TOPIC 8

Research & Analysis Project (RAP)

BUSINESS & FINANCIAL ANALYSIS OF:

TOYOTA (Indus Motors Company) over a three year period 2018-2020

ACCA Registration no: 2437903

Word count: 7500
Submission Date:

Table of Content

1
Part – 1 Introduction and Overall Framework of the Research Page

1. Introduction…………………………………………………………………………………… 2
1.1 Aim of the Research……………………………………………………………...………… 3
1.2 Research Objective………………………………………………………………………….
1.3 Research Questions…………………………………………………………………………
1.4 Reason for Selecting the Research Topic & Organization…………………………….
1.5 Research Framework………………………………………………………………………..

Part - 2 Sources of Data, Business Models and Accounting Techniques

2.1 Sources and Methods of Collecting and Gathering Information…………………

2.1.1 Financial Analysis Reports………………………………………………………..
2.1.2 Web and Online Search Forum…………………………………………………….
2.1.3 Books Knowledge……………………………………………………………………
2.2 Limitations of Information gathering…………………………………………………..
2.2.1 Web Search………………………………………………………………………….....
2.2.2 Annual Reports……………………………………………….………………………..
2.3 Ethical Issues……………………………………………………………...………………..
2.4 Accounting Techniques & Business Models……………………………………………
2.4.1 Ratios Analysis……………………………………………………………………………
a) Liquidity Ratios…………………………………………………………………………
b) Profitability Ratios……………………………………………………………………..
c) Solvency Ratios……………………………………….………………………………..
d) Turnover Ratios…………………………………………………………………………….
e) Earning Rations…………………………………………………………………………….
2.4.2 Limitations of Ratios Analysis…..…………………………………..……………………
2.4.3 SWOT Analysis………………………………………………….………………………
a) Strengths………………………………………………………………………………….
b) Weakness……………………………………………………………………………
c) Opportunities…………………………………………………………………………..
d) Threats………………………………………………………………………………….
2.4.4 Limitations of SWOT Analysis…..…………………………………….……………….

2.4.5 PESTEL Analysis…..…………………………………………………………………….....

a) Political Factors………………………………………………………………………….

2
 b) Economic Factors………………………………………………………………………...
c) Social Factors……………………………………………………………………………..
d) Technological Factors…………………………………………………………………….
e) Environmental Factors……………………………………………………………………
f) Legal Factors………………………………………………………………………………
2.4.6 Limitations of PESTEL Analysis…..……………………………………………………….

Part - 3 Analyses of Business Environment and Financial Performance

Analysis of Business Environment

3.1. SWOT Analysis……………………………………………………………………………..

3.1.1 Strengths……………………………………………………………………….
3.1.2 Weakness………………………………………………………
3.1.3 Opportunities……………………………………………………………………..
3.1.4 Threats………………………………………………………………………….
3.2. PESTEL Analysis………………………………………………………………………….
3.2.1 Political Factors………………………………………………………………….
3.2.2 Economic Factors………………………………………………………………..
3.2.3 Social Factors…………………………………………………………………….
3.2.4 Technological Factors……………………………………………………………
3.2.5 Environmental Factors…………………………………………………………..
3.2.6 Legal Factors……………………………………………………………………

Analysis of Financial Performance

3.3. Description of Business……………………………………………………………………

3.4. Sales Revenue Analysis…………………………………………………………………….

3
 3.5. Profitability Ratios……………………………………………………………………………
3.5.1 Gross Profit Margin…………………………………………………………….
3.5.2 Net Profit Margin……………………………………………………………….
3.6. Liquidity Ratios…………………………………………………………………………….
3.6.1 Current Ratio…………………………………………………………………..
3.6.2 Quick Ratio……………………………………………………………………..
3.7. Investors Ratios……………………………………………………………………………..
3.7.1 Return on Equity Ratio…………………………………………………………
3.7.2 Earnings per Share (EPS) ……………………………………………………
3.7.3 Price Earnings Ratio (P/E) ……………………………………………………….
3.8. Financial Leverage Ratios………………………………………………………………….
3.8.1 Debt to Equity Ratio……………………………………………………………
3.8.2 Interest Coverage Ratio………………………………………………………..
3.9. Conclusions and Recommendations…………………………………………………….

Part - 1 Introduction and Overall Framework of the Research

1. Introduction:
Evaluation of organizations is being carried out by the entire stakeholders who have their stakes in the
organizations directly or indirectly. Internal stakeholders are those that directly involved in the

4
company e.g. employees, and shareholders. External Stakeholders are those who do not directly
work with a company but are affected somehow by the actions and outcomes of the business e.g.
supplier, customers, society and government.
Company performance is not just being evaluated on the financial basis but also the other factors how
the business is operating and possible impact on the business environment that are crucial for any
business to operate eternally to compete with competitors in well planned. Therefore the top
management should always take strategic decision that is parallel to its business environment.

1.1 Aims of the Research:

The main and utmost aims of this research is to examine and evaluate financial performance of
Toyota Indus Motors in context of its business environment over a three year period from 2018 to
2020 and compered to its competitor Honda Atlas Motors.

1.2 Research Objectives:

Principle objectives of this research are as follows:
a) To determine a clearer insight picture and analytical evaluation of the financial performance of
Toyota motors compared to Honda motors from 2018 to 2020.
b) To scan and analyze the business environment and to identify possible factors affecting the
financial and non-financial performance of Toyota motors as compared to Honda motors.
c) To examine the possible Business & Financial risk factors that are crucial to the Toyota motors
in the long terms perspective for operating and to compete with Honda motors.
d) To develop a strategy to maintain and enhance the overall business growth and operational
efficiency as compared to Honda motors.
e) To endorse a viable course of action that strategic management should take to combat various
risk factors.

1.3 Research Questions:

A research question is a question that a research project sets out to answer.
a) Assess the Financial Performance of the Toyota motors over a three year period compare it
with that of Honda motors using Accounting tools and technique such as Ratios Analysis.
b) Identify major factors that prevail in the business environment in context of internal factors
strength and weakness and external factors opportunity and Threat to Toyota motors
comparison to Honda motors using business model such as SWOT Analysis, PESTEL
Analysis and Porter five forces.

5
 c) Suggestions and recommendations to the senior management of Toyota motors based on the
financial analysis and business model that should be adhered while decision making that bona
fide to the Toyota motors.
1.4 Reason for Selecting the Research Topic & Organization:
I selected topic eight for my research reports out of those twenty topics i.e.
“An Analysis and evaluation of the business and financial performance over a three year
period of an organization operating in a sector that has faced strategic and operational
challenges with an emphasis on how management have addressed these challenges “
The most crucial part of this research was to selected appropriate company that addressed all the
requirements of topic. Toyota Motor Company having diversified portfolio is available in every region
with global distribution network and its business operations spanning in North Central and South
America, Asia Pacific, Europe, Middle East, and Africa. In current era automobile sector growing
exponentially across the globe. Automobile industries enhance the quality of life through increase
mobility comfort and safety. Thus it was not just engrossing but challenging in addition to analyze the
financial and business performance of well diversified portfolio with global presence.one of the main
drawbacks of the most research project is that the researchers tend to lose their focus on aims and
objectives. But I did not make this happen with my project i devote too much attention throughout the
project. I therefore wanted to express my research capabilities despite limited word counting for the
project. Topic eight is the only listed topic amongst twenty topics that provide ample opportunity to
presents expertise.
The principle reasons for selecting topic eight are as follows:

a) Academic background and command of financial management, accounting tools & and
business models enable to apply all possess skills on the project practically.
b) Analyzing and assessing the financial and business performance of conglomerate is always a
challenging task.
c) Automobile industry having potential and growth in future prospect also plays vital role in the
economy of the country. Toyota motors were established back in 1967 and spanning
distribution network across the global.

