1. Financial structure rate than long-term debt.

Therefore, increasing the

From 2021 to 2023, Renault’s
debt limit may increase
current liabilities saw a steady
interest rates.
increase, rising from $67,285
● Financial risks: Short-term
million in 2021 to $73,045 million in
debt needs to be paid off
2022, and further to $77,933
quickly, which can create
million in 2023. In contrast, the
greater pressure to increase
company’s non-current liabilities, or
the business's cash flow,
long-term debts, exhibited a
especially if revenue is
decreasing trend during the same
unstable.
period. Specifically, these liabilities
● Flexibility: On the other
reduced from $18,561 million in
hand, reducing long-term
2021 to $13,346 million in 2023,
debt accounts can reduce
marking a significant reduction of
long-term financial risks and
$5,215 million over two years. This
increase the business's
trend suggests an improvement in
flexibility in using capital.
Renault’s ability to service its
I
long-term debts. However, despite
this positive trend in long-term
debt management, Renault’s
overall debt repayment capability
remains a concern.

→ The company is increasing

short-term debt and reducing
long-term debt limits due to the
following issues
● Discount: Short-term debt
usually has a higher interest
2. M/B rartio compare to shown an impressive upward trend,
starting at 0.74 in 2021, rising to
2 peers firms
1.20 in 2022, and peaking at 2.43
in 2023, which is six times higher
than Renault’s ratio in 2023. On the
other hand, Peugeot’s M/B ratio
started at 0.98 in 2021, decreased
to 0.75 in 2022, and further
dropped to 0.72 in 2023. Despite
this downward trend, Peugeot’s
M/B ratio was still twice as high as
Renault’s, indicating that investors
have more confidence in Peugeot
Over the years from 2021 to 2023, and Volvo than in Renault.
the Market-to-Book (M/B) ratio of
Renault has seen a slight increase,
moving from 0.32 to 0.36. This rise
indicates that the market value of
Renault’s shares has been growing
annually, surpassing its book value.
A high market value often signals
increased investor confidence.
However, when the market value
exceeds the book value, it could
suggest that the company is
overvalued.
When compared with Peugeot and
Volvo, Renault does not appear to
be the preferred choice for
investors. Volvo’s M/B ratio has
3. Liquidity ratios ratio slightly decreased to 1.108.
This minor decline suggests a slight
compare to 2 peers
deterioration in Renault's
firms short-term financial stability,
indicating that the company may
The data you've provided presents
have faced challenges in
an interesting analysis of the
maintaining its liquidity position.
current ratios of Renault, Peugeot,
Comparatively, Peugeot and Volvo
and Volvo from 2021 to 2023.
demonstrated different trends.
Focusing on Renault, the
Peugeot’s current ratio increased
company's current ratio increased
consistently over the three years,
from 1.075 in 2021 to 1.119 in
despite a slight decrease in 2023,
2022, indicating an improvement in
indicating an overall improvement
its ability to cover short-term
in its liquidity position. Volvo, on
liabilities with its current assets.
the other hand, had the highest
This suggests that Renault was in a
current ratio among the three
stronger financial position in
companies in 2021, which slightly
increased in 2022 but decreased
below its initial level in 2023. In
summary, while all three companies
showed fluctuations in their current
ratios over the three years,
Renault's trend is particularly
noteworthy due to its initial
improvement followed by a minor
decline. These trends provide
