FINANCIAL STATEMENT ANALYSIS REPORT

TOYOTA MOTOR CORPORATION

Submitted To
Dr. Manju Jaiswall
Professor
IIM Calcutta

BUSINESS REPORTING AND ANALYSIS !1

 INTRODUCTION

INDUSTRY OVERVIEW
The Japanese automotive industry is one of the most prominent and largest
industries in the world. Japan has been in the top three of the countries with
most cars manufactured since the 1960s, surpassing Germany. The automotive
industry in Japan rapidly increased from the 1970s to the 1990s (when it was
oriented both for domestic use and worldwide export) and in the 1980s and
1990s, overtook the U.S. as the production leader with up to 13 million cars per
year manufactured and significant exports. After massive ramp-up by China in
the 2000s and fluctuating U.S. output, Japan is now currently the third largest
automotive producer in the world with an annual production of 9.9 million
automobiles in 2012. Japanese investments helped grew the auto industry in
many countries throughout the last few decades. Toyota have been the leader in
the industry is followed by Honda which is it’s nearest competitor.

TOYOTA MOTOR CORPORATION

Background
Takiyo Uchiyamada (Chairman)
Listed in TYO, NYSE, LSE
Toyota Motor Corporation is a Japanese multinational automotive
manufacturer headquartered in Toyota, Aichi, Japan. In March 2014, Toyota's
corporate structure consisted of 338,875 employees worldwide and, as of
October 2016, was the ninth-largest company in the world by revenue. As of
2016, Toyota is the world's second-largest automotive manufacturer behind
German Volkswagen Group. Toyota was the world's first automobile
manufacturer to produce more than 10 million vehicles per year which it has
done since 2012, when it also reported the production of its 200-millionth
vehicle. As of July 2014, Toyota was the largest listed company in Japan by
market capitalization (worth more than twice as much as #2-ranked SoftBank)
and by revenue.

BUSINESS REPORTING AND ANALYSIS !2

 KEY ACCOUNTING PRINCIPLE

Financial Statements of both companies (Honda and Toyota) which has been prepared and
analysed is in conformity with accounting principles generally accepted in the United States
of America( US-GAAP),since the Companies has listed its American Depositary Shares on
the New York Stock Exchange and files reports with the U.S. Securities and Exchange
Commission. Given below are key accounting points taken into consideration while preparing
and analysing financial reports:

• Securities:
(i) Debt securities that are classified as “held-to- maturity” securities are reported at amortized
cost.
(ii). Investments in subsidiaries and affiliates are stated at cost, which is determined by the
moving-average method.
(iii). Marketable securities classified as other securities are stated at fair value based on market
prices at fiscal year-end. Any changes in unrealized holding gains or losses, net of applicable
income taxes, are included directly in stockholders’ equity, and cost of securities sold is
determined by the moving-average method.
(iv). Non-marketable securities classified as other securities are stated at cost, which is
determined by the moving-average method.
• Inventories are stated at the lower of the last purchase cost or market.
• Derivative financial instruments are stated at fair value.
• Regarding the depreciation method for tangible fixed assets, the Company employs the
declining balance method and, after a specified number of fiscal years, over the remaining
usable period of years (the usable life of the items less the elapsed period) employs the
straight-line method to depreciate the item to memorandum value.
• Amortisation of intangible fixed assets is computed by using the straight-line method.
• Depreciation of assets under finance leases, other than those for which the ownership
transfers to the lease, is calculated using the straight-line method, taking the useful lifetimes
of the assets as the term of the lease and depreciating the residual value to zero.
• The allowance for doubtful accounts is provided for possible bad debt at an amount
determined based on the historical experience of bad debt for normal receivables; in
addition, an estimate of uncollectible amounts is made by reference to specific doubtful
receivables from customers which are experiencing financial difficulties.
• Accrued employees’/directors’/operating officers’ bonuses are provided for payments of
bonuses to employees/directors/operating officers based on the amount of the estimated
employees’ bonus payments, which is attributable to the fiscal year.
• Goodwill, all of which is allocated to Honda’s reporting units, is not amortized but instead
is tested for impairment at least annually.

BUSINESS REPORTING AND ANALYSIS !3

 ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENT

BALANCE SHEET ANALYSIS OF TOYOTA MOTOR CORPORATION

1. The total value of the balance sheet has moved from 30,650,965 million Yen in 2012 to
47,427,597 million Yen in 2016 i.e. it has become 1.54 times over the 5-year period. This is
due to a steady increase in the value of assets (current and fixed assets) and in the value of
liabilities (current and long term) and shareholders’ equity.