6
 1.5 Research Framework and Approach:
The three common approaches to conducting research are quantitative, qualitative and
combination of both.in this research project i used the both approaches. Quantitative
methods emphasize objective measurements and the statistical, mathematical, or numerical
analysis of data. Qualitative research involves collecting and analyzing non-numerical data
subjective measurements. It can be used to gather in-depth insights into a problem or
generate new ideas. Quantitative analysis of Toyota Motors is being carried out by way of
horizontal trend over a three most recent year period with the help of accounting tools such
as ratios analysis. In comparison to Qualitative analysis is being carried out by examine the
business environment of Toyota Motors by applying business models such as SWOT and
PESTEL analysis.

Part - 2 Sources of Data, Business Models and Accounting Techniques

Information gathering for research work is difficult task to carry out. Information is usually collect
through two main source namely primary and secondary source. Primary sources provide raw
information and first-hand evidence. Examples include interview transcripts, statistical data, and
interviews, questionnaires. A primary source gives you direct access to the subject of your research.
A secondary source is anything that describes, interprets, evaluates, or analyzes information from
primary sources, Common examples include: article, magazine, books, and information available for
general public on website. Primary source of information is tend to more reliable, authentic unbiased
and up-to-date and accurate. But it is a time consuming job and accuracy of result usually dependent
on the information provider. In comparison Secondary source of information is readily available but no

7
control over the authenticity and quality of information. In addition to secondary data is not specific to
research needs.

2.1 Sources and Methods of Collecting and Gathering Information:

Information for this research project is used generally based on secondary source of information such
as web and online over the internet resources in order to meeting set research questions and
objectives Information gathered from secondary source need to ACCURATE. Accurate, Complete,
Cost-effective, Understandable, Relevant, Accessible, Timely, Easy to use. Secondary source of
information carried out drawbacks such as biasness, no control over data quality. In order to
overcome these shortcomings information is gather from different authentic source rather than on a
single and couple of secondary sources and include different author’s perspective in order to enhance
the reliability and validity of the research project.

2.1.1 Financial Analyst’s Report:

Financial Analyst’s play vital role in the scrutiny of any organization in terms of Financial
(Quantitative) Analysis. Financial experts spend time to analyze and assess the various financial
indicators of the organization and it can be internal and external. The reliability and validity of analysis
is more neutral and accurate as the report generated by external financial analyst because shed lights
on the true and fair picture of any organization.

2.1.2 Web and Online Search Forum:

Internet act as information super highway to access information over the web due to internet world
became global village and every information is just one click away. This research project is mainly
based on the information and materials available on the different websites i.e. online publications,
magazines, articles and journals etc. This also includes vast information available on official websites
of both the selected organizations.
https://www.toyota-indus.com/
https://www.Honda pakistan.com/

2.1.3 Books Knowledge:

8
Course and academic books such as Financial Management and Financial Accounting tend to play
crucial role in this research project provide helpful insight and to refreshing background knowledge of
different formulas used in ratios analysis and their respective interpretations along with Strategic
Business Analysis course book enable to examine and evaluate different business models and
theories such as SWOT AND PESTEL analysis, on the business environment of selective
organization.

2.2 Limitations of Information Gathering:

Information gathering from various sources associated with following certain limitations therefore its
utmost importance to determine the credibility and the authenticity of source before using it for any
research purposes (Graeme Johanson, 2005).
2.2.1 Web & Online Search:
A few limitations with the use of internet as a source of gathering secondary information are
(T Erickson,  TM  Whited, 2006)
a) Information over the internet is available vastly large amount of data that is accessible to
everyone that has become extremely difficult for any user to understand and differentiate
suitable and relevant information for the project from irrelevant information.
b) Fetching information over the internet that is relevant to project lead a time consuming process
also need to accessed right information and sort out according to the requirement of the
project.
c) Information from internet source assures the validity and authenticity need to be ascertained
before utilizing in the project. Information from official website authentic and reliable.

2.2.2 Annual Reports:

Limitations of using annual reports for the project are:
a) Annual reports from the company is majority orientated to quantitative analysis such as
financial statement and lack of qualitative information relating to business environment that
prevails and company facing but not to disclosed in annual reports.
b) Annual reports primary goals are to attract potential investors therefore information in annual
reports may be biased and misleading solely for maintain good repute and attract the investors
for the company (window dressing). An analysis that is solely based on the annual report can
thus resultantly be erroneous and faulty.
c) The management team of a company may deliberately skew the results presented. This
situation can arise when there is undue pressure to report excellent results, such as when a
bonus plan calls for payouts only if the reported sales level increases. One might suspect the

9
 presence of this issue when the reported results spike to a level exceeding the industry norm,
or well above a company’s historical trend line of reported results.
d) The information in a set of financial statements provides information about either historical
results or the financial status of a business as of a specific date. The statements do not
necessarily provide any value in predicting what will happen in the future futuristic. For
example, a business could report excellent results in one month, and no sales at all in the next
month, because a contract on which it was relying has ended.
e) The size of business concern is varying according to the volume of transactions. Hence, the
figures of different companies’ financial statements lose the characteristic of comparability with
each other’s and financial statement just gives an indication and does not facilitate true
comparison between the two companies and the usefulness of an Annual report can depend

on how accurately it has been audited and the date of the published financial data. (Abdulla,

1996)

f) Another limitation is that a single annual report only shows how a company is doing at one
single time different company has different financial year end so it might affect the overall
analysis. The financial statement does not show whether the company is doing better or worse
than the year before, for example. If executives decide to use financial statements for making
decisions about the future, they should use several annual reports from previous years to
ensure they get an overall picture of how much the company is doing.

2.3 Ethical Issues:

The prime responsibilities of researchers is to ensured that research work follows ethical code of
conduct while preparing their research project and it is common the researchers face ethical
challenges in all stages of the study, from designing to reporting. These include anonymity,
confidentiality, and informed consent, researchers’ potential impact on the participants and vice versa
Ethics evaluate behavior in terms of right or wrong according to principles or guidelines .( Koocher and
Keith Spiegel, 1998).
The number of the research studies conducted via the internet has increased substantially since the
1990s as a result growing ethical concern about the internet as a research tool has also risen. This
means that you need to report your research honestly, and that this applies to your methods your
data, your results ,You should not make up any data, including extrapolating unreasonably from some
of your results, or do anything which could be construed as trying to mislead anyone.

10
You should never plagiarize, or copy, other people’s work and try to pass it off as your own. You
should always ask for permission before using other people’s tools or methods, unpublished data or
results. Not doing so is plagiarism. Obviously, you need to respect copyrights and patents, together
with other forms of intellectual property, and always acknowledge contributions to your research. If in
doubt, acknowledge, to avoid any risk of plagiarism.
In this research project all professional and ethical code of conduct taken into account while gathering
information and preparation of the research project in order to bond the highest standard of ethics and
ACCA code of conducts - Confidentiality, Objectivity, Professional behavior, Integrity and Professional
competence while extracted information from different sources.

2.4 Accounting Techniques & Business Models:

Accounting Techniques or tools involve analyze the financial performance of the company for decision
making purposes such as ratio analysis vertical, horizontal analysis, comparative analysis in order to
assess financial health of the company that is not only beneficial to internal stake holders also by the
external stake holders usually involved the assessment of financial statements of the company
(Quantitative Analysis) (Financial Performance)
On the other hand business analysis involves the assessment of business environment that helps you
to find the business needs and defining solutions to business problems such as risk factors prevail
that can be threats to the going concern of the company that strategic management should take into
account while setting company Goals & Objectives. (Qualitative Analysis) (Non-Financial
Performance) Common business analysis model include MOST, SWOT, PESTEL, PORTER Five
Forces Model.

