% 127 25.40% 508 136.19%
Income from continuing operations
before income taxes (1,963) -21.24% (1,436) -19.73% 1,584 27.11% (8,306) -111.84% 186 2.58% 902 12.18%
Income tax expenses 137 6.14% 464 22.16% (398) -24.42% 2,180 107.50% (139) -7.44% (172) -8.57%
Income from continuing operations (1,827) -26.06% (972) -18.75% 1,188 28.21% (6,126) -113.44% 47 0.88% 730 13.53%
Income (loss) from discontinued
operations, net of income taxes 95 13.77% 792 133.11% (89) -45.18% (53) -49.07% (1,843) -90.74% (135) -71.81%
Net income (1,731) -27.38% (181) -3.94% 1,098 24.90% (6,179) -112.20% (1,796) -24.34% 595 10.66%
Non-controlling interests (44) -25.00% (6) -4.55% 8 6.35% (133) -99.25% 36 36.73% (1) -0.75%
Shareholders of Siemens (1,687) -27.45% (174) -3.90% 1,089 25.42% (6,046) -112.53% (1,832) -25.16% 596 10.94%
42
Vertical Analysis of Income Statement
Table 7: Vertical analysis of Income statement
(in percentage)
2011 2012 2013 2014 2015 2016 2017
Revenue 100% 100% 100% 100% 100% 100% 100%
Cost of sales 69.90% 71.64% 72.55% 71.14% 71.12% 70.09% 69.86%
Gross profit 30.10% 28.36% 27.45% 28.86% 28.88% 29.91% 30.14%

Research and development
expenses 5.34% 5.41% 5.65% 5.65% 5.93% 5.94% 6.22%
SG&A expenses 14.01% 14.26% 14.87% 14.49% 15.08% 14.65% 14.72%
Other operating income, net 0.07% 0.31% 0.10% 0.64% 0.12% 0.12% 0.06%
Income (loss) from
investments accounted for
using the equity method, net 0.20% 0.34% 0.67% 0.81% 1.63% 0.17% 0.05%
Interest income (expense), net 0.67% 0.65% 0.21% 0.41% 0.58% 0.41% 0.52%
Other financial income
(expense), net 0.88% 0.01% 0.20% 0.25% 0.66% 0.47% 0.16%
operations before income
taxes 12.57% 9.30% 7.70% 10.33% 9.54% 9.30% 10.00%
Income tax expenses 3.03% 2.67% 2.15% 2.82% 2.47% 2.52% 2.62%
operations 9.54% 6.62% 5.55% 7.51% 7.07% 6.78% 7.38%
Income (loss) from
discontinued operations, net of
income taxes 0.94% 0.76% 0.26% 0.15% 2.69% 0.24% 0.06%
Net income 8.60% 5.86% 5.81% 7.66% 9.76% 7.01% 7.44%
Non-controlling interests 0.24% 0.17% 0.17% 0.19% 0.13% 0.17% 0.16%
Shareholders of Siemens 8.36% 5.69% 5.65% 7.47% 9.63% 6.84% 7.28%
43
4.4 Revenue and Revenue Growth

Revenue is recognized when it is probable that the economic benefit will flow to the Company
and the revenue can be reliably measured, regardless of when the payment is made.
Table 8: Revenue and revenue growth of Siemens
2011 2012 2013 2014 2015 2016 2017
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Revenue growth - 6.50% -3.08% -5.22% 5.17% 5.30% 4.28%
Revenue grew in the last 4 FYs. The lowest revenue was generated in FY 2014 and the highest
was in FY 2017. For revenue breakdown by segments please refer to Appendix B.
Figure 2: Revenue of Siemens
Revenue of Siemens
100,000
80,000
60,000
2011 2012 2013 2014 2015 2016 2017
Revenue
Source: Own graph
44
4.5 Profitability
Profitability might be the most important indicator of how well a company is performing.
Because in the end, ultimate goal of any company is making profit. Profitability of Siemens will be
measured by Profitability ratios defined in Subsection 2.2.3: Profitability in Chapter 2.
4.5.1 Profitability Ratios
1. Gross profit margin
Table 9: Calculation of Gross profit
2011 2012 2013 2014 2015 2016 2017
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Less: COGS (51,388) (56,092) (55,053) (51,165) (53,789) (55,826) (58,021)
Gross profit 22,127 22,204 20,829 20,755 21,847 23,818 25,028

Table 10: Calculation of Gross profit margin
(in millions of EUR, except profit margin)
2011 2012 2013 2014 2015 2016 2017
Gross profit 22,127 22,204 20,829 20,755 21,847 23,818 25,028
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Gross profit
30.10% 28.36% 27.45% 28.86% 28.88% 29.91% 30.14%
margin
Increasing gross profit margin is observed. The highest gross profit margin was in FY 2017, and the
lowest Gross profit margin was in FY 2013.
45
2. Operating profit margin
Table 11: Calculation of EBIT
2011 2012 2013 2014 2015 2016 2017
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Less: COGS (51,388) (56,092) (55,053) (51,165) (53,789) (55,826) (58,021)

Less: Research and
development expense (3,925) (4,238) (4,291) (4,065) (4,483) (4,732) (5,164)
Less: SG&A expenses (10,297) (11,162) (11,286) (10,424) (11,409) (11,669) (12,225)
Plus: Other operating income 555 516 503 656 476 328 647
Less: Other operating expense (502) (276) (427) (194) (389) (427) (595)
Income (loss) from investments
accounted for using the equity 147 (266) 510 582 1,235 134 43
method, net
EBIT 8,105 6,778 5,838 7,310 7,276 7,452 7,735
Table 12: Calculation of Operating profit margin
(in millions of EUR, except margin)
2011 2012 2013 2014 2015 2016 2017

EBIT 8,105 6,778 5,838 7,310 7,276 7,452 7,735
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Operating profit margin 11.02% 8.66% 7.69% 10.16% 9.62% 9.36% 9.31%
Declining operating profit margin is observed. The highest operating margin was in FY 2011 and the
lowest was in FY 2013.
3. Net Profit Margin
Table 13: Calculation of Net profit margin
(in millions of EUR, except margin)
2011 2012 2013 2014 2015 2016 2017

Net income 6,145 4,458 4,284 5,373 7,282 5,450 6,046
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Net profit margin 8.36% 5.69% 5.65% 7.47% 9.63% 6.84% 7.28%

46
Note: Net income attributable to shareholders of Siemens AG was used in the calculation.
Net profit margin in FY 2017 grew compared to the previous FY, but declined compared to FY 2015
and 2016. The highest profit margin was in FY 2015 and the lowest was in FY 2013.
4. Return on Assets (ROA)
Table 14: Calculation of ROA
(in millions of EUR, except ROA)
2011 2012 2013 2014 2015 2016 2017

Net income 6,145 4,458 4,284 5,373 7,282 5,450 6,046
Average total assets - 106,263 105,109 103,408 112,614 123,033 129,761
ROA - 4.20% 4.08% 5.20% 6.47% 4.43% 4.66%
Note: Net income attributable to shareholders of Siemens was used in the calculation.
ROA grew compared to the previous FY, but declined compared to FY 2014 and 2015. The highest
ROA was in FY 2015 and the lowest was in FY 2013.
Figure 3: ROA of Siemens
ROA of Siemens
150.00 10.00%
120.00
6.47%
(in billions of EUR)
90.00 5.20%
4.43% 4.66%
4.20% 4.08%
60.00
30.00
- 0.00%
2012 2013 2014 2015 2016 2017
Net income 6.15 Average total assets - ROA -
Source: Own graph
47
5. Return on Equity (ROE)
Table 15: Calculation of ROE
(in millions of EUR, except ROE)
2011 2012 2013 2014 2015 2016 2017
Net income 6,145 4,458 4,284 5,373 7,282 5,450 6,046
Average shareholders'
- 31,132 29,422 29,533 32,714 34,343 38,650
equity
ROE - 14.32% 14.56% 18.19% 22.26% 15.87% 15.64%
Note: Net income attributable to shareholders of Siemens was used in the calculation.
Declining ROE is observed in the past 3 FYs. The highest ROE was in FY 2015 and the lowest was in
FY 2012.
Figure 4: ROE of Siemens
ROE of Siemens
50.00 40.00%
40.00
30.00%
30.00 22.26%
18.19% 20.00%
15.87% 15.64%
20.00 14.32% 14.56%
10.00%
10.00
- 0.00%
1 2 3 4 5 6
Net income Average shareholders' equity ROE
Source: Own graph
48
4.5.2 Summary of Profitability Ratios
Table 16: Summary of Profitability ratios
(in percentage)
2011 2012 2013 2014 2015 2016 2017
Gross Profit Margin 30.10% 28.36% 27.45% 28.86% 28.88% 29.91% 30.14%
Operating Profit Margin 11.02% 8.66% 7.69% 10.16% 9.62% 9.36% 9.31%
Net Profit Margin 8.36% 5.69% 5.65% 7.47% 9.63% 6.84% 7.28%
ROA - 4.20% 4.08% 5.20% 6.47% 4.43% 4.66%
ROE - 14.32% 14.56% 18.19% 22.26% 15.87% 15.64%
Figure 5: Revenue vs Profit
Revenue vs Profit
Revenue Gross profit EBIT Net income
90,000
75,000
60,000
45,000
30,000
15,000
-
2011 2012 2013 2014 2015 2016 2017
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Gross profit 22,127 22,204 20,829 20,755 21,847 23,818 25,028
EBIT 8,105 6,778 5,838 7,310 7,276 7,452 7,735
Net income 6,145 4,458 4,284 5,373 7,282 5,450 6,046
Source: Own graph
49
Figure 6: Profit margins of Siemens
Profit Margins of Siemens

100.00% 85,000
80,000
80.00%
75,000
60.00%
70,000
65,000
40.00%
60,000
20.00%
55,000
0.00% 50,000
2011 2012 2013 2014 2015 2016 2017
Revenue Gross Profit Margin Operating Profit Margin Net Profit Margin
Source: Own graph
4.6 Capital Efficiency

Activity ratios, defined in Chapter 2: Objectives and Methodology, will be used to measure
the capital efficiency of Siemens.
4.6.1 Activity Ratios
1. Total assets turnover
Table 17: Calculation of Total assets turnover
(in millions of EUR, except turnover)
2011 2012 2013 2014 2015 2016 2017

Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Average total assets - 106,263 105,109 103,408 112,614 123,033 129,761
Total Assets Turnover - 0.7368 0.7219 0.6955 0.6716 0.6473 0.6400
Declining total assets turnover is observed. It has been steadily declining over the past 6 FYs. The
highest total assets turnover was in FY 2012 and the lowest in FY 2017.
50
2. Fixed assets turnover
Table 18: Calculation of Average net fixed assets
2011 2012 2013 2014 2015 2016 2017
Fixed assets 10,477 10,763 9,815 9,638 10,210 10,157 10,977

Depreciation/Amortizati
(1,699) (1,862) (1,892) (1,666) (1,769) (1,831) (1,930)
on and Impairment
Net fixed assets 8,778 8,901 7,923 7,972 8,441 8,326 9,047
Average net fixed
- 8,840 8,412 7,948 8,207 8,384 8,687
assets
Table 19: Fixed assets turnover
2011 2012 2013 2014 2015 2016 2017

Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Average net fixed assets - 8,840 8,412 7,948 8,207 8,384 8,687
Fixed Asset Turnover - 8.8575 9.0207 9.0494 9.2166 9.5001 9.5607
Growing fixed assets turnover is observed. It has been growing for the past 6 FYs. The highest fixed
assets turnover was in FY 2017 and the lowest was in FY 2012.
3. Inventory turnover
There are two (2) approaches how to calculate this ratio. One is to use Net sales as numerator
and the other is to use COGS as numerator. It is considered that the second approach using the COGS
is more accurate, so I will this in the thesis.
Table 20: Calculation of Inventory turnover
2011 2012 2013 2014 2015 2016 2017

COGS 51,388 56,092 55,053 51,165 53,789 55,826 58,021
Average inventory - 15,411 15,620 15,330 16,177 17,707 19,051
Inventory Turnover - 3.64 3.52 3.34 3.33 3.15 3.05
51
Declining inventory turnover is observed. It has been declining for the past 6 FYs. The highest
inventory turnover was in FY 2012 and the lowest in FY 2017.
4. Inventory turnover (days)
Table 21: Calculation of Inventory turnover (days)
(in days)
2011 2012 2013 2014 2015 2016 2017
Inventory Turnover (Days) - 100.3 103.6 109.4 109.8 115.8 119.8
Growing inventory turnover days is observed. The fastest inventory turnover days was in FY
2012 and the slowest was in FY 2017.
5. Accounts receivable turnover
Table 22: Calculation of Accounts receivable turnover
2011 2012 2013 2014 2015 2016 2017
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Average accounts receivable - 15,033.5 15,036.5 14,689.5 15,254.0 16,134.5 16,723.5
Accounts Receivable Turnover - 5.21 5.05 4.90 4.956 4.94 4.97
Note: Accounts receivable turnover is to be calculated from Net credit sales in a year instead of
Revenue. But no information was provided regarding Credit sales in the Financial Statements of
Siemens. So, I made an assumption that all sales were made on credit.
Account receivable turnover grew in FY 2017 from the previous FY. The highest receivables turnover
was in FY 2012 and the lowest in FY 2014.
52
6. Average collection period
Table 23: Calculation of Average collection period
(in days)
2011 2012 2013 2014 2015 2016 2017

Average Collection - 70.1 72.3 74.6 73.6 73.9 73.5
Period
Average collection period in FY 2017 declined compared to the previous FY. This ratio indicates how
many days it takes to collect its accounts receivables, the smaller the result, the better. The best result
was achieved in FY 2012 and the worst was in FY 2014.
7. Accounts payable turnover
Table 24: Calculation of Total supplier purchases
2011 2012 2013 2014 2015 2016 2017
COGS 51,388 56,092 55,053 51,165 53,789 55,826 58,021
Inventory 15,143 15,679 15,560 15,100 17,253 18,160 19,942
Total Supplier Purchases - 56,628 54,934 50,705 55,942 56,733 59,803
Table 25: Calculation of Accounts payable turnover
2011 2012 2013 2014 2015 2016 2017
Total Supplier
- 56,628 54,934 50,705 55,942 56,733 59,803
Purchases
Average Accounts
- 7,856.50 7,817.50 7,596.50 7,684.00 7,911.00 8,901.50
Payable
Accounts Payable
- 7.21 7.03 6.67 7.28 7.17 6.72
Turnover
Account payable turnover declined for the past 3 FYs. The highest payables turnover was in FY 2015
and the lowest in FY 2013.
53
8. Average payment period
Table 26: Calculation of Average payment period
(in days)
2011 2012 2013 2014 2015 2016 2017
Average payment period - 50.6 51.9 54.7 50.1 50.9 54.3
Average payment period has been increasing for the past 3 FYs. This ratio indicates how many
days it takes to pay to suppliers. So, the higher the result, the better. The best result was achieved in
FY 2014 and the worst was in FY 2015.
4.6.2 Summary of Activity Ratios
Table 27: Summary of Activity ratios
2011 2012 2013 2014 2015 2016 2017
Total Asset Turnover - 0.74 0.72 0.70 0.67 0.65 0.64
Fixed Asset Turnover - 8.86 9.02 9.05 9.22 9.50 9.56
Inventory Turnover - 3.64 3.52 3.34 3.33 3.15 3.05
Inventory Turnover (days) - 100 104 109 110 116 120
Accounts Receivable Turnover - 5.21 5.05 4.90 4.96 4.94 4.97
Average Collection Period (days) - 70 72 75 74 74 73
Accounts Payable Turnover - 7.21 7.03 6.67 7.28 7.17 6.72
Average Payment Period (days) - 51 52 55 50 51 54
54
4.6.3 Capital Efficiency Ratio Used by Siemens
Siemens uses Return on Capital Employed (hereinafter referred to as “ROCE”) as the primary
measure for the purposes of managing and controlling their Capital Efficiency. They aim to achieve
ROCE within a range of 15% to 20% (Siemens, 2017. p.9).
ROCE = Income before interest after tax / Average capital employed
Note: Calculation for Capital employed and ROCE are provided in the Annual Reports of Siemens. So
below information was taken directly from the Annual Reports of Siemens.
Table 28: Summary of ROCE
(in percentage)
2011 2012 2013 2014 2015 2016 2017
ROCE 24% 17% 13.8% 17.2% 19.6% 14.3% 13.5%
Source: Own research from Annual Reports of Siemens between FY 2011 and FY 2017
In the latest two (2) FYs Siemens was below their aim of achieving 15% to 20% ROCE. Siemens
managed to achieve their aim of ROCE range in FY 2012, 2014 and 2015 and exceeded their aim in
FY 2011. The highest ROCE was achieved in FY 2011 and the lowest was in FY 2017.
4.7 Liquidity
Table 29: Net Working Capital of Siemens
2011 2012 2013 2014 2015 2016 2017
Current assets 52,813 52,129 46,937 48,076 51,442 55,329 58,429
NWC 9,253 9,492 9,069 11,478 11,880 12,413 15,035
From the above table, we can conclude that NWC of Siemens has been improving since FY
2013. It was lowest in FY 2013, and reached the highest in FY 2017. It is a good indicator that the
current assets are greater than current liabilities, which indicate that there is enough current assets to
cover current liabilities when they are due.
55
4.7.1 Liquidity Ratios
1. Current Ratio
Table 30: Calculation of Current ratio
(in millions of EUR, except ratio)
2011 2012 2013 2014 2015 2016 2017
Current assets 52,813 52,129 46,937 48,076 51,442 55,329 58,429
Current Ratio 1.212 1.223 1.239 1.314 1.300 1.289 1.346
It is considered that the Current ratio should be equal to 1 at the minimum. Because this ratio shows
the coverage of Current liabilities with Current assets. Increasing current assets is observed. The
highest current ratio was in FY 2017 and the lowest in FY 2011.
2. Quick Ratio
Table 31: Calculation of Quick ratio
2011 2012 2013 2014 2015 2016 2017
Cash and cash equivalents 12,468 10,891 9,190 8,013 9,957 10,604 8,375
Marketable securities 477 524 601 925 1,175 1,293 1,242
Accounts Receivable 14,847 15,220 14,853 14,526 15,982 16,287 17,160
Quick Ratio 0.638 0.625 0.651 0.641 0.685 0.657 0.617
We see that the Quick ratio is less than one (1). This means the Company cannot meet its short-term
obligations with Cash and other liquid assets, which can be easily converted into cash. The ratio has
been declining for the past 3 FYs. The highest ratio was achieved in FY 2015 and the lowest in FY
2017.
56
3. Cash Ratio
Table 32: Calculation of Cash ratio
2011 2012 2013 2014 2015 2016 2017