2. The current assets have moved from 12,321,189 million Yen in 2012 to 18,209,553 million
Yen in 2016. This has been due to significant increase in cash and cash equivalents, time
deposits, finance receivables and prepaid expenses and other current assets over the 5-year
period.

3. Total investments and other assets have gone up from 6,491,934 million Yen in 2012 to
10,834,680 million Yen in 2016 primarily due to increase in marketable securities and other
securities investments which have become 1.8 times the value in 2012.

4. Fixed assets have gone up from 6,235,380 million Yen in 2012 to 9,740,417 million Yen in
2016 which is nearly 1.5 times the value in 2012. This can be primarily attributed to vehicles
and equipment on operating leases (a) and construction in progress (b). The item (a) has
become 2.19 times the value in 2012 while item (b) has become 1.86 times the value in 2012.

5. The current liabilities have increased from 11,781,574 million Yen in 2012 to 16,124,456
million Yen in 2016. This due to increase in short term borrowings, current portion of long-
term debt, other payables and accrued expenses during the 5-year period.

BUSINESS REPORTING AND ANALYSIS !4

6. The long-term liabilities have increased from 7,802,913 million Yen in 2012 to 13,214,955
million Yen in 2016 i.e. it has become 1.7 times the value in 2012. This can be attributed to
the increase in long-term debt (which has become 1.61 times the value in 2012) and deferred
income taxes (which has become 2.25 times the value in 2012).

7. The total shareholders’ equity has gone up from 11,066,478 million Yen in 2012 to
17,608,407 million Yen in 2016 i.e. 1.6 times the value in 2012. There has been substantial
increase in retainedearnings from 11,917,074 million Yen in 2012 to 16,794,240 million Yen
in 2016. Also, there was accumulated other comprehensive loss in 2012 and 2013. While
there was accumulated other comprehensive income from 2014-2016.

8. The non-current finance receivables have gone up from 5,602,462 million Yen in 2012 to
8,642,947 million Yen in 2016 i.e. 1.54 times the value in 2012.

INCOME STATEMENT ANALYSIS

1. Net Sales for Toyota have shown  a  healthy

 growth  through  the  years  and  has shown an
Average Annual Growth Rate(AAGR) of 8.66
over the 5year period.

2. The operating margin for Toyota has been

around 1.91% to 10.75% in the 5year period.
 The  FY 2015-16  showed operating margin of
10.75%.

3. The Cost and Expenses for Toyota decreased

from 98.09% in FY 2012 to 89.95% in FY 2016.

4. Average yearly increase in Net Income for

Toyota is more than 179% for  the  past  5years.
Highest  percentage increase in Net Income has
been 239.32 in FY 2013 and lowest at  -30.53%  in  FY  2012.



BUSINESS REPORTING AND ANALYSIS !5

CASH FLOW STATEMENT ANALYSIS

Cash from operating activities

Net cash from operating activities(CFO)

for TMC increased from 1452,435 million
Yen in 2012 to 4,460,857 million Yen in
2016, nearly tripled over the five years.
Although net income had grown 6 times
but doubtful accounts losses has grown to
16 times, resulting in net increase in CFO
of only thrice as compared to net income.
This extraordinary increase in net income
is due to fact that initial year value of net
income is very low as operating expenses
were almost on par. But gradually expenses
were realized and net profit started
increasing. So, to control and maximise
cash from operating activities,TMC should monitor its doubtful accounts and credit losses.

Cash from investing activities

Net cash from investing activities(CFI) for TMC decreased from 1,442,658 million Yen in
2012 to 3,182,544 million Yen in 2016. This decrease is mainly due to cash lost in additions
to finance receivables which is increasing in negative over the years and ultimately cancelling
the cash coming from collection of and proceeds from sales of finance receivables. These are
the two major attributes of CFI, so to increase cash from investing activities, TMC should try
to decrease value of addition to finance receivables. Along with these there is an increase in
investment to purchase fixed assets (cash outflow) that can be verified from balanced sheet.

Cash from finance activities

Net cash from financing activities (CFF) for TMC decreased from 355,347 million Yen (-ve
means cash outflow) in 2012 to 423,571 million Yen in 2016. During this five years, there is
gradual increase in payment towards long term debt with issuance of long term debt nearly
doubled at the end of 2016. In addition to this there is an increase in dividend paid to
shareholders which nearly became 4 times of its initial dividends paid in 2012.

As a whole there is an increase in total cash with CFO giving a promising positive trend. CFI
although being negative, is on a positive slope for 2 years continuously.