2.4.1 Ratio Analysis:

Ratio analysis is an important technique of financial statement analysis. Accounting ratios are useful
for understanding the financial position of the company users such as investors, management

11
bankers and creditors use the ratio to analyze the financial situation of the company for their decision
making purpose. (Satvir kaur).
Accounting ratios are important for judging the company's efficiency in terms of its operations and
management. They help judge how well the company has been able to utilize its assets and earn
profits.
Although accounting ratios are used to analyze the company's past financial performance, they can
also be used to establish future trends of its financial performance. As a result, they help formulate the
company's future plans.
Accounting ratios can also be used in locating weakness of the company's operations even though its
overall performance may be quite good. Management can then pay attention to the weakness and
take remedial measures to overcome them.
It is essential for a company to know how well it is performing over the years and as compared to the
other firms of the similar nature. Besides, it is also important to know how well its different divisions
are performing among themselves in different years. Ratio analysis facilitates such comparison any
sort of financial ratio can be created and applied on quantitative data basing on research perspective
can serve the purpose of all internal as well as external stakeholders of the company.( Carlton, Dennis
W., and Jeffrey M. Perloff, 2001 )
In this research project following accounting ratios carried out:
a) Profitability Ratios:
Profitability ratios are a set of measurements used to determine the ability of a business to
create earnings. These ratios are considered to be favorable when they improve over a trend line or
are comparatively better than the results of competitors. Profitability ratios are derived from a
comparison of revenues to difference groupings of expenses within the income statement. Profitability
ratios calculated for Toyota motors and Honda motors in this research project comprise Gross profit
ratio (GP), Net profit ratio (NP).
b) Liquidity Ratios:
Liquidity refers to a company’s capacity to meet its short-term (usually a year) financing
obligations and liquidity ratios assess its ability to do so. More specially, these ratios tell us
whether a company has sufficient current assets to meet its current liabilities or not. Liquidity ratios
calculated for Toyota motors and Honda motors in this research project comprise Current ratio. Acid
test and Quick ratio.
c) Solvency Ratios:
A solvency ratio indicates whether a company's cash flow is sufficient to meet its long-term
liabilities and thus is a measure of its financial health. An unfavorable ratio can indicate some

12
likelihood that a company will default on its debt obligations. Solvency ratio calculated for Toyota
motors and Honda motors in this context comprise Debt to Equity ratio.
d) Turnover Ratios:
It is a ratio which determines the connection between the sales and the total asset of a company.
It checks for the efficiency with which the company’s all assets are utilized to earn revenue. Turnover
ratio comprises for the Toyota motors & Honda motors are Asset turnover Ratio, Inventory
turnover ratio, Debtors collection period, Working capital ratio.
e) Earning or Investor’s Ratios:
Investor ratios are the financial ratios that the investors use in order to evaluate the company's
ability to generate the return for their investment. In general, investors usually want to know which
one is a good company to invest their money in, in accordance with their risk appetites. Investor ratios
can provide the information which shows the company’s health and its ability to provide the return to
investors for the risks involved in their investment. Earnings ratio contains for the Toyota motor and
Honda motor include Price Earnings Ratio (P/E) and Earnings per share (EPS). Return on
investment (ROI).

2.4.2 Limitations of using Ratios Analysis:

Some of the most important limitations of ratio analysis include:

a) Historical Information: Information used in the analysis is based on real past results that are
released by the company in Annual reports. Therefore, ratio analysis metrics do not
necessarily represent future company performance.
b) Quantitative Analysis: Ratio analysis is based on financial performance of the company and
fails to encounter non-financial performance which is normally existent in the micro and macro
factors of the business environment.
c) Comparison: It’s very difficult to find out same size, same structure in order to analyze both
company performance and using high benchmark company led to misinterpretation of the ratio
analysis information.
d) Manipulation/Window Dressing of Financial Statements: Ratio analysis is based on
information that is reported by the company in its financial statements. This information may
be manipulated by the company’s management to report a better result than its actual
performance assets overstated and liabilities understated in order to attract financial investors

13
 2.4.3 SWOT Analysis:
SWOT Analysis (short for strengths, weaknesses, opportunities, threats) is a business strategy tool to
assess how an organization compares to its competition. (Dac Teoli, Terrence Sanvictores, 2009).SWOT
Analysis assess and examine the Internal factors (Strength and Weakness) and external factors
(Opportunity and Threats) that prevails in the business environment of the company.
a) Strength: Strengths are internal, positive attributes of the company. These are things that are
within your control and exploit the ability to capture prevails opportunity in the external

business environment i.e. brand loyalty, technological edge, market leader, customer

satisfaction, product availability through wide distribution network.

b) Weakness: Weaknesses are internal and negative factors that detract from your strengths.
These are things that you might need to improve on to be competitive i.e. heavy product

complaints, lack of resources (financial constraint), and management inefficiency.

c) Opportunity: Opportunities are external factors in your business environment that are likely to
contribute to your future and persistent success i.e. new product or segment, lack of
competition, brand awareness through advertisement press and media coverage, favorable
currency appreciation.
d) Threats: Threats are external factors that you have no control over. You may want to

consider putting in place contingency plans for dealing with them if they occur and top

14
 management should take into account while setting strategic goals and objective of the

company. dependent on supplier, government strict regulations, changing customer

behavior, emerging competitors,

2.4.4 Limitations of SWOT analysis:
a) Lack of Prioritization: A SWOT Analysis can be overwhelming if leaders are not clear on
what they are going to prioritize. The tool itself does not prioritize what immediate action
should be considered.
b) Lack of Solution: A SWOT analysis provide generic information not the ad-hoc solution
how to encounter certain problems prevails in the business environment.
c) Time Consuming: SWOT analysis is a time consuming process and demand continuous
scanning of the micro and macro factors in the business environment.

2.4.5 PESTEL Analysis:

PESTEL analysis is used as a tool of strategic and situational analysis for business evaluation
purpose and is one of the most used models in the evaluation of the external business environment
that is highly dynamic. (Rashain Perera, 2017). PESTEL stands for political, economic, social,
technological, environmental, and legal.
Brief details of each factor are as follows:
a) Political Factors: Political factors provide information regarding the government or
administration interventions in the economy i.e. political stability or instability foreign policy and
overseas market policy the company should need to consider the current and future legislation
and adjust their approach and policy accordingly.
b) Economic Factors: Economic factors have significant impact on how an organization does
business and also have profitable they are i.e. economic growth, interest rates, inflation
consumer income and spending behaviors.
c) Social Factors: Social factors also known as socio cultural factors they are the areas that
involve the shared belief and attitudes of the population growth age distribution health
consciousness.
d) Technological Factors: Technological factors affect the way we do business in a number of
ways we need to do business including the new ways of producing and distribution goods and
innovations.
e) Environmental Factors: These factors relate to the influence of the ecological aspects i.e.
climate recycling carbon footprint waste disposal and natural resources consumption.

15
 f) Legal Factors: An organization must understand what is legal and allowed within the
territories they operate in. i.e. employment legislation, child labor law, health and safety.

2.4.6 Limitations of PESTEL Analysis:

A few limitations associated with the use of PESTEL analysis are as follows:
a) The business environment is changing drastically thus it is becoming increasingly
difficult to regularly monitored business environment.
b) PESTEL analysis may be time consuming and demand high researcher’s skills to
gather and structure information.
c) Findings of analysis is not absolute and vary from person to person usually due to
assumption prevails.

16
Part - 3 Analyses of Business Environment and Financial Performance

3.1. SWOT Analysis:

Strengths Weakness
→ Brand Image and market position → Product recalls
→ Production facility and distribution
network
→ High Return on Investment(ROI)
Opportunities Threats
→ Automobile Sector potential → High cost of production and currency
and sustainable products fluctuations
→ Imported and Japanese used car

3.1.1 Strength:
a) Strong market position and brand reputation: Toyota IMC was established back in 1989 as
result of joint venture between House of Habib, Toyota Tsusho Japan and Toyota Motors in
Pakistan and started very first commercial production in March 1993. Since the inception
Toyota has a strong market position due to brand loyalty and performance amongst the
consumers for both urban and rural areas. Pak wheels Automobile survey report 2018 has
revealed that the Toyota has dominated and lead the car market stood first with 35% market
share in Pakistan. Global automotive market share in 2019 stipulate world’s largest ranking

and Toyota car brands was topped up with market share of around 10.24%. Toyota Corolla is
the largest selling automotive brand model and Pakistan is the highest Corolla-selling nation in
the Asia-Pacific region and also has the distinction of being no 1 in Toyota’s Asian market.
The brand name “TOYOTA” speaks for itself and became the market leader due to innovative
and customer oriented products.
b) Extensive production and distribution network: Toyota sold its products in more than 170
countries and region especially North and Latin America, Europe, Africa, Japan, and Asia
Pacific region. Toyota owing 71 manufacturing plants worldwide. Toyota IMC Pakistan
manufacturing and offices are located at a 107 acre site in Port Qasim, Karchi, Pakistan.
Over 29 years, since inception, IMC has sold more than 875,000 CBU/CKD units. It has also
achieved impressive growth in terms of production capacities. In 1993 initial production was 20
vehicles per day now production capacity of the company has now increased to 268 (with
overtime) units per day in 2018-2019. Toyota IMC have approved to invest Rs3.3 billion with
the aim to increase its annual production capacity to around 76,000 units. The expected
increase will be achieved during the financial year 2020-21.The highest ever production
achieved by Toyota IMC was 65,346 units in June 2019. Online booking facility available
across the region and the product is delivered to end customers nationwide through a strong

