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TABLE OF CONTENTS I.
Company Profile Industry and Products Geographical distribution Listed Stock Exchanges Financial Stance News summary 3 3 3 4 4
Sales Analysis Dividend Analysis Profitability Analysis Inventory Analysis Financial Position 5 6 7 8 8
a. Current Ratio b. Acid Test Ratio c. Inventory Turnover Ratio d. Fixed Asset Turnover Ratio e. Total Asset Turnover Ratio f. Net Profit Turnover Ratio 8 9 10 11 12 13
LAST TWO YEARS FINANCIALS AND STATISTICS ANALYSIS BIBLIOGRAPHY
HONDA MOTOR COMPANY FINANCIAL REPORT ANALYSIS 2008 I. COMPANY PROFILE
Honda Motor Company, Limited is a multinational corporation, engine manufacturer and engineering corporation headquartered in Tokyo, Japan. Founded on September 24, 1948 by founder & then CEO Soichiro Honda. The Company has grown to become the world’s largest motorcycle manufacturer and one of the leading automakers. With a global network of 501subsidiaries and affiliates. INDUSTRY AND PRODUCTS The company manufactures automobiles and motorcycles, trucks, scooters, robots, jets and jet engines, ATV, water craft, electrical generators, marine engines, lawn and garden equipment, and aeronautical and other mobile technologies. Honda's lines of luxury cars are branded Acura in North America and China. The Group's major trademarks includes Honda, Acura, Accord, Civic, Fit, Odyssey, CR-V, Pilot, Mobilio, Element, Step WGN, MDX, Stream, Life, ACTY, Vamos, That’s, CUB, Wave and Gold Wing. Honda is the 5th largest automobile manufacturer in the world as well as the largest engine-maker in the world, producing more than 14 million internal combustion engines each year. As of August 2008 Honda surpassed Chrysler as 4th largest automobile manufacturer in United States. Currently, Honda is the second largest manufacturer in Japan behind Toyota and ahead of Nissan. GEOGRAPHICAL DISTRIBUTION Honda is headquartered in Tokyo, Japan. American Honda Motor Co. is based in Torrance, California. Honda Canada Inc. is headquartered in the Scarborough district of Toronto, Ontario, and is building new corporate headquarters in Markham, Ontario, scheduled to relocate in 2008. Hero Honda, a joint venture
between India's Hero Group and Honda, is the largest manufacturer of two wheelers in the world. Honda of Canada Manufacturing is based in Alliston, Ontario. Honda has also created joint ventures around the world, such as Honda Siel Cars India Ltd, Hero Honda Motorcycles India Ltd, Guangzhou Honda and Dongfeng Honda Automobile Company in China and Honda Atlas Cars Pakistan LISTED STOCK EXCHANGES Honda is headquartered in Tokyo, Japan. Their shares trade on the Tokyo Stock Exchange and the New York Stock Exchange, as well as exchanges in Osaka, Nagoya, Sapporo, Kyoto, Fukuoka, London, Paris and Switzerland. FINANCIAL STANCE Market cap Revenue Operating income Net income Total assets Total equity Employees Fiscal year ends US$ 58.74 Billion (2008) US$ 119.801 Billion (2008) US$ 9.513 Billion (2008) US$ 5.989 Billion (2008) US$ 125.916 Billion (2008) US$ 45.356 Billion (2008) 167,231 (Sep 2008) March
WORLD’S FIRSTS BY HONDA Although a relatively small manufacturer compared to the other Japanese automakers, Honda is the largest engine maker in the world. Honda has a number of firsts in many categories, including the first engine to meet the 1970 US Clean Air Act (1975 CVCC), the first luxury Japanese car (1985 Legend)
4 and motorcycle (2006 Gold Wing bikes) equipped with an airbag, as well as the first mid-size pickup truck with independent rear suspension (2006 Ridgeline) Honda has also pioneered new technology in its HA-420 HondaJet that allows new levels of reduced drag, increased aerodynamics and fuel efficiency thus reducing operating costs. In Takanezawa, Japan, on June 16, 2008, Honda Motors produced the first assembly-line FCX Clarity. More efficient than a hybrid vehicle, the FCX Clarity combines hydrogen and oxygen from ordinary air to make electricity. The vehicle does not emit any pollutants and its only byproducts are heat and water. The FCX Clarity also has an advantage over hybrids in that it does not require a rechargeable battery and the use of electricity. HONDA ROBOTICS ASIMO is the part of Honda's Research & Development robotics program. It is the eleventh in a line of successive builds starting in 1986 with Honda E0 moving through the ensuing Honda E series and the Honda P series. Weighing 54 kilograms and standing 130 centimeters tall, ASIMO resembles a small astronaut wearing a backpack, and can walk on two feet in a manner resembling human locomotion, at up to 6 km/h. It is the world's only humanoid robot able to ascend and descend stairs independently. COMPETITOR ANALYSIS Honda Motor Co., Ltd. operates in the Motor vehicles and car bodies sector. This analysis compares Honda Motor Co., Ltd. with another company in this sector in Japan: Mitsubishi Motors Corporation (2008 sales of 2.68 trillion Japanese Yen [US$25.32 billion] of which 99% was Automobile).