BUSINESS REPORTING AND ANALYSIS !6

 COMPARITIVE ANALYSIS

PROFITABILITY RATIO ANALYSIS

ROS

ROS is a financial ratio that calculates how efficiently

a company is generating profits from it’s top line
revenue. It measures the performance of a company
by analysing the percentage of total revenue that is
converted into operating profits.
Analysing from the graph we can say that in the year
2012 TMC ROS was less than that of HMC that
means HMC was cutting their costs more efficiently.
But as we see further Toyota improved it’s efficiency
and started to cut down it’s operating cost whereas in
HMC the sharp decrease in ROS is due to the increase
in operating cost which when more drilled down showed that their was significant increase in
R&D and administrative expenses which was the main cause for decrease in ROS.

ROA

Return on Assets is an indicator of how profitable a

company is relative to it’s total assets. ROA gives an idea
as how efficient is management using it’s assets to generate
earnings. It tells how effectively the company is converting
the money it has invested. Higher the ROA number, the
better, because the company is earning more money on
less investment.
Analysis of ROA tells us that TMC start to stagnant in
2014 to 2015 that is basically due to more increase in
Capital work in progress and increase in net income.
Whereas their is a significant drop in ROA of HMC from
2015 only due to significant decrease in net income during
the period of time.

BUSINESS REPORTING AND ANALYSIS !7

ROCE

Return on capital employed (ROCE) is a financial

ratio that measures a company's profitability and the
efficiency with which it’s capital employed.“Capital
Employed” as shown in the denominator is the sum
of shareholder equity and debt liabilities; it can be
simplified as (Total Assets – current liabilities). A
higher ROCE indicates more efficient use of capital.
ROCE should be higher than the company’s capital
cost otherwise it indicates that the company is not
employing its capital effectively and is not
generating shareholder value.
We can see that in 2014 both TMC and HMC were
almost equal in their Return on capital employed
that means both were employing their capitals effectively. But as time progressed their was a
significant drop for Honda due to the decrease in net earnings in the period that is due to the
increase in interest, operating cost and expenses.

NET PROFIT MARGIN

Net profit margin is the percentage of revenue

remaining after all operating expenses, interest,
taxes and preferred stock dividends (but not
common stock dividends) have been deducted from
a company's total revenue.Typically expressed as a
percentage, net profit margins show how much of
each dollar collected by a company as revenue
translates into profit.
Analysis of the two shows that profits of TMC are
better when compared to HMC as they are earning
more on every dollar spent. Whereas the decrease in
net profit margins of HMC from 2014 is due to
increase in operating expenses which decreased the
net profit of the company.

BUSINESS REPORTING AND ANALYSIS !8

LIQUIDITY RATIO ANALYSIS

CURRENT RATIO

This is defined as the ratio of current assets to

current liabilities. The current ratio is mainly
used to give an idea of the company’s ability
to pay back its liabilities (debt  and  accounts
payable) with its assets (cash,
marketable  securities,  inventory,  accounts
receivables). As can be seen from the graph,
during the period 2012-16 the current ratio
for TMC has been greater than 1 and showing
a steady increase with an average value of
1.08. The current ratio for HMC is also
greater than 1 but has slightly decreased over
the years with an average of 1.22. A current
ratio more than 1 and close to 1.2 is adequate.
From this we can infer that both TMC and
HMC are managing their short-term wealth
efficiently.

CURRENT CASH DEBT COVERAGE

It is a liquidity ratio that measures the relationship

between net cash provided by operating activities
and the average current liabilities of the company.
It indicates the ability of the business to pay its
current liabilities from its operations. Both TMC
and HMC are having this ratio less than 1 and
close to 0.2 during the period 2012-16. A value
less than 0.4 is cause for additional investigation
of company’ liquidity.

BUSINESS REPORTING AND ANALYSIS !9

QUICK RATIO

The quick ratio is an indicator of a company’s

short-term liquidity. The quick
ratio measures a company’s ability to meet its short-
term obligations with its most liquid assets. For this
reason, the ratio excludes  inventories  from current
assets. Both TMC and HMC have been able to
maintain a quick ratio close to 1. The quick ratio
for TMC has an average value of 0.95 and has
been increasing during the period 2012-16 due to
greater increase in current assets as compared to
current liabilities. The quick ratio for HMC has an
average value of 0.99 but is varying over the years.
HMC is slightly better placed in terms of liquidity
position.