17
 and swift distribution network of 50 independent 3S (Sales, Service and Spare parts)
dealerships spread across the country.

c) High return on Investment:

ROI for Toyota IMC saturate strong financial performance in terms of return on investment as
the average ROI for three years consideration indicate 29% higher than traditional rival
Honda and Suzuki stipulate Toyota IMC earn maximum profits and makes appropriate
investment decision and expand its operations. Toyota IMC generates healthy profits from
operations to attract potential investor and enhanced the investors trust in the future
prospectus. Toyota IMC generates average profit Rs34.6 billion for the three year period that
is higher in comparison to its competitors. Toyota IMC high ROI gauge that an investment
center has satisfactory result in other fields of performance such as cost management,
effective assets utilization, selling price strategy, marketing and promotional strategy.
TOYOTA IMC HONDA Atlas Pak Suzuki
PKR Billion
2018 2019 2020 Total 2018 2019 2020 Total 2018 2019 2020 Total
Net Profit 15.8 13.7 5.1 34.6 6.5 3.9 0.7 11.0 1.3 (2.9) (1.6) (3.22)
shareholder equity 37 40 41 118 17 18 17 51 24 26 29 80
ROI % 43 34 12 29 38 22 4 22 5 -11 -5 -4

3.1.2 Weakness:
a) Product recalls: Toyota has conducted a number of product recalls in the recent past years
which could affect the brand image and overall sales of the company and provide competitive
edge to rivals. The Indus Motor Company (IMC) made a fourth recall of Toyota Corolla
vehicles in just 13 months and the number of affected vehicles fall under 9,900 and taking the
total recalls to 16,815 units. First recall was under special service campaign when 1,719
Toyota Corolla Altis 1.8L Grande manufactured between (August 2015 and March 2016 models) with
faulty front airbags sensor. Second recall in February 2017, IMC had recalled 9,896 Toyota
Corolla XLI, GLi, Altis and Altis Grande vehicles (2016-17 models) due to faulty brakes and Third
recall was in June 2017 when another 2,700 Corolla XLI, GLI, Altis and Altis Grande models
after finding the mounting bolts of the front seats to be improperly tightened
Last recall was in February 2018 informed the vehicle owners that around 2,500 Toyota
Corolla 1.8L Altis Grande (August 2015-January 2016 models) were equipped with front airbag sensors
and faulty fuel pump such recalls can tarnish Toyota reputation and can lead to multi-billion
losses as the TOYOTA IMC absorbs the cost of replacing and fixing defective products, or of
reimbursing affected consumers that's why recalls have devastating effects that Toyota IMC
need to encounter in future in order to endure market leader.

18
3.1.3 Opportunity:

a) Automobile sector potentials and ECVs: Pakistan has huge potential in terms of automobile sector
over last 2 decades Pakistan automobile industry is fastest growing in Asia. The production and sales

have both grown by 171% and 173% respectively between (2014 and 2018). Since 2014, Pakistan
Vehicles Production was up 13.2% year on year. At 276,363 Units in 2019, the country was number 29
comparing other countries in Vehicles Production. Pakistan is overtaken by Belgium, which was global
ranked number 28 at 287,771 Units and is followed by Portugal at 262,844 Units, Pakistan’s Automobile
industry contributes 4% to its GDP and 50 billion rupees to the national exchequer in terms of taxes and
duties. Pakistan has the 6th largest population in the world, and with a young population of 180 million
people the demand for automobiles has a huge potential to rise in the coming years, approximately 13
cars per 1000 inhabitants and a rapidly growing urbanization rate of 40.5% given the increasing
infrastructure and development taking place in the major cities of the country, making owning a car a
necessity in this day and age. On the other hand the demand for four-wheel vehicles will rise from 0.25
million to 0.5 million in Pakistan within the next 12 years. China-Pakistan Economic Corridor (CPEC) will
bring a lot of opportunities for the auto sector. This in turn will benefit the transport warehousing and
freight forwarding services by further expanding the auto and logistics sector. Toyota IMC should exploit
prevails opportunities in the region and to introduce more hybrid cars or ECVs model than Toyota Prius
that ought to be economical and efficient both for end consumers and environmental in order to capture
specific market shares (Niche Market Strategy).

3.1.4 Threats:

a) High cost of production and currency fluctuation: Toyota IMC cost of production leap year on year in
contrast to sales revenue indicate 158 billion sales against 139 billion cost of production in 2019 that was
140 billion sales against 116 billion cost last year. The overall increase in revenue indicate 13% while cost of
production rises 20% due to high taxes and duties on imported raw material that eroding gross margin by
21% such situation shrunk company margin and profit will convert into loss in future threat to financial
viability. The application of 10% FED in Oct 2018 The government has introduced three tax slabs of 2.5% –
7.5%, along with increasing the rates of additional customs duty from 2% to up to 7% on inputs to
manufacturing vehicles. The rises in material cost caused by persistent depreciation of Pak rupees against
standard currency dollars and Japanese Yen from 2018 to 2020 due to economy slump and others factors.

C h a n g e s 2 0 18 t o
Rs in billion 2018 2019 2 0 19

Sales 140 158 13 Currency 2018 2019 2020

Cost 116 139 20 Rs to $ 115.6 140.5 166.6
GP 24 19 (21) Rs to ¥ 1.09 1.27 1.54

19
a) Used and Japanese Car trend: Toyota IMC traditionally compete with Honda Atlas and Suzuki but with the
passage of time trend forward to imported Japanese and used car primarily due to its reasonable price and
efficiency on the other hand new competitors surge such as Hyundai and Kia. According to Pak wheels
survey 64% respondent buy used cars (28% imported cars) while 34% buy new cars. The import of used
cars and jeeps on the peak of 80,000 units in 2017-18. Several carmakers are looking to enter Pakistan’s
auto industry and some have already started operations such activities tarnish Toyota IMC market share
caused serious threats due to surge competition. The development comes as they hope to benefit from
Pakistan’s Auto Development Policy 2016-21, through which they have been given various incentives under
the green field and brown field categories. Three companies from South Korea, including Kia, Hyundai and
Daehan, and French carmaker Renault along with Japan’s Nissan are vying to enter Pakistan. They add to
the list of three Japanese companies already operating in Pakistan that saw sales of 216,786 units in FY18,
a 17% year-on-year growth. On the other hand, Chinese companies Jinbei, Changan, JW Forland and some
other companies are also looking to operate in Pakistan.

20
3.2. PESTEL Analysis:

P POLITICAL Government Policy and stability

E ECONOMIC Growth, Inflation, Interest, currency rates
S SOCIAL Demographics and population
T TECHNOLOGICAL Substitute products, Hybrid cars and Evs
E ECOLOGICAL Environmental sustainable products
L LEGAL local laws and regulations

3.2.1 Political factors:

a) Government of Pakistan takes necessary measure to ease of doing business announced and
implemented incentives in federal budget 2021-2022 for automobile sector. In addition, the government
also decreased the sales tax rate on local manufacturer from 17% to 12.5%.on locally produced cars,
having engine capacities of up to 850cc. and abolished 2.5% federal excise duty (FED) on cars of lower
engine capacity. To support new players and loss making companies, the government has also reduced
turnover tax from 1.5% to 1.25% and encouraged to produce Electrical Vehicle (EVs) (Auto
Development Policy 2016-2021).
b) Free Trade agreement with Japan and other countries enable Toyota IMC to grow and improved market
penetration in the region as the Toyota IMC is a joint venture of Toyota Aichi, Japan. All initiates are
favorable in terms of politically for Toyota IMC and its competitors.