II A. FINANCIAL ANALYSIS
Honda Motor Co., Ltd. reported sales of ¥12.00 trillion (US$113.31 billion) for the fiscal year ending March of 2008. This represents an increase of 8.3% versus 2007, when the company's sales were ¥11.09
5 trillion. Sales at Honda Motor Co., Ltd. have increased during each of the previous five years. Honda Motor Co., Ltd. also saw significant increases in sales in Motorcycle Business (up 13.7% to ¥1.56 trillion). Sales Comparisons (Fiscal Year ending 2008) Sales Sales Sales/
Company (trlns) Growth Emp (US$) Largest Region Honda Motor Co., Ltd. 12.003 8.3% 633,140 North America (50.8%) Recent Sales at Honda Motor Co., Ltd. 9 8 8 10 11 12
2003 2004 2005 2006 2007 2008 (Figures in Trillions of Japanese Yen) Just over half of the company's 2008 sales were in North America: in 2008, this region's sales were ¥6.09 trillion, which is equivalent to 50.8% of total sales. In 2008, sales in Rest of the World were up at a rate that was much higher than the company as a whole. Honda Motor Co., Ltd. also experienced significant increases in sales in Europe (up 22.3% to ¥1.50 trillion) and Asia (up 27.6% to ¥1.31 trillion).
During the 12 months ending 30/6/2008, Honda Motor Co., Ltd. paid dividends totaling ¥88.00 per share. Since the stock is currently trading at ¥3,340.00, this implies a dividend yield of 2.6%. Honda Motor Co., Ltd. has increased its dividend during each of the past 5 fiscal years, in 2003, the dividends were ¥16.00 per share. During the same 12 month period ended 6/30/2008, the Company reported earnings of ¥338.02 per share. Thus, the company paid 26.0% of its profits as dividends.
On the ¥12.00 trillion in sales reported by the company in 2008, the cost of goods sold totaled ¥8.02 trillion, or 66.9% of sales i.e., the gross profit was 33.1% of sales which is better than in comparison as achieved in 2007, when cost of goods sold totaled 67.6% of sales. This profit margin is lower than the level the company achieved in 2007, when the profit margin was 5.3% of sales. The company's return on equity in 2008 was 13.4%. This was a decline in performance from the 14.4% return that the company achieved in 2007. Profitability Comparison Gross Profit Earns EBITDA bef.
Company Year Margin Margin extra Honda Motor Co., Ltd. 2008 33.1% 12.3% 5.0% Honda Motor Co., Ltd. 2007 32.4% 11.0% 5.3%
Honda Motor Co., Ltd. reports profits by product line. During 2008, the itemized operating profits at all divisions were ¥953.11 billion, which is equal to 7.9% of total sales. Of all the product lines, Financial Services had the highest operating profits in 2008, with operating profits equal to 22.1% of sales. Power Products and Other Businesses had the lowest operating profit margin in 2008, with the operating profit equal to only 5.3% of sales. However, in 2007, Automobile Business had the lowest profit margin.
7 As of March 2008, the value of the company's inventory totaled ¥1.20 trillion. Since the cost of goods sold was ¥8.02 trillion for the year, the company had 55 days of inventory on hand. In terms of inventory turnover, this is an improvement over March 2007, when the company's inventory was ¥1.18 trillion, equivalent to 58 days in inventory.