Cash and cash
12,468 10,891 9,190 8,013 9,957 10,604 8,375
equivalents
Cash Ratio 0.286 0.255 0.243 0.219 0.252 0.247 0.193
This ratio shows the ability of a company to cover its short-term obligations with Cash and cash
equivalents only. We can see that it’s quite low. The ratio has been declining for the past 3 FYs. The
highest ratio was achieved in FY 2011, and the lowest in FY 2017.
4.7.2 Summary of Liquidity Ratios
Table 33: Summary of Liquidity ratios
2011 2012 2013 2014 2015 2016 2017

Current Ratio 1.212 1.223 1.239 1.314 1.300 1.289 1.346
Quick Ratio 0.638 0.625 0.651 0.641 0.685 0.657 0.617
Cash Ratio 0.286 0.255 0.243 0.219 0.252 0.247 0.193
Figure 7: Liquidity ratios of Siemens
Liquidity Ratios of Siemens

1.5
1.0
0.5
0.0
2011 2012 2013 2014 2015 2016 2017
Current Ratio Quick Ratio Cash Ratio
Source: Own graph
57
4.8 Capital Structure

It is essential that the company should have a suitable proportion of debt and equity. There is
no definite or one suits all proportion of debt and equity. Because there are many factors to consider
such as the industry the company is operating in, the size of the company and market conditions etc.
Too much debt will cause serious problems for the company to continue normal operations.
On the other hand, relying only on the shareholders’ own money will limit the potential of growth. But
it is advisable to keep the debt level under control.
Table 34: Capital structure of Siemens
2011 2012 2013 2014 2015 2016 2017

Current liabilities
Short-term debt and current maturities of long-
3,660 3,826 1,944 1,620 2,979 6,206 5,447
term debt
Trade payables 7,677 8,036 7,599 7,594 7,774 8,048 9,755
Other current financial liabilities 2,247 1,460 1,515 1,717 2,085 1,933 1,444
Current provisions 5,168 4,750 4,485 4,354 4,489 4,166 4,247
Current income tax liabilities 2,032 2,204 2,151 1,762 1,828 2,085 2,355
Other current liabilities 21,020 20,306 19,701 17,954 20,368 20,437 20,049
Liabilities associated with assets classified as
1,756 2,054 473 1,597 39 40 97
held for disposal
Total current liabilities

43,560 42,636 37,868 36,598 39,562 42,915 43,394
Non-current liabilities
Long-term debt 14,280
16,880 18,509 19,326 26,682 24,761 26,777
Provisions for pensions and similar obligations 7,307
9,926 9,265 9,324 9,811 13,695 9,582
Deferred tax liabilities
595 494 504 552 609 829 1,599
Provisions
3,654 3,908 3,907 4,071 4,865 5,087 4,579
Other financial liabilities
824 1,083 1,184 1,620 1,466 1,142 902
Other liabilities
1,867 2,052 2,074 1,874 2,297 2,471 2,445
Total non-current liabilities 28,527 34,343 35,443 36,767 45,730 47,986 45,884
Total liabilities
72,087 76,979 73,311 73,365 85,292 90,901 89,278
Equity
attributable to shareholders of Siemens AG 31,530 30,733 28,111 30,954 34,474 34,211 43,089
attributable to non-controlling interest 626 569 514 560 581 605 1,438
Total Equity
32,156 31,302 28,625 31,514 35,056 34,816 44,527
Total liabilities and equity 104,243 108,282 101,936 104,879 120,348 125,717 133,804
58
From the table above, we can see the Total liabilities and Total equity amounts, which make
up the capital structure. We can see that Equity of Siemens is comprises Equity attributable to
shareholders of Siemens and Equity attributable to non-controlling interests.
Equity attributable to non-controlling interests is the portion of equity ownership not

attributable to Siemens in its subsidiaries, where Siemens has controlling interest (greater than 50%
and less than 100%).
Table 35: Capital structure of Siemens in percentage
2011 2012 2013 2014 2015 2016 2017
Total liabilities 69.15% 71.09% 71.92% 69.95% 70.87% 72.31% 66.72%
Equity 30.85% 28.91% 28.08% 30.05% 29.13% 27.69% 33.28%
attributable to shareholders of Siemens AG 30.25% 28.38% 27.58% 29.51% 28.65% 27.21% 32.20%
attributable to non-controlling interest 0.60% 0.53% 0.50% 0.53% 0.48% 0.48% 1.07%
The above table summarizes the capital structure of Siemens in percentage, making it easier
for people to understand what percentage of the Assets is funded by external sources and what
percentage is funded by the shareholders of Siemens. When the Liabilities percentage in the Capital
structure rises, the percentage of Equity falls and vice versa.
The Liabilities percentage in the Capital structure grew until FY 2013 from the level in FY
2011, fell in FY 2014, grew until FY 2016, and fell in FY 2017. The highest percentage of Liabilities
in the Capital structure was in FY 2016, making up 72.31% of the Capital structure, which also means
that the Equity made up 27.69% of the Capital structure. The lowest percentage of Liabilities was in
FY 2017 at 66.72%, which means the Equity made up 33.28% of the Capital structure in the FY. And
it is the highest composition percentage of the Capital structure by the Equity.
The Total equity percentage in the Capital structure fell until FY 2013 from the level in FY
2011, grew in FY 2014, fell until FY 2016, and grew in FY 2017.
The portion of Equity attributable to non-controlling interests in the Capital structure fell until
FY 2013, grew in FY 2014, fell until FY 2016 and grew dramatically in FY 2017. This increase in FY
2017 was mainly due to the merger with Gamesa (Siemens, 2017. p. 18). The lowest percentage in the
Capital structure was in FY 2016, making up 0.481%. And the highest percentage in the Capital
structure was in FY 2017, making up 1.07%.
59
Table shows us that the main source of capital is external funding. There raises one big
question, whether Siemens can avoid financial distress in the long run and continue its normal
business activities or not.
4.8.1 Debt Management Ratios
1. Financial Leverage
This ratio indicates how much the company is relying on debt to finance its activities. So,
higher the ratio, the more debt is used to finance its activities.
Table 36: Calculation of Financial leverage
(in millions of EUR, except leverage)
2011 2012 2013 2014 2015 2016 2017
Total Assets 104,243 108,282 101,936 104,879 120,348 125,717 133,804
Shareholders' Equity 31,530 30,733 28,111 30,954 34,474 34,211 43,089
Financial Leverage 3.31 3.52 3.63 3.39 3.49 3.67 3.11
Note: Equity attributable to shareholders of Siemens was used in the calculation.
The ratio increases if the growth of the Total assets exceeded that of the Shareholders’ equity,
the decline of Shareholders’ equity in percentage was greater than the decline of the Total assets in
percentage, or the Total assets grew and the Shareholders’ equity fell.
From the table, we see that the ratio increased from FY 2011 until FY 2013, decreased in FY
2014, increased until FY 2016, and decreased in FY 2017. The ratio reached its lowest point in FY
2017, and the highest point in FY 2016.
Figure 8: Financial leverage of Siemens
Financial leverage of Siemens

160,000 10
120,000 8
6
80,000 3.31 3.52 3.63 3.39 3.49 3.67 3.11
4
40,000 2
- 0
2011 2012 2013 2014 2015 2016 2017
Total Assets Shareholders' Equity Financial Leverage
60
Source: Own graph
2. Debt Ratio
This ratio indicates how many percentage in the Total assets is the Total liabilities. The ratio
increases if the growth of the Total liabilities exceeded that of the Total assets, the decline in
percentage of the Total liabilities was less than that of the Total assets, or the Total liabilities grew and
the Total assets declined.
Table 37: Calculation of Debt ratio
2011 2012 2013 2014 2015 2016 2017
Total Liabilities 72,087 76,980 73,312 73,365 85,292 90,901 89,278
Total Assets 104,243 108,282 101,936 104,879 120,348 125,717 133,804
Debt Ratio 69.15% 71.09% 71.92% 69.95% 70.87% 72.31% 66.72%
From the table, we see that the ratio increased until FY 2013 from the level in FY 2011. The
increase of the ratio in FY 2012 was due to the growth rate of the Total liabilities exceeded that of the
Total assets. In FY 2013, both the Total liabilities and the Total assets declined, but the ratio
increased, suggesting that the decline rate of the Total assets was greater than that of the Total
liabilities. The ratio increased decreased in FY 2014, then increased until FY 2016, and decreased
again in FY 2017. The highest Debt ratio was in FY 2016 at 72.31%, and the lowest in FY 2017 at
66.72%.
Figure 9: Debt ratio of Siemens
Debt Ratio of Siemens

150 30.00%
120
25.00%
90
60
20.00%
30
- 15.00%
2011 2012 2013 2014 2015 2016 2017
Total debt Total assets Debt ratio
Source: Own graph
61
3. Equity Ratio
This ratio shows how many percentage of the Total capital is financed by the shareholders’
equity. This portion of the sources of financing is the money invested in the company by its
shareholders.
Table 38: Calculation of Equity ratio
2011 2012 2013 2014 2015 2016 2017
Total Assets 104,243 108,282 101,936 104,879 120,348 125,717 133,804
Equity Ratio 30.25% 28.38% 27.58% 29.51% 28.65% 27.21% 32.20%
The ratio decreased until FY 2013 from FY 2011, increased in FY 2014, decreased until FY
2016, and increased again in FY 2017. The lowest Equity ratio was in FY 2016 at 27.21%, and the
highest was in FY 2017 at 32.2%.
In FY 2014, the Shareholders’ equity and the Total assets both grew, and the increase in the
ratio was due to the growth of the Shareholders’ equity exceeded that of the Total assets. The increase
of the ratio in FY 2017 was also the same scenario, both the Shareholders’ equity and the Total assets
grew. And growth rate of the Shareholders’ equity was higher.
Figure 10: Equity ratio of Siemens
Equity Ratio of Siemens

150 36%
34%
120
32%
90 30%
28%
60 26%
24%
30
22%
- 20%
2011 2012 2013 2014 2015 2016 2017
Shareholders' equity Total assets Equity ratio
Source: Own graph
62
4. Debt to Equity
Table 39: Calculation of Debt to equity ratio
2011 2012 2013 2014 2015 2016 2017
Total Liabilities 72,087 76,980 73,312 73,365 85,292 90,901 89,278
Debt to Equity Ratio 2.29 2.50 2.61 2.37 2.47 2.66 2.07
The ratio increased from FY 2011 until FY 2013, decreased in FY 2014, increased until FY
2016, and decreased in FY 2017. The lowest ratio was in FY 2017 at 2.07, and the highest was in FY
2016 at 2.66.
Figure 11: Debt to equity ratio of Siemens
Debt to Equity Ratio of Siemens

100 3.00
2.66
80 2.61 2.70
2.50 2.47
2.37
60 2.29 2.40
2.07
40 2.10
20 1.80
- 1.50
2011 2012 2013 2014 2015 2016 2017
Total liabilities Shareholders' equity Debt to equity ratio
Source: Own graph
63
5. Times Interest Earned
This ratio indicates the ability of the company to pay off its interest expense with its Operating
profit. The result shows how many times the interest expense can be paid over with EBIT.
Table 40: Calculation of Times interest earned ratio
2011 2012 2013 2014 2015 2016 2017

EBIT 8,105 6,778 5,838 7,310 7,277 7,452 7,734
Interest expense 1,716 1,728 789 764 818 989 1,051
Times interest earned 4.72 3.92 7.40 9.57 8.90 7.53 7.36
Note: For the calculation of EBIT, please refer to Table 16. Interest expense was taken from the
Income statements of Siemens.
The ratio decreased in FY 2012, increased until FY 2014, and decreased until FY 2017. The
lowest ratio was in FY 2012 at 3.92, and the highest was in FY 2014 at 9.57.
In FY 2012, the EBIT was at 6.8 billion EUR and the interest expense was at 1.73 billion EUR
or at the highest level in the past 7 FYs. This was the main cause for the ratio being at its lowest. In
FY 2014, the EBIT was at 7.3 billion EUR and the Interest expense at 0.78 billion EUR or its lowest
level in the past 7 FYs. This was the main cause for the ratio being at its highest level.
Figure 12: Times interest earned ratio of Siemens
Times Interest Earned Ratio of Siemens

90.00
(in hundred millions of EUR)
75.00
60.00
45.00
30.00
15.00 7.40 9.57 8.90 7.53 7.36

4.72 3.92
-
2011 2012 2013 2014 2015 2016 2017
EBIT Interest expense Times interest earned
Source: Own graph
64
4.8.2 Summary of Debt Management Ratios
Table 41: Summary of Debt management ratios
2011 2012 2013 2014 2015 2016 2017
Financial leverage 3.31 3.52 3.63 3.39 3.49 3.67 3.11
Debt ratio 69.15% 71.09% 71.92% 69.95% 70.87% 72.31% 66.72%
Equity ratio 30.25% 28.38% 27.58% 29.51% 28.65% 27.21% 32.20%
Debt to equity 2.29 2.50 2.61 2.37 2.47 2.66 2.07
Times interest earned 4.72 3.92 7.40 9.57 8.90 7.53 7.36
Figure 13: Debt management ratios of Siemens
Debt Management Ratios of Siemens

100% 12
80%
9
60%
6
40%
3
20%
0% 0
2011 2012 2013 2014 2015 2016 2017
Debt ratio Equity ratio Financial leverage Debt to equity Times interest earned
Source: Own graph
4.8.3 Ratio Used by Siemens for

Capital Structure Evaluation
Siemens uses Industrial net debt to EBITDA ratio as the primary measure for the Capital
structure. This financial measure indicates the approximate amount of time in years that would be
needed to cover its Industrial net debt through income from continuing operation. Their aim is to
achieve a ratio of up to 1.0 (Siemens, 2017. p. 10)
65
Table 42: Calculation of Net industrial debt to EBITDA
2011 2012 2013 2014 2015 2016 2017
Short-term debt and current

3,660 3,826 1,944 1,620 2,979 6,206 5,447
maturities of long-term debt
Plus: Long-term debt 14,280 16,880 18,509 19,326 26,682 24,761 26,777
Less: Cash and cash equivalents (12,468) (10,891) (9,190) (8,013) 9,957 (10,604) (8,375)
Less: Current available-for-sale

(477) (524) (601) (925) 1,175 (1,293) (1,242)
financial assets
Net debt 4,995 9,292 10,663 12,008 18,528 19,071 22,607
Less: SFS Debt (12,075) (14,558) (15,600) (18,663) (21,198) (22,418) (22,531)
Plus: Provisions for pensions

7,307 9,926 9,265 9,324 9,811 13,695 9,582
and similar obligations
Plus: Credit guarantees 591 326 622 774 859 799 639
Less: 50% nominal amount

(883) (920) (899) (932) (958) - -
hybrid bond
Less: Fair value hedge
(1,470) (1,670) (1,247) (1,121) (936) (643) (421)
accounting adjustment
Industrial net debt (1,534) 2,396 2,805 1,390 6,107 10,505 9,876
EBITDA 10,596 9,788 8,215 9,139 9,825 10,216 10,946
Industrial net debt / EBITDA -0.14 0.24 0.34 0.15 0.62 1.03 0.90
Note: EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortization
The ratio was -0.14 in FY 2011. The ratio increased until FY 2013 reaching 0.34 from
the level in FY 2011. In FY 2014, the ratio fell to 0.15. Then the ratio increased until FY 2016,
reaching 1.03. And in FY 2017, the ratio fell to 0.9. This decrease was primarily due to the decrease of
provisions for pensions and similar obligations (Siemens, 2017. p.19).
In FY 2016, the company exceeded their aim of the ratio by reaching 1.03. But in FY 2017,
they managed to achieve their goal of achieving a ratio of up to 1.0.
66
Figure 14: Industrial net debt / EBITDA
Industrial net debt / EBITDA

1.20
1.03
0.90
0.80
0.62
0.40 0.34
0.24
0.15
0.00
2011 2012 2013 2014 2015 2016 2017
-0.14
-0.40
Source: Own graph
4.9 Debt of Siemens

Siemens defines its total debt as Short-term debt and current maturities of long-term debt plus
Long-term debt. We need to examine the Liabilities of Siemens closer, and separate short and long-
term financial debt to see the true level of its financial burden.
Table 43: Debt of Siemens
2011 2012 2013 2014 2015 2016 2017

Short-term debt
Notes and bonds 2,495 2,018 1,431 - 456 4,994 3,554
Loans from banks 1,128 1,505 412 773 755 380 1,191
Other financial indebtedness 21 270 82 826 1,737 817 675
Obligations under finance leases 16 33 20 21 31 15 27
Total short-term debt 3,660 3,826 1,944 1,620 2,979 6,206 5,447
Long-term debt
Notes and bonds 12,651 16,194 17,060 18,165 25,498 23,560 25,243
Loans from banks 1,354 449 1,233 968 1,000 992 1,334
Other financial indebtedness 146 110 106 85 68 87 111
Obligations under finance leases 129 128 110 108 115 123 88
Total long-term debt 14,280 16,881 18,509 19,326 26,682 24,761 26,777
Total debt 17,940 20,707 20,453 20,947 29,661 30,967 32,224
Source: Annual Report of Siemens between FY 2011 and FY 2017
67
The Debt level has increased in general. If we compare the debt level in FY 2011 with the
level in FY 2017, it has increased by 79.6%. The Total assets level in FY 2017 increased by 28.4%
from the level in FY 2011. In FY 2011, the Total debt made up 17.2% of the Total assets, and in FY
2017, the Total debt made up 24.1% of the Total assets. An increase of 6.9 percentage points. This is a
big issue in my opinion.
Figure 15: Total debt of Siemens
Total debt of Siemens

35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
2011 2012 2013 2014 2015 2016 2017
Short term debt Long-term debt
Source: Own graph
4.9.1 Corporate Credit Ratings of Siemens
Siemens include credit ratings of their debt by Moody’s and Standard & Poor’s (hereinafter
referred to as “S&P”) Ratings Services in their Annual Reports. Moody’s Investors Service is a
leading provider of credit ratings, research, and risk analysis (Moody’s, n.d.). S&P Financial Services
is an American financial services company, and it is a division of S&P Global that publishes financial
research and analysis on stocks, bonds, and commodities (Wikipedia, n.d.).
Table 44: Corporate credit ratings of Siemens
Moody's Investors Service Standard & Poor's