3.2.2 Economic factors:

a) The automotive industry in Pakistan is the one of the fastest growing industries of the country,
accounting for 4 percent of Pakistan’s GDP and employing a workforce of over 1,800,000
people. Currently there are 3,200 automotive manufacturing plants in the country, with an
investment of ₨. 92 billion (USD 870 million) producing 200,000 vehicles annually. Its
contribution to the national exchequer is nearly ₨. 50 billion (USD 470 million). Automotive
sector in the region expand and have economic growth and favorable for both Toyota IMC &
its competitors in future prospectus (Opportunity).
b) Inflation rate in Pakistan leap year by year 3.93% 6.74% and 10.74% respectively 2018, 2019
and 2020 inflation rate affect the cost of living and other consumer’s products (basic
necessities) purchasing power of buyer weaker as compared to their respective income. When
inflation rate leap consumers focus on the basic necessities instead of luxurious products but

21
 the budgeted inflation rate for 2026 will be 6.46% favorable to Toyota and its competitors in
coming years as the demand of motor vehicle increased.(Opportunity)
c) Currency fluctuation in Pakistan adversely affect the economy of Toyota IMC .Financial
Analysis indicate cost of producing products slump 23% in 2020 Depreciation of the local
currency(PKR) makes the cost of importing goods more expensive. Exchange rate
1USD=160.167PKR, 1YEN=1.55PKR 31 December 2020.(Threats)

3.2.3 Social factors:

a) Pakistan is considered to be the fifth largest young country in the world. Around 63 percent
population of the country comprises youth aged between 15 and 33 (UN Population Fund
Report 2017). With rising population, the increase in people’s travel demand is inevitable. The
travel demands of this large population, unmet by inadequate and inefficient supply of public
transport gives rise to increased use of privately owned vehicles, resulting in road congestion.
Pakistan’s auto market demand is likely to double from 300,000 units to 650,000 units in five
years as a result of rapid digital transformations in the country’s economy coupled with a
growing young population.(International The News). Toyota IMC has the opportunity to provide
more products that satisfy and meets the demand of youth customers’ increasing interest in
hybrid and electric vehicles in future concern. (Opportunity)

3.2.4 Technological factors:

a) Currently the government emphasis the production and imports of Hybrid, Electric Car (EVs)
and their respective components and announced incentives for both local and importers in

order to encounter the oil consumptions and oil prices fluctuations. Pakistan approved an
ambitious National Electric Vehicles Policy (NEVP) in November 2019, with targets and
incentives aimed at seeing electric vehicles capture 30% of all the passenger vehicle and
heavy-duty truck sales by 2030, and 90% by 2040. It sets even more ambitious goals for two-

and three-wheelers and buses; 50% of new sales by 2030 and 90% by 2040. The NEVP
incorporates new foreign direct investment incentives to stimulate investment in EVs.
Manufacturers, assemblers, and suppliers in the EV and related infrastructure industries will
benefit from lower taxes – 1% GST for EVs as opposed to 17% for regular vehicles. The

22
 import duty for charging equipment is also being slashed to 1%.  Additionally, the government
will lower the unit rate of electricity for charging station operators to encourage private
investments in charging stations. The government will also install at least one DC fast-
charging station every 10 square kilometers in all major cities.in this regard Toyota IMC should
produce in bulk EVs and Hybrid Cars in order to maintain its market penetration as well as
lead the automotive sector in term of innovation and addressed the government demands.

3.2.5. Ecological/Environmental factors:

a) The Toyota Indus Motor Company strives for sustainable growth through technologies and
practices that enable the environment and economy to coexist in harmony. We believe that
careless pursuit of economic development destroys the environment and lowers the quality of
life for future generations.

3.4. Sales Revenue Analysis:

Year over Year (YoY) 2018 to 2019 Sales Comparison:

Toyota IMC turnover for the year ended 30 June 2018 was 140 billion that soar by 13% to 158
billion in 2019 as compared to Honda Atlas turnover for the year ended 31 March 2018 was
stood at 92 billion with slight increase by 3% to 95 billion. Toyota sales volume the year ended
30 June 2018 was 64,000 units that grow by 3% to 66,211 units in 2019 while Honda Atlas
combined sales volume of manufacturing and trading segments in 2018 was 50,177 with
negative growth by 3% to 48,648 units in 2019 Toyota produced 62,886 units in 2018 than
production was grow by 4% to 65,346 units in 2019 in compression Honda Atlas Produced 50,100
units in 2018 with 3% fall to 48,608 in 2019.
Toyota IMC market share stood at 24% in 2018 than dropped by 2% to 22% in 2019

23
 Company TOYOTA IMC HONDA Atlas
Changes Changes
Years 2018 2019 2018 2019
2018 to 2019 2018 to 2019
Turnover(Billion) 140 158 13% 92 95 3%
Sale Volume 64,000 66,211 3% 50,177 48,648 -3%
Production 62,886 65,346 4% 50,100 48,608 -3%

Year over Year (YoY) 2019 to 2020 Sales Comparison:

Toyota IMC net sales revenue for the year 2019 was 158 billion than significantly dropped by 46% to
86 billion in 2020 as compared to Honda Atlas turnover for year 2019 was 95 billion than
plummet by 42% to 55 billion. Toyota combined sales volume for year 2019 was 66,211 units than
downward dropped by 56% to 28,837 units in 2020 while Honda Atlas combined sales volume in
2019 was 48,648 than fall by 54% to 22,418 units in 2020 Toyota production was 65,346 units in
2019 than production was declined by 56% to 28,519 units in 2020 in compression Honda Atlas
Produced 48,608 units in 2019 with 53% fall to 22,729 in 2020.

Company TOYOTA IMC HONDA Atlas

Changes Changes
Years 2019 2020 2019 2020
2019 to 2020 2019 to 2020
Turnover(Billion) 158 86 -46% 95 55 -42%
Sale Volume 66,211 28,837 -56% 48,648 22,418 -54%
Production 65,346 28,519 -56% 48,608 22,729 -53%

Segment Volume Sales and Contribution:

Passenger car segment and MPV’S of Toyota IMC include flagship iconic and prestigious brand of
Toyota (Corolla Altis, Yaris, Prius, Avenza, Camry Hybrid, Grande), with different engine capacity 1.3L
1.5L, 1.6L and 1.8L. and predominantly outperformed and helps to achieved Toyota IMC expected
targets as the table 1 statistics illustrated 80%, 86%, and 81% contribution of total sales by passenger
car segment for the year ended 30 June, 2018, 2019 and 2020 and Pakistan is the highest Corolla-
selling nation in the Asia-Pacific region and also has the distinction of being # 1 in Toyota’s Asian
market. In Comparison Passenger car segment of Honda Atlas Motors Include most selling
prestigious brand Honda City and Honda Civic with different variants (Honda City 1.2L, 1.5L Honda
City Aspire 1.5L Honda Civic 1.5L and 1.8L) as the Table 2 illustrated 85%, 81% and 63% total sales
generate by this brand under passenger car segment category for year 2018, 2019, and 2020.

SUV (Sports Utility Vehicle) segment of Toyota IMC Include Toyota Fortuner, show 7%
contribution of sales in 2018 4% in 2019 and remain static in 2020. Pakistan’s auto market is

24
growing and switch from Sedan to compact SUV segment. With a 10-20% price difference between
sedan and SUVs, The consumers had started giving preference to compact SUVs because of better
features and a more luxurious feel and incentives that the Automotive Development Policy (ADP)
2016-2021 has given the new and existing players(The Express Tribune). Honda Atlas Cars in this
sub compact SUV segment also outperformed with the brand model of Honda BR-V due to most
economical car in its category furthermore, the car is popular among all regions due to its
effectiveness on any road and reliability but Toyota Fortuner most popular in this segment.

