SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN 

Centre for Modern Architecture Studies in Southeast Asia 

Foundation of Natural and Built Environments (FNBE) 

 Basic Accounting [ACC30205/FNBE0145] 

Prerequisite: None 

Lecturer: Chang Jau Ho 

Assignment: Financial Ratio Analysis

Submission: by 12pm, Friday, 4th June 2015 (Week 16)

Kiraly Renaud 0320322

Lam Wee Wee 0320129

Nur Iman Bin Mohd Zahari 0321736

COMPANY BACKGROUND TOYOTA MOTOR CORPORATION is an automotive company that based in Japan. It                       was founded by Kiciro Toyoda in 1937 as a result from his father company. Toyota is                               the most famous automotive brand in Japan as the company was ranked the twelfth­                           largest company in the world .Toyota was the top brand name of the automotive, ahead                             from Volkswagen Group and General Motors by its production. It’s produced 5.5 million                         units worldwide which is equivalent to produce 1 unit of the car in 6 seconds. The                               company made named when they created their first product, the type A engine in 1934                             .and their first passenger car in 1936. There are 5 brand names of car that are produced                                 under Toyota Motor Corporation which include Lexus , Hino , Toyota and Ranz.The                         vision of Toyota Motor Corporation is to lead the way to the future of mobility , enriching                                 lives around the world with the safest and most responsible ways of moving people . 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recent Developments  On 15 May 2015, Toyota Motor Corp said that it is recalling 637,000 vehicles in the                               United States as part of massive expansion of global recall to replace potentially                         defective air bag that could burst, with metal fragments sending shrapnel into the                         vehicle occupants. Document posted by the National Highway Traffic Safety                   Administration(NHTSA) and air bag supplied by Takata Corp with the effort of Toyota in                           helping them.  To raise up to 500 billion yen,Toyota Motor Corp have issued up to 50 million first class                                 series of Class AA shares through public offering on 28 April 2015. Stating that the                             issue period will last for 1 year starting from May 9 2015 to May 8 2016. The money with                                     then used for development of fuel cell electric vehicle, infrastructure research.  Furthermore, Toyota Motor Corp have announced that they have agreed to cooperate                       with Mazda Motor as their business alliance to work on environmental technology and                         advanced safety technology.                       

Profitability Ratios

Profitability Ratios 2013 2014 Interpretation

Return on Equity (ROE)

Net Profit x100% Average O/E =962,163 x100% 13,995,921.5 =6.9%

Net Profit x100% Average O/E =1,823,119 x100% 13,995,921.5 =13.5%

During the period of 2013- 2014, the ROE has increased from 6.9% to 13.02%. This means the Toyota are getting higher return on their capital this year.

Net Profit Margin (NPM)

Net Profit x100% Net Sales =962,163 x100% 20,914,150 =4.6%

Net Profit x100% Net Sales =1,823,119 x100% 24,312,644 =7.4%

During the period of 2013-2014, the NPM has increased from 4.6% to 7.4%. This means the business ability to control overall expense has improved.

Gross Profit Margin (GPM)

Gross Profit x100% Net Sales =4,053,623 x100% 20,914,150 =19.4%

Gross Profit x100% Net Sales =5,703,666 x100% 24,312,644 =23.5%

During the period of 2013-2014, the GPM has increase from 19.4% to 23.5%. This means the business ability to control Cost of goods sold expenses has improved

Selling Expense Ratio (SER)

Selling Expense x100% Net Sales =1,051,154.5 x100% 20,914,150 =5.03%

Selling Expense x100% Net Sales =1,299,330 x100% 24,312,644 =5.3%

During the period of 2013-2014, the SER has increased from 5.03% to 5.3%. This means the business ability to control the SER is slightly worsening.

General Expense Ratio (GER)

General Expense x100% Net Sales =1,051,154.5 x100% 20,914,150 =5.03%

General Expense x100% Net Sales =1,299,330 x100% 24,312,644 =5.3%

During the period of 2013 – 2014, the GER has increased from 5.03% to 5.3%. This means the business ability to control the GER is slightly worse.

Financial Expense Ratio (FER)

Financial Expense x100% Net Sales =22,967 x100% 20,914,150 =0.11%

Financial Expense x100% Net Sales =19,630 x100% 24,312,644 =0.081%

During the period of 2013-2014, the FER has decreased from 0.11% to 0.081%. This means the business ability to control the FER has increased.

Average O/E: (12,772,856 + 15,218,987) / 2 = 13,995,921.5 Gross Profit 2013: 22,064,192-18,010,569 = 4,053,623 Gross Profit 2014: 25,691,911-19,988,245 = 5,703, 666 General, selling and administrative expenses 2013: 2,102,309/2 = 1,051,154.5

General, selling and administrative expenses 2014: 2,598,660/2 = 1,299,330

Financial Stability Ratios

 Financial Stability 

Ratio 2013  2014  Interpretations 

Working Capital Ratio(WCR) 

 

Total Current Asset ______________ 

Total Current Liabilities  

  13,784,890  12,912,520 = 1.068 : 1 

 15,717,706  14,680,685 = 1.071 : 1 

Over the period 2013 to         2014, Working Capital have       increased from 1.068:1 to       1.071:1. The business ability       to pay off its current         liabilities is getting better.       However, it does satisfy the         minimum 2:1 ratio. 

