Introduction

 Debt can be a double-edged sword for companies. While it can fuel growth, excessive debt can lead to financial distress. This article examines Daimler’s increasing debt levels from 2017 to 2019 and the potential risks they posed to the company and its investors.

Daimler’s Rising Debt

Daimler’s total debt increased significantly from €127.1 billion in 2017 to €161.8 billion in 2019. The company’s debt-to-equity ratio also rose, from 194.6% to 257.6%, indicating a growing reliance on debt financing relative to equity. The debt-to-asset ratio, measuring the proportion of assets financed by debt, also increased from 49.7% to 53.5%.   

Risks and Implications

 High debt levels can expose companies to increased financial risk, particularly concerning debt servicing. Rising interest expenses can strain profitability, especially during economic downturns. High debt can also limit financial flexibility, making it difficult to raise capital for investments or weather financial challenges. In severe cases, it can lead to insolvency.   

Comparative Analysis

 While both Volkswagen and Daimler operated with high debt levels, Daimler’s debt-to-equity ratio increased at a faster rate, signaling a growing reliance on debt. Both companies had debt-to-asset ratios indicating that a significant portion of their assets was financed by debt.   

Conclusion

 Daimler’s increasing debt levels between 2017 and 2019 raise concerns about the company’s financial risk. While debt can be a useful tool, the high debt-to-equity and debt-to-asset ratios suggest that investors should carefully monitor the company’s ability to manage its debt obligations.

References

Daimler AG. (2018). Annual Report 2017. Available at: https://www.daimler.com/investors/reports-news/annual-reports/2017/

Daimler AG. (2019). Annual Report 2018. Available at: https://www.daimler.com/investors/reports-news/annual-reports/2018/

Daimler AG. (2020). Annual Report 2019. Available at: https://www.daimler.com/investors/reports-news/annual-reports/2019/

GISMA Business School. (2021). Financial Analysis Report Volkswagen vs. Daimler.

Volkswagen AG. (2018). Annual Report 2017. Available at: https://annualreport2017.volkswagenag.com/

Volkswagen AG. (2019). Annual Report 2018. Available at: https://annualreport2018.volkswagenag.com/

Volkswagen AG. (2020). Annual Report 2019. Available at: https://annualreport2019.volkswagenag.com/