Most stock market investors would place fairly restrictive limits on their exposures to the automobile industry. The business cannot be seen in blue-sky terms, except with respect to flexible engines which can use alternative energy sources. Indeed, blue-collar workers in the United States face their greatest threats from this sector of the conventional economy. Many icons of U.S. industry in the last century have already fallen by the wayside.
Daimler Chrysler Stock: Making an Investment >
One of the most famous logos on cars and vans, the triangular starred symbol of Mercedes speaks volumes when it comes to influence and prestige. A favorite brand car of the elite in third world countries, the Mercedes influence also extends to the company’s reputation for engineering and technical excellence. However, that does not mean the automaker does not have some stiff competitors – primarily from Volkswagen, Audi, BMW, and car makers in Japan.
Nevertheless, Daimler Chrysler does do well in India and China, and sells plenty of extravagant model Mercedes autos in those locales – something that is unlikely, at the present time, to happen elsewhere. Moreover, the company has proven to be a success in riding the crest of double-digit growth in these locations, although the risks for exchange have yet to be mitigated and assessed.
Even these markets will stabilize over time, so there is little to attract interest from the stock market investors . Nevertheless, Daimler Chrysler stock has an adequate profit potential for short-term stock investing. Currently, the prospects in mature markets are not as good when taking a longer investment view.
For example, Daimler Chrysler has made moves to use bio fuels, such as Jatropha, but this initiative has not proven to provide enough in the way of profit incentives. Also, brands, such as Dodge, in the U.S. Chrysler line-up, have suffered discrimination under the leadership of Daimler executives, and the overall response of the company in the commercial vehicle segment has been lukewarm, at best.
Therefore, you have to remember one thing when investing in Daimler Chrysler stock – the company is better at showcasing concrete product features rather than showing its understanding of some of the nuances in the markets in which it trades stock.
With that said, taking a closer look at Daimler AG will give you more insight, as to what you will get if you choose this stock pick. Before you buy any shares, such as Daimler Chrysler stock, you have to fully understand the company. A comprehensive overview will give you more details about recent patterns on the stock exchange.
Daimler Chrysler stock basically represents Daimler AG in the automotive field. The company is best known for making Mercedes-Benz automobiles. Besides its luxury autos, Daimler also sells vans, buses, and trucks, and offers financial services.
Daimler has restructured itself to reshape the organization. It has been one of the most broad-based reorganizations to occur in recent times, or in the 130-year history of the auto giant. It is also one of the most significant reorganizations in the German business community.
The restructuring allows Daimler Chrysler stock to represent 3 independent legal entities in the form of Mercedes-Benz AG, Daimler Truck AG, and Daimler Mobility, all which fall beneath the umbrella group of Daimler AG.
The idea behind the reorganization is to streamline operations while increasing focus. It was also done to decentralize the decision-making process and to support more entrepreneurial future innovations. With the scaling down of classifications, the company has created a more flexible and agile model, all which gives Daimler an opportunity to grab hold of the quick change of pace in the mobility sector.
By the reorganization, the company can concentrate on raising capital and partnering with other companies – something that can happen more easily when a corporate hierarchy is not involved. This makes it possible, as well, when buying shares of Daimler Chrysler stock to realize gains, based on some of these activities.
When you see these types of transitions and changes taking place, you need to carefully consider these events, especially as they pertain to purchasing Daimler-Chrysler stock. Another way to determine how a company will do is to look at the capital structure of the business.
Let’s look at the capital structure of Daimler. As of 2018, financial year-end, debt made up 68.7% of total capital while equity comprised 30.7%. The remaining 0.6% went to minority interests.
Another way of looking at it is as follows: For every dollar of an asset purchased, 69% of the amount is being funded by debt while 31% of it is funded by equity. Knowing this information can help you ascertain the debt-to-equity (D/E) ratio.
Usually, the higher the D/E number, the riskier it is to invest in Daimler Chrysler stock. Let’s look at a recent calculation. In this scenario, the debt-to-equity ratio for Daimler AG is 219%
So, what does this mean?
A debt-to-equity ratio of 219% means that Daimler AG is borrowing 2.91 times more than what it currently owns. In this case, the company has proven to be quite aggressive. Therefore, for each dollar in equity it has, Daimler is borrowing $2.19 in debt. However, the D/E ratio in the automotive industry tends to be higher, as the companies listed in this sector are more capital-intensive.
Based on data compiled in 2019, the average D/E ratio for stocks in the auto industry was 195.44%. Therefore, the 219% D/E average for Daimler Chrysler stock represents a higher debt leverage when compared to the 195.44% benchmark. As long as a business can create returns higher than what it borrows, using debt can help with expansion and maximize returns and profits.
The risk of using debt to expand and grow produces a debt obligation to creditors. In this scenario, Daimler’s cash outflow would also be greater because of higher expenses in interest. Therefore, another way we can gauge the risk of debt is to review the interest coverage ratio. This can be done by calculating the EBIT (Earnings before Interest and Taxes) and dividing it by the interest expense.
The EBIT, in essence, is a measure of what a company makes in operating profits. This calculation is figured by taking the gross operating profit and subtracting operating costs/(income) before taxes and interest. Therefore, the EBIT may not make a company’s revenue look so rosy when it is factored into the equation.
However, Daimler Chrysler stock should also be considered by the company’s planned initiatives for future growth and innovation. Because the company has become a major player in self-auto piloted cars, its current D/E numbers are not exactly a cause for alarm. Plus, knowing the D/E of a company is not the primary consideration. You also need to look at what it plans for future growth to see how an investment may be lucrative.