valuable insights into the varying
2022 compared to the previous
degrees of financial stability and
year. However, this upward trend
liquidity among these companies.
did not continue into 2023, as the
Over three years, Renault's cash
ratio shows a downward trend, ratio over the years signals
falling from 0.326 in 2021 to 0.298 deteriorating liquidity, implying
in 2022, and finally settling at 0.265 that the company might find it
in 2023. The cash ratio is a increasingly challenging to pay off
significant indicator of a company's its current debt. This could
financial health, with a higher ratio potentially lead to an accumulation
suggesting a greater likelihood of of bad debt or non-current debt.
debt repayment. A cash ratio of In comparison, Peugeot had the
less than 1, however, paints a highest cash ratio among the three
picture of a company in a companies, despite following a
precarious financial position, similar downward trend as Renault.
Peugeot's cash ratio was 0.749 in
2021, which decreased to 0.678 in
2022, and further dropped to 0.574
in 2023. Surprisingly, even at its
lowest in 2023, Peugeot's cash
ratio was twice as high as that of
Renault. On the other hand, Volvo
displays a different trend. Its cash
ratio increased from 0.307 in 2021
to 0.333 in 2022, before
experiencing a slight decrease to
potentially unable to meet its debt 0.293 in 2023. Despite this
obligations when they come due. In decrease, Volvo's cash ratio in 2023
Renault's case, the decreasing cash
was still higher than Renault's by exhibited a decreasing trend in
0.028. Overall, among the three their cash ratios over the years,
companies, Peugeot especially in 2023, indicating a
demonstrated the highest liquidity. potential industry-wide issue.
However, all three companies
4. Working capital with nearly 7975 million dollars in
the same year. Inventory is in third
management
place with 4792 million dollars and
the last place is Account receivable
with 788 million dollars. This
indicates that the Renault company
has good liquidity and debt-paying
liability. In the Cash sector, there is
a reducing trend during the last 3
years. The amount of cash
decreases slightly from 21928
million dollars in 2021 to 21774 in
2022 and in 2023 the company only
has 20677 million dollars. That
The working capital management
means the ability to pay current
of Renault in the frame time from
debt is harder. In the Inventory
2021 to 2023 showed some
sector, Renault witnessed a
changes in each sector. Among 4
fluctuated trend. It has 4792 million
sectors, Cash shows the highest
dollars in 2021, then increases to
density of the working capital
5213 million dollars in 2022 before
management with over 21928
decreasing to 4924 million dollars
million dollars in 2021. In the
in 2023. In Account Receivable, and
second place is Account payable
Account Payable see the same million dollars of Account
trend with the Inventory sector. The Receivable and 8405 million dollars
Account Receivable has 788 million of Account Payable. In 2023, the
dollars in 2021 while Account Account Receivable sector
Payable has 7975 decreases to 825 million dollars
and the Account Payable shares the
million dollars. In 2022, both
sectors will increase with 998
same trend with 7965 million - Gross margin: The percentage of
dollars Gross Margin sees a fluctuated
trend which increases from
5. Incomes Statement
19.06% in2021 to 24.89% in
factors 2022 . Then it decreases to
20.92% in 2023
2021 2022
→ Although the Revenue increases
Revenue during 3 years, the gross margin of
41,659 46,391
(million €) Renault in 2023 still decreases

