TOYOTA MOTOR

CORPORATION
MANEGERIAL ECONOMICS ASSIGNMENT

Natasha Panda
BBA020142
TOYOTA MOTOR CORPORATION
Founded in 1937, by Kilchiro Toyoda. Toyota Motor Corporation is a Japanese
company that engages in the design, manufacture, assembly, and sale of passenger cars,
minivans, commercial vehicles, and related parts and accessories primarily in Japan,
North America, Europe, and Asia. Current brands include Toyota, Lexus, Daihatsu and
Hino. Toyota Motor Corporation is the leading auto manufacturer and the eighth largest
company in the world. As of March 31, 2021, Toyota Motor Corporation’s annual
revenue is $256.7 billion and currently, 366,283 people are employed.

INTERNAL ENVIROMENT OF TOYOTA:

Core Competency
The core competence of Toyota Motor Corporation is its ability to produce
automobiles of great quality at the best prices, thereby providing value for money to the
customers. This core competence of quality can be attributed to its innovative production
practices. The quality aspect of Toyota’s products have revolutionized automobiles in the
past and almost all the automobile companies had to try and better the quality of their
products. It is a cornerstone of the cost leadership strategy that the company pursues.

Distinctive Competency
Toyota’s distinctive competence is its production system known as the “Toyota
Production System” or TPS. TPS is based on the Lean Manufacturing concept. Toyota
has worked tirelessly over the years to establish this distinctive competence. No other
automobile manufacturer can do it as well as Toyota does. This distinct competence has
led to a competitive advantage that has given Toyota a sustainable brand name
and a market leader position.
TOYOTA GLOBAL VISION
 Toyota will lead the way to the future of mobility, enriching lives around the world
with the safest and most responsible ways of moving people.
 Through our commitment to quality, constant innovation and respect for the planet,
we aim to exceed expectations and be rewarded with a smile.
 We will meet our challenging goals by engaging the talent and passion of people, who
believe there is always a better way.
 Your Satisfaction Our Commitments

VISION
1. Delight our customers through innovative products, by utilizing advanced
technologies and services.
2. Ensure growth to become a major player in the Indian auto industry and contribute to
the Indian economy by involving all stakeholders.
3. Become the most admired and respected company in India by following the Toyota
Way.
4. Be a core company in global Toyota operations.

MISSION
1. Practice ethics and transparency in all our business operations.
2. Touch the hearts of our customers by providing products and services of superior
quality at a competitive price.
3. Cultivate a lean and flexible business model throughout the value chain by continuous
improvement.
4. Lead the Toyota global operations for the emerging mass market.
 BRIEF HISTORY OF TOYOTA MOTOR CORPORATION
(2010-2020)
2010  The total number of automobiles produced reaches 8 million units.
 Vitz (Yaris outside Japan) undergoes full model change.

2011  P.T. TD Automotive Compressor Indonesia established in Indonesia to produce car air-
conditioning compressors.
 Toyota Industrial Equipment Vietnam Co., LTD. established in Vietnam to produce lift
truck parts and small warehouse equipment.
2012  Company acquires Uster Technologies AG, which produces and sells yarn quality
measurement and cotton classing instruments.
 Yantai Shougang TD Automotive Compressor Co., Ltd. established in China to produce
car air-conditioning compressors.
2013  Company acquires Cascade Corporation of the U.S.A., which produces and sells
attachments for industrial equipment.
 Production starts on FS gas/gasoline engines.
2014  The total number of car air-conditioning compressors produced reaches 400 million units.
 Production starts on ZS diesel engines.
2015  Company acquires the lift truck operations of Tailift Co., Ltd. and establishes LT Material
Handling Pte. Ltd.
 Toyota Industries Engine India Pvt. Ltd. established in India to produce diesel engines.
2016  The sixth Environmental Action Plan launched.
 The total number of automobiles produced reaches 10 million units.
2017  Sales begin for Rinova ( 8FBR outside Japan ) electric reach trucks.
 Compressor production reaches 500 million units.
2018  RAV4 undergoes full model change.
 Kameyama Proving Ground starts operations.
2020  Overseas production starts on electric compressors.
MERGER & ACCQUISITION AND PARTNERSHIPS AND
STRATEGIC ALLIANCES
In a merger, the boards of directors for two companies approve the combination
and seek shareholders' approval. Whereas, in a simple acquisition, the acquiring company
obtains the majority stake in the acquired firm, which does not change its name or alter
its organizational structure.

A strategic alliance is an arrangement between two companies to undertake a

mutually beneficial project while each retains its independence. The agreement is less
complex and less binding than a joint venture, in which two businesses pool resources to
create a separate business entity.

Top M&A, Partnerships, Joint Ventures, and Strategic Alliances

of Toyota (2009 – 2013)
WHAT IS PROFITABILITY?
Profitability ratios are financial metrics used by analysts and investors to measure
and evaluate the ability of a company to generate income (profit) relative to
revenue, balance sheet assets, operating costs, and shareholder’s equity during a specific
period of time. They show how well a company utilizes its assets to produce profit and
value to shareholders.