LCVs or Pickups segment of Toyota IMC indicate 12% contribution of total sales in 2018 than
dropped by 3% to 9% in 2019 and stood at 13% after upward growth seen by 4% in 2020. Pickup
segment of Toyota IMC include Toyota Hilux Single cabin, Toyota Hilux E, Toyota Revo in
comparison Honda Altas lack of vehicles for Pickups segment.

CBU/Imported or Luxurious Segment This segment contribute only 1% of total turnover in 2018 and
remain static in 2019 and 1% growth seen in 2020 and stood at 2%. This segment mainly based on
imported and luxury vehicles with low market share and market growth due to government policies
high taxes in order to promote and protect the local industry. This segment includes Toyota Land
Crusier, Parado, Rush, Camry Hi-Low grade and Toyota Hiace. In comparison Honda Atlas CBU
segment include Honda CR-V and Honda Accord and contribute nominal portion to total sales.

Toyota Corolla brand played crucial role and magnificent in the market since 25 years and became
the market leader in the sedan segment using market penetration strategy as the more than 80%
turnover generate by Toyota corolla brand. Toyota Corolla sales keep soar contributes the Toyota
IMC to achieve its total sales target as the Corolla brand enjoys a legacy due to its elegant design,
Build quality, durability, performance and resale value. Toyota corolla and Honda City are each
other’s direct competition both cars have their separate fan bases but Toyota corolla superior due to
its durability for urban and rural areas as compare to Honda City popular amongst urban people due
to better road infrastructure.

25
 TOYOTA IMC
Types CKD CBU
Total
Passenger Car or LCV or Pickup Sales
Segment SUV Segment Imported Segment
MPV's Segment Segment Volume
Years Volume % of sale Volume % of sale Volume % of sale Volume % of sale
2018 51412 80% 4186 7% 7470 12% 932 1% 64000
2019 56720 86% 2609 4% 6070 9% 812 1% 66211
2020 23467 81% 1163 4% 3748 13% 459 2% 28837
Tabl
e1

Honda Atlas
Particulars 2018 2019 2020
Passenger Car Segment 42810 39189 14091
Total Sales Volume 50177 48648 22418
% of Contribution 85% 81% 63%

Table 2
Circumstances influence on sales revenue and volume 2018 to 2019:
a) IMC sales revenue increase 13% in 2019 while sales volume indicate only 3% growth the
Increase in revenue mainly achieved through changed in the sales mix increased pricing of
high demand vehicles. Toyota IMC revises its pricing and increased Four times for the year
ended 2019 firstly IMC increase prices in the range of PKR 50,000 to PKR 175,000 for
November 2019 and December 2019 booking. Second in January 2019 with a range of PKR
100,000 to PKR 350,000 for different variants later on April 2019 prices rises with a range of
PKR 65,000 to PKR 300,000 for different models after that late in June 2019 further prices
increased up to PKR 400,000 for different variants with average overall 15% increase in
prices helped to grow sales revenue by 13% in 2019. In comparison Honda Atlas sales
revenue grow by 3% while sales volume down by 3% the increase in revenue mainly
achieved through pricing strategy of high demand vehicle Honda City and Civic as
Honda Atlas The rises in prices affected mainly due to 7% devaluation of PKR currency to
US Dollar and higher material input cost and negative exchange rate 1 Us $= 150 PKR
b) Imported Japanese used car brought into Pakistan indicate amounting $222m in 2018 eroded
the market share and sales portion of Toyota IMC and rival Honda Atlas and demand for the
used Japanese car rises due to economy and reasonable prices and popular among the
consumers. In 2019-2020 budget restriction imposed on used car importers to protect the
existing players indicate imports of vehicles during 2019-20 registered a steep fall of 55% to
$99m that provide edge to regain Toyota IMC market share (Dawn News)

26
a) Toyota IMC revises its pricing and increased Four times in 2019 to 2020 first revision was
made on January 2019 with a range of PKR 100,000 to PKR 200,000 for different variants
later on April 2019 prices rises with a range of PKR 65,000 to PKR 300,000 for different
models after that late in June 2019 further prices increased up to PKR 400,000 for different
variants with average 15% increase in prices. (The Express Tribune). IMC Turnover increased in
2019 mainly due to increase in prices regardless of sale units as the turnover increased by
13% in 2019 while unit’s sales show only 3% increases. As compared to Honda Atlas
increased its prices with a range of PKR 100,000 to PKR 210,000 for January 2019 later on
March 2019 raises prices only for two modals after that late in June 2019 prices raises PKR
260,000 to PKR 425,000 for different variants in order to compete successfully.

b) Restrictions on non-filers for purchasing new cars was imposed in the Budget 2018-2019 with
effect from 1st July 2018 Toyota IMC suspended advance booking and asked their respective
customer to change their Tax status Non-Fillers to Fillers as the Non-filers constituted about
60% of car buyers in Pakistan However IMC sales not declined but impact the Toyota IMC
market share as well as sales not raised with the expected targets Sales of Honda Cars

dropped by 10% for First seven month of the fiscal year and late in January 2019 through
mini budget this restrictions withdraw up to 1300cc for non-fillers in order to revival of
automobile sector.(Mini budget 2018-2019)

c) Imposition of FED ranging from 2.5% to 7.5% on different models according to engine
capacities such as 0 to 1000 cc 2.5% 1000-2000cc 5% and above 2000cc 7.5% in budget
2019-2020. In addition to this, a 17 percent sales tax on the value of vehicles was also
collected from the owners. As a result, from July 2019 owners had to pay a minimum of 19.5
percent of the vehicle’s value as a tax to the government which went up to 24.5 percent
depending upon engine capacity as mentioned above. Levy of 10% additional customs duty on
imported spare parts this all resulted in a significant increase in the price hike of the vehicles,
making it even more difficult for people to buy a new car, as the purchasing power of
consumers reduced Toyota IMC raises prices in the end of December 2019 up to PKR 20,000
of different variants after that late in April 2020 huge prices increases with a range of PKR
100,000 to PKR 500,000 that affected sales of Toyota IMC as the people are option of 2 nd
hand vehicles rather than new ones. (Budget 2019-2020)
d) Interest rates were high at 13.25% before COVID-19, which made car financing expensive for
buyers and Sky rocketing inflation in 2020 10.25% reduced the purchasing power of
customers leaving with lower level of disposable income. All these factors led the contraction

27
 in demand that translated in slowdown of new
Sales Volume Analysis car bookings impact on overall sales revenue of
70,000 66,211
64,000 Toyota IMC.
60,000
e) Toyota IMC launched Toyota Yaris in
50,000
50,177 48,648 replacement of Toyota corolla segment to gain
40,000
28,837 market share and boost the sales in tough
30,000
20,000
economy position in order to compete with
22,418
10,000 Honda City in 19th March 2020 with a price tag
- of PKR 2.349m and available capacity 1300cc
2018 2019 2020
and 1500cc with huge 8 billion investment but
Toyota Honda
postponed promotion and advertisement due to
the emerging Covid-19 Pandemic complete lockdown situation for the month of April.
Government allowed continuing operations in May and June 2020 under smart lockdown
policy to maintain health and safety precautions. Toyota Yaris only able to sell its 1327 Units
for two months under covid-19 pandemic situation.
f) IMC discontinued Toyota Corolla production in March 2020 due to surge of pandemic covid-19
and remains complete shutdown up to two months and Toyota IMC revenue indicate zero
sales in the month of April-20 turnover was declined not mainly just because of covid-19
pandemic but also other factors that impact on overall automobile sector in Pakistan as
discussed.
Toyota IMC sales performance superior than Honda Atlas Cars due to its reliability and durability
resale value and most selling brand amongst its consumers as the revenue analysis indicate despite
aggressive competition and economic slowdown and Covid-19 Pandemic.

Net Sales Revenue

158
160 140
140
120
92 95
100 86
Rs in billion

80
55
60 3.5 Profitability Ratios
40
3.5.1 Gross Profit Ratio:
20
-
2018 2019 2020

28
GP margin for Toyota IMC averages stood at 12.6% in the three years consideration. In comparison
Honda Atlas GP average margin for the three years period stood at 8.9%. The GP ratio for the year
ended 30 June 2018 was 17.1% than dropped by 5% to 12.1% in 2019 while increase in sales
revenue by 13% . In contrast Honda Atlas GP ratio for the year ended 31 March 2018 was 11.4%
than fall to 7.7% in 2019 against 3% increase in turnover.