As of March 2008, the company's long term debt was ¥1.84 trillion and total liabilities (i.e., all money owed) were ¥7.75 trillion. The long term debt to equity ratio of the company is 0.39. As of March 2008, the accounts receivable for the company were ¥2.36 trillion, which is equivalent to 72 days of sales. This is an improvement over the end of 2007, when Honda Motor Co., Ltd. had 82 days of sales in accounts receivable. Financial Positions Honda Motors Pvt., Ltd. LT Debt/ Days Days R&D/ Company Year Equity Honda Motor Co., Ltd. 2008 0.39 AR 72 Inv. Sales 55 4.9%
II B. RATIO ANALYSIS a. CURRENT RATIO:
Current Ratio shows a firm’s ability to meet current liabilities with its current assets. Computation: Current Ratio = Current Assets/ Current Liabilities
2007 (for Honda) Current Ratio = 5192609/4287527 Current Ratio = 1.21 times. 2008 (for Honda)
2007 (for Mitsubishi) Current Ratio = 1059633/1110874 Current Ratio = 0.95 times 2008 (for Mitsubishi)
8 Current Ratio = 5231568/4678550 Current Ratio = 1.11 times. Current Ratio = 964133/1030913 Current Ratio = 0.93 times
Current Company Honda Motor Co., Ltd. Year Ratio 2008 1.11 2007 1.21 Mitsubishi Motor Co., Ltd. 2008 0.93 2007 0.95 Analysis: The current ratio is lower in 2008 as compared to 2007.There is an increase in all the current assets except other receivables which decreased in 2008. The net current assets increased by ¥38959 million in 2008 and at the same time the net current liabilities increased by ¥391023 million in 2007.
b. ACID TEST RATIO:
Acid Test Ratio or Quick Ratio shows a firm’s ability to meet current liabilities with its most liquid assets. Computation: Quick ratio = (Current Assets-Inventory)/Current Liabilities. 2007 (for Honda) Quick ratio = (5192609-1183116)/4287527 Quick ratio = 0.93 times. 2008 (for Honda) Quick ratio = (5231568-1199260)/4678550 Quick ratio = 0.86 times 2007 (for Mitsubishi) Quick ratio = (1059633-351991)/1110874 Quick ratio = 0.63 times 2008 (for Mitsubishi) Quick ratio = (1059633-351991)/1030914 Quick ratio = 0.64 times
Quick Company Honda Motor Co., Ltd. Year Ratio 2008 0.86 2007 0.93 Mitsubishi Motor Co., Ltd. 2008 0.64 2007 0.63 Analysis: We have seen that the company had a lower current ratio in 2008 and was unable to meet its short term obligations as compared to 2007. Where as the quick ratio identifies the role played by the inventories in this context. Therefore the ratio shows that in year 2008 it has decreased as compared to 2007 due to the fact that the investment in inventories is increased by ¥16144 million only and current liabilities have increased by ¥391023 million.
ASSET MANAGEMENT RATIOS. c. INVENTORY TURNOVER RATIO
Computation: Inventory Turnover Ratio = Sales/Inventory 2007 (for Honda) Inventory Turnover Ratio = 9819973/1183116 Inventory Turnover Ratio = 8.32 times 2008 (for Honda) Inventory Turnover Ratio = 11304485/1199260 Inventory Turnover Ratio = 9.42 times 2007 (for Mitsubishi) Inventory Turnover Ratio =2202869/351991 Inventory Turnover Ratio = 6.25 times 2008 (for Mitsubishi) Inventory Turnover Ratio =2682103/299644 Inventory Turnover Ratio = 8.95 times
Inventory Turnover Year Ratio
10 Honda Motor Co., Ltd. 2008 2007 Mitsubishi Motor Co., Ltd. 2008 2007 Analysis: The inventory turnover ratio in the year 2007 was 8.32 which indicate that 8.32 times in a year the inventory of the firm is converted into receivables or cash. However, in 2008, the inventory turnover ratio slightly increased to 9.42. This was due to the fact that the company’s current assets have increased by ¥38959 million and a slight increase of 1.3% in inventories. d. FIXED ASSETS TURNOVER RATIO This ratio measures the extent of turnover or volume of gross income generated by the fixed assets of a company or in other words the efficiency in their utilization. Computation: Fixed Assets Turnover Ratio = Sales/Fixed Assets 2007 (for Honda) Fixed assets Turnover Ratio = 9819973/2078728 Fixed assets Turnover Ratio = 4.72 times 2008 (for Honda) Fixed assets Turnover Ratio = 11304485/2201299 Fixed assets Turnover Ratio = 5.13 times 2007 (for Mitsubishi) Fixed assets Turnover Ratio = 2202869/555994 Fixed assets Turnover Ratio = 1.23 times 2008 (for Mitsubishi) Fixed assets Turnover Ratio = 2682103/485278 Fixed assets Turnover Ratio = 4.40 times 9.42 8.32 8.95 6.25
Company Honda Motor Co., Ltd. Mitsubishi Motor Co., Ltd.
