calculation for mitsubishi motors

SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN

THE DESIGN SCHOOL

FOUNDATION IN NATURAL & BUILT ENVIRONMENTS

FINANCIAL RATIO ANALYSIS

BASIC ACCOUNTING [FNBE0145]

ASSIGNMENT 1

CHIN TZE WEI (0315767)

SIAU SEE SING (0315926)

TABLE OF CONTENT

Brief background history of Mitsubishi Motors Pg: 3-4

Recent Developments of Mitsubishi Motors Pg: 4-6

Profitability Analysis of Mitsubishi Motors Pg: 7

Financial Stability Analysis of Mitsubishi Motors Pg: 8

Investment Recommendation Pg: 9-10

Appendix Pg: 11-16

References Pg 17

Brief Background History of Mitsubishi Motors

Mitsubishi's automotive was started back in 1917 when the Mitsubishi Shipbuilding Co. Ltd. launched the Mitsubishi Model A which was actually Japan's first series-production automobile. It is an entirely hand-built seven-seated sedan based on the Fiat Tipo 3 but it eventually proved expensive when compared to its American and European mass-produced rivals. In the end, it discontinued its operations in 1921 after only 22 had been built.

In 1934, Mitsubishi Shipbuilding was merged with the Mitsubishi Aircraft Co., a company established in 1920 that is specialized in manufacturing aircraft engines and other parts. The unified company was known as Mitsubishi Heavy Industries (MHI) and became the largest private company in Japan. Initially MHI was specifically concentrated on manufacturing aircraft, ships, railroad cars and machinery but in 1937, it developed the PX33, a prototype sedan for military use. It was the first Japanese-built passenger car with full-time four-wheel drive, a technology the company would return to almost fifty years later in its quest for motorsport and sales success.

Immediately following the end of the Second World War, the company returned to manufacturing vehicles. Fuso bus production was resumed, while a small three-wheeled cargo vehicle called the Mizushima and a scooter called the Silver Pigeon were also developed soon after. (Yuji Sato, 1972) However, the zaibatsu (Japan's family-controlled industrial conglomerates) were ordered to be dismantled by the Allied powers in 1950 and Mitsubishi Heavy Industries was split into three regional companies, each having a hand in motor vehicle development: West Japan Heavy-Industries, Central Japan Heavy-Industries and East Japan Heavy-Industries. (Hirokazu Nakamura, 1991)

East Japan Heavy-Industries began importing the Henry J, an inexpensive American sedan built by Kaiser Motors, in knockdown kit (CKD) form to Japan in 1951, and continued to do so for the remainder of the car's three-year production run. (Takemune Kimura, 1995) During that same year, Central Japan Heavy-Industries have also concluded a similar contract with Willys (now owned by Kaiser) for CKD-assembled Jeep CJ-3Bs. This deal showed more durable with licensed Mitsubishi Jeeps in production lasting until 1998, thirty years after Willys themselves had replaced the model.

By the beginning of the 1960s Japan's economy was soaring, wages were rising and the idea of family motoring was taking off. By now Central Japan Heavy-Industries, now known as Shin Mitsubishi Heavy-Industries, had already re-established an automotive department in its headquarters in 1953. (Yuji Sato, 1973) Then, it had come to the introduction of the Mitsubishi 500, a mass market sedan, to meet the new demand from consumers. This was soon followed up in 1962 with the Minica kei car and the Colt 1000, the first of its Colt line of family cars, in 1963.

Meanwhile, West Japan Heavy-Industries (now renamed Mitsubishi Shipbuilding & Engineering) and East Japan Heavy-Industries (now Mitsubishi Nihon Heavy-Industries) had also expanded their automotive departments in the 1950s staging the stage for all three to be re-integrated as Mitsubishi Heavy Industries in 1964. Within three years its output was over 75,000 vehicles annually. (Osamu Masuko, 2009) Following the successful introduction of the first Galant in 1969 as well as experiencing similar growth with its commercial vehicle division, it was decided that the company should create a single operation just to focus on the automotive industry. Finally Mitsubishi Motors Corporation (MMC) was formed on April 22, 1970 as a wholly owned subsidiary of MHI under the leadership of Tomio Kubo, a successful engineer from the aircraft division. (Hideyasu Tagaya, 2005)

The logo of three red diamonds, shared with over forty other companies within the keiretsu, predates Mitsubishi Motors itself by almost a century. (Yoichiro Okazaki, 2004) It was chosen by Iwasaki Yatarō, the founder of Mitsubishi, as it was suggestive of the emblem of the Tosa Clan who first employed him and because his own family crest was three rhombuses that were stacked atop each other. The name Mitsubishi is a portmanteau of mitsu ("three") and hishi (literally, "water chestnut", often used in Japanese to denote a diamond or rhombus). (Rolf Eckrodt, 2002)

Recent Developments of Mitsubishi Motors

10 th April 2014: Motor Show at the 2014 Beijing International Automotive Exhibition (Auto China 2014)

To present the MITSUBISHI Concept GC-PHEV *1 and the MITSUBISHI Concept XR-PHEV *2 for the first time in China at the 2014 Beijing International Automotive Exhibition (Auto China 2014).