Long-term debt Short-term debt Long-term debt Short-term debt
2011 A1 P-1 A+ A-1+
2012 Aa3 P-1 A+ A-1+
2013 Aa3 P-1 A+ A-1+
2014 Aa3 P-1 A+ A-1+
2015 A1 P-1 A+ A-1+
2016 A1 P-1 A+ A-1+
2017 A1 P-1 A+ A-1+

68
4.9.2 Debt of Siemens in FY 2017
In FY 2017, the total debt of Siemens was 32,224 million EUR. That’s roughly 36.09% of the
Total liabilities in FY 2017.
Table 45: Total debt of Siemens in FY 2017
Current debt Non-current debt Subtotal

Notes and bonds (maturing until
3,554.0 25,243.0 28,797.0
2047)
Loans from banks (maturing until
1,191.0 1,334.0 2,525.0
2027)
Other financial indebtedness

675.0 111.0 786.0
(maturing until 2029)
Obligations under financial leases 27.0 88.0 115.0

Total: 5,447.0 26,776.0 32,223.0
Source: Siemens Annual Report 2017, p. 77
In FY 2017, weighted-average interest rates for loans from banks, other financial indebtedness
and obligations under financial leases were 2.9%, 1.0% and 5.8% per annum, respectively (Siemens,
2017. p.77).
Notes and bonds accounted for 89.37% of the Total debt in FY 2017. Notes and bonds are
classified into three (3) categories: (1) Debt Issuance Program, (2) USD Bonds and (3) Bond with
Warrant Units. Loans from banks, Other financial indebtedness and Obligations under financial leases
make up the remaining 10.63% of the Total debt.
4.9.3 Cost of Debt of Siemens in FY 2017
The Cost of Debt was calculated as Interest expenses divided by the Total debt amount.
Because the Interest expenses of a company in any FY is the total amount of money paid out to
creditors in that particular FY. The Cost of debt is expressed in percentage:
Interest expenses in FY 2017 = 1,051
Total debt in FY 2017 = 32,224

1,051
Pre-tax Cost of debt in FY 2017 =32,224 = 𝟑. 𝟐𝟔%
Note: Interest expenses and Total debt are in millions of EUR.
69
4.10 Equity of Siemens

Equity is the portion of capital invested by shareholders of a company. In this section, we will
take a closer look at Equity capital of Siemens.
Table 46: Equity of Siemens
2011 2012 2013 2014 2015 2016 2017
Equity
Issued capital 2,743 2,643 2,643 2,643 2,643 2,550 2,550
Capital reserve 6,011 6,173 5,484 5,525 5,733 5,890 6,368
Retained earnings 25,881 22,756 22,663 25,729 30,152 27,454 35,696

Other components of
(68) 1,058 268 803 2,163 1,921 1,671
equity
Treasury shares, at cost (3,037) (1,897) (2,946) (3,747) (6,218) (3,605) (3,196)
Equity attributable to
31,530 30,733 28,111 30,954 34,474 34,211 43,089
shareholders of Siemens
Total equity 32,156 31,302 28,625 31,514 35,056 34,816 44,527
Source: Taken from the Annual Reports of Siemens between FY 2011 and FY 2017
4.10.1 Siemens Shares
The Issued capital of Siemens is divided into common shares of no par value with a
proportional value of 3.0 EUR per share, and every share has one (1) voting right (Siemens, n.d.). As
of FY 2017, Siemens had 850,000,000 common shares and no preferred shares.
Siemens shares have been publicly listed since March 8, 1899. Its shares are officially traded
on the stock exchanges Frankfurt am Main and Xetra. And the Siemens shares are one of the most
important stocks listed on the DAX30 index (Siemens, n.d.). The DAX index is a blue chip stock
market index consisting of the thirty (30) major German companies trading on the Frankfurt stock
exchange (Wikipedia, n.d.). Basic information about Siemens shares are compiled below.
70
Table 47: Basic information of Siemens shares
Number of shares
850,000,000
(as of FY 2017)
Issued capital
2,550,000,000 EUR
(as of FY 2017)
Trading stock exchanges Frankfurt am Main, Xetra
Listing segment prime standard / regulated market
Category no-par value shares in registered form
Trading currency EUR
First listing 08.03.1899
DAX 30, S&P Global 100, Dow Jones EuroStoxx 50,

Selected indices Dow Jones Stoxx 50, Dow Jones Sustainability index,
Global Titan
ISIN DE0007236101
WKN 723610
Stock exchange member code SIE
Reuters symbol SIEGn.DE
Bloomberg symbol SIE:GR
Source: Basic Data of Siemens shares [Online] Available at:

https://www.siemens.com/investor/en/siemens_share/share_information.htm
Shares Outstanding and Treasury Shares
In FY 2011, Siemens had 914,203,412 issued shares (Siemens, n.d.). But as of FY 2017,
Siemens had 850,000,000 registered shares, which means Siemens cancelled 64,203,421 shares at
some point between FY 2011 and FY 2017. I will calculate the number of shares outstanding and the
number of treasury share in this part. Calculation is given in table below.
71
Table 48: Calculation of number of shares outstanding and treasury shares
2011 2012 2013 2014 2015 2016 2017
Number of registered shares in previous

914,203,421 914,203,421 881,000,000 881,000,000 881,000,000 881,000,000 850,000,000
year
Number of treasury shares in previous year

44,366,416 39,952,074 24,725,674 37,997,595 45,745,147 72,376,759 41,721,682
before canceling
Cancellation 33,203,421 31,000,000
Number of registered shares 914,203,421 881,000,000 881,000,000 881,000,000 881,000,000 850,000,000 850,000,000
Number of treasury shares in previous year

44,366,416 6,748,653 24,725,674 37,997,595 45,745,147 41,376,759 41,721,682
after canceling
Plus: Repurchased 23,202,500 17,150,820 11,331,922 29,419,671 4,888,596 7,922,129
Less: Transferred 4,414,342 5,225,479 3,878,899 3,584,370 2,788,059 4,543,673 15,162,691
Number of treasury shares 39,952,074 24,725,674 37,997,595 45,745,147 72,376,759 41,721,682 34,481,120
Number of shares outstanding 874,251,347 856,274,326 843,002,405 835,254,853 808,623,241 808,278,318 815,518,880
Notes: Calculation was based on the information provided in Notes regarding Equity, in Annual Reports of Siemens between FY 2011 and FY 2017.
In FY 2011, Siemens had the highest number of issued shares at 914,203,42, in the period of seven (7) FYs that are being analyzed. Siemens reduced its number
of shares two (2) times, first in FY 2012 and last in FY 2016 by 33,203,421 and 31,000,000 shares, respectively. At the end of FY 2017, Siemens had
850,000,000 issued shares, with 815,518,880 shares outstanding and 34,481,120 treasury shares.
72
4.10.2 Share Buyback 2016-2018
On November 11, 2015, Siemens decided on share buyback. The share buyback with a
volume of up to 3.0 billion EUR started on February 2, 2016 and will end at the latest on November
15, 2018 (Siemens, n.d.).
Figure 16: Share buyback activities of Siemens
Source: Siemens website. Available at: https://www.siemens.com/investor/en/siemens_share/share_buyback.htm
Notes:
 Average share price is the weighted average price of the corresponding month in rounded
form.
 The volume, average price and the total amount spent on share buyback in April 2018 might
change, because as of writing this part April 2018 hasn’t ended yet.
73
4.10.3 Share Price of Siemens
As mentioned in Subsection: 4.10.1, Siemens shares are traded on Frankfurt am Main and
Xetra. At the time of writing this part, April 13, 2018, last closing price on Xetra was 105.02 EUR.
Figure 17: Closing price of Siemens shares
Source: Siemens share price on Xetra
Table 49: Historical share prices of Siemens
(in EUR, except date)
2011 2012 2013 2014 2015 2016 2017

XETRA closing price at FY end 66.01 75.20 89.06 94.37 79.94 104.20 119.20
High in FY 96.31 77.87 91.33 101.35 106.35 109.00 133.50
Low in FY 60.20 60.20 73.08 87.01 77.95 77.91 99.38
Day of Annual Shareholders' 24.01.2012 23.01.2013 28.01.2014 27.01.2015 26.01.2016 01.02.2017 31.01.2
Meeting 018
XETRA closing price on the day 74.99 81.09 98.94 99.83 90.60 122.80 122.16
of Annual Shareholders' Meeting
74
Note: Data on Siemens’ website and historical share prices of Siemens, downloaded from their
website, was used to prepare the above table.
4.10.4 Market Capitalization of Siemens
If we calculate Market cap of Siemens with the latest closing price of XETRA at the time of
writing this part, then the Market cap will be as follows:
Market cap = 105.02 x 815,518,880 = 85.65 billion EUR
Note: Number of shares outstanding as of FY 2017 was used in the calculation. The market cap result
is rounded.
Table 50: Market capitalization of Siemens
(share price in EUR, shares outstanding in millions and market cap in billions of EUR)
2011 2012 2013 2014 2015 2016 2017
XETRA closing price at FY end 66.01 75.20 89.06 94.37 79.94 104.20 119.20
Number of shares outstanding 874.25 856.27 843.00 835.25 808.62 808.28 815.52
Market capitalization 57.71 64.40 75.08 78.82 64.64 84.22 97.21
Note: Market cap was calculated by multiplying the number of shares outstanding at the end of FY by
the XETRA closing price on the day of FY end.
4.10.5 Earnings Per Share (EPS)
Siemens calculates its basic EPS by dividing the Net income attributable to shareholders of
Siemens by the weighted average number of shares outstanding during the year. Diluted EPS are
calculated by assuming conversion or exercise of all potentially dilutive securities and share based
payment plan (Siemens, 2017. p.66).
75
Table 51: EPS of Siemens
2011 2012 2013 2014 2015 2016 2017

Net income 6,321 4,590 4,409 5,507 7,380 5,584 6,179
from continuing operations 7,011 5,184 4,212 5,400 5,349 5,396 6,126
from discontinued operations (690) (595) 197 108 2,031 188 53
Less: Portion attributable to non-
187 132 120 133 98 134 133
controlling interest
Net income attributable to

6,134 4,458 4,289 5,374 7,282 5,450 6,046
shareholders of Siemens AG
from continuing operations 6,824 5,053 4,093 5,267 5,251 5,262 5,993
from discontinued operations (690) (595) 196 107 2,031 188 53
Weighted average shares
873,098 876,953 843,819 843,449 823,408 808,686 812,180
outstanding – basic
Effect of Dilutive share-based
9,558 8,259 8,433 8,485 9,425 11,228 13,591
payment
Effect of Dilutive warrants 3,392
Weighted average shares
882,656 884,311 852,252 851,934 832,832 819,914 829,164
outstanding – diluted
Basic EPS 7.04 5.09 5.08 6.37 8.84 6.74 7.44
from continuing operations 7.82 5.77 4.85 6.24 6.38 6.51 7.38
from discontinued operations (0.78) (0.68) 0.23 0.13 2.47 0.23 0.07
Diluted EPS 6.96 5.04 5.03 6.31 8.74 6.65 7.29
from continuing operations 7.73 5.71 4.80 6.18 6.30 6.42 7.23
from discontinued operations (0.77) (0.67) 0.22 0.13 2.44 0.23 0.06
76
4.10.6 Return on Equity (ROE)
ROE was calculated in Section 4.5: Profitability. In this Subsection, I will analyze ROE using
DuPont analysis.
Table 52: Calculation of ROE using DuPont equation
2011 2012 2013 2014 2015 2016 2017

6,145 4,458 4,284 5,373 7,282 5,450 6,046
Net profit
73,515 78,296 75,882 71,920 75,636 79,644 83,049
Revenue
Net profit
8.36% 5.69% 5.65% 7.47% 9.63% 6.84% 7.28%
margin
73,515 78,296 75,882 71,920 75,636 79,644 83,049
Revenue
Average total - 106,262.50 105,109.00 103,407.50 112,613.50 123,032.50 129,760.50
assets
Total assets
- 0.74 0.72 0.70 0.67 0.65 0.64
turnover
Average total - 106,262.50 105,109.00 103,407.50 112,613.50 123,032.50 129,760.50
assets
Average
- 31,131.50 29,422.00 29,532.50 32,714.00 34,342.50 38,650.00
shareholders’
equity
Financial
- 3.41 3.57 3.50 3.44 3.58 3.36
leverage
ROE - 14.32% 14.56% 18.19% 22.26% 15.87% 15.64%
The Net profit margin will increase if the Net profit was increasing and the Revenue was
decreasing, or both the Net profit and Revenue increasing but the growth rate of Net profit was greater
than that of Revenue, or both the Net profit and Revenue decreasing but the decrease in percentage is
less than that of Revenue, and vice versa.
The Total assets turnover will increase if the Revenue was increasing and the Average total
assets was decreasing, or both the Revenue and the Average total assets were increasing but the
growth rate of Revenue was greater than that of Average total assets, or both the Revenue and the
Average total assets were decreasing but the decrease in percentage of Revenue was less than that of
Average total assets, and vice versa.
The Financial leverage will increase if the Average total assets was increasing and the
Average shareholders’ equity was decreasing, or both were increasing but the growth rate of Average
total assets was greater than that of Average shareholders’ equity, or both were decreasing but the
decrease in percentage of Average total assets was less than that of Average shareholders’ equity, and
vice versa.
77
Table 53: Absolute and percentage change of ROE
2013/2012 2014/2013 2015/2014 2016/2015 2017/2016

Abs. % Abs. % Abs. % Abs. % Abs. %
(174) -3.90% 1,089 25.42% 1,909 35.53% (1,832) -25.16% 596 10.94%
Net profit
(2,414) -3.08% (3,962) -5.22% 3,716 5.17% 4,008 5.30% 3,405 4.28%
Revenue
∆Net profit margin -0.05% -0.85% 1.83% 32.33% 2.16% 28.87% -2.78% -28.92% 0.44% 6.39%
(2,414) -3.08% (3,962) -5.22% 3,716 5.17% 4,008 5.30% 3,405 4.28%
Revenue
(1,154) -1.09% (1,702) -1.62% 9,206 8.90% 10,419 9.25% 6,728 5.47%
∆Total assets
(0.01) -2.02% (0.03) -3.66% (0.02) -3.43% (0.02) -3.62% (0.01) -1.13%
turnover
(1,154) -1.09% (1,702) -1.62% 9,206 8.90% 10,419 9.25% 6,728 5.47%
Average shareholders’ (1,710) -5.49% 111 0.38% 3,182 10.77% 1,629 4.98% 4,308 12.54%
equity
∆Financial leverage 0.16 4.66% (0.07) -1.99% (0.06) -1.69% 0.14 4.07% (0.23) -6.29%
∆ROE 0.24% 1.68% 3.63% 24.95% 4.07% 22.35% -6.39% -28.71% -0.23% -1.43%
78
In FY 2013, the ROE was 14.56%. It is an increase of 0.24 percentage point or 1.68% from
the level in FY 2012, the lowest ROE at 14.32%. This growth in ROE was due to an increase in
Financial leverage in FY 2013 from the level in FY 2012. In the same period, the Net profit margin
decreased by 0.05 percentage points or 0.85% and the Total assets turnover decreased by 0.01 point or
2.02% from the level in FY 2012.
In FY 2014, the ROE reached 18.19%, growing by 3.63 percentage points or 24.95% from the
level in FY 2013. It was the biggest growth in terms of percentage point. This growth was due to an
increase in the Net profit margin by 1.83 percentage points or 32.33% from the previous FY. The
Total assets turnover and Financial leverage decreased by 0.03 point and 0.07 point respectively.
In FY 2015, the ROE reached its highest level at 22.26%. It was an increase of 4.07
percentage points or 22.35% from the previous FY. It was the biggest growth in ROE in terms of
percentage. An increase in the Net profit margin also drove this growth of ROE. The Net profit margin
increased by 2.16 percentage points or 28.87% from the level in FY 2014. The Total assets turnover
and the Financial leverage decreased by 0.02 point and 0.06 point respectively.
In FY 2016, the ROE declined by 6.39 percentage points or 28.71% from the previous FY,
reaching at 15.87% of ROE. It was the biggest decline in ROE in terms of percentage point and
percentage. The Financial leverage increased by 0.14 percentage points while the Net profit margin
and the Total assets turnover decreased by 2.78 percentage points and 0.02 respectively.
In FY 2017, the ROE also declined again from the level in FY 2016. The ROE reached
15.64%. But this time, the decline was the lowest in terms of percentage point and percentage at 0.23
and 1.43 respectively. Even though the Net profit margin increased by 0.44 percentage point or 6.39%
from the previous FY, the Total assets turnover and Financial leverage decreased by 0.01 point and
0.23 point or 1.13% and 6.29% respectively.
79
4.10.7 Dividend
The Managing Board and the Supervisory Board of Siemens make a proposal on a dividend
amount to be paid out to the shareholders. During the Annual Shareholders Meeting, the proposal is
discussed and once approved the dividends are paid. The dividend payment for FY is made in the
following FY.
Table 54: Dividend information of Siemens
2011 2012 2013 2014 2015 2016 2017

DPS1 (in EUR) 3.00 3.00 3.00 3.30 3.50 3.60 3.70
2
Dividend yield (in %) 4.0% 3.7% 3.0% 3.3% 3.9% 2.9% 3.0%
Total dividend payout to shareholders of
2,629 2,528 2,533 2,728 2,827 2,914 3,011
Siemens3 (in mill. EUR)
Net income attributable to shareholders of
6,145 4,458 4,284 5,373 7,282 5,450 6,046
Siemens (in mill. EUR)
Payout ratio4 (in %) 42.8% 56.7% 59.1% 50.8% 38.8% 53.5% 49.8%
Notes:
1. Actual DPS amount approved by shareholders of Siemens in the Annual Shareholders’