FINANCIAL SLACK

It is a parameter which enables us to judge the

liquidity of the firm. Since it considers the amount
of cash in hand it gives a better indication of quick
cash. The average financial slack for TMC and
HMC are 0.05 and 0.08 respectively during the
period.

BUSINESS REPORTING AND ANALYSIS !10

SOLVENCY RATIO ANALYSIS

DEBT TO ASSET RATIO  

Honda is at a better stage as it has lower ratio and

has a little liability as compared to Toyota. Also for
Toyota, 2013 was a year in which it has taken more
debt as compared to year 2016 i.e why for 2016 there
is a drop in ratio. In case of Honda, it has taken less
debt in year 2014 as compared to 2016 i.e why there
is increase in ratio in 2016 as compared to 2015.  So
in our case we have debt/asset ratio of Toyota as
0.632 and for Honda as 0.608 averaged over 5 years.
  

DEBT TO EQUITY RATIO

Honda has lower Debt/Equity ratio over the years

as compared to Toyota. For Toyota the ratio seems
to be constant over the years. It has maintained its
position while in year 2014 Honda experienced a
drop in ratio. Thus we can see that Honda is at a
better position than Toyota as it has D/E ratio of
1.553 as compared to Toyotas’ 1.728. 


BUSINESS REPORTING AND ANALYSIS !11

INTEREST COVERAGE

Toyota clearly leads, also for Toyota in 2014 its

Interest Coverage ratio is maximum. In 2016
there is a decrease in Interest Coverage for
both Toyota and Honda. Thus we can see that
Toyota is at a much better position in this
parameter as compared to Honda with 84.014
as compared to 44.45. 


EFFICIENCY RATIO ANALYSIS

FIXED ASSET TURNOVER RATIO

The fixed asset turnover ratio is higher for HMC

when compared to TMC. Further analysis shows
that revenue generated from fixed asset by HMC is
more efficient as compared to TMC. The dip from
year 2014 to 2015 for both the companies suggest
that both companies are investing heavily in their
fixed assets.

BUSINESS REPORTING AND ANALYSIS !12

WORKING CAPITAL TURNOVER RATIO

The ratio for TMC is decreasing significantly

compared to HMC. The decrease in ratio signifies
that TMC is investing too much in account
receivables and inventory assets for supporting it’s
sales, whereas HMC is using it’s short term assets
and liabilities in efficient way.

INVENTORY TURNOVER RATIO

Inventory turnover ratio of TMC is better when

compared to HMC. It means TMC is able to sell it’s
inventory more times as compared to HMC. HMC takes
more time in selling it’s inventory.

BUSINESS REPORTING AND ANALYSIS !13

CONCLUSION

OPERATING & FINANCIAL STRENGTHS AND WEAKNESS

Financial Strength

Although debt to asset ratio taken average for 5 years is less for HMC. But TMC has shown
improvement and its ratio is decreasing as per trend. Current cash debt coverage is also better
for TMC as compared to HMC with its stability concentrated over 5 years.
Increasing dividend pay-out to its shareholders is also a good sign and shows positivity abut its
future prospects.

Financial Weaknesses
A negative financial cash flow is indicative of the firm reaching a matured stage. However, to
be projected as a continuously growing firm a positive cash flow in financial activities is
favored as it creates more opportunities for growth. Also, financial slack is lower than HMC
for TMC which is also a concern.

Operational Strength

The net profit margin has been increasing with a fair pace for TMC (5.3%) as compared to
HMC (1.7%). Steep increase in net profit of TMC is due to its abilty to control its operational
expenses while increasing sales. Return on Asset is also moderately good for TMC (5.13%) as
compared to HMC. The cash flow from operational activities for TMC has been steadily
increasing over the past 5 years. The cash from investment activities too showing an optimistic
trend resulting in an increase in total cash in 2016.
 
Operational Weakness

The ratio for TMC for working capital turnover ratio is decreasing significantly compared to
HMC. The decrease in ratio signifies that TMC is investing too much in account receivables
and inventory assets for supporting its sales, whereas HMC is using its short-term assets and
liabilities in efficient way. So TMC needs to access its short-term liability and assets.

BUSINESS REPORTING AND ANALYSIS !14

EXHIBIT 1. TREND AND HORIZONTAL ANALYSIS HONDA

EXHIBIT 2. RATIO ANALYSIS HONDA

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EXHIBIT 3 BALANCE SHEET

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EXHIBIT 4 INCOME STATEMENT TREND

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EXHIBIT 5 CASH FLOW TREND

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EXHIBIT 6 BALANCE SHEET TREND

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