To display a total of 11 models including models produced and sold in China. To incorporate a new design that symbolizes the functionality and reassuring safety

inherent to SUVs, the MITSUBISHI Concept GC-PHEV and the MITSUBISHI Concept XR-PHEV.

The MITSUBISHI Concept GC-PHEV is a next-generation full-size SUV with full-time four-wheel drive. It is based on a front engine, rear-wheel drive layout with a plug-in hybrid EV (PHEV) system comprising a 3.0-liter V6 supercharged MIVEC*3 engine mated to an eight-speed automatic transmission, with a high-output electric motor and a high-capacity battery to deliver all-terrain performance truly worthy of an all-round SUV.

The MITSUBISHI Concept XR-PHEV is a next-generation compact SUV developed to take driving pleasure to new levels. The model uses a front engine, front-wheel drive layout with a PHEV system that is configured with a downsized

1.1-liter direct-injection turbocharged MIVEC engine, a lightweight, compact and high-efficiency electric motor with a high-capacity battery.

9 th May 2014: Outlander PHEV Receives Five Star Award for Safety from JNCAP

Cementing the world's first plug-in hybrid SUV as a leader in automobile safety, adding on to its five-star rating from Euro NCAP in December 2013.

Satisfied all tests regarding electric shock safety including protection against electric shock, high-voltage battery electrolyte leakage performance, and high-voltage battery attachment status.

First product that reflects MMC's future product development direction - focusing on SUVs with a combination of advanced electric vehicle technology cultivated from its MiEV series, superior 4x4 stability honed from the Lancer Evolution, and SUV knowhow from the legendary Pajero.

Won the Car of the Year Japan 2013-2014's Innovation Award*3 and the unique plug-in hybrid system that propels the Outlander PHEV as the chosen recipient of the RJC Technology of the Year 2014 award*4.

Recent Mitsubishi Motor Vehicles:

L200/TRITON

Profitability Analysis of Mitsubishi Motors, Japan (2012-2013)

Profitability Ratio

2012 (In Yen) 2013 (In Yen) Interpretation

Return on Equity(ROE)

(Net profit/Average owner’s equity) x 100%

(23928/351890.5) x 100%= 6.80%

(Net profit/Average owner’s equity) x 100%

(37978/382865) x 100%= 9.92%

During the 2012-2013 period, the business ROE has increased from 6.80% to 9.92%. This means the business is getting more returns from their investments.

Net Profit Margin(NPM)

(Net profit/Net sales) x 100%

(23928/1807293) x 100%= 1.32%

(Net Profit/Net sales) x 100%

(37978/1815113) x 100%= 2.09%

During the 2012-2013 period, the business NPM has increased from 1.32% to 2.09%. This means the business is getting

PAJERO SPORT ATTRAGE

PAJERO-MONTERO OUTLANDER

better at controlling its overall expenses.

Gross Profit Margin(GPM)

(Gross profit/Net sales) x 100%

(320025/1807293) x 100%= 17.7%

(Gross profit/Net sales) x 100%

(339971/1815113) x 100%= 18.7%

During the 2012-2013 period, the business GPM has increased from 17.7% to 18.7%. This means the business is getting better at controlling its COGS.

Selling Expense Ratio(SER)

(Total selling expense/Netsales) x 100%

(120575/1807293) x1 00%= 6.67%

(Total selling expense/Net sales) x 100%

(110090/1815113) x 100%= 6.07%

During the 2012-2013 period, the business SER has decreased from 6.67% to 6.07%. This means the business is getting better at controlling its selling expenses.

General Expense Ratio(GER)

(Total general expense/Net sales) x 100%

(120575/1807293) x 100%= 6.67%

(Total general expense/Net sales) x 100%

(110090/1815113) x 100%= 6.07%

During the 2012-2013 period, the business GER has decreased from 6.67% to 6.07%. This means the business is getting better at controlling its general expenses.

Financial Expense Ratio(FER)

(Total financial expense/Net sales) x 100%

(13706/1807293) x 100%= 0.76%

(Total financial expense/Net sales) x 100%

(10624/1815113) x 100%= 0.59%

During the 2012-2013 period, the business FER has decreased from 0.76% to 0.59%. This means the business is getting better at controlling its financial expenses.

