Intellectual Capital: Establishing Brand and Competitive Position of a Company - Essay Sample

Introduction

Intellectual capital is an essential part of the business which indicates how the business is developing and growing in value. Intellectual capital is a group of knowledge assets that are attributable to an organization and create improved competitive positioning by adding value to key stakeholders of a company.

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Therefore, intellectual capital is responsible for establishing a brand and competitive position of a company to indicate to the investors how the company is favorable in the entire industry and its business (Cucculelli & Bettinelli, 2015). Intellectual capital reporting, on the other hand, involves the presentation of intellectual capital information of a company in a particular financial year. Intellectual capital reporting involves the presentation of a company's information about internal capital, human capital and relational capital.

Therefore, this paper involves the intellectual capital reporting of the BMW Company. BMW is an automotive maker industry established in Germany and has distributional and assembly outlets in several parts of the World. BMW is known for its famous car brands like X7 which attracts higher end prices in the automotive industry. Also, BMW is known for its brand quality as the company produces quality automotive which has been able to create brand value and quality across the world.

In this intellectual reporting, the paper involves the comparison of the 2013 annual report and 2018 annual report of BMW by examining the financial statements. The components of financial statements include the statement of financial position, statement of comprehensive incomes, cash flow statement and statement of profit or loss. Analysis of 2013 and 2018 financial statements of BMW help in the understanding of intellectual capital of BMW.

Statement of Financial Position

The statement of financial position is used to indicate the book value of a firm's assets and liabilities as well as its capital components (Hejazi, Ghanbari & Alipour, 2016). BMW has a complex statement of financial position since it is a large automotive industry and operates on a large scale for the production of motorcycles and automotive as well as provision of financial services.

The components of the statement of financial position include assets, liabilities, and equity. Therefore this section involves the comparison of the 2013 and 2018 statement of financial position to evaluate the growth in value and intellectual capital of the company. The balance sheet is divided between the automotive segment and the motorcycle segment.

Assets

The total assets of BMW Group accounted for a total of EUR208.98 billion in 2018 while in 2013 the total assets were EUR138 (BMW Group, 2013, 2018). Therefore, this shows how BMW has increased and expanded its investments in fixed assets to improve capacity as well as produce more of its products. Since most of its product is automotive and motorcycles, to produce then requires massive investment into fixed assets as well as intangible assets. Intangible assets are involved in the development of intellectual property as well as designs of automotive and motorcycles.

Also, there is a need to invest more in modern technology to ensure an increase in the production capacity of motor vehicles and motorcycles. In 2018, the automotive segment book balance for total assets was EUR97.12 billion while in the motorcycle segment the total assets were EUR1.27 billion (BMW Group, 2018).

On the other hand, in 2013 the total assets in the automotive segment were EUR32.58 billion. Therefore, in the manufacturing segments of the company, there has been significant growth in the total assets as the company seeks to improve its production capacity and increase the quantity of output as well as meet consumer demands. Other assets are attributable to the company subsidiaries and BMW as a group. The company is considered a multilateral agency as it operates in different parts of the world.

The intangible assets have also grown significantly for example in 2013 the book value for intangible assets was EUR6.18 billion while in 2018 the book values were EUR10.97 billion (BMW Group, 2013, 2018). BMW Group is investing in intangible assets to protect the values of its inventions. Intangible assets involve royalties and copyrights which forms part of its intellectual property. There no other company that can adapt or copy their motorcycle and automotive design. Most of the products include BMW mini cars, motorcycles and the Rolls Royce.

BMW produces more of the motorcycle and mini cars as compared to the Rolls Royce. The Rolls Royce is very expensive to manufacture due to the technology and fixed capital invested in the development of the car. The car is of high quality and attracts high-end consumers such as billionaires, celebrities and car enthusiasts. Therefore this is some of the reasons for the increased investments in the total assets of the company.

Also, the value of total assets is used to indicate the value of the company. Therefore the vast difference between the total assets of the BMW Group between 2013 and 2018 indicates an increase in the value of the group. There is increased production capacity, an increase in the total assets both fixed and intangible assets. The group is growing and has a significant place in the market as a result of its quality products.

Moreover, company inventories have increased due to a significant expansion in the production capacity of BMW. The total inventories in 2018 were EUR13.04 billion while in 2013 the total inventories were EUR9.59 billion (BMW Group, 2013, 2018). The automotive segment accounts for most of the inventories as there is a high capacity of finished products and work in progress for the automotive. The company also sells more of automotive compared to monocycles. Automotive is known to be of higher quality, and there is demand for them compared to the demand of the motorcycles. There are also high receivables from sales as most products are delivered to distributional outlets which are responsible for dealing BMW products to the final consumer.

