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Michelin : financial case study

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  1. Introduction.
  2. The historical analysis.
    1. Usage of assets by Michelin.
    2. Profitability of Michelin.
    3. The borrowings of Michelin.
    4. The financial liquidity of the Michelin group.
    5. The goodwill of Michelin amongst its investors.
  3. The capital structure of Michelin.
    1. Financial leverage of Michelin.
    2. Capital structure analysis of the firm from different points of view.
  4. Analysis of michelin's dividend policy.
    1. The dividend in ten years.
    2. Net dividend per share in 10 years.
    3. Net income including minority interest in 10 years.
  5. Pros and cons.
  6. Conclusion.
  7. Bibliography.

The world tire market was equal to 80 billion dollars in 2005. That is to say that each year more than 1 billion tires are sold for cars and light trucks. 75% of the sales are for European, North American and Asian countries. Michelin is the leader of this market in those areas because it deals with about 75% of the sales. The tire market is growing market: a growth of about 3% each year. The three largest tire manufacturers account for 55% of the world market. Michelin is the world number one tire manufacturer. It owns 20% market share. The purpose of this report is to study the financial health of Michelin. For this, first we will make an historical analysis of the firm over the last four years, then analyze the debt structure and at last, study their dividend policy. This summarized board of figures show us that revenues of Michelin are quite steady during the last 4 years. However, there is a slight increase in retained earnings. As regards the stock price for Group Michelin, the figures in the board are the last values of each year. To have a best view of the stock price variations, there is a graph below of the stock price of Michelin during the five last years.

[...] By reducing the debt, Michelin has less tax shields. The company increases also its solvency and is more attractive for investors. The capital structure of the firm is the firm's combination of different securities that overalls its market value and that had the greatest appeal to investors. The choices of firm's financing mix could be defined according to the life cycle. Assuming that Michelin is at the mature growth of the growth life cycle (in Europe and North America), the separation between stockholders and managers is growing and the use of debt is slowing down because the firm has low and more predictable investment needs (Damodaran, 2001). [...]


[...] It is useful to value the financial health of Michelin, to study its profitability. Some ratios help us to analyse it. First, we can calculate the Gross Profit Margin: Sales - COGS Gross Profit Margin = Sales margin All the figures are positive and we can note a relative increase. The gross profit margin shows us that Michelin is able to cover its operating expenses and yield to a good profit. Second, we can calculate the Net Profit Margin: Gross Profit Margin - taxes Net Profit Margin = Sales margin During the four years, the net profit margin is positive, with variations. [...]


[...] Michelin elected to pay a lower dividend, and reinvest the funds. So, the stock price has increased because future dividends may be higher, which was the case in 2003. To conclude, Michelin is a really profitable company. They manage well their assets and create profits. Dividends are redistributed to stockholders each year, as we have seen besides. Now, to be able to understand the strategy of the firm about its capital structure, it is important to analyse different ratios concerning debt and equity. [...]

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