Meeting for the FY.
2. Dividend yield was calculated by dividing the DPS amount of the year by the XETRA closing
price on the day of Annual Shareholders’ Meeting of corresponding year. For the XETRA
closing price on the day of Annual Shareholders’ Meeting, please refer to Table 59.
3. Total amount paid out to the shareholders of Siemens for the FY. But this figure is reflected in
the results of financial statements of next FY.
4. Payout ratio is calculated by dividing the Total dividend payout to shareholders of Siemens by
the Net income attributable to shareholders of Siemens.
Table 55: Dividend payment dates
Financial Year Dividend Per Share (EUR) Payment date

2011 3.00 25.01.2012
2012 3.00 24.01.2013
2013 3.00 29.01.2014
2014 3.30 28.01.2015
2015 3.50 27.01.2016
2016 3.60 06.02.2017
2017 3.70 05.02.2018
80
Dividend Growth Rate
Dividend growth was calculated by finding the average annualized percentage growth from
FY 2011 until FY 2017, using compounding effect.
6 3.7
Dividend Growth = √ − 1 = 3.56%
3.0
4.10.8 Cost of Equity of Siemens in FY 2017
CAPM will be used for the calculation of Cost of equity. It is the most widely used model to
calculate the cost of equity. We need to find Rf, β and E(Rm) to apply the model.
1. Data collection
In order to compute the cost of equity, first we need to find the value to use for the
components of the model. For that purpose, I collected below data:
1. Historical share prices of Siemens between October 1, 2010 and September 30, 2017. It is
available on their website (https://www.siemens.com/investor/en/siemens_share.htm).
2. Historical prices of DAX 30 index between October 1, 2010 and September 30, 2017. It is
available on Frankfurt exchange website (http://en.boerse-
frankfurt.de/index/pricehistory/DAX#History).
3. Data for German 10-year government bond yields. Available on OECD library website
( http://dx.doi.org/10.1787/data-00052-en).
2. Values of the Components of CAPM
0.15 + 0.29 + 0.27 + 0.39

Rf = = 0.275%
4
β = 0.937
E(Rm) = 10.93%
Notes:
 Rf was calculated by dividing the German 10-year government bond yield in Q4 of 2016, Q1,
Q2, Q3 and Q4 of 2017 by four (4). German 10-year government bond yield for Q4 of 2016,
Q1, Q2, Q3 and Q4 of 2017 was 0.15%, 0.29%, 0.27% and 0.39%, respectively. The reason
for not taking Q4 of 2017 is Siemens has FY end on September 30.
 β is volatility measure of a stock. So, the β was calculated by comparing how the share price
of Siemens moved relative to the DAX 30 index.
 E(Rm) was calculated by finding the sum of monthly returns of the DAX 30 index between
October 1, 2010 and September 30, 2017 and dividing it by seven (7). Monthly return of DAX
81
30 index was calculated as closing price of the month less opening price of the month divided
by the opening price of the month.
3. Calculation of Cost of Equity
re = 0.275 + 0.937 × (10.93 − 0.275) = 𝟏𝟎. 𝟐𝟔%
4.10.9 Valuation of Siemens Shares
I will use DDM to evaluate intrinsic value of one share of Siemens. Single stage DDM was
used for the calculation.
3.7 × (1 + 3.56%) 3.83

V0 = = = 57.19 EUR
10.26% − 3.56% 6.7%
The closing price of Siemens share on XETRA on September 29, 2017 was 119.2 EUR. So,
according to my result, the Siemens share is overvalued. But it should be noted that, this valuation
method has its own limitations such as:
 The model is too simple.

 The model cannot be used to evaluate a non-dividend paying companies. In our case, this is
not a problem.
 The model assumes that the dividend will grow at the growth rate indefinitely. In this case, the
model assumes the dividend will constantly grow at 3.56%.
 The model assumes many assumptions such as rate of return and dividend growth. And the
calculation of the rate of return already has many assumptions in it.
So, just because the result of my valuation assumes that Siemens shares are overvalued, it
doesn’t necessarily mean that it is true and correct.
4.11 WACC of Siemens in FY 2017

WACC in FY 2017 is calculated below:
Market value of Equity = 97,209.85 million EUR
Book value of Debt1 = 32,224.00 million EUR
re2=10.26%
rd3=3.26%
Corporate tax rate4=26.25%
82
97,209.85 32,224.0
WACC = × 10.26% + × 3.26% × (1 − 26.25%) = 𝟖. 𝟑%
97,209.85 + 32,224.0 97,209.85 + 32,334.0
Notes:
1. Book value of Total debt in FY 2017 was used for the calculation instead of Market value of
debt.
2. Cost of equity in FY 2017
3. Cost of debt in FY 2017
4. Corporate tax rate was calculated by finding the effective tax rate, as below:
2,180
 Corporate tax rate = 8,306 = 26.25%
- Income tax expenses in FY 2017 = 2,180 mill. EUR

- Income from continuing operations before income tax = 8,306 mill. EUR
4.12 Bankruptcy Prediction

Bankruptcy prediction is important in evaluating a company. Because it can predict serious
financial distress in advance with quite high percentage of accuracy. Bankruptcy prediction will be
performed by using the method defined in Subsection 2.2.10: Bankruptcy Prediction in Chapter 2.
Table 56: Calculation of Z Score of Siemens
2011 2012 2013 2014 2015 2016 2017

Net working capital 9,253 9,492 9,069 11,478 11,880 12,413 15,035
Total assets 104,243 108,282 101,936 104,879 120,348 125,717 133,804
X1 0.089 0.088 0.089 0.109 0.099 0.099 0.112
Total assets 104,243 108,282 101,936 104,879 120,348 125,717 133,804
X2 0.248 0.210 0.222 0.245 0.251 0.218 0.267
EBIT 8,105 6,778 5,838 7,310 7,277 7,453 7,735
Total assets 104,243 108,282 101,936 104,879 120,348 125,717 133,804
X3 0.078 0.063 0.057 0.070 0.060 0.059 0.058
Market value of
57,708 64,395 75,078 78,823 64,641 84,223 97,210
equity1
Book value of total
72,087 76,980 73,312 73,365 85,292 90,901 89,278
liabilities
X4 0.801 0.837 1.024 1.074 0.758 0.927 1.089
Revenue 73,515 78,296 75,882 71,920 75,636 79,644 83,049
Total assets 104,243 108,282 101,936 104,879 120,348 125,717 133,804
X5 0.705 0.723 0.744 0.686 0.628 0.634 0.621
Z Score 1.90 1.83 1.97 2.03 1.75 1.809 1.97
83
Note: Market value of equity was calculated by multiplying the number of shares outstanding in the
FY by the closing price of XETRA on the day of FY end.
Figure 18: Z Score of Siemens
Z Score of Siemens
3.62
1.97 2.03 1.97

1.90 1.83 1.75 1.809
1.81
0.00
2011 2012 2013 2014 2015 2016 2017
Source: Own graph
Z score up to 1.81 implies the company is in distress zone, or threatened by bankruptcy, a Z

score from 1.81 up to 2.99 implies the company is in grey zone, and a Z score above 2.99 implies the
company is in safe zone.
From the graph above, in the past 7 FYs, Siemens was always below the safe zone. But
managed to be in the grey zone except in FY 2015 and FY 2016. The highest Z score was achieved in
FY 2014 at 2.03. And the lowest Z score was in FY 2015 at 1.75. In FY 2015, the company was in the
distress zone, below the grey zone by 0.06 points. In FY 2016, the Z score went up to 1.809 almost at
the threshold of grey zone. And in FY 2017, Z score of 1.97 was achieved.
84
4.13 Comparison with Competitors

In this section, some financial indicators will be compared with the same indicators of selected
Siemens’ competitors. Comparing Siemens’ results with its competitors’ results is very important to
evaluate the financial performance of Siemens. Siemens defined its competitors as below:
Figure 19: Competitors of Siemens
Source: Siemens website [Online] Available at: https://www.siemens.com/investor/en/siemens_share.htm
4.13.1 Selection of Competitors
One company from each geographic region was selected to compare with Siemens.
Companies were chosen depending on their market capitalization and the industries they operate in.
Following companies were chosen for the comparison:
1. ABB from European region

2. General Electric from American region
3. Toshiba from Asia Pacific region
Above selected companies are all well-known and respected companies. They all operate in
more than one industry, and can be good representative for their respective geographic regions. Let me
give you brief introduction to selected companies below:
ABB: ASEA Brown Boveri (ABB) is a Swedish-Swiss multinational corporation headquartered in

Zurich, Switzerland (Wikipedia, n.d.). They operate in areas of electrification products, robotics and
motion, industrial automation and power grids globally (ABB, n.d.). Their shares are traded on SIX
Swiss Exchange, the Nasdaq OMX and New York Stock Exchange (hereinafter referred to as
“NYSE”). At the time of writing this part, the closing price of their shares on April 17, 2018 on NYSE
was 23.29 USD, making their market cap at 50.486 billion USD or 40.856 billion EUR.
85
General Electric: General Electric (hereinafter referred to as “GE”) is an American multinational

conglomerate incorporated in New York and headquartered in Boston, Massachusetts (Wikipedia,
n.d.). They are a global digital industrial company, with operating segments: (1) Power, (2) Renewable
Energy, (3) Oil & Gas, (4) Aviation, (5) Healthcare, (6) Transportation and (7) Lighting, which form
their Industrial operating segments, and (8) financial services (General Electric, 2018. p. 12). Their
shares are traded on NYSE. At the time of writing this part, the closing price of their shares on April
17, 2018 on NYSE was 13.79 USD per share, making its market cap at 119.746 billion USD or 96.905
billion EUR.
Toshiba: Toshiba Corporation (hereinafter referred to as “Toshiba”) is a Japanese multinational

conglomerate headquartered in Tokyo, Japan (Wikipedia, n.d.). In the FY ended on March 31, 2017,
Toshiba operated their business through segments: (1) Energy Systems & Solutions, (2) Infrastructure
Systems & Solutions, (3) Retail & Printing Solutions, (4) Storage & Electronic Devices Solutions, (5)
Industrial ICT Solutions and (6) Others (Toshiba, 2017. p.83). Their shares are traded on Tokyo Stock
Exchange (hereinafter referred to as “TSE” or “TYO”). At the time of writing this part, the closing
price of their shares on April 17, 2018 on TSE was 291.0 JPY, making its market cap at 1,897.526
billion JPY or 14.337 billion EUR.
Notes:
 Exchange rate for converting local currency into EUR was taken from the European Central
Bank (hereinafter referred to as “ECB”) website
(https://www.ecb.europa.eu/home/html/index.en.html).
 The official rate on April 17, 2018 was 1 EUR = 1.2357 USD and 1 EUR = 132.35 JPY.
 Due to rounding and share price fluctuations, above market caps are subject to change.
Figure 20: Official exchange rate of ECB on April 17, 2018
Source: ECB website

86
4.13.2 Scope of Comparison and Data Collection
The comparison will cover the last three (3) Financial years. General information, Accounting
principles, Total assets, Revenue and profitability, Liquidity, Capital structure and Equity information
will be analyzed and compared. The exchange rate of ECB on April 17, 2018, for 1 EUR = 1.2357
USD and 1 EUR = 132.35 JPY will be used in subsequent sections.
Annual reports and Form 10-K were collected for such purposes. Necessary data for the
comparison were collected from their respective websites and U.S. Securities and Exchange
Commission (hereinafter referred to as “SEC”) website.
4.13.3 General Information and

Accounting Principles
Accounting principles are the rules and guidelines that companies must follow when reporting
financial data (Investopedia, n.d.). There are two major principles when it comes to reporting financial
statements. First is Generally Accepted Accounting Principles (hereinafter referred to as “GAAP”),
and the other is IFRS.
1. Siemens
Siemens is a German conglomerate with its corporate headquarters in Munich, Germany. Its
main fields of operations are electrification, automation and digitalization (Siemens, 2017. p. 2). The
company has FY end on September 30 of every year.
The Consolidated Financial Statements are prepared in accordance with IFRS and additional
requirements set forth in German Commercial Code. Reporting currency of the company is EUR
(Siemens, 2017. p. 64).
2. ABB
As mentioned in Subsection 4.12.1, ABB is a Swedish-Swiss multinational corporation

headquartered in Zurich. It operates in fields of electrification products, robotics and motion, industrial
automation and power grids (ABB, 2018. p.150). The company has FY end on December 31 of every
year.
The Consolidated Financial Statements of ABB are prepared in accordance with United States
of America (hereinafter referred to as “United States” or “US”) Generally Accepted Accounting
Principles (hereinafter referred to as “US GAAP”) and presented in United States dollars (hereinafter
referred to as “USD” or “$”) (ABB, 2018. p.150).
87
3. GE
GE is an American conglomerate headquartered in Boston, Massachusetts. They are a global

digital industrial company, transforming industry with software-defined machines and solutions that
are connected, responsive and predictive (GE, 2018. p. 12). The company has FY end on December 31
of every year.
Their financial statements are prepared in conformity with US GAAP. Their reporting
currency is USD.
4. Toshiba
Toshiba is a Japanese conglomerate, with headquarters in Tokyo, Japan. Their products and
services include information technology and communications equipment and systems, electronic
components and materials, power systems, industrial and social infrastructure systems, consumer
electronics, household appliances, medical equipment, office equipment, lighting and logistics
(Wikipedia, n.d.). The company has FY end on March 31 of every year.
Their financial statements are prepared in accordance with US GAAP. Their reporting
currency is Japanese yen (hereinafter referred to as “JPY”) (Toshiba, 2017. p. 29).
Annual report of Toshiba relates to the previous FY. In other words, Annual report in 2017
relates to the FY 2016.
4.13.4 Comparison of Total Assets
Total assets, is the sum of current and non-current assets of a company. This amount can give
a general idea of the size of a company.
Table 57: Comparison of Total assets
(in millions)
2015 2016 2017
in local in EUR in local in EUR in local in EUR
Siemens - 120,348.00 - 125,717.00 - 133,804.00
ABB 41,356.00 33,467.67 39,499.00 31,964.88 43,262.00 35,010.12
GE 492,692.00 398,714.90 365,183.00 295,527.23 377,945.00 305,854.98
Toshiba 6,334,778.00 47,863.83 5,433,341.00 41,052.82 4,269,513.00 32,259.26
Source: Own compilation
88
Notes:
 Local currency of ABB and GE is USD.

 Local currency of Toshiba is JPY.
In terms of total assets, it is clear that the biggest company is GE, which has more total assets
than Siemens, ABB and Toshiba combined. The second biggest in terms of total assets, is Siemens.
Siemens has more total assets than ABB and Toshiba combined. ABB comes after Siemens, and
Toshiba has the least total assets of the four companies.
Siemens’ total assets were increasing from year to year, while the total assets of Toshiba were
decreasing. The total assets of ABB and GE both decreased in FY 2016, and increased in FY 2017.
4.13.5 Comparison of Revenue and Profitability
Table 58: Comparison of Revenue and Net profit of the companies
(in millions)
2015 2016 2017

Revenue
Siemens - 75,636.00 - 79,644.00 - 83,049.00
ABB 35,481.00 28,713.28 33,828.00 27,375.58 34,312.00 27,767.26
GE 115,159.00 93,193.33 119,688.00 96,858.46 120,467.00 97,488.87
Toshiba 6,655,894.00 50,290.09 5,668,688.00 42,831.04 4,870,773.00 36,802.21
Net profit
Siemens - 7,282.00 - 5,450.00 - 6,046.00
ABB 1,933.00 1,564.30 1,899.00 1,536.78 2,213.00 1,790.89
GE (6,145.00) (4,972.89) 8,176.00 6,616.49 (6,222.00) (5,035.20)
Toshiba (37,825.00) (285.80) (460,013.00) (3,475.73) (965,663.00) (7,296.28)
Basic EPS
Siemens - 8.84 - 6.74 - 7.44
ABB 0.87 0.704 0.88 0.712 1.04 0.842
GE (0.62) (0.502) 0.90 0.728 (0.72) (0.583)
Toshiba (8.93) (0.067) (108.64) (0.821) (228.08) (1.723)
Notes:

 Net profit from continuing and discontinued operations, and attributable to shareholders of the
company was used in the comparison.
89
 Basic EPS from continuing and discontinued operations was used in the comparison.
GE generated the biggest revenue in the period being compared. Its revenue increased from
93.2 billion EUR in FY 2015 to 97.5 billion EUR in FY 2017.
Siemens generated the second biggest revenue in the period. Siemens’ revenue increased two
consecutive years in FY 2016 and FY 2017. It generated 83.0 billion EUR in FY 2017.
Toshiba came third in terms of revenue. But its revenue decreased consecutively during the
period being compared. In its last FY, Toshiba generated a revenue of 36.8 billion EUR.
ABB was the worst in terms of revenue. Even though its revenue dropped in FY 2016, it
increased in FY 2017. In FY 2017, ABB generated a revenue of 27.8 billion EUR.
Figure 21: Revenue comparison of the companies
Revenue Comparison
120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
-
2015 2016 2017
Siemens ABB GE Toshiba
Source: Own graph
In terms of net profit, Siemens was the best performer, even though its net profit decreased
from year to year. Its net profit dropped from 7.3 billion EUR in FY 2015 to 6.0 billion EUR in FY
2017.
ABB generated the second best net profit during the period. Its net profit dropped from 1.6
billion in FY 2015 to 1.5 billion EUR in FY 2016, and increased to 1.8 billion in FY 2017.
GE generated a loss of 5.0 billion EUR in FY 2015. In FY 2016, it generated a surprising net
profit of 6.6 billion EUR. But in FY 2017, it generated a loss of 5.0 billion EUR.
Toshiba was in loss during the period. But one thing to note is its loss increased dramatically.
In FY ended on Mar 31, 2015, Toshiba posted a loss of 0.3 billion EUR, in the next FYs, it posted a
loss of 3.5 billion and 7.3 billion EUR, respectively. It is a dramatic increase.
90
Figure 22: Net profit comparison of the companies
Net Profit Comparison

10,000.00
7,500.00
5,000.00
2,500.00
-
2015 2016 2017
(2,500.00)
(5,000.00)
(7,500.00)
(10,000.00)
Source: Own graph
Table 59: Comparison of Net profit margin and ROE
(in percentage)
2015 2016 2017