Total Debt Ratio(TDR)     Total Liabilities ________   x100%   Total  Assets 

 22,710,461 x100% 35,483,317  = 64% 

 26,218,486 x100% 41,437,473  = 63.3% 

Over the period 2013 to         2014, Total Debt have       decreased from 64% to       63.3%. The business total       debt have decreased. In       addition it is still above the           maximum 50% level. 

Inventory Turnover Ratio(ITR) 

                  Cost of                     Goods                  Sold 365days / ________                  Average                  Inventory 

                           18,010,569 365 days /  ____________________                    (1,715,786+1,622,282)/2                        18,010,569 = 365 days / __________                        1,669,034   = 33.8 days 

                           19,988,245 365 days / ____________________                    (1,894,704+1,715,786)/2                        19,988,245 = 365 days /  __________                        1,805,245    = 32.9 days 

Over the period 2013 to         2014, Inventory Turnover     have decreased from 33.8       days to 32.9 days. The         business is selling its goods         faster. 

Debtor Turnover Ratio(DTR) 

               Credit   

                  Sales 365days /  ________                  Average                  Debtors 

                            10,457,075 365 days /  ____________________                      (1,971,659+1,999,827)/2                          10,457,075 = 365 days /   _________                          1,085,743 = 38 days 

                            12,156,322 365 days /   ____________________                      (2,041,232+1,971,659)/2                          12,156,322 = 365 days /   _________                          2,006,445.5  = 59.8 days 

Over the period 2013 to         2014, Debtor Turnover have       increased from 38 days to         59.8 days. The business is         taking a longer to collect off           their debts. 

Interest Coverage Ratio(ICR) 

 

Interest Expense + Net Profit ________________ Interest Expense 

22,967+962,163 _______________       22,967  = 42.9 times 

19,630+1,823,119 _______________       19,630  = 93.9 times 

Over the period 2013 to         2014, Interest coverage     have increased from 42.9       times to 93.9 times. The         business ability to pay off its           interest is getting better. In         addition, it satisfy the       minimum requirement of 5       times. 

Price/Earnings Ratio

P/E= Current Share Price

Earnings per share

= 116.55

11.17

=10.43

The ratio measures how expensive a share is. The higher the P/E ratio, the more expensive it is.

The P/E ratio for Toyota Motors is 10.43 therefor we say that it will take investors 10.43 years to recoup their investment.

Investment Recommendations

A) Profitability

From the information we gathered about profitability investing in Toyota Motors Corporation for the period of 2013 to 2014 is beneficial. This is because based on the profitability ratios the business has improved. The return on equity shows an increase of 6.9% - 13.5% which means that Toyota Motors owners are getting a higher return on their capital during that period. Also the businesses ability to control its overall expenses has improved. The Net Profit Margin has increased from 4.6% to 7.4% giving a rise of 2.8%. The Gross Profit Margin has also made an improvement of 4.1% meaning that the businesses has improved at controlling its Cost of Goods Sold expenses. On the other hand the Selling expense ratio and General Expense ratio haven’t done quite well, both showing an increase during that period. But it is only a slight increase of 0.27%. This means the business hasn’t worsened by a large margin. And lastly the Financial Expense Ratio has improved compared to the previous year from 0.11% to 0.081%.This is a decrease of 0.029% and will result in a higher Net Profit Margin.

B) Stability

Toyota Motors Corporation demonstrates small signs of being financially stable. During the period of 2013 to 2014 the Working Capital Ratio has increased from 1.068:1 to 1.071:1. This shows a slight improvement albeit does not satisfy the minimum 2 : 1 ratio. The Total Debt Ratio also shows improvement as there is a decrease from 64%-63.3% as well as exceeding the maximum 50% limit we believe that this does not hinder its stability. The Inventory Turnover Ratio proves that the business is selling its goods faster (33.8 days previously to 32.9 days currently), the Debtor Turnover Ratio shows that the business is collecting its debt by a margin of 21.8 days (38 days to 59.8 days. Toyota is taking longer to collecting its debt. And finally the Interest coverage Ratio has increased from 42.9 times to 93.9 times in addition it exceeds the minimum requirement 5 times.

C) Price

Toyota Motors Corporations share price is considerably cheap.

To conclude from all the information gathered and compiled investors are encouraged to invest in this company seeing as it shows good profitability, signs of financial stability and the share prices are not exaggerated.

Appendix

REFERENCES  

http://www.toyota­global.com/innovation/environmental_technology/hv­record/ 

 

http://topics.nytimes.com/top/news/business/companies/toyota_motor_corporation/index.html 

 

http://en.wikipedia.org/wiki/Toyota 

 

http://www.reuters.com/finance/stocks/TM/key­developments