Financial Stability Analysis of Mitsubishi Motors, Japan (2012-2013)

Financial Stability Ratio

2012(In Yen) 2013(In Yen) Interpretation

Working Capital Ratio(WCR)

(Total current assets/Total current liabilities)

(759175/703457)= 1.08:1

(Total current assets/Total current liabilities)

(878980/787248)= 1.12:1

During the 2012-2013 period, the business WCR has increased from 1.08:1 to 1.12:1. This means that the business ability to pay its current liabilities with current assets is getting better. However it does not satisfy the minimum requirement of 2:1.

Total Debt (Total liabilities/Total (Total liabilities/Total During the 2012-2013 period,

Ratio(TDR) assets)x100%

(1055686/1321306)x100%= 79.9%

assets)x100%

(1101581/1452809)x100%= 75.8%

the business TDR has decreased from 79.9% to 75.8%. This means that the business total debt has reduced. However it is still over the maximum limit of 50%

Inventory Turnover Ratio(ITR)

365days/(Cost of goods sold/Average Inventory)

365/(1487267/188374)= 46.2 days

365days/(Cost of goods sold/Average Inventory)

365/(1475141/194891)= 48.2 days

During the 2012-2013 period, the business STR has increased from 46.2 days to 48.2 days. This means that the business is taking a longer time to sell off its inventories.

Debtor Turnover Ratio(DTR)

365days/(Credit sales/Average debtors)

365/(903646.5/8004.5)= 3.23 days

365days/(Credit sales/Average debtors)

365/(907556.5/4540)= 1.83 days

During the 2012-2013 period, the business DTR has decreased from 3.23 days to 1.83 days. This means the business is collecting its debts faster.

Interest Coverage Ratio(ICR)

(Interest expense + Net profit)/Interest Expense

(13706+23928)/13706= 2.75 times

(Interest expense + Net profit)/Interest Expense

(10624+37978)/10624= 4.57 times

During the 2012-2013 period, the business ICR has increased from 2.75 times to 4.57 times. This means that the business has enough profits to pay off its interest expenses. However it is still below the minimum requirement of 5 times.

Price/Earning Ratio (P/E Ratio)

Formula: (Current share price/Earnings per share)

= (1030/162.4400)

= 6 years

Mitsubishi Motors’ current share price is 1031.00 yen while it earnings per share for the year 2013 is 66.05 yen. This means that if an investor is interested in investing on Mitsubishi Motors by buying its shares, he/she will need to wait for 6 years to recoup back his/her investments.

Investment Recommendation

During the 2012-2013 period, the business had been handling its Net Profit Margin (NPM) Ratio quite well from 1.32% to 2.09%. This is due to their better management in handling its Gross Profit Margin (GPM), Selling Expenses, General Expenses and Financial Expenses.

This would in fact help the shareholders of Mitsubishi Motors to earn more returns from their investments. Therefore, on the profitability side, Mitsubishi Motors is on the right track.

Meanwhile, on the stability side, Mitsubishi Motors have shown some slight improvements to its Working Capital and Total Debt even though they fall below the standard requirements. For Working Capital Ratio, it has increased from 1.08:1 to 1.12:1, while its Total Debt Ratio has also decreased from 79.9% to 75.8%.

From the Interest Coverage Ratio shown below, it does show Mitsubishi Motors have earned enough profits to cover up its Working Capital and Total Debt.

2012 20132.75 times 4.57 times

There is a massive difference from 2.75 times in 2012 to 4.57 times in 2013 even though it will take a longer time to sell off its inventories as shown below.

Inventory Turnover Ratio

2012 201346.2 days 48.2 days

So, based on what we have observed, it is quite worth it for the investor to invest in Mitsubishi Motors due to the high profits that can be made from it, as it will require 6 years to get back his investments altogether. Another reason is if it keeps on getting enough profits, there is no reason why it would not fall within the standard requirements of 2:1 for Working Capital Ratio and 50% for Total Debt Ratio. Therefore, in our opinions, there isn’t a single reason why any investor would not want to invest in it.

Appendix

Figure 1:Mitsubishi Motors' 2013 Balance Sheet

Figure 2: Mitsubishi Motors' 2013 P&L Statement

References

1) Mukai, Anna (2011-01-20). "Mitsubishi Motors to Introduce Eight Hybrid, Electric Car Models by 2015". Bloomberg.com. Retrieved 23 May 2014.

Figure 4: Mitsubishi Motors' 2012 P&L Statement

2) "Notice regarding conclusion of a principal agreement on share transfer of the European subsidiary production site". Mitsubishi Motors. 11 July 2012. Retrieved 24 May 2014.

3) http://www.mitsubishi-motors.com/publish/ir_en/library/anual.html

4) http://www.mitsubishi-motors.com/en/showroom/

5) http://www.mitsubishi-motors.com/en/corporate/aboutus/history/1870/

6) http://www.mitsubishi-motors.com/publish/pressrelease_en/corporate/2014/news/detail0929.html

7) http://www.mitsubishi-motors.com/publish/pressrelease_en/motorshow/2014/news/detail0926.html

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