Net profit margin
Siemens 9.63% 6.84% 7.28%
ABB 5.45% 5.61% 6.45%
GE -5.34% 6.83% -5.16%
Toshiba -0.57% -8.11% -19.83%
Average 2.29% 2.79% -2.82%
ROE
Siemens 22.26% 15.87% 15.64%
ABB 12.57% 13.62% 15.69%
GE -5.43% 9.39% -8.88%
Toshiba -3.58% -65.12% -
Average 6.46% -6.56% 7.48%
Note: Equity attributable to shareholders was used in the calculation.
Siemens had the highest net profit margin during the period being compared. Siemens’ net
profit margin in FY 2015, 2016 and 2017 was 9.63%, 6.84% and 7.28%, respectively. Its net profit
margin dropped in FY 2016 and increased in FY 2017. Also, Siemens had the highest ROE compared
with its competitors. Its ROE was 22.26%, 15.87% and 15.64% in FY 2015, 2016 and 2017,
respectively. We should note that its ROE decreased for two (2) consecutive years. And in FY 2017,
its ROE was exceeded by ABB.
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ABB came second in both terms of net profit margin and ROE. Also, both its net profit margin
and ROE increased for two (2) years. Its net profit margin was 5.45%, 5.61% and 6.45% in FY 2015,
2016 and 2017, respectively. In FY 2016, its net profit margin was the third best, as net profit margin
of GE was 6.83%. ROE was 12.57%, 13.62% and 15.69% in FY 2015, 2016 and 2017, respectively. In
FY 2017, its ROE exceeded that of Siemens’.
Net profit margin of GE, was -5.34%, 6.83% and -5.16% in FY 2015, 2016 and 2017,
respectively. In FY 2015, its net profit margin was the worst among the companies. In FY 2016, its net
profit margin was second to only Siemens’. In FY 2017, the net profit margin was in third place
among the companies being compared. ROE of GE was -5.43%, 9.39% and -8.88% in FY 2015, 2016
and 2017, respectively. Its ROE in FY 2015, was the worst among the companies.
Clearly Toshiba is the worst performer in terms of profitability among the companies being
compared. Its net profit margin was -0.57%, -8.11% and -19.83% in FY ended on Mar 31, 2015, 2016
and 2017, respectively. As we can see, its drop in its net profit margin is huge. Its net profit margin
was better than GE’s in FY ended on Mar 31, 2015, but in the next two (2) FYs, the indicator was the
worst among the companies. ROE in FY ended on Mar 31, 2015 was -3.58%, in the next FY, it
became -65.12%. It is a huge drop in ROE. This drop in ROE indicates that the average shareholders’
equity of Toshiba decreased dramatically. In FY ended on Mar 31, 2017, the ROE is inconclusive as
the company posted a loss and the average shareholders’ equity became negative.
4.13.6 Comparison of Liquidity
Liquidity ratios measure a company’s ability to pay off its current liabilities with its current
assets.
Table 60: Comparison of Liquidity ratios
2015 2016 2017

Current ratio
Siemens 1.300 1.289 1.346
ABB 1.437 1.424 1.348
GE 1.579 1.915 1.827
Toshiba 1.147 1.126 1.007
Average 1.366 1.439 1.382
Quick ratio
Siemens 0.685 0.657 0.617
ABB 1.026 0.993 0.986
GE 1.197 1.421 1.341
Toshiba 0.559 0.692 0.673
Average 0.867 0.941 0.904
Cash ratio
Siemens 0.252 0.247 0.193
ABB 0.288 0.237 0.278
GE 0.651 0.587 0.545
Toshiba 0.068 0.316 0.260
Average 0.315 0.347 0.319

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Siemens’ current ratio was 1.30, 1.289 and 1.346 in FY 2015, 2016, and 2017, respectively.
Its current ratio was below the average value of the ratio. The result above one (1) indicates that
current assets of Siemens is higher than its current liabilities. So, Siemens can pay off its current
liabilities with its current assets. The current ratio of Siemens decreased in FY 2016, and increased in
FY2017. Siemens’ quick ratio was 0.685, 0.657 and 0.617 in FY 2015, 2016 and 2017, respectively.
Its quick ratio was below the average value of the ratio. This ratio indicates that Siemens can pay off
more than 60% of its current liabilities with its most liquid assets. The ratio decreased consecutively
from FY 2015 to FY 2017. If this ratio is compared with its competitors, in FY 2015, its quick ratio
was higher than Toshiba’s but lower than both ABB and GE. In FY 2016 and FY 2017, Siemens’
quick ratio was the lowest among the companies. Siemens’ cash ratio was 0.252, 0.247 and 0.193 in
FY 2015, 2016 and 2017, respectively. Siemens’ cash ratio was below the average value of the ratio.
The ratio also decreased consecutively from FY 2015 to FY 2017. This ratio shows the ability of a
company to pay off its short-term obligations with its cash and cash equivalents only. In Siemens’
case, the company can pay off 25%, 24% and 19% of its current liabilities with cash and cash
equivalents in FY 2015, 2016 and 2017, respectively. If this ratio is compared with the competitors, it
was higher than Toshiba’s result in FY 2015, in FY 2016, the ratio of Siemens was higher than ABB’s
and in FY 2017, it was the lowest among the companies.
ABB had the second-best results for liquidity ratios. Its current ratio was 1.437, 1424 and
1.348 in FY 2015, 2016 and 2017, respectively. ABB’s current ratio was higher than the average value
in FY 2015, but lower than the average in FY 2016 and 2017. ABB had enough current assets to cover
its current liabilities. Its current ratio decreased in the past two (2) FYs. In FY 2016, both its current
assets and current liabilities decreased, but the current ratio fell, indicating decrease in its current
assets was greater than its decrease in its current liabilities. In FY 2017, its current assets fell but
current liabilities rose, resulting in another decrease in its current ratio. ABB’s quick ratio was 1.026,
0.993 and 0.986 in FY 2015, 2016 and 2017, respectively. Its quick ratio was higher than the
average. ABB’s quick ratios are lower than GE’s, but higher than Siemens and Toshiba’s results. We
can also see that the result decreased over the period. But still, ABB could cover its around 99% of its
current liabilities with its most liquid assets. It is a good result. Its cash ratio was 0.288, 0.237 and
0.278 in FY 2015, 2016 and 2017, respectively. ABB’s cash ratio was below the average in all three
periods. ABB’s cash ratio indicates that it could cover around 29%, 24% and 28% of its current
liabilities with only cash and cash equivalents in FY 2015, 2016 and 2017, respectively. Except in FY
2016, these results were second only to GE’s results.
From the above table, we can see that GE has the highest current ratio, quick ratio and cash
ratio among the companies being compared. This indicates GE has the highest ability to meet its short-
term obligations. Also, GE has results higher than the average in terms of current, quick and cash ratio
in all three (3) periods. GE’s current ratio was 1.579, 1.915 and 1.827 in FY 2015, 2016 and 2017,
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respectively. The results show GE has more current assets to cover its current liabilities. GE’s current
assets and current liabilities both decreased over the 3-year period. The reason why in FY 2016, the
current ratio increased is the decrease in its current liabilities was greater than its decrease in current
assets. In FY 2017, its current ratio decreased meaning the decrease in its current assets was greater
than its decrease in current liabilities. Its quick ratio was 1.197, 1.421 and 1.341 in FY 2015, 2016 and
2017, respectively. These results are double the Siemens’ results in FY 2016 and FY 2017. From here
we can see that GE can cover its current liabilities with its most liquid assets. GE’s cash ratio was
0.651, 0.587 and 0.545 in FY 2015, 2016 and 2017, respectively. GE could cover 65%, 58% and 54%
of its current liabilities with cash and cash equivalents only. This suggests GE has the highest cash and
cash equivalents available to it among the companies. In fact, GE has more cash and cash equivalents
than Siemens, ABB and Toshiba combined in all three (3) FYs.
Toshiba has the worst liquidity ratios. Its results for current, quick and cash ratio were all
below the average results. Its current ratio was 1.147, 1.126 and 1.007 in FY ended on Mar 31, 2015,
2016 and 2017, respectively. The ratio decreased over the period of three (3) FYs. Toshiba’s current
assets and current liabilities both increased in FY ended on Mar 31, 2016 and both decreased in FY
ended on Mar 31, 2017. The reason why the current ratio decreased in FY ended on Mar 31, 2016
even though the current assets and liabilities both increased is that the increase in current liabilities
was greater than current assets in terms of percentage. Toshiba’s quick ratio was 0.559, 0.692 and
0.673 in FY ended on Mar 31, 2015, 2016 and 2017, respectively. In FY ended on Mar 31, 2016, its
quick ratio was higher than Siemens’. This was due to sudden increase in its cash and cash
equivalents. Toshiba’s cash ratio was 0.068, 0.316 and 0.260 in FY ended on Mar 31, 2015, 2016 and
2017, respectively. In FY ended on Mar 31, 2015, Toshiba had 1.5 billion EUR in cash and cash
equivalents, and that means it could cover only 7% of its current liabilities with cash and cash
equivalents only. But in the next FY, the cash and cash equivalents increased to 7.3 billion EUR. This
sudden increase reflected in its cash ratio at 0.316, meaning it could cover around 32% of its current
liabilities with cash and cash equivalents. Its cash ratio was the second-best among the companies
being compared in FY ended on Mar 31, 2016. In FY ended on Mar 31, 2017, its cash and cash
equivalents fell to 5.3 billion EUR, and its current liabilities became 20.5 billion EUR, resulting in a
cash ratio of 0.26. This result is better than Siemens’ cash ratio of 0.193 in the same period, even
though Siemens had more cash and cash equivalents available to it, and had more than double the
current liabilities than Toshiba had.
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4.13.7 Comparison of Capital Structure
Table 61: Comparison of Capital structure
(in millions)
2015 2016 2017

Total liabilities
Siemens 85,292.00 90,901.00 89,278.00
ABB 26,368.00 21,338.51 25,602.00 20,718.62 27,913.00 22,588.82
GE 389,582.00 315,272.32 284,668.00 230,369.83 292,561.00 236,757.30
Toshiba 4,769,421.00 36,036.43 4,761,083.00 35,973.43 4,545,217.00 34,342.40
shareholders
Siemens 34,474.00 34,211.00 43,089.00
ABB 14,481.00 11,718.86 13,395.00 10,840.01 14,819.00 11,992.39
GE 98,274.00 79,529.01 75,828.00 61,364.41 64,263.00 52,005.34
Toshiba 1,083,996.00 8,190.37 328,874.00 2,484.88 (552,947.00) (4,177.91)
non-controlling
interests
Siemens 581.00 605.00 1,438.00
ABB 507.00 410.29 502.00 406.25 530.00 428.91
GE 1,864.00 1,508.46 1,663.00 1,345.80 17,723.00 14,342.48
Toshiba 481,361.00 3,637.03 343,384.00 2,594.51 277,243.00 2,094.77
Total equity
Siemens 35,055.00 34,816.00 44,527.00
ABB 14,988.00 12,129.16 13,897.00 11,246.26 15,349.00 12,421.30
GE 100,138.00 81,037.47 77,491.00 62,710.20 81,986.00 66,347.82
Toshiba 1,565,357.00 11,827.40 672,258.00 5,079.40 (275,704.00) (2,083.14)
Notes:

In terms of total liabilities, GE had the highest and ABB had the lowest level. Siemens had the
second-highest liabilities. Siemens’ liabilities increased by more than 5.0 billion EUR in FY 2016, and
decreased by 1.6 billion EUR in FY 2017. ABB’s liabilities decreased in FY 2016, but increased in FY
2017. GE’s liabilities were 315.3 billion EUR in FY 2015. It is a very huge amount. But in FY 2016,
the liabilities decreased dramatically to 230.4 billion EUR. And in FY 2017, the liabilities increased to
236.7 billion EUR. Toshiba’s liabilities were 36.0 billion EUR, 35.9 billion EUR and 34.3 billion
EUR in FY ended on Mar 31, 2015, 2016 and 2017, respectively. As we can see, its liabilities
decreased over the period.
In terms of equity attributable to shareholders of the company, GE had the highest amount and
Toshiba had the lowest amount. Siemens had the second-best level among the companies. Both equity
attributable to shareholders of GE and Toshiba decreased over the period, especially Toshiba’s equity
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attributable to shareholders became -4.2 billion EUR in FY ended on Mar 31, 2017. Equity attributable
to shareholders of Siemens and ABB both decreased in FY 2016, but both increased in FY 2017.
Especially increase in equity attributable to shareholders of Siemens was very huge that it increased by
almost 9.0 billion EUR.
Table 62: Comparison of Debt management ratios
2015 2016 2017

Financial leverage
Siemens 3.49 3.67 3.11
ABB 2.86 2.95 2.92
GE 5.01 4.82 5.88
Toshiba 5.84 16.52 -
Average 4.3 6.99 3.97
Debt ratio
Siemens 70.87% 72.31% 66.72%
ABB 63.76% 64.82% 64.52%
GE 79.97% 77.95% 77.41%
Toshiba 75.29% 87.63% 106.46%
Average 72.47% 75.68% 78.78%
Debt to equity ratio
Siemens 2.474 2.657 2.072
ABB 1.821 1.911 1.884
GE 3.964 3.754 4.553
Toshiba 4.400 14.477 -
Average 3.165 5.700 2.836

Note: Equity attributable to shareholders was used in the calculation.
Siemens’ financial leverage was 3.49, 3.67 and 3.11 in FY 2015, 2016 and 2017, respectively.
The average result of financial leverage was 4.3, 6.99 and 3.97 in FY 2015, 2016, and 2017. Since this
ratio shows how leveraged a company is, lower the ratio, the better in my opinion. So, in this regard
Siemens has financial leverage below the average level. Debt ratio of Siemens was 70.87%, 72.31%
and 66.72% in FY 2015, 2016 and 2017, respectively. These results are below average results but
higher than ABB’s results. Debt to equity ratio of Siemens was 2.474, 2.657 and 2.072 in FY 2015,
2016 and 2017, respectively. Also, these results are below average but higher than ABB’s results.
ABB has the lowest ratios in terms of financial leverage, debt ratio and debt to equity ratio in
all periods that are being compared. So, in my opinion ABB has the best results. It is the least
leveraged, with the lowest debt level relative to its total assets and has the lowest debt to equity ratio.
GE has higher ratios than the average ratios in terms of financial leverage. Its financial
leverage was 5.01, 4.82 and 5.88 in FY 2015, 2016 and 2017, respectively. Its financial leverage
decreased in FY 2016, but increased in FY 2017. In FY 2016, both its total assets and equity
attributable to shareholders fell. This means that decrease in shareholders’ equity was greater than the
decrease in total assets in terms of percentage. And the increase in FY 2017, was due to increase in
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total assets and decrease in shareholders’ equity in the period. Debt ratio of GE decreased over the
period of last 3 FYs. On the contrary, the average of debt ratio increased over the same period. In FY
2017, GE’s debt ratio was below average. Its debt ratio was 79.97%, 77.95% and 77.41% in FY 2015,
2016 and 2017, respectively. It is a good thing that the debt ratio decreased over the period, as it
means less financial burden on the company. In FY 2016, both its total assets and liabilities fell. So,
the decrease in debt ratio in FY 2016 means that the decrease in liabilities was greater than the
decrease in total assets in terms of percentage. In FY 2017, both the total assets and liabilities
increased, but the debt ratio decreased. This means that the increase in total assets was greater than
liabilities in terms of percentage. Debt to equity ratio of GE was 3.964, 3.754 and 4.553 in FY 2015,
2016 and 2017, respectively. GE’s result of this ratio was higher than the average in FY 2015 and FY
2017, but lower than the average in FY 2016. But it is noteworthy that the average of debt to equity
ratio in FY 2017 fell due to Toshiba’s shareholders’ equity becoming negative and resulting in no
result for Toshiba for debt to equity ratio in FY ended on Mar 31, 2017.
Clearly Toshiba’s results for the ratios are the worst. Its results were higher than the averages.
Financial leverage of Toshiba was 5.84, 16.52 and inconclusive in FY ended on Mar 31, 2015, 2016
and 2017, respectively. Its financial leverage increased three (3) times the previous result in FY ended
on Mar 31, 2016. This indicates either the company is relying too much on debt by taking additional
external financing or the value of shareholders’ equity is decreasing. In Toshiba’s case, the total
liabilities level didn’t change much. In fact, it fell over the period of three (3) FYs. Its total liabilities
were 36.0 billion EUR, 35.9 billion EUR and 34.4 billion EUR in FY ended on Mar 31, 2015, 2016
and 2017, respectively. The total assets of Toshiba also decreased over the same period, so from this
we can conclude that the percentage of shareholder’s equity making up the total assets fell. This can
be proven by the fact that shareholders’ equity was 8.2 billion EUR, 2.5 billion EUR and -4.2 billion
EUR in FY ended on Mar 31, 2015, 2016 and 2017, respectively. This sudden drop in value of
shareholders’ equity is due to accumulated losses. Toshiba’s debt ratio was 75.29%, 87.63% and
106.46% in FY ended on Mar 31, 2015, 2016 and 2017, respectively. The total assets and liabilities
both fell over the period of three (3) FYs, but the debt ratio increased over the same period. This
means the decrease in liabilities was less than the decrease in total assets in terms of percentage. It is
noteworthy that the debt ratio became 106.46% in FY ended on Mar 31, 2017, meaning Toshiba has
more liabilities than its total assets. Debt to equity ratio of Toshiba was 4.4, 14.477 and inconclusive
in FY ended on Mar 31, 2015, 2016 and 2017, respectively. These results are higher than the average
results, except in FY ended on Mar 31, 2017, as the ratio wasn’t calculated due to shareholder’s equity
became negative in the period. This ratio indicates how much debt a company has relative to its
shareholder’s equity. Toshiba had liabilities of 14.47 times the shareholders’ equity in FY ended on
Mar 31, 2016. As it was mentioned before, this is due to the value of shareholders’ equity decreased so
much because of the accumulated losses of the company.
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4.13.8 Comparison of Shares
In this subsection, I will compare shares of the companies. Not to confuse readers, I will use the official exchange rate of ECB on April 17, 2018. The
companies prepare their financial statements in accordance with different accounting principles, have different FY end dates and different reporting currencies.
The readers should take note of these facts. Due to currency exchange rate fluctuations, developments occurred in the companies after the period being compared
and any other changes, below information is subject to change.
Table 63: Comparison of shares

