Practical and Written Assessment Assignment Example | Topics and Well Written Essays - 3500 words

Practical and Written Assessment - Assignment Example As far as the profitability of the company was concerned, it has been quite impressive in past decade in the automotive industry, as the growth and profit margin of the company in Figure 1 reveals. Figure 1: Growth of Profit and Margin of Porsche Source: (Moffett, 2005) The strategy that Porsche followed for both Cayenne and Boxster was a combination of outsourcing, licensing and in sourcing to influence the investment of the shareholder. Due to this strategy of the company, they enjoyed high return on the invested capital (ROIC), as the increasing sales of the product line shows in Figure 2. Figure 2: Augmenting Sales of Various Product lines of Porsche Source: (Moffett, 2005) During the fall and summer of 2005, two significant announcements were made by Porsche, which changed the directions. The first announcement was that Panamera would be manufactured by the company through company’s own funds and in their own factories. The second decision was that Porsche invested around 3 billion in Volkswagen AG at an interest rate of 20 percent, which was an underperforming automaker of Germany then (Eiteman, Stonehill and Moffett, 2010). In this section of the study, the focus of discussion would be on the strategic decisions that the company has made which augmented its ROIC. ROIC signifies the efficiency of the company in allocating the capital, such that it can get profitable returns on investments. The return assures how well the company is utilising its funds for generating returns. The ROIC can be calculated by subtracting dividends from net income and dividing it by the total capital. All the product line of Porsche, especially Cayenne had a high operating margin as can be seen in Figure 2, in comparison to any other European automobile company. As it has been discussed that Porsche incorporated pioneering strategies and business decisions embedded with technology and capital for Cayenne and Boxster, which was evident from the sales figures. Porsche Boxs ter was manufactured in Finland by Valmet. So the company skilfully utilised other’s money to manufacture and sell its products. It was working through licensed manufacturing agreement trough which Valmet utilised its own tools and factories for manufacturing Boxster. This decreased the capital requirements of Porsche, which the company utilised to support its own business (Moffett, 2005) Porsche invested around $3 billion in Volkswagen AG, which was though the worst performing company in the industry, but prospects of the company to excel in future were immense, which is why Porsche entered into a strategic alliance with Volkswagen. Due to this reason, it was responsible for approximately 30 percent of automotive manufacturing of Porsche and also assembling. Porsche co-manufactured Cayenne with Volkswagen. The chassis of Cayenne was assembled by Volkswagen on the same assembly line of Volkswagen Touareg. This again reduced the capital requirement of Porsche and allowed the c ompany to focus its capital towards the development of the company. The above strategic decision of the company resulted in the augmenting ROIC of Porsche (Eiteman, Stonehill and Moffett, 2010). Answer 2 The section question of this case is regarding Veselina Dinova’s point of view regarding the attitude of the company towards creating value towards shareholders. Vesi was in dilemma whether Porsche’