Is Ferrari Making Money?

There is one company that loves income inequality and wants more of it – Ferrari N.V. (NYSE: RACE). Production and sales at the fabled supercar maker are growing by leaps and bounds.

Demand for Ferraris is so high that the company plans to double the shifts at its Milan factory to keep up, Bloomberg reported. Demand for the supercars; all of which cost more than $200,000 apiece, now exceeds the supply.

Ferrari’s sales are expected to rise by 7% to 9,000 vehicles in 2018. The company also has a waiting list of 12 months for its models, which shows that at least some people are profiting from income inequality.

Business is so good that Ferrari may actually drop its self-imposed production ceiling of 10,000 cars a year. Instead, the brand is expanding production of limited edition vehicles like the FXX K Evo racing model to achieve profitability as an independent company.

Ferrari’s Stock is performing as well as its Cars

What’s more interesting is that the performance of Ferrari’s stock is better than those of any other automaker on the New York Stock Exchange. Ferrari’s financial numbers are better than those of such goliaths as Toyota (NYSE: TM) and Honda (NYSE: HMC).

Best of all of Ferrari’s stock has more than doubled in value since premiered on the NYSE’s big board in 2015. Shares of Ferrari were trading at $107.17 on 4 January 2018. Ferrari shares were trading at $58.94 on 3 January 2017.

Stockrow forecasts that Ferrari will grow at a rate of 11.3% for the next five years. That exceeds the S&P 500’s expected growth rate of 10% for the same period. Stockrow gave Ferrari a growth and profitability rating of 6%.

Is Ferrari Making Money?

Business is good at Ferrari but is the legendary brand actually making money? That is hard to say because the latest financial numbers I found for Ferrari were from December 2016. Remember it’s an Italian company, so Ferrari can play by different rules than Americans.

Ferrari reported an operating income of $655.97 million on December 31, 2016, that was a nice increase from $523.81 million a year earlier. Ferrari also reported a gross profit of $1.619 billion, operating expenses of $1.03421 billion, and earnings before taxes of $627.59 million on the same day.

There was also a net income of $441.81 million on December 31, 2016, that was an increase over $339.31 million on the same day in 2015.

So yes Ferrari is making money, but does it generate any float? After all, Ferrari’s business is different from traditional automakers, it takes in no float from the car payments and leases that many automakers use as a cash cow.

How Much Cash does Ferrari Have?

The interesting thing is that Ferrari has a lot of cash, it reported a free cash flow of $922.53 million, and an operating cash flow of $1.113 billion on January 1, 2016. Those numbers marked healthy increases over 2015.

Back on January 1, 2015, Ferrari reported an operating cash flow of $833.81 million and a free cash flow of $617.43 million. So yes, you can generate a lot of cash from the down payments on luxury cars.

Ferrari even managed to accumulate some cash and short-term investments; $562.88 million in 2016. It also reported $4.265 billion in assets at the end of 2016. There was a dark side to its business in the form of $2.092 billion in total debt in January 2016.

Therefore, Ferrari is burdened with debt, but it is capable of generating quite a bit of cash at some point. There’s also a lot of growth potential at Ferrari.

Ferrari’s bright future

The future at Ferrari is bright because the number of rich people in the world is growing dramatically.

The number of millionaires on earth increased by 36% to 13.6 million, between 2006, and 2016, Knight Frank calculated. More importantly, the number of millionaires is expected to grow again by 37% between 2017 and 2026.

Nor is it just millionaires who are increasing, the number of billionaires in the world increased by 45% between 2006 and 2016. All those newly-minted superrich are going to want to rub everybody else’s noses in their wealth  – and what better way to do it than with a Ferrari.

Since it is unlikely that efforts to dampen income inequality are going to succeed with complete political upheaval, Ferrari’s future is bright. Unless revolution breaks out, Ferrari is likely to grow and grow for the foreseeable future.