/Sep 30, 2017/ /Dec 31, 2017/ /Dec 31, 2017/ /Mar 31, 2017/
EUR CHF USD EUR USD EUR JPY EUR
Number of issued shares 850,000,000 2,168,148,264 11,693,841,000 4,237,602,026
Less: Number of treasury
34,481,120 29,541,775 3,013,270,000 3,793,341
shares
Number of shares
815,518,880 2,138,606,489 8,680,571,000 4,233,808,685
outstanding
Weighted average number
812,180.0 2,138.0 8,687.0 4,233,946.0
of shares outstanding1
Net income attributable to
shareholders2 6,046.0 2,213.0 1,791.0 (6,222) (5035.20) (965,663.0) (7,296.28)
/in millions/
EPS3 7.44 1.04 0.84 (0.72) (0.58) (228.08) (1.72)
4
DPS 3.70 0.78 0.66 0.84 0.68 0 0
Closing price at FY end5 119.20 26.12 21.93 17.45 14.12 241 1.82
Dividend yield6 3.10% 2.99% 2.99% 4.81% 4.81% 0 0
7
Market cap at FY end 97,209,850,496 55,860,401,493 46,909,977,740 151,475,963,950 122,583,122,077 1,020,347,893,085 7,709,466,514
*Exchange rates used for conversion: 1 EUR = 1.2537 USD; 1 EUR = 132.35 JPY; 1 EUR = 1.1908 CHF
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Notes:
1. Weighted average number of shares outstanding in the FY for Siemens and Toshiba are in
thousands, and in millions for ABB and GE.
2. Net income from continuing and discontinued operations was used in the calculation.
3. Basic EPS attributable to shareholders of the company, from continuing and discontinued
operation was used. EPS was calculated by dividing the net income by the weighted average
number of shares outstanding.
4. DPS information was taken from respective websites and annual reports.
5. Information on the closing price of the shares were collected from below sources:
a. Siemens – from XETRA (http://en.boerse-frankfurt.de/stock/pricehistory/Siemens-
share/ETR/29.9.2017_30.9.2017#Price_History)
b. ABB – from its own website (http://new.abb.com/investorrelations/share-
information/share-price-monitor#)
c. GE – from its own website (https://www.ge.com/investor-relations/individual-
investors)
d. Toshiba – through a link on its website
(http://asia.tools.euroland.com/tools/sharegraph/?s=270&lang=en-
gb&companycode=jp-tos
6. Dividend yield was calculated by dividing the DPS by the closing price of the share on the day
of FY end.
7. Market capitalization was calculated by multiplying the number of shares outstanding by the
closing price of the share on the day of FY end.
Siemens has the highest EPS and DPS among the companies at 7.44 EUR and 3.70 EUR,
respectively. Also, its share is traded at the highest price. But its dividend yield and market cap come
second after GE at 3.1% and 97.2 billion EUR, respectively. Siemens had 815.5 million shares
outstanding at the end of FY 2017.
ABB’s EPS comes second after Siemens at 0.84 EUR. Its DPS comes after Siemens and GE at
0.66 EUR. Its share was traded at 21.93 EUR at the end of FY. At the end of FY, ABB had 2138.0
million shares outstanding, making its market cap 46.9 billion EUR. This level of market cap is below
Siemens and GE, but higher than Toshiba’s level. ABB’s dividend yield in the FY was 2.99% after
Siemens and GE.
GE posted a loss in the FY, so its EPS was -0.58 EUR per share. Even though it posted a loss
in the FY, it still paid out dividends to its shareholders. In fact, GE pays out dividends quarterly. GE
paid out dividend of 0.24 USD, 0.24 USD, 0.24 USD and 0.12 USD on April 25, July 25, October 25,
2017 and January 25, 2018, respectively in the FY 2017. Its dividend yield was the highest among the
companies at 4.81%. Also, it had 8680.6 million shares outstanding at the end of FY, making its
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market cap 122.6 billion EUR. It was the highest level of market cap among the companies being
compared.
Toshiba posted a loss in the FY ended on Mar 31, 2017, so its EPS was -1.72 EUR per share.
Toshiba hasn’t paid any dividend for the past two (2) FYs, making its dividend yield 0%. Its share was
trading at 241 JPY or 1.82 EUR at the FY end. Toshiba had 4233.8 million shares outstanding. So, its
market cap was 7.7 billion EUR, and it was the lowest among the companies being compared.
4.14 Revenue Forecast in FY 2018

Forecasting the future is very important for any company, as it can give a general view on the
operational and financial performance of a company. As detailed in Subsection 2.2.12: Financial
Forecasting of Siemens, in Chapter 2, Holt-Winters method will be used to forecast Siemens’ revenue
in FY 2018.
4.14.1 Data Collection
In total twenty-nine (29) quarters data, Quarter 1 to Quarter 4 of FY 2011 to FY 2017 and
Quarter 1 results of FY 2018, were collected. These data were collected from the website of Siemens
(https://www.siemens.com/investor/en/publications_calendar.php).
4.14.2 Forecasting Method Selection
We have sequential time-series data of revenue. There are many ways to forecast time-series
data, but Holt-Winters method is preferred when the data exhibits trend and seasonality. Trend and
seasonality was observed from the quarterly revenue data of Siemens. So, I decided to use
Multiplicative seasonal model version of Holt-Winters method to forecast the revenue in FY 2018.
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101
4.14.3 Revenue Forecast
α = 0.79 MSE = 306636.3 p=4
β=0 MAD = 456.42
γ=0 MAPE = 2.36%
Table 64: Revenue forecast of Siemens in FY 2018
Initial seasonal Initial seasonal Deseasonalized Absolute

T Year Q Yt MA4 CMA Lt Tt St Ft Error Error2 |Yt-Ft|/Yt
factor estimate factor revenue error
1 2011 1 19,489 0.9438 20,648.53 0.9438

2 2 17,717 0.9639 18,379.79 0.9639
3 3 17,844 18,379 18,180 0.98150 0.9960 17,916.15 0.9960
4 4 18,465 17,982 18,180 1.01570 1.0933 16,888.86 18330.78 68.98 1.0933
5 2012 1 17,902 18,377 18,589 0.96303 0.9438 18,967.11 18847.14 68.98 0.9438 17,367 535.50 286755.4 535.50 0.0299
6 2 19,297 18,802 19,206 1.00473 0.9639 20,018.90 19785.71 68.98 0.9639 18,234 1,063.01 1129999 1063.01 0.0551
7 3 19,542 19,611 19,639 0.99505 0.9960 19,621.01 19670.42 68.98 0.9960 19,775 (232.74) 54167.42 232.74 0.0119
8 4 21,703 19,668 19,507 1.11259 1.0933 19,850.47 19826.98 68.98 1.0933 21,582 121.43 14745.77 121.43 0.0056
9 2013 1 18,128 19,346 19,309 0.93882 0.9438 19,206.56 19352.34 68.98 0.9438 18,779 (650.69) 423398.5 650.69 0.0359
10 2 18,011 19,273 19,206 0.93780 0.9639 18,684.79 18840.53 68.98 0.9639 18,721 (709.96) 504047.5 709.96 0.0394
11 3 19,248 19,139 19,038 1.01101 0.9960 19,325.82 19237.79 68.98 0.9960 18,833 414.63 171921.2 414.63 0.0215
12 4 21,168 18,938 18,868 1.12191 1.0933 19,361.14 19349.64 68.98 1.0933 21,109 59.44 3533.083 59.44 0.0028
13 2014 1 17,325 18,798 18,632 0.92987 0.9438 18,355.78 18580.52 68.98 0.9438 18,328 (1,003.15) 1006315 1003.15 0.0579
14 2 17,449 18,466 18,397 0.94845 0.9639 18,101.77 18217.59 68.98 0.9639 278766.7 527.98
102
17,977 (527.98) 0.0303
15 3 17,921 18,329 18,340 0.97714 0.9960 17,993.46 18055.44 68.98 0.9960 18,213 (291.93) 85223.25 291.93 0.0163
16 4 20,621 18,352 18,427 1.11909 1.0933 18,860.83 18705.11 68.98 1.0933 19,816 805.14 648245 805.14 0.0390
17 2015 1 17,415 18,502 18,617 0.93544 0.9438 18,451.14 18519.43 68.98 0.9438 17,720 (304.82) 92912.62 304.82 0.0175
18 2 18,049 18,732 18,821 0.95900 0.9639 18,724.21 18695.50 68.98 0.9639 17,918 130.91 17137.72 130.91 0.0073
19 3 18,844 18,909 19,094 0.98693 0.9960 18,920.19 18887.26 68.98 0.9960 18,689 155.09 24052.03 155.09 0.0082
20 4 21,328 19,278 19,396 1.09959 1.0933 19,507.48 19390.92 68.98 1.0933 20,725 602.68 363225.2 602.68 0.0283
21 2016 1 18,891 19,515 19,635 0.96212 0.9438 20,014.95 19897.58 68.98 0.9438 18,367 523.89 274459.3 523.89 0.0277
22 2 18,996 19,755 19,833 0.95780 0.9639 19,706.64 19761.60 68.98 0.9639 19,247 (250.55) 62774.66 250.55 0.0132
23 3 19,804 19,911 19,940 0.99320 0.9960 19,884.07 19872.76 68.98 0.9960 19,751 53.27 2838.089 53.27 0.0027
24 4 21,953 19,968 20,121 1.09106 1.0933 20,079.13 20050.08 68.98 1.0933 21,803 150.21 22564.06 150.21 0.0068
25 2017 1 19,119 20,274 20,475 0.93378 0.9438 20,256.52 20227.45 68.98 0.9438 18,989 129.74 16833.31 129.74 0.0068
26 2 20,219 20,676 20,719 0.97586 0.9639 20,975.39 20831.82 68.98 0.9639 19,565 654.48 428342.2 654.48 0.0324
27 3 21,413 20,763 20,851 1.02698 0.9960 21,499.58 21372.96 68.98 0.9960 20,817 596.36 355648.7 596.36 0.0279
28 4 22,299 20,939 1.0933 20,395.60 20616.85 68.98 1.0933 23,443 (1,143.99) 1308722 1143.99 0.0513
29 2018 1 19,823 0.9438 21,002.40 20935.46 68.98 0.9438 19,524 298.80 89280 298.80 0.0151
30 2 20,247
31 3 20,989
32 4 23,115
103
Notes:
 MSE – Mean squared error, it is calculated by taking square root of the sum of squared errors.
 MAD – Mean absolute deviation, it is calculated by finding the average of the sum of absolute
errors.
 MAPE – Mean absolute percentage error, it is calculated by finding the average of the sum of
absolute percentage errors.
 p – number of periods in one season
 t – period
 Q – quarter
 MA4 – Moving average of 4
 CMA – Centered moving average
 Yt – actual revenue
 Lt – level
 Tt – trend
 St – seasonality
 Ft – revenue forecast
Before we apply the method to compute the revenue forecast, we need to find initial
Seasonality index (hereinafter referred to as “St”) for each period in the first season. In order to do
that, first we need to find Moving average of 4, because we can observe that Siemens’ revenue has a
cycle consisting of 4 periods. Once we computed MA4, we should find central point of the CMA4
since the number of periods is even. After finding the centered moving average, we need to
deseasonalize the revenue to get initial seasonal index estimates. Then we find the initial St for each
period in the first season by finding the average of the seasonal estimate values in corresponding
period.
104
Figure 23: Quarterly revenue of Siemens
Quarterly Revenue of Siemens

25,000
24,000
23,000
22,000
21,000
20,000
19,000
18,000
17,000
16,000
15,000
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2011 2012 2013 2014 2015 2016 2017 2018
Revenue
Source: Own graph
105
Figure 24: Revenue, deseasonalized revenue and trendline
REVENUE, DESEASONALIZED REVENUE AND TRENDLINE

25,000
Revenue Deseasonalized revenue Linear (Deseasonalized revenue)
24,000
23,000
22,000
(IN MILLIONS OF EUR)
21,000
20,000
19,000
18,000
17,000
16,000
15,000
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2011 2012 2013 2014 2015 2016 2017 2018
Source: Own graph
106
Table 65: Linear regression results
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.554227
R Square 0.307168
Adjusted R
Square 0.281508
Standard
Error 898.2704
Observations 29
ANOVA
Significance
Df SS MS F F
Regression 1 9658863.026 9658863 11.97049 0.0018109
Residual 27 21786020.93 806889.7
Total 28 31444883.96
Standard Lower Upper

Coefficients Error t Stat P-value Lower 95% Upper 95% 95.0% 95.0%
Intercept 18330.78 342.4286276 53.53167 6.03E-29 17628.17115 19033.38216 17628.17115 19033.38216
X Variable 1 68.9787 19.93696549 3.459839 0.001811 28.07142253 109.8859709 28.07142253 109.8859709
Source: MS Excel 2016, Data analysis tool
Linear regression was used to determine the initial values of Level (hereinafter referred to as “Lt”) and Trend (hereinafter referred to as “Tt”). Linear
regression was performed between deseasonalized revenue and period. The deseasonalized revenue was taken as dependent variable and the period was taken as
independent variable in the regression.
Linear regression equation: Y = 18330.78 + 68.98 × t
Notes: Intercept of 18330.78 was used as initial value of Lt. Slope of 68.98 was used as initial value of Tt.
107
After finding the initial Lt, Tt and St for each period in the first season, below equations were
used to compute Lt, Tt, St and Ft for upcoming periods.
Microsoft Excel 2016 Solver was used to find optimal values of smoothing parameters α, β
and γ. The optimal values were calculated to find the lowest possible result for MSE. The Solver gave
optimal values of α, β and γ, that gives the lowest result for MSE, as 0.79, 0 and 0, respectively.
𝑌𝑡
[1] 𝐿𝑡 = 0.79 × (𝑆 ) + (1 − 0.79) × (𝐿𝑡−1 + 𝑇𝑡−1 )
𝑡−4
[2] 𝑇𝑡 = 0 × (𝐿𝑡 − 𝐿𝑡−1 ) + (1 − 0) × 𝑇𝑡−1
𝑌
[3] 𝑆𝑡 = 0 × (𝐿𝑡 ) + (1 − 0) × 𝑆𝑡−4
𝑡
[4] 𝐹𝑡+1 = (𝐿𝑡 + 𝑇𝑡 ) × 𝑆𝑡+1−4
[5] 𝐹𝑡+𝑚 = (𝐿𝑡 + 𝑚𝑇𝑡 ) × 𝑆𝑡−4+𝑚
Notes:
1. The formula is used from the period 5 or Quarter 1 of FY 2012 until the period 29 or Quarter 1
of FY 2018.
2. The formula is used from the period 5 or Quarter 1 of FY2012 until the period 29 or Quarter 1
of FY 2018.
of FY 2018.
of FY 2017.
5. The formula is used from the period 29 or Quarter 1 of FY 2018 until the period 31 or Quarter
3 of FY 2018.
 m – number of periods ahead to forecast
- In our case, m will take value from 1 to 3. Because our aim is to forecast
revenue in FY 2018, since revenue of Quarter 1 in FY 2018 is known, we just
need to forecast Quarter 2, 3 and 4 in FY 2018.
108
Figure 25: Revenue and revenue forecast of Siemens
Revenue and Revenue Forecast of Siemens

25,000
24,000
23,000
22,000
21,000
20,000
19,000
18,000
17,000
16,000
15,000
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2011 2012 2013 2014 2015 2016 2017 2018
Revenue Forecast
Source: Own graph

109
We can see that the forecast closely follows the actual revenue. From our result we found that
forecasted revenue of Siemens in FY 2018 is as below:
Quarter 1 – 19,823 million EUR (actual)
Quarter 2 – 20,247 million EUR
Total in FY 2018 – 84,174 million EUR
*Please note that above result is forecast, so the actual result will be different.
4.15 Financial Statements Forecast in FY 2018

Based on the revenue we forecasted in the previous section, I will forecast Siemens’ Income
statement and Balance sheet in FY 2018, using the Percentage of Sales Model.
4.15.1 Assumptions
First, we need to make certain assumptions. Assumptions will be made, based on the previous
FY’s figures. I assume that certain items are proportional to the revenue. In other words, they change
at the same percentage rate as revenue. I assume below items of Income statement are proportional to
revenue:
 Cost of sales
 Research and development expenses
 Selling and general administrative expenses
I assume below items are not proportional, so I will carry the same amounts into FY 2018.
 Income (loss) from investments accounted for using the equity method
 Interest income
 Income (loss) from discontinued operations, net of income taxes
Below two items are proportional to other items.