Gross which means the control Operating

19.06% 24.89% expenses is not good.
Margin
- Operating Margin: The operating
Operating
1.72% 0.92% margin sees a gradual reduction
Margin
in the same timeframe. In 2021,
Net the percentage of Operating
Income 967 -700 Margin is 1.72%, then it reduces
(million €) to 0.92% in 2022 and continues
decreasing to 0.82% in 2023.
- Revenue/sales: According to the That means the ability of
table, the revenue of Renault controlling the operating
sees an increase through years expenses is worse through years
between 2021 and 2023. The - Net income : The net income of
revenue in 2021 is 41,659 million Renault sees a gradual
€ and continues increasing to fluctuation during 3 years. It has
46,391 million € in 2022. Then it 967 million € in 2021 . Then in
peaks at 52,376 million € in 2022, the net income comes to a
2023, Which nearly 10000 million huge decrease to -700 million €
€ higher than 2021. before recovering to 2,315
million € in 2023.
6. What price are you willing to pay to acquire the firm
you analysed in the 1st part of this work ?
Incremental earnings forecast
2023 2024F 2025F 2026F 2027F 2028F
2021 2022
(year 0) (year 1) (year 2) (year 3) (year 4) (year 5)
Growth of
12.13% 12.13% 12.13% 1% 1%
Revenue
Revenue 41659 46391 52376 58729 65853 73841 74579 75325
Costs
Cost of goods
33720 37145 41414 47001 52702 59095 59686 60283
sold
Gross Profit 7939 9246 10962 11728 13151 14746 14894 15042
Selling,
general and
4473 4526 4701 5767 6467 7251 7324 7397
administrative
expenses
Research and
development 2313 2125 2144 2625 2944 3301 3334 3367
expenses
EBIT 1153 2595 4117 3336 3740 4194 4236 4278
Current and
571 534 523 600 673 755 763 770
diferred taxes
Unlevered net
582 2061 3594 2735 3067 3439 3474 3508
income
Free cash flow
Increase:
1985.94 869.58 587.23 780 875 981 991 1001
Depreciation
Less: CapEx 2686 2640 2950 2759 2759 2759 2759 2759
Less: Increase
in Net
-2061 -3,669 315 -258 -2,271 -2,546 -235 -238
Working
Capital
Free cash flow -2179 -3378 1546 499 -1087 -885 1470 1513
Net present
NPV OF FREE CASH FLOW 471 -966 -741 1161 1126
value of firm
Renault
2596
valuation
In million Euro
The table above shows the valuation of the Renault group at present
after several. The first sequence of growth with the growth equals to the
average of the three years growth is 12.13%. The second sequence of growth
with the growth rate of 1% (long term growth)

The cost and NWC items are proportional with the Revenue each year
from 2023. The future capital expenses (CapEx) is the average of the last 3
years. About the cost of capital:
 ● The cost of equity based on the CAPM formula. The market return
equal to the index 3- year average annual return (computed monthly )
of SP500 index from March 2021 to the end of February of 2024,
equals 16.87%.
● The cost of debt is estimated by comparing the financial debt to
interest expense, equals to 3.05%.
● The beta of Renault Group is collected from the qualified website
about finance investing.com is 1.71.
● The total debt and equity equal to the average of the last 3 years
● The WACC our group calculated is 6,09% (All of the data that related
to the process of calculating cost of capital is recorded in the Excel file
attachment)
The current deferred tax rate equals to its of 2023, after taking the
current and deferred tax divide by pre-tax income, it’s 18%. After some
estimations above, our group gives the maximum price that we want to pay
to acquire Renault Group is 2,596 billions Euro. About the sensitivity test:
● We change the two components:Cost of debt and total equity with a
jump of 5%, starting from 0% (current data) then gradually increasing
by 5% to 25% for cost. of debt and gradually decreasing by 5% to -25%
for total equity.
● The reason we chose these two components for the sensitivity test is
because after reviewing the financial indicators of businesses,
businesses tend to increase debt over the years to serve future projects
needed. a large amount of investment capital. In addition, Renault's
equity also tends to increase over the years because the company is
promoting the issuance of bonds to the market.
● It can be seen that cost of debt and total equity are directly
proportional to the WACC our group calculated and inversely
proportional to the business value at the present time (based on the
assumptions made about development).
● This shows that the business development strategy of increasing
short-term debt and using mainly financial leverage to implement
long-term plans is disadvantageous for businesses. That means that
businesses should focus on developing and increasing profits through
sales and marketing channels at lower costs than investing in long-term
projects such as expanding factories and replacing equipment. At the
same time, Renault also needs to better manage its costs to maximise
short-term profits, creating confidence for investors when the
company's stock price continues to decline in the first months of 2024
(All of the data that related to the process of testing the sensitivity of
WACC with Renault’s valuation is recorded in the Excel file attachment).

REFFERENCES
1. CONSOLIDATED FINANCIAL STATEMENTS 2021
2. CONSOLIDATED FINANCIAL STATEMENTS 2022
3. CONSOLIDATED FINANCIAL STATEMENTS 2023
4. Historical 2023 results - strong improvement of all financials
5. Peugeot SA (PEUP) - INVESTING