Toyota IMC GP margin plummet in 2020 by 3.5% and stood at 8.6% in 2020 while Honda Atlas
margin slightly down by 0.3% in 2020

Toyota IMC trend indicate gross margin shrinked each year despite sales turnover climb by 13% in
2019 The rise in sales was due to a higher sales volume of Toyota Corolla best selling model of the
company and through increase in prices of product mix however GP ratio dropped by 5% mainly
cost of sales grew to Rs 139 billion, showing an increase of 20%. Owing to this, the gross profit of
the company went down to Rs. 19 billion as compared to Rs. 24 billion in the corresponding last
period due to diseconomies of scale and external factors such as Imposation of taxes, filler and
non filler tax return restrications, duties, leavy charges and high slab taxes for Luxrious vehicle by
government resulted in higher cost of production/manufacturing.
(https://propakistani.pk/2019/08/28/toyota-imcs-profits-decline-13-for-fy-2018-19/).In comparison
Honda Altas indicate growth of 3% in overall sales which went up to Rs 95 billion in 2019 against Rs
92 billion in the corresponding period last year. The sales increased due to upward price revisions
during the year in order to absorb rupee’s devaluation. Despite a 4% revenue improvement, gross
profit was down 30.10% and the increase in the cost of sales by 8.33% to Rs. 88 billion against Rs.
81 billion in the previous year year. (https://propakistani.pk/2019/05/21/despite-more-revenue-honda-
atlas-profits-drop-by-40-in-fy2018-19/)

Toyota IMC GP ratio for 2020 was stood at 8.6% despite significant dropped in sales by 46% from
2019 and the GP ratio 8.6% is mainly due to increase in prices and higher closing inventories at year
end 14% increase in inventory from last year 2019 most of the Toyota IMC producst remain unsold
due to covid-19 pandemic. In contrast Honda atlas GP ratio remain static in 2020 despite 42%
decline in sales revenue from previous year mainly casued halted production due to covid-19 and
higher end closing stock 22% from last year 2019
In terms of Gross profit margin Toytota IMC slightly better performed than Honda Atlas.

29
 Toyota IMC Honda Atlas
PKR in Billion
2018 2019 2020 2018 2019 2020
Sales 140 158 86 92 95 55
CGS 116 139 79 81 88 51
Closing Stock 11 14 16 8 9 11
Gross Profit 24 19 7 10 7 4
Gross Profit % 17.1 12.1 8.6 11.4 7.7 7.4

Gross Profit Ratio %

17.1
18.0
16.0
14.0 12.1
11.4 2018
12.0
2019
10.0 8.6
7.77.4 2020
%

8.0
6.0
4.0
2.0
-
Toyota Honda

3.5.2 Net Profit Ratio:

30
NP changes 2018 to 2019

Profit margin of Toyota IMC stipulate excellent performance in 2018 net profit margin Rs 15.8
billion with NP ratio 11.3% than dropped by 2.6% and stood at 8.7% with profit margin Rs 13.7
billion 22% declined in 2019 in spite of increase in sales revenue by 13% in 2019, The net profit was
affected mainly due to increase in cost of goods sold higher imported raw material cost, exchange
rate parity difference and devaluation of PKR currency against Us dollar while operating expense
declined by 20% in 2019. In contrast Honda Atlas profit margin was 6.5 billion with 7.1% in 2018
than declined by 3.1% to 4% against increase in sales revenue by 3% but profit margin dropped due
to high cost of manufacturing because imposition of taxes, duties, levies charges that impact on
overall automobile sector on the other hand operating expense remain static and others income
declined by half due to exchange rate difference loss on Fair value of Financial Assets under IAS
39 and low interest rate for bank deposit.

NP changes 2019 to 2020

Toyota IMC profit margin deteriorated in 2020 indicate 5.2 billion with 6% NP ratio against 13.7 billion
and 8.7% NP ratio in the corresponding last period 2019. NP ratio declined by 2.7% and profit margin
plummet by 62% primarily as a result of sales turnover for the year decreased by 46% to 86 billion as
compared to 158 billion recorded last year and other factors such as high inflation rate economy slow
down higher financing interest rates and pandemic covid-19. However, the cost of sales of the
company decreased by 43% to 79 billion as compared to 139 billion. In contrast Honda Atlas NP ratio
stood at vulnerable position 1.2% with profit margin Rs 0.68 billion that was 4% and Rs 3.9 billion
in the last year 2019. The profit margin declined mainly from the fact decreased in turnover by 42%
from last year 2019 that unable to generate enough profit to cover operating expense. Toyota IMC
operating expense declined by only 25% compare to sales turnover declined by 43% Other income of
the Toyota IMC was down to Rs. 3 billion, showing a decrease of 26% as compared with Rs. 4 billion
during the previous year 2019 due to a drop in new car bookings (commission income) and loss on
financial assets due to forex exchange fluctuations. Net profit without others income in 2020 indicate
doldrums situation Rs 1.9 billion for Toyota IMC as compared to Honda Atlas net profit without other
income stood at breakeven point(no profit no loss).
In terms of NP ratio and margin Toyota IMC struggled to maintain its attractions for investors and far
supercilious performance than Honda Atlas despite adverse circumstance.

31
 TOYOTA IMC HONDA Atlas
PKR Billion
2018 2019 2020 2018 2019 2020
Sales turnover 140 158 86 92 95 55
Gross profit 24 19 7 10 7 4
Total operating expense 5 4 3 3 3 2
Other income 4 4 3 2 1 1
Finance cost 0.08 0.07 0.09 0 0 0.73
Taxation 7 5 2 3 2 1
Net Profit W/O Income 11.9 9.4 1.9 4.6 2.5 0.0
Net Profit with Income 15.8 13.7 5.2 6.5 3.9 0.68
NP Ratio % 11.3% 8.7% 6.0% 7.1% 4.0% 1.2%

Net Profi t Rati o %

12.0 11.3

10.0
8.7
8.0 7.1
5.9
6.0
%

4.0
4.0

2.0 1.2

-
2018 2019 2020

Toyota Honda

3.6 Liquidity Ratios:

3.6.1 Current ratio

32
The current ratio for Toyota IMC average stood at 1.8 times in three year’s consideration. In
comparison Honda Atlas current ratio average for three years period stood at 1.5 times .Current ratio
for Toyota IMC in 2018 was 1.7 than grow to 2.1 in 2019 primarily due to decreased in current
liabilities by 47% while assets only dropped by 32% fall in current liabilities mainly due to decline in
advances from customer by 71% in 2019 indicate 7.9 billion last year was 27.4 billion. In contrast
Honda Atlas current ratio improved in 2019 stood at 1.9 that was 1.3 in the last year the overall
improvement was due to decreased in current liabilities by 66% while current assets only dropped by
51% in 2019 the dropped in current liabilities achieved mainly through reduced advances from
customers by 86% 2019 3.9 billion that was 28.4 billion in last year 2018.

Toyota IMC current ratio plummet in 2020 stood at 1.6 the main reason was increase in current
liabilities due to sharp raises in advances from customers and long term loan facility availed and their
current portion due within one year. Advances from customers indicate 24.5 billion in 2020 that was
7.9 billion in last year while current portion of long term loan due indicate 0.11 billion that was null in
the last year. On the other hand increased in current assets primarily due to high closing stock at year
end as compared to last year show 22% increase in inventories due to pandemic covid-19 and others
factor Comparative relation indicates current ratio was not affected and almost remains static due to
increase in asset by 4% mainly because rises in yearend inventory and increase in liabilities by 7% in
2020 due to short term loan from related parties under IAS 24. Toyota IMC can thus amply meet its
current liabilities out of its current assets in all three years average 180 times and superior in terms of
current ratio than Honda Atlas.