 Interest expense is proportional to the sum of Short-term debt and current maturities of long-
term debt and Long-term debt.
 Income tax expenses proportional to Income from continuing operations before income taxes.
Now let’s make assumptions about Balance sheet items. Below items are proportional to revenue:
 Cash and cash equivalents
 Trade and other receivables
 Inventories
110
 Trade payables
 Retained earnings
*I assumed Retained earnings is proportional to revenue, because the amount of retained earnings is
not only affected by the retention ratio of net income, also certain items such as Other comprehensive
income, Dividends, Share based payments and Re-issuance of treasury shares etc. contribute to its
final amount. So, for simplicity, it will be considered to change at the same percentage rate as revenue.
Other items except Short-term debt and current maturities of long-term debt will be carried
forward. If the Total assets and the Total liabilities and equity doesn’t match and the former is greater
than the latter, then Additional fund will be financed by Short-term debt.
4.15.2 Preliminary Calculations
Before applying the Percentage of Sales Model, certain calculations will be made. First, the
revenue growth with respect to the previous FY. Then, we need to find the percentage of each items
we made assumptions of above, relative to the revenue. Also, the percentage of Interest expense and
Income tax expense relative to abovementioned items will be calculated. FY 2017 figures will be used
for the calculation.
Forecast in FY 2018 − Rev. in FY 2017 84174 − 83049

Revenue growth = = = 1.35%
Revenue in FY 2017 83049
Table 66: Percentage of items relative to revenue
in FY 2017 % of revenue
Revenue 83,049 -
Cost of sales 58,021 69.9%
Research and development expenses 5,164 6.2%
Selling and general administrative expenses 12,225 14.7%
Cash and cash equivalents 8,375 10.1%
Trade and other receivables 17,160 20.7%
Inventories 19,942 24.0%
Trade payables 9,755 11.7%
Retained earnings 35,696 43.0%
Assumption is that above percentages of corresponding items in Income statement and Balance sheet
hold true in FY 2018.
Interest expense and Income tax expense are calculated as below:
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% of Interest expense = Interest expense / (Short-term debt and current maturities of long-term debt +
Long-term debt)
% of Interest expense = 1,051 / (5,447 + 26,777) = 3.26%
% of Income tax expense = Income tax expense / Income from continuing operations before income
taxes
% of Income tax expense = 2,180 / 8,306 = 26.25%
4.15.3 Proforma Income Statement and Balance sheet in FY 2018
Revenue forecast in FY 2018 = 84,174.0 million EUR
Revenue growth = 1.35 %
% of Interest expense = 3.26 %
% of Income tax expense = 26.25 %
Table 67: IS in FY 2017 and Proforma IS in FY 2018
2017 2018
Revenue 83,049 84,174.00
Cost of sales (58,021) (58,806.97)
Gross profit 25,029 25,367.03
Research and development expenses (5,164) (5,233.95)
Selling and general administrative expenses (12,225) (12,390.60)
Other operating income 647 655.76
Other operating expense (595) (603.06)
Income (loss) from investments accounted for using the equity method, net 43 43.00
Interest income 1,487 1,487.00
Interest expense1 (1,051) (1,051.00)
Other financial income (expense), net 135 135.00
Income from continuing operations before income taxes 8,306 8,409.18
Income tax expenses2 (2,180) (2,207.08)
Income from continuing operations 6,126 6,202.10
Income (loss) from discontinued operations, net of income taxes 53 53.00
Net income 6,179 6,255.10
Note: Interest expense and Income tax expense in FY 2018 were calculated as below:
1. Interest expense = (5,447 + 26,777) x 3.26% = 1,051 million EUR
2. Income tax expense = 8,409.18 x 26.25% = 2,207.08 million EUR

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Table 68: BS in FY 2017 and Proforma BS in FY 2018
(in millions of EUR) (in millions of EUR)
2017 2,018 2017 2018

ASSETS LIABILITIES
Cash and cash equivalents 8,375 8488 Short-term debt and current maturities of long-term debt 5,447 5,447
Available-for-sale financial assets 1,242 1,242 Trade payables 9,755 9887.14
Trade and other receivables 17,160 17,392 Other current financial liabilities 1,444 1,444
Other current financial assets 7,664 7,664 Current provisions 4,247 4,247
Inventories 19,942 20,212 Current income tax liabilities 2,355 2,355
Current income tax assets 1,098 1,098 Other current liabilities 20,049 20,049
Other current assets 1,467 1,467 Liabilities associated with assets classified as held for 97 97
Assets classified as held for disposal 1,482 1,482 Total current liabilities disposal 43,394 43,526
Total current assets 58,429 59,046 Long-term debt 26,777 26,777
Provisions for pensions and similar obligations 9,582 9,582
Goodwill 27,906 27,906 Deferred tax liabilities 1,599 1,599
Other intangible assets 10,926 10,926 Provisions 4,579 4,579
Property, plant and equipment 10,977 10,977 Other financial liabilities 902 902
Investments accounted for using the equity method 2,727 2,727 Other liabilities 2,445 2,445
Other financial assets 19,044 19,044 Total non-current liabilities 45,884 45,884
Deferred tax assets 2,297 2,297 TOTAL LIABILITIES 89,278 89,410
Other assets 1,498 1,498 EQUITY
Total non-current assets 75,375 75,375 Issued capital 2,550 2,550
Capital reserve 6,368 6,368
Retained earnings 35,696 36,180
Other components of equity 1,671 1,671
Treasury shares, at cost (3,196) (3,196)
Total equity attributable to shareholders of Siemens 43,089 43,573
Non-controlling interests 1,438 1,438
TOTAL EQUITY 44,527 45,011
TOTAL ASSETS 133,804 134,421.04 TOTAL LIABILITIES AND EQUITY 133,804 134,420.69
Source: Own calculation Source: Own calculation
Total assets in FY 2018 = 134,421.04 million EUR Total liabilities and equity in FY 2018 = 134,420.69 million EUR
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We can see that the Total assets is greater than the Total liabilities and equity in FY 2018:
Additional Funds Needed = 134,421.04 – 134,420.69 = 0.35 million EUR
I assume above additional fund is borrowed through short-term debt. So, I need to re-calculate the
Income statement and Balance sheet in FY 2018.
Table 69: IS in FY 2017 and Proforma IS in FY 2018 (1)
2017 2018
Revenue 83,049 84,174.00
Cost of sales (58,021) (58,806.97)
Gross profit 25,029 25,367.03
Research and development expenses (5,164) (5,233.95)
Selling and general administrative expenses (12,225) (12,390.60)
Other operating income 647 655.76
Other operating expense (595) (603.06)
Income (loss) from investments accounted for using the equity method, net 43 43.00
Interest income 1,487 1,487.00
Interest expense1 (1,051) (1,051.01)
Other financial income (expense), net 135 135.00
Income from continuing operations before income taxes 8,306 8,409.17
Income tax expenses2 (2,180) (2,207.08)
Income from continuing operations 6,126 6,202.09
Income (loss) from discontinued operations, net of income taxes 53 53.00
Net income 6,179 6,255.09
Note: Interest expense and Income tax expense in FY 2018 were calculated as below:
1. Interest expense = (5,447.35 + 26,777) x 3.26% = 1,051.01 million EUR
2. Income tax expense = 8,409.17 x 26.25% = 2,207.08 million EUR
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Table 70: BS in FY 2017 and Proforma BS in FY 2018 (1)
(in millions of EUR) (in millions of EUR)
2017 2,018 2017 2018

ASSETS LIABILITIES
Cash and cash equivalents 8,375 8488 Short-term debt and current maturities of long-term debt 5,447 5,447.351
Available-for-sale financial assets 1,242 1,242 Trade payables 9,755 9887.14
Trade and other receivables 17,160 17392 Other current financial liabilities 1,444 1,444
Other current financial assets 7,664 7,664 Current provisions 4,247 4,247
Inventories 19,942 20212 Current income tax liabilities 2,355 2,355
Current income tax assets 1,098 1,098 Other current liabilities 20,049 20,049
Other current assets 1,467 1,467 Liabilities associated with assets classified as held for 97 97
Assets classified as held for disposal 1,482 1,482 Total current liabilities disposal 43,394 43,526
Total current assets 58,429 59,046 Long-term debt 26,777 26,777
Provisions for pensions and similar obligations 9,582 9,582
Goodwill 27,906 27,906 Deferred tax liabilities 1,599 1,599
Other intangible assets 10,926 10,926 Provisions 4,579 4,579
Property, plant and equipment 10,977 10,977 Other financial liabilities 902 902
Investments accounted for using the equity method 2,727 2,727 Other liabilities 2,445 2,445
Other financial assets 19,044 19,044 Total non-current liabilities 45,884 45,884
Deferred tax assets 2,297 2,297 TOTAL LIABILITIES 89,278 89,410
Other assets 1,498 1,498 EQUITY
Total non-current assets 75,375 75,375 Issued capital 2,550 2,550
Capital reserve 6,368 6,368
Retained earnings 35,696 36,180
Other components of equity 1,671 1,671
Treasury shares, at cost (3,196) (3,196)
Total equity attributable to shareholders of Siemens 43,089 43,573
Non-controlling interests 1,438 1,438
TOTAL EQUITY 44,527 45,011
TOTAL ASSETS 133,804 134,421.04 TOTAL LIABILITIES AND EQUITY 133,804 134,421.04
Source: Own calculation Source: Own calculation
Total assets = 134,421.04 million EUR Total liabilities and equity = 134,421.04 million EUR
115
Note: It should be noted that Short-term debt and current maturities of long-term debt increased by
0.35 million EUR.
4.15.4 Net Income Attributable to Shareholders of

Siemens in FY 2018
Now, I will calculate the net income attributable to shareholders of Siemens and non-controlling
interest. Also, based on that result, I can calculate EPS.
Table 71: Net income breakdown in FY 2017
in FY 2017 % of Net income

Net income attributable to: 6,179
Non-controlling interests 133 2.15%
Shareholders of Siemens AG 6,046 97.85%
I will assume that above percentages corresponding to items will hold true in FY 2018, then the Net
income will be broken down as follows:
Table 72: Net income breakdown in FY 2018
in FY 2018 % of Net income

Net income attributable to: 6,255.09
Non-controlling interests 134.64 2.15%
Shareholders of Siemens AG 6,120.46 97.85%
4.15.5 EPS in FY 2018
Siemens uses weighted average number of shares outstanding to calculate basic and diluted
EPS. We already know those numbers in FY 2017. So, assuming that those numbers don’t change, I
can calculate basic and diluted EPS as below:
Table 73: Calculation of EPS in FY 2018

2017 2018
Net income attributable to shareholders of Siemens 6,046.0 6,255.09
Weighted average number of shares outstanding – basic 812,180 812,180
Basic EPS 7.44 7.70
Weighted number of shares outstanding – diluted 829,164 829,164
Diluted EPS 7.29 7.54

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Notes:
 Net income figure is in millions of EUR.

 Number of shares outstanding is in thousands.
 EPS is in EUR.
 For information about weighted average number of shares and EPS in FY 2017, please refer to
Subsection 4.10.5: Earnings Per Share (EPS).
4.15.6 ROE in FY 2018
ROE can also be calculated by using the Net income amount and Equity attributable to
shareholders of Siemens as below:
Table 74: ROE in FY 2018
(in millions of EUR, except ROE)

2018
Net income 6,255.09
Average shareholders’ equity 43,331
ROE 14.44%
Notes:
 Equity attributable to shareholders of Siemens was used in the calculation.

 Average shareholders’ equity was calculated by finding the average of shareholders’ equity in
FY 2017 and forecasted shareholders’ equity in FY 2018.
4.15.7 Limitations and Conclusion
Percentage of Sales Model is simple and easy to use, but it has its limitations including but not
limited to below:
 The model is very simplistic in nature.

 The model focuses on the Income statement and Balance sheet, so disregards the Statement of
cash flows.
 The model assumes some items change at the same percentage as the revenue does, which in
most cases not true.
I forecasted the Proforma income statement and Proforma balance sheet of Siemens in FY 2018,
under the assumptions made in Subsection 4.15.1: Assumptions. It should be noted that above results
are just forecast. So, the results will differ from the actual results in FY 2018.
117
118
CHAPTER 5: CONCLUSION
I performed the financial analysis on Siemens using the methods defined in the Section 2.2:
Methodology in Chapter 2, with the aim of finding answers to the thesis objectives defined in Section
2.1: Objectives in Chapter 2. Financial statements of Siemens covering the period of last 7 FYs, from
October 1, 2010 to September 30, 2017, and other sources of data were used in the analysis.
My general view on the company is quite positive. The company is a well-known, financially
stable and mature company with a long and rich history. This is also supported by the results of my
analysis. The analysis focused on below areas of the company:
 Revenue and revenue growth
 Profitability
 Capital efficiency
 Liquidity
 Capital structure
- Debt
- Equity
 Solvency
These measurements or financial indicators are all interconnected with one another. One
affecting the other, so, they are important and integral part of the analysis, to see the whole picture of
current financial situation of Siemens. Also, to further test Siemens’ current situation, a comparison
was made with its competitors. This comparison clearly showed that Siemens has a better standing
amongst its competitors.
I’ve already given my general assessment regarding each indicator in Chapter 4. So, in the
conclusion, I’ll be focusing more on answers to the thesis objectives, supporting it by the results
obtained by the analysis. I will give answers to below four (4) questions:
1. Current financial condition of Siemens.
2. Siemens’ ability to settle its short and long-term liabilities.
3. Problems and recommendations.
4. Siemens in FY 2018 and beyond.
5.1 Current Financial Condition of Siemens

Current financial condition of Siemens can be defined by the latest FY results or the results in
FY 2017.
In FY 2017, Siemens generated a revenue of 83.049 billion EUR and a net income of 6.046
billion EUR, attributable to shareholders of Siemens. It means Siemens had a profit margin of 7.28%.
If we compare these results to its competitors results in the same period, then Siemens has the second-
best result in terms of revenue and the best result in terms of net income. Also, its profit margin is the
119
best among its competitors. You can refer to Subsection 4.13.5: Comparison of Revenue and
Profitability in Chapter 4, for more details on the comparison.
In terms of capital, Siemens had 133,804.0 billion EUR worth of assets in FY 2017. This
figure was 125,717.0 billion EUR in FY 2016, which means the Total assets grew by 6.43% or 8,087.0
billion EUR in absolute terms. Please refer to Section 4.3.1: Horizontal and Vertical Analysis of
Balance Sheet in Chapter 4, and Appendix A: Consolidated Statements of Financial Position of
Siemens between FY 2011 – FY 2017, for more detailed information on how Siemens’ capital
changed over time.
Retained earnings is a good indicator for how well a company performs, as it will grow in case
the company made profit or decline in case the company suffered loss. The retained earnings was
27,454.0 billion EUR in FY 2016. It grew 30.02% or 8,242.0 billion EUR and reached 35,696.0 billion
EUR in FY 2017. This is a huge growth in retained earnings, which implies the company performed
very well.
Based on above results, I can safely say that Siemens’ current financial condition is very
stable. It is generating a good revenue, and making a profit, unlike some of its competitors who have
been suffering losses. Also, its total assets are growing, which means the company has more resources
to generate more sales. We will see if Siemens is burdened by its liabilities in the next section.
5.2 Siemens’ Ability to Settle its Short and

Long-term Liabilities
As defined by Investopedia (n.d.), liability is a company’s financial obligations that arise
during its business operations. This is a broad term, because liability also includes debt of the
company as well. There are two (2) types of liabilities: (1) current or short-term; and (2) non-current
or long-term liabilities. Short-term liabilities are those which must be paid within one (1) year, and
long-term liabilities are payable more than one year (Investopedia, n.d.). My assessment of the issue is
given below.
5.2.1 Ability to Settle Short-term Liabilities
As defined above, short-term liabilities are payable items within one (1) year. These include
trade payables, current portion of long-term debt, deferred income and current provisions etc. The
ability to settle short-term liabilities is directly linked to the liquidity of a company. We measured the
liquidity of Siemens with the liquidity ratios. So, we refer to the results of the them for an answer.
120
First let’s take a look at current assets and current liabilities of Siemens over the last 7 FYs.
Siemens had more current assets than current liabilities in all 7 periods, which means NWC of
Siemens is positive. It is a good thing. The current assets and the current liabilities have upward trend
since FY 2013 and FY 2015, respectively. For example: in FY 2016, Siemens had the current assets
and the current liabilities of 55.33 billion EUR and 42.92 billion EUR, respectively. In 2017, those
figures were 58.43 billion EUR and 43.40 billion EUR, respectively. This translates into 5.6% growth
in the current assets and 1.11% growth in the current liabilities. We can conclude from here that the
growth rate of the current assets is greater than that of the current liabilities.
If we look at the results of the liquidity ratios, I’d say they are not so good. Because except
current ratio, which has a general trend of going up, quick ratio and cash ratio are going down. It is not
ideal. And if we compare the results with the competitors, Siemens has the worst results except current
ratio. Please refer to Subsection 4.7.2: Summary of Liquidity Ratios and Subsection 4.13.6:
Comparison of Liquidity Ratios in Chapter 4, for more details.
But, with Siemens’ reputation, its current assets level, ability to generate positive income, its
access to 7.0 billion EUR unused lines of credit and its short-term credit ratings from Moody’s and
S&P, it is quite safe to say they will not face any difficulties in meeting its short-term obligations in
the near future.
5.2.2 Ability to Settle Long-term Liabilities
All payable items in more than one (1) year are classified into this category. The biggest item
in this category is Long-term debt. For example: in FY 2015, 2016 and 2017, the long-term debt of
Siemens was 26.68 billion EUR, 24.76 billion EUR and 26.78 billion EUR, respectively. In the same
periods, total long-term liabilities were 45.73 billion EUR, 47.99 billion EUR and 45.88 billion EUR,
respectively. This means the long-term debt comprised 58.3%, 51.6% and 58.4% of the total long-term
liabilities in FY 2015, 2016 and 2017, respectively.
The ability to settle the long-term liabilities can be measured by Debt management ratios and
expert opinions. So, I will base my conclusion on the comparison made with the competitors and the
corporate credit ratings of Siemens. The comparison of Debt management ratios was made using three
(3) ratios: (1) financial leverage; (2) debt ratio; and (3) debt to equity ratio. In the comparison with
competitors, I calculated the average of each indicators to set a benchmark for companies. One thing
to note, is that the average was calculated only using the companies being compared. So, it is not to be
confused with industry average.
If we look at the ratios, Siemens’ results were only higher than ABB’s, but lower than the
average and other two (2) companies. It is logical to assume the lower the liabilities, the better. So,
lower results of the ratios are preferred. From this, I can say the liabilities level is lower than most of
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its competitors. Please refer to Subsection 4.13.7: Comparison of Capital Structure in Chapter 4,
for more details on the comparison.
If we consider only the size of Siemens, it is obvious that they would need huge external
financing. Despite of that, Siemens never defaults and manages to generate a positive income. It is
also, a big indicator of the company is not burdened by its liabilities. This can further be supported by
the credit ratings by Moody’s and S&P’s.
Siemens publishes corporate credit ratings by Moody’s and S&P in their annual reports. Both
companies graded Siemens’ debt as upper-medium grade. Upper-medium-grade is investment-grade
ratings and it means there is very low credit risk. So, based on these facts, I conclude that the ability to
settle its long-term liabilities is very high.
5.3 Problems and Recommendations

During the course of writing the thesis, several problems were identified. The problems were
identified by comparing the results against its past results. These include but not limited to below.
Because the assessment of the problems is based on numbers alone:
 ROE is decreasing (2015 - 2017)

 Total assets turnover is decreasing (2012 - 2017)
 Inventory turnover is decreasing, in turn increasing the inventory turnover days (2012 -
2017)
 ROCE is decreasing (2015 - 2017)
 Quick ratio is decreasing (2015 - 2017)
 Cash ratio is decreasing (2015 - 2017)
Please refer to Chapter 4: Financial Analysis of Siemens Group, for the results of above
indicators.
By looking into each of the above problems following recommendations are made. (1)
Increase revenue; (2) Keep COGS at lower level; (3) Increase net income; and (4) Increase cash and
cash equivalents level.
But considering the size and maturity of Siemens, above recommendations might be difficult
to achieve. Because many factors contribute to the overall performance of the company, and there are
many external factors and risks that cannot be controlled by Siemens, such as global economy
conditions, operational risks and financial risks etc.
122
5.4 Siemens in FY 2018 and Beyond

