1) What has been causing the changes in Porsche’s ROIC?
Porsche’s ROIC was quite impressive compared to other competitors of 15.15% in 2004, while others struggled to reach 6% to 7%. They had great strategic planning to keep ROIC high by outsourcing and using a combination of licensing. For example, for Porsche Cayenne, they co-manufactured with Volkswagen saving a lot on required capital to support its business. In addition, Porsche had licensed with Valmet of Finland to build the Boxter under Valmet’s owned capital, reducing Porsche’s capital needs. However, ROIC was not too good in fiscal 2003/04. What has been hurting Porsche’s ROIC in the recent years was their mistake of holding on to excess cash.
If they have funded it invested capital might not have grown. 2) Evaluate the firm’s financial performance and compare to its peers. Porsche saw pleasant operating margins compared to its peers with its 911, Boxter, and Cayenne models. They saved expenses in technology and capital by outsourcing with other companies for the Boxter and the Cayenne. Another factor that Porsche did well was focusing on rewarding management on financial performance (its long term performance and profitability) rather than on the opinions of the market. One thing that did hurt or complicate Porsche was that it was holding high non-interest bearing liabilities.
Another factor that showed Porsche different was their aggressive company culture of providing cars from its origin rather than expanding capital abroad. Its value of sales and production could be better off if it put manufacturing and assembly plants in the U.S. and it could avoid risks of big changes in currency rates. 3) Consider Porsche management’s announcement of its intention to take a 20% equity interest in Volkswagen in September 2005. In your view, is management acting in the best interests of all shareholders? You may work alone or in a study group for this analysis. Like it said in the case, this decision seems to be more personal than one that would be the best interest of all shareholders.
The case highly emphasized the valuable relationship between the Porsche and Piech families and that through preservation of stakes by them would be through the expense of nonfamily shareholders. I, too, concur with the analysts and critics who are against this decision because the two companies have two different histories and techniques of creating profit. Also, Volkswagen is a very big manufacturer compared to Porsche and on top of that isn’t doing so well.
This may cause conflicts with Porsche as it might begin to prioritize goals for Volkswagen and not pay more attention to issues/threats it may have. Porsche could actually be better off (in future returns) if its 3 billion Euros were returned back to its shareholders. Although this argument may go on and on, ultimately the best decision is to compare in which situation the company will deliver profitable growth since to both family owners and shareholders, growth is commonly important.