TOYOTA IMC HONDA Atlas

PKR Billion
2018 2019 2020 Total 2018 2019 2020 Total
Current assets 75 51 64 189 53 26 27 106
Current liabilities 45 24 39 108 41 14 15 70
Current ratio 1.7 2.1 1.6 1.8 1.3 1.9 1.8 1.5

2.5
Current Ratio
2.1
1.9
2.0 1.8
1.7 1.6

1.5 1.3

1.0

0.5

-
2018 2019 2020
33
3.6.2 Quick or Acid test ratio:

Toyota IMC quick ratio for the three year average indicate 1.4 times meant that sufficient liquid assets
available to meet its current liabilities. In comparison Honda Atlas average quick ratio 1.1 times in
three year consideration. Toyota IMC quick ratio for 2018 show 1.4 times that grows slightly indicates
1.5 times in 2019 the improvement due to dropped in advances from customers, dealers and taxation
cost by 71% and 100% respectively in 2019. The overall liabilities reduced by 47% whiles assets
dropped by 42% help to improved quick ratio without taken into account inventories. In contrast
Honda Atlas quick ratio also slightly improved in 2019 as compared to 2018 indicate 1.2 times mainly
due to reduce current liabilities by 66%(decline in advances from customers by 86%) while asset
reduced by 42% without inventories (decreased in short term investment by 71%) in 2019.

The quick ratio dropped in 2020 indicates 1.2 times as compared to last year indicates 1.5 times
whereas Honda Atlas shows 1.1 times that was 1 times in last year 2019.Toyota IMC quick ratio
dropped primarily due to increase in current liabilities by 60% in 2020 (210% increase in advances
from customers stood at 24.5 billion in 2020 that was 7.9 billion in 2019). Inventories represent 26% of
total current assets in 2020.In contrast Honda Atlas quick ratio vaguely dropped and stood at 1 times
in 2020 as compared to 1.2 times in 2019 mainly because increase in liabilities and decrease in
assets.

Quick ratio for Toyota IMC points to the fact that Toyota is able to meet 140% of its current liabilities
through liquid assets in for three year averages even without taking into account its inventories.

TOYOTA IMC HONDA Atlas

PKR Billion
2018 2019 2020 Total 2018 2019 2020 Total
Current assets 75 51 64 189 53 26 27 106
Inventory 11 14 16 42 8 9 11 29
Current liabilities 45 24 39 108 41 14 15 70
Quick or Acid test ratio 1.4 1.5 1.2 1.4 1.1 1.2 1.0 1.1

34
 Quick Ratio
1.0
2020
1.2

1.2
2019
1.5

1.1
2018
1.4

- 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6

Toyota Honda

35
3.7 Investor Ratios:

3.7.1 Return on Equity:

Toyota IMC ROE indicate 43% due to elevated net profit Rs 15.8 billion against 37 billion capitals
employed in 2018 stipulate high return to potential investors. In contrast Honda Atlas ROE shows
38% with 6.5 billion net profits along 18 billion capitals. In 2019 ROE for Toyota IMC dropped by 21%
and stood at 34% due to fall in net profit by 13% as well as denominator (capital) increased by 8% the
increase in capital mainly due to transfer accumulated profits to capital. In comparison Honda Atlas
ROE specify 22% after sharp fall by 42% the decline in ROE mainly due to dropped in net profit by
40% and increase in capital by 5.9% and stood at Rs 18 billion. Toyota IMC ROE in 2020 goes worse
plummet by 65% and stood at 12% primarily due to dropped in net profit(Sky rocket, inflation, high
interest rates, economy recession and covid-19) by 63% and increase in capital by 2.5% while Honda
Atlas ROE indicate 4% after significant dropped by 81% the reason behind shrink in net profit by 82%
Meanwhile Toyota IMC ROE average indicates 29% that is financially viable and attractive for
shareholders and investors in compression Honda atlas.

TOYOTA IMC HONDA Atlas

PKR Billion
2018 2019 2020 Total 2018 2019 2020 Total
Net Profit 15.8 13.7 5.1 34.6 6.5 3.9 0.7 11.0
shareholder equity 37 40 41 118 17 18 17 51
ROE % 43 34 12 29 38 22 4 22

ROE %
50
45 43
40 38
34
35
30
25 22
20
15 12
10
4
5
-
2018 2019 2020

Toyota Honda

3.7.2 Earnings per Share (EPS)

36
EPS for Toyota IMC indicate Rs 201 in 2018 due to sky rocket net profit in 2018 investor would get a
higher return on their investment. In comparison Honda atlas EPS show Rs 46. EPS downfall seen in
Toyota IMC by 13% and stood at Rs 174 for the year 2019 due to huge decline in net profit despite
increase in sales revenue mainly because gross profit was dropped due to higher cost of production
whereas Honda Atlas EPS dropped by 41% indicate Rs 27 in 2019.EPS for Toyota IMC fell down
significantly in 2020 by 63% due to dropped in sales revenue and net profit in contrast Honda Atlas
EPS dropped by 81% and stood at Rs 5 might go negative in future prediction. EPS for Toyota IMC
point to the fact that better return on their respective investment as compared to Honda Atlas.

EPS Rati o
250

200 201
174
150 Toyota
Honda
Rs

100

46 65
50 27
5
-
2017.5 2018 2018.5 2019 2019.5 2020 2020.5

3.7.3 Price Earnings Ratio (P/E)

P/E ratio of Toyota IMC indicate 7.1 times in 2018 with high market share price along with highest
EPS comparatively Honda Atlas P/E indicate better return 10.5 times investors expecting higher

37
growth rate in the future. P/E for in 2019 dropped slightly 6.9 times while share price dropped by 15%
to Rs 1204 due to high volatile market (sales of shares greater than buying) as well EPS also
declined by 13% to Rs 174 mainly due to fall in net profit.in contrast Honda Atlas P/E dropped slightly
and stood at 8.9 times that was 10.5 in the last period the decrease in P/E primarily due to plummet in
market share price by 50% and stood at Rs 240 and EPS declined mainly due to fall in net profit for
the year 2019. In 2020 Toyota IMC indicate better P/E 15.4 times despite share price dropped by 83%
and EPS reached lowest level to Rs 65 same scenario for Honda Atlas P/E indicate 27.7 times while
share price dropped by 55% and EPS only show Rs 5 that was Rs 27 in the last year In Terms of P/E
Honda Atlas performance better than Toyota IMC.

TOYOTA IMC HONDA Atlas

PKR Rs
2018 2019 2020 2018 2019 2020
Share Price 1,421 1,204 995 477 240 133
EPS 201 174 65 46 27 5
P/E Ratio 7.1 6.9 15.4 10.5 8.9 27.7

3.8 Financial Leverage Ratios:

3.8.1 Interest cover ratio:

Interest cover ratio for Toyota IMC indicate 288 times coverage against operating profit Rs 23 billion
while 27 billion short term loan secured comparatively Honda Atlas shows 646 times coverage

38
superior in terms of interest coverage operate the business solely equity finance without using loan
facility. In 2019 Toyota IMC Interest coverage ratio slightly dropped due to decline in operating profit
and stood at 19 billion and avail long term secured loan 0.1 billion comparatively Honda Atlas Interest
coverage still better than Toyota IMC indicate 500 times coverage the decline in coverage rate mainly
due to decline in operating profit. In 2020 interest coverage for Toyota IMC indicate sharp declined
and stood at 86 times due to rise in short term and long term loan as well as operating profit
significantly dropped in contrast Honda Atlas interest coverage ratio dropped to 3 times that was 500
times in the last year the interest coverage ratio dropped mainly due to decline in operating profit and
avail short term loan facility enhanced the finance cost. In terms of Interest coverage ratio Toyota IMC
better performed in 2020 but overall interest coverage for Honda Atlas is far better than Toyota IMC

TOYOTA IMC HONDA Atlas

PKR Billion
2018 2019 2020 2018 2019 2020
Short Term Loan 27 8 25 0 0 2.33
Long Term Loan - 0.1 0.48 - - -
Operating Profit 23 19 7 9 6 2
Interest 0.08 0.07 0.09 0.01 0.01 0.7
Interest Cover (Times) 288 284 86 646 500 3

Interest Cover Ratio

3
2020
86

500
2019
284

646
2018
288

- 100 200 300 400 500 600 700

39