In this part of the thesis, general overview of what has happened so far in FY 2018 and the
financial forecast of FY 2018 will be detailed. Also, strategy and goals of Siemens beyond FY 2018
will be given.
5.4.1 In FY 2018
A new FY begins on October 1 of every year for Siemens, which means the FY 2018 started
on October 1, 2017. Their Q1 results are already available and Q2 results are expected to be released
in early May 2018. By the time of writing this part of the thesis, below two (2) events have already
happened.
1. Annual Shareholders Meeting 2018
The Annual Shareholders’ Meeting 2018 of Siemens AG took place at Olympia Hall in
Munich on January 31, 2018.
At Annual Shareholders’ Meeting 2018, Jim Hagemann Snabe was elected to become the new
Supervisory Board Chairman of Siemens AG, succeeding Gerhard Cromme. Four new members were
elected to the ten (10) members representing the shareholders in the Supervisory Board as part of the
regular reelection at the Annual Shareholders’ Meeting and pursuant to the German Codetermination
Act, the other ten members of the Supervisory Board, representing the employees, had been elected
prior to the meeting (Siemens, 2018).
Also, the Annual Shareholders’ Meeting ratified the acts of the members of the Managing and
Supervisory Boards for FY 2017. All proposals and other agendas were approved by large majorities.
For fiscal 2017, the Annual Shareholders’ Meeting approved the distribution of a dividend of 3.70
EUR per share (Siemens, 2018).
2. IPO of Siemens Healthineers
Siemens’ planned IPO of Healthineers made its debut on March 16, 2016 on the Frankfurt
Stock Exchange. The first stock quotation was 29.10 EUR per Healthineers’ share, more than the
expected quotation. In total, 150,000 existing ordinary shares were placed at the IPO (Siemens
Healthineers, 2018). The IPO represented a free float of 15% of Healthineers shares. Following the
IPO, Siemens AG now holds 85% stake in Healthineers (Siemens Healthineers, 2018).
123
Financial Forecast
I forecasted the financial performance of Siemens using Holt-Winters method for revenue
forecast and Percentage of Sales model to forecast proforma financial statements. Please refer to
Section 4.14: Revenue Forecast in FY 2018 and Section 4.15: Financial Statements Forecast in
FY 2018 in Chapter 4, for more details. Key indicators of the forecast are listed below:
 Revenue in FY 2018 – 84,174.0 million EUR

 Net income in FY 2018 – 6,255.09 million EUR
 Profit margin – 7.43% (Industrial business + Financial Services)
 Basic EPS – 7.70 EUR
 ROE – 14.44%
In the Annual Report 2017, Siemens made an overall assessment of FY 2018 as follows:
“For fiscal 2018 we expect modest growth in revenue, net of effects from currency translation and
portfolio transactions, and anticipate that orders will exceed revenue for a book-to-bill ratio above 1.
We expect a profit margin of 11.0% to 12.0% for our Industrial Business and basic EPS from net
income in the range of 7.20 EUR to 7.70 EUR, both excluding severance charges.” (Siemens, 2017, p.
27).
Even though, my forecast was performed with simple models, based on historical data and
under simple assumptions, it is practically in line with what Siemens expects in FY 2018.
5.4.2 Beyond FY 2018
In 2014, Siemens introduced its long-term strategy: Vision 2020. It is a long-term strategy to
position Siemens along the electrification, automation and digitalization. They set up three (3) stages
to achieve their strategy:
1. Short term: Drive performance

2. Medium term: Strengthen core
3. Long term: Scale up
In order to achieve this strategy, Siemens also set up seven (7) goals (Siemens, 2018, p. 16):
1. Implement stringent company governance with effective support functions

2. Strengthen portfolio
3. Execute financial target system
4. Expand global management
5. Be a partner of choice for our customers
6. Be an employer of choice
7. Foster ownership culture
I will not go into details, explaining each stage and goal to achieve the strategy: Vision 2020.
Information about their strategy is accessible at: https://www.siemens.com/about/en/strategic-
124
overview.htm. Since FY 2014, Siemens has been implementing the strategy. So, it is assumed that
they will continue to pursue this strategy beyond FY 2018.
In terms of financial goals, Siemens has been measuring its financial performance by the goals
set up in One Siemens financial framework. One Siemens is a financial performance measurement
system introduced in 2012. The goals of One Siemens can be found in annual reports and
presentations of Siemens. Siemens will try to achieve the goals of One Siemens, beyond FY 2018.
5.5 Final Remarks

As mentioned above, the financial analysis of Siemens focused on several areas of the
company. Especially, the equity of Siemens was researched much in details. Also, the comparison
made between Siemens and its competitors is a really good source for reference. So, I hope the thesis
will help to get a whole picture of how Siemens performed in the last 7 FYs, and how its results fare
against its peers.
In the end, Siemens has a clear long-term strategy and very definite financial goals. It also has
the experience and necessary resources to achieve it. I believe it will continue to generate a good
revenue and achieve the goals it set in FY 2018 and beyond. Now, it all remains to be seen.
125
126
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132
LIST OF TABLES
Table 1: Siemens overview ....................................................................................................................10
Table 2: Balance sheet of Siemens: .......................................................................................................38
Table 3: Horizontal analysis of Balance sheet .......................................................................................39
Table 4: Vertical analysis of Balance sheet ...........................................................................................40
Table 5: Income statement of Siemens ..................................................................................................41
Table 6: Horizontal analysis of Income statement .................................................................................42
Table 7: Vertical analysis of Income statement .....................................................................................43
Table 8: Revenue and revenue growth of Siemens ................................................................................44
Table 9: Calculation of Gross profit.......................................................................................................45
Table 10: Calculation of Gross profit margin ........................................................................................45
Table 11: Calculation of EBIT ...............................................................................................................46
Table 12: Calculation of Operating profit margin ..................................................................................46
Table 13: Calculation of Net profit margin ............................................................................................46
Table 14: Calculation of ROA ...............................................................................................................47
Table 15: Calculation of ROE ................................................................................................................48
Table 16: Summary of Profitability ratios .............................................................................................49
Table 17: Calculation of Total assets turnover.......................................................................................50
Table 18: Calculation of Average net fixed assets .................................................................................51
Table 19: Fixed assets turnover..............................................................................................................51
Table 20: Calculation of Inventory turnover ..........................................................................................51
Table 21: Calculation of Inventory turnover (days) ...............................................................................52
Table 22: Calculation of Accounts receivable turnover .........................................................................52
Table 23: Calculation of Average collection period ..............................................................................53
Table 24: Calculation of Total supplier purchases .................................................................................53
Table 25: Calculation of Accounts payable turnover .............................................................................53
Table 26: Calculation of Average payment period ................................................................................54
Table 27: Summary of Activity ratios ....................................................................................................54
Table 28: Summary of ROCE ................................................................................................................55
Table 29: Net Working Capital of Siemens ...........................................................................................55
Table 30: Calculation of Current ratio ...................................................................................................56
Table 31: Calculation of Quick ratio ......................................................................................................56
Table 32: Calculation of Cash ratio .......................................................................................................57
Table 33: Summary of Liquidity ratios ..................................................................................................57
Table 34: Capital structure of Siemens ..................................................................................................58
Table 35: Capital structure of Siemens in percentage ............................................................................59
Table 36: Calculation of Financial leverage ..........................................................................................60
Table 37: Calculation of Debt ratio ........................................................................................................61
Table 38: Calculation of Equity ratio .....................................................................................................62
Table 39: Calculation of Debt to equity ratio.........................................................................................63
Table 40: Calculation of Times interest earned ratio .............................................................................64
Table 41: Summary of Debt management ratios ....................................................................................65
Table 42: Calculation of Net industrial debt to EBITDA ......................................................................66
Table 43: Debt of Siemens .....................................................................................................................67
Table 44: Corporate credit ratings of Siemens .......................................................................................68
Table 45: Total debt of Siemens in FY 2017 .........................................................................................69
Table 46: Equity of Siemens ..................................................................................................................70
133
Table 47: Basic information of Siemens shares .................................................................................... 71

Table 48: Calculation of number of shares outstanding and treasury shares ......................................... 72
Table 49: Historical share prices of Siemens ........................................................................................ 74
Table 50: Market capitalization of Siemens .......................................................................................... 75
Table 51: EPS of Siemens ..................................................................................................................... 76
Table 52: Calculation of ROE using DuPont equation .......................................................................... 77
Table 53: Absolute and percentage change of ROE .............................................................................. 78
Table 54: Dividend information of Siemens ......................................................................................... 80
Table 55: Dividend payment dates ........................................................................................................ 80
Table 56: Calculation of Z Score of Siemens ........................................................................................ 83
Table 57: Comparison of Total assets ................................................................................................... 88
Table 58: Comparison of Revenue and Net profit of the companies ..................................................... 89
Table 59: Comparison of Net profit margin and ROE........................................................................... 91
Table 60: Comparison of Liquidity ratios ............................................................................................. 92
Table 61: Comparison of Capital structure ............................................................................................ 95
Table 62: Comparison of Debt management ratios ............................................................................... 96
Table 63: Comparison of shares ............................................................................................................ 98
Table 64: Revenue forecast of Siemens in FY 2018 ........................................................................... 102
Table 65: Linear regression results ...................................................................................................... 107
Table 66: Percentage of items relative to revenue ............................................................................... 111
Table 67: IS in FY 2017 and Proforma IS in FY 2018 ........................................................................ 112
Table 68: BS in FY 2017 and Proforma BS in FY 2018 ..................................................................... 113
Table 69: IS in FY 2017 and Proforma IS in FY 2018 (1) .................................................................. 114
Table 70: BS in FY 2017 and Proforma BS in FY 2018 (1) ............................................................... 115
Table 71: Net income breakdown in FY 2017..................................................................................... 116
Table 72: Net income breakdown in FY 2018..................................................................................... 116
Table 73: Calculation of EPS in FY 2018 ........................................................................................... 116
Table 74: ROE in FY 2018 .................................................................................................................. 117
134
LIST OF FIGURES
Figure 1: Two-tier board structure of Siemens ......................................................................................14
Figure 2: Revenue of Siemens ...............................................................................................................44
Figure 3: ROA of Siemens .....................................................................................................................47
Figure 4: ROE of Siemens .....................................................................................................................48
Figure 5: Revenue vs Profit....................................................................................................................49
Figure 6: Profit margins of Siemens ......................................................................................................50
Figure 7: Liquidity ratios of Siemens.....................................................................................................57
Figure 8: Financial leverage of Siemens ................................................................................................60
Figure 9: Debt ratio of Siemens .............................................................................................................61
Figure 10: Equity ratio of Siemens ........................................................................................................62
Figure 11: Debt to equity ratio of Siemens ............................................................................................63
Figure 12: Times interest earned ratio of Siemens .................................................................................64
Figure 13: Debt management ratios of Siemens ....................................................................................65
Figure 14: Industrial net debt / EBITDA ...............................................................................................67
Figure 15: Total debt of Siemens ...........................................................................................................68
Figure 16: Share buyback activities of Siemens ....................................................................................73
Figure 17: Closing price of Siemens shares ...........................................................................................74
Figure 18: Z Score of Siemens ...............................................................................................................84
Figure 19: Competitors of Siemens........................................................................................................85
Figure 20: Official exchange rate of ECB on April 17, 2018 ................................................................86
Figure 21: Revenue comparison of the companies ................................................................................90
Figure 22: Net profit comparison of the companies ...............................................................................91
Figure 23: Quarterly revenue of Siemens ............................................................................................105
Figure 24: Revenue, deseasonalized revenue and trendline .................................................................106
Figure 25: Revenue and revenue forecast of Siemens .........................................................................109
135
136
LIST OF APPENDICES
Appendix A: Consolidated Statements of Financial Position of Siemens between FY 2011 – FY 2017
Appendix B: Segment Information of Siemens in FY 2017
137
Appendix A: Consolidated Statements of Financial Position of Siemens between FY 2011 – FY 2017
2011 2012 2013 2014 2015 2016 2017
ASSETS
Cash and cash equivalents 12,468 10,891 9,190 8,013 9,957 10,604 8,375
Available-for-sale financial assets 477 524 601 925 1,175 1,293 1,242
Trade and other receivables 14,847 15,220 14,853 14,526 15,982 16,287 17,160
Other current financial assets 2,899 2,901 3,250 3,710 5,157 6,800 7,664
Inventories 15,143 15,679 15,560 15,100 17,253 18,160 19,942
Current income tax assets 798 836 794 577 644 790 1,098
Other current assets 1,264 1,277 1,297 1,290 1,151 1,204 1,467
Assets classified as held for disposal 4,917 4,800 1,393 3,935 122 190 1,482
Total current assets 52,813 52,129 46,937 48,076 51,442 55,329 58,429
Goodwill 15,706 17,069 17,883 17,783 23,166 24,159 27,906
Other intangible assets 4,444 4,595 5,057 4,560 8,077 7,742 10,926
Property, plant and equipment 10,477 10,763 9,815 9,638 10,210 10,157 10,977
Investments accounted for using the equity method 4,966 4,436 3,022 2,127 2,947 3,012 2,727
Other financial assets 11,855 14,666 15,117 18,416 20,821 20,610 19,044
Deferred tax assets 3,206 3,777 3,234 3,334 2,591 3,431 2,297
Other assets 776 846 872 945 1,094 1,279 1,498
Total non-current assets 51,430 56,152 54,999 56,803 68,906 70,388 75,375
TOTAL ASSETS 104,243 108,282 101,936 104,879 120,348 125,717 133,804

2011 2012 2013 2014 2015 2016 2017
LIABILITIES
Short-term debt and current maturities of long-term
3,660 3,826 1,944 1,620 2,979 6,206 5,447
debt
Trade payables 7,677 8,036 7,599 7,594 7,774 8,048 9,755
Other current financial liabilities 2,247 1,460 1,515 1,717 2,085 1,933 1,444
Current provisions 5,168 4,750 4,485 4,354 4,489 4,166 4,247
Current income tax liabilities 2,032 2,204 2,151 1,762 1,828 2,085 2,355
Other current liabilities 21,020 20,306 19,701 17,954 20,368 20,437 20,049
Liabilities associated with assets classified as held for
1,756 2,054 473 1,597 39 40 97
disposal
Total current liabilities 43,560 42,637 37,868 36,598 39,562 42,916 43,394
Long-term debt 14,280 16,880 18,509 19,326 26,682 24,761 26,777
Provisions for pensions and similar obligations 7,307 9,926 9,265 9,324 9,811 13,695 9,582
Deferred tax liabilities 595 494 504 552 609 829 1,599
Provisions 3,654 3,908 3,907 4,071 4,865 5,087 4,579
Other financial liabilities 824 1,083 1,184 1,620 1,466 1,142 902
Other liabilities 1,867 2,052 2,074 1,874 2,297 2,471 2,445
Total non-current liabilities 28,527 34,343 35,443 36,767 45,730 47,986 45,884
TOTAL LIABILITIES 72,087 76,980 73,312 73,365 85,292 90,901 89,278
EQUITY
Issued capital 2,743 2,643 2,643 2,643 2,643 2,550 2,550
Capital reserve 6,011 6,173 5,484 5,525 5,733 5,890 6,368
Other components of equity (68) 1,058 268 803 2,163 1,921 1,671
Treasury shares, at cost (3,037) (1,897) (2,946) (3,747) (6,218) (3,605) (3,196)
Total equity attributable to shareholders of Siemens 31,530 30,733 28,111 30,954 34,474 34,211 43,089

TOTAL EQUITY 32,156 31,302 28,625 31,514 35,056 34,816 44,527
TOTAL LIABILITIES & EQUITY 104,243 108,282 101,936 104,879 120,348 125,717 133,804
Source: Annual Reports of Siemens between 2011 – 2017.
Appendix B: Segment Information of Siemens in FY 2017
Source: Siemens Annual Report 2017, pp. 98-99

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M a sa ry k Univ ersity

Supervisor: Ing. Bc. Jana HVOZDENSKÁ Author: Munkh-Erdene UNDRAL

Germany, Siemens, financial analysis, financial forecasting

Aut hor’s si gn at ure

In this chapter, general understanding of financial analysis and company introduction of

1.1 Financial Analysis

1.2 Siemens Group

Siemens Group comprises Siemens Aktiengesellschaft (hereinafter referred to as “Siemens

Siemens AG is a German conglomerate founded in October 1847. It has its corporate

Table 1: Siemens overview

Official Name Siemens Aktiengesellschaft /Siemens AG/

Source: Own research

1.2.2 Corporate Structure

Divisions of Siemens in FY 2017:

Separately managed entities in FY 2017:

Reportable segments in FY 2017:

Power and Gas

The Digital Factory division offers a comprehensive portfolio of seamlessly integrated

Process Industries and Drive

Siemens Gamesa Renewable Energy

1.2.4 Corporate Governance

Source: Corporate Governance – Siemens Global Website. [online] Available at:

1.2.5 Annual Shareholders’ Meeting

CHAPTER 2: OBJECTIVES AND METHODOLOGY

2.2.1 Horizontal and Vertical Analysis of

Amount of individual item

2.2.2 Revenue and Revenue Growth

Revenue = Amount of goods/services sold x Price of goods/services

Gross profit margin:

Operating profit margin:

Also known as Operating margin or Return on Sales (hereinafter referred to as “ROS”),

EBIT = Gross income – (Operating expenses + Depreciation)

Net profit margin:

Return on Assets (hereinafter referred to as “ROA”) measures the profitability of a company

Return on Equity (hereinafter referred to as “ROE”) is measured as the income to shareholders

2.2.4 Capital Efficiency

Total assets turnover:

Fixed assets turnover:

Inventory turnover (days):

 Daily COGS is calculated as below:

- Daily COGS = COGS/365

Accounts receivable turnover:

Annual net credit sales

Average collection period:

Average accounts receivable

Note: Both calculations give the same result.

*Recommended Average collection period is the common due date of an invoice.

Accounts payable turnover:

Total supplier purchases

Note: Total supplier purchases is calculated as follows:

 Total supplier purchases = COGS – Beginning inventory + Ending inventory

Average payment period:

Average accounts payable

Note: Both calculations give the same result.

*Longer Average payment period is preferred.

NWC = Current assets – Current liabilities

*Current ratio of at least 1.0 is preferred.

Cash and cash equivalents + Marketable securites + Receivables

Cash and cash equiavalents

2.2.6 Capital Structure

Assets = Debt + Equity

Debt Management Ratios

Times interest earned ratio: