Porshe Case

Question 1 - What strategic decisions made by Porsche over recent years had given rise to its extremely high return on invested capital?

First, we can figure out that he return on invested capital combines operating margins, and are found on the income statement, with greater capital utilization, which is derived from the balance sheet. Then, if we take a look at the products, Porsche’s product lines (the 911, the Boxster, and most recently the Cayenne) enjoyed high operating margins compared to nearly any other major European automobile manufacturer and the two newer product lines, the Boxster and Cayenne, had both been launched with the capital and technology embedded within other companies. If we now take a look, The Porsche Boxster was manufactured by Valmet of Finland under a licensed manufacturing agreement that allowed Porsche to effectively use “other people’s money”. Valmet owns its own factory and tools, and builds the Boxster for Porsche. This significantly reduces the capital that Porsche needs to support its own business.

And finally, the Porsche Cayenne was co-manufactured with Volkswagen. The Cayenne chassis was assembled on the same production line as the Volkswagen Touareg in Bratislava in the Slovak Republic, again greatly reducing the required capital to support Porsche’s business.

Question 2 - Vesi wondered if her position on Porsche might have to distinguish between the company’s ability to generate results for stockholders versus its willingnessto do so. What do you think?

Porsche rewards management on business financial performance (the numbers found on the three major financial statements) and not on the market’s opinion of the company’s share’s price.This is considered as highly controversial because for the better part of the last fourty years, academics have argued that management needs to share the same motivations,