In 2018 the total receivables were EUR38.67 while in 2013 the total receivables amounted to EUR32.62billion. The non-current assets further comprise of leased products which the company sources to users who return them. The leased products include both automotive and motorcycle and may be used in movie shooting or for showroom purposes by vehicle vendors across the world. In 2013 the value for the leased products amounted to EUR25.91 billion while in 2018 the value for the leased products was EUR38.57 billion (BMW Group, 2013, 2018).

Therefore the change in the total value of assets indicates the increase in the value of the BMW group. Assets are used to indicate the financial position of a company. Assets have grown gradual which implies BMW has improved and grown in value. Therefore, the intellectual capital of BMW has also increased significantly between 2013 and 2018. Consequently, the company has grown its assets and improve its production and provision of products to the market.

There is high competition in the automotive industry. Thus most companies strive to meet consumer demands and quality is paramount. Therefore to drive quality, there is a need for substantial investment in the assets of a company. An increase in assets means a company can meet its short and long term obligations. Also, the value of assets has to be higher than the value of liabilities to show that the company has an excellent net worth. Henceforth the financial statements indicate that BMW has grown in value of its assets as well as the entire value of the group.

Liabilities

Liabilities represent the value of a company's borrowed capital. They are the amount of money owed by the company to creditors, lenders and other stakeholders (Barker & Chiu, 2017). When a company grows, its intellectual capital grows. Therefore this means, intellectual capital is influenced by the capacity of the company to grow in size, value as well as financial capacity. Between 2013 and 2018, both current and non-current provisions and liabilities of BMW group have grown significantly.

In 2013, the total non-current provisions and liabilities were EUR52.68 billion while in 2018 the non-current provisions and liabilities amounted to EUR79.98 billion also, the current liabilities and provisions have grown significantly as the value in 2013 was EUR50.04 and EUR70.91 in 2018 (BMW Group, 2013, 2018). Currently, due to substantial investment in the assets of the company can acquire alternative financing to fund for its growing production capacity. The total value of liabilities is higher than the total value of shareholder equity and minority interest. BMW adopts the use of high modern technology, mechanization as well as artificial intelligence.

Therefore, to increase investments into these units, there is a need for stable sources of finances as the company cannot rely on equity financing only. Consequently, the increase in the total value of non-current liabilities attributes to heavy investment in machinery and technology for the production process to take place effectively at the company. Debt capital is a suitable alternative source of financing in a company since it is readily available as compared to equity financing.

All in all, the value of current and non-current provisions has increased between 2013 and 2018. Therefore, this shows that BMW has increased its credit capacity due to an increase in the total assets of the company as well as the ability to cover these liabilities. However, the company needs to look for initiatives which would help in cutting down reliance on debt capital and improve the performance of the equity financing. However, the intellectual capital of the company has risen due to the ability to acquire more debt in 2018 as compared to 2013.

Also, most of the liabilities are attributed to financial liabilities; thus, BMW needs to come up with strategies that would limit the financial liabilities by increasing the value of the Group's financial assets. If the company would have more financial assets, then the company can offset the financial liabilities thereby ensuring the value of liabilities is minimal as possible.

Equity

BMW Group equity contains both are formed by both shareholder equity and minority interest in the company. Minority interest arises since the company is a parent company in the majority of its subsidiaries. The total equity of the BMW Group in 2018 was EUR58.09 billion while in 2013 it was EUR35.64 billion. The total value of equity has grown significantly over the last five years. The minority interest in the group accounts for EUR0.19 billion in 2013 and EUR0.59 billion in 2018. Therefore, just as the value of equity has grown, also the total value of the minority interest in the company has grown.

The company can attract shareholders due to its massive investment and brand in the market. The value of the shares has grown significantly which has the company raising more capital in 2018 as compared to 2013. In 2013, the total subscribed capital was EUR656 million while in 2018 the value was EUR658 million. Therefore, the group results indicate there was a minimal increase in the subscribed capital of BMW for the last five years. The subscribed capital represents the total amount of money that BMW was able to raise due to the issuance of shares in the capital markets.

The company capital arises from the capital and revenue reserves as BMW is known to generate higher profit as a result of large scale production and a suitable pricing strategy for its products. Most of the revenues are invested back into the company to spearhead investment and meet the financing capacity of BMW. In 2013 the value of capital reserves and revenue reserves was EUR2...