Fixed Asset Turno ver Year Ratio 2008 2007 2008 5.13 4.72 4.40
11 2007 Analysis: According to the calculations above the productivity of fixed assets in year 2008 is better than it was in previous years. In 2007, it was 4.72 times and now it has been slightly increased to 5.13 times. This change was brought about by increase in total sales by 13.13%, where as the fixed assets increased only by 5.57%. e. TOTAL ASSETS TURNOVER RATIO Computation: Total Assets Turnover Ratio = Sales/Total Assets 2007 (for Honda) Total Assets Turnover Ratio = 0.81 times 2008 (for Honda) Total Assets Turnover Ratio=11304485/12615543 Total Assets Turnover Ratio = 0.89 times 2007 (for Mitsubishi) Total Assets Turnover Ratio = 1.23 times 2008 (for Mitsubishi) Total Assets Turnover Ratio=2682103/609408 Total Assets Turnover Ratio = 4.40 times Total Assets Turnover Ratio=9819973/120336500 Total Assets Turnover Ratio=2202869/1778693 1.23
Company Honda Motor Co., Ltd.
Total Assets Turnover Year Ratio 2008 2007 0.89 0.81 4.40 1.23
Mitsubishi Motor Co., Ltd. 2008 2007 Analysis:
12 According to the calculations above the productivity of assets in year 2008 is good as it was in previous years. In 2007, it was 0.81 times and now it has been increased to 0.89 times. This change was brought about by increase of only 4.59% in the total assets, where as the total sales increased by 13.13%. f. NET PROFIT TURNOVER RATIO Computation: Net Profit Turnover Ratio = Sales/Net Profit 2007 (for Honda) Net Profit Turnover Ratio = 9819973/592322 Net Profit Turnover Ratio = 16.57 times 2008 (for Honda) Net Profit Turnover Ratio = 11304485/600039 Net Profit Turnover Ratio = 18.83 times 2007 (for Mitsubishi) Net Profit Turnover Ratio = 2202869/8745 Net Profit Turnover Ratio = 251.6 times 2008 (for Mitsubishi) Net Profit Turnover Ratio = 2682103/34710 Net Profit Turnover Ratio = 77.27 times
Company Honda Motor Co., Ltd. Mitsubishi Motor Co., Ltd.
Net Profit Turnover Year Ratio 2008 2007 2008 2007 18.83 16.57 77.27 251.6
Analysis: The net profit turnover ratio has increased by 2.26 times in 2008 as compared to the previous year. This change was brought about by the increase in the total sales in 2008 by 13.13% as compared to 2007. There has also been an increase in the net profit in 2008 by an amount of ¥7717 million.
III. COMPARATIVE ANALYSIS OF CURRENT FISCAL YEAR WITH THE PREVIOUS FISCAL YEAR.
Honda’s consolidated net sales and other operating revenues for the fiscal year ended March 31, 2008 grew ¥915.6 billion, or 8.3%, compared with fiscal 2007, to ¥12,002.8 billion. Factors behind this increase were higher unit sales in the motorcycle business in Other Regions, higher unit sales in the automobile business in all overseas regions, and higher unit sales of power products in Asia, as well as the positive impact of foreign exchange rate changes. Domestic net sales decreased by ¥95.4 billion, or 5.7%, to ¥1,585.7 billion, but overseas net sales were up ¥1,011.1 billion, or 10.7%, to ¥10,417.0 billion as compared to FY 2007. Net income rose ¥7.7 billion or 1.3% from the previous year, to ¥600.0 billion. Consolidated cash and cash equivalents for the year ended March 31, 2008 increased by ¥105.3 billion from March 31, 2007, to ¥1,050.9 billion. This can be primarily attributed to higher unit sales in motorcycle business.
The provision for credit losses increased by ¥19.3 billion, which was at ¥25.5 billion on 2007 and rose to ¥44.8 in 2008, primarily as a result of the weakening U.S. economy.
1) Honda Motor Co., Ltd. Annual Report 2007-2008 2) Mitsubishi Motor Co., Ltd Annual Report 2007-2008 3) www.honda.co.jp 4) Abrarish Gupta (2006), “Financial Accounting for Management”, Pearson Education, 3rd Edition, PP.605-673.
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