A higher ratio or value is commonly sought-after by most companies, as this

usually means the business is performing well by generating revenues, profits, and cash
flow. The ratios are most useful when they are analysed in comparison to similar
companies or compared to previous periods. The most commonly used profitability ratios
are examined below.

There are various profitability ratios that are used by companies to provide useful
insights into the financial well-being and performance of the business. All of these ratios
can be generalized into two categories, as follows:

Margin Ratios :Margin ratios represent the company’s ability to convert sales into profits
at various degrees of measurement. Examples are gross profit margin, operating profit
margin, net profit margin, and cash flow margin.

Return Ratios: Return ratios represent the company’s ability to generate returns to its
shareholders. Examples include return on assets, return on equity and return on invested
capital.
PROFITABILITY RATIO ANALYSIS OF TOYOTA MOTOR
CORPORATION:

GROSS PROFIT RATIO:-

Gross profit ratio is a profitability ratio that shows relationship between gross
profit and total net sales revenue. It is a popular tool to evaluate the operational
performance of the business. When gross profit ratio is expressed in percentage form, it is
known as gross profit margin or gross profit percentage. The basic components of the
formula of gross profit ratio are gross profit and sales

gross profit
FORMULA:- Gross Porfit Margin=
Net sales

RATIOS:-

YEAR 2017 2018 2019 2020 2021

SALES 1,89,50,973 1,89,93,688 1,85,83,653 2,20,64,192 2,56,91,911
GROSS
PROFIT
22,67,176 23,78,362 21,95,089 34,23,197 48,90,772
G.P 11.96 12.52 11.81 15.51 19.03
RATIO(%)

INTERPRETATION:-

There is a fluctuation in the gross profit ratio. The percentage of gross profit over sales is
gradually decreasing till 2019 and after which it is increased to 15.51 and 19.03 in 2020
and 2021. Thus it show an increasing trend from 2019 onwards. It is also apparent that
the GP ratio is increasing about 4% from 2019-2020 (11.81%-15.51%) and 2020-2021
(15.51-19.03%), Hence it can be stimulated that between 2021 and 2022 there may be an
increase in GP ratio of at least 4%.

NET PROFIT RATIO:-

Net profit ratio is a popular profitability ratio that shows relationship between net
profit after tax and net sales. It is computed by dividing the net profit (after tax) by net
sales. The relationship between net profit and net sales may also be expressed in
percentage form. When it is shown in percentage form, it is known as net profit margin.

Revenue−cost
FORMULA:-  Net Porfit Margin= Revenue

RATIOS:-

YEAR 2017 2018 2019 2020 2021

SALES 1,89,50,973 1,89,93,688 1,85,83,653 2,20,64,192 2,56,91,911
NET
PROFIT 17,39,446 17,68,181 15,23,625 25,31,725 37,11,563
N.P 9.17 9.30 8.19 11.47 14.44
RATIO(%)

INTERPRETATION:-

The Net Profit Ratio was 9.17% in 2017 which increased slightly to 9.30% in 2018.There
is a decrease in Net profit Ration in 2019 to 8.19%. However, there is an increase of
almost 3% in Net Profit Ration in 2020 when it was 11.47%. Similarly there is an
 increase of 3% again for the next consecutive year in 2021 where the Net Profit Ratio is
14.44%.

CURRENT RATIO:-

The current ratio is a financial ratio that measures whether or not a firm has enough
resources to pay its debts over the next 12 months. It compares a firm's current asset to its
current liabilities. The current ratio is an indication of a firm's market liquidity and ability
to meet creditor's demands.

Current Assets
FORMULA:- Current Ratio= Cuurrent Liabilites

RATIOS:-

YEAR 2017 2018 2019 2020 2021

CURRENT
ASSET 1,30,73,604 1,18,29,755 1,23,21,189 1,37,84,890 1,57,17,,706
CURRENT
LIABILITY 1,06,86,214 1,07,90,990 1,17,81,574 1,29,12,520 1,46,80,685
CURRENT 1.22 1.09 1.04 1.06 1.07
RATIOS

INTERPRETATION:-

There is a fluctuation in the current ratio from 1.22 in 2017 to 1.09 in 2018 to a
decrease in 2019 to 1.04 and then an increase in 2020 to 1.06 and consecutively an
increase again to 1.07 in 2021, but the current asset is well enough to meet current
liability.
 LIQUID RATIO:-

In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a

company to use its near cash or quick assets to extinguish or retire its current liability
immediately. Quick assets include those  current asset that presumably can be quickly
converted to cash at close to their book value.

(Current Assets−Inventory )
FORMULA:- Liquid Ratio=
Cuurrent Liabilites

RATIOS:-

YEAR 2017 2018 2019 2020 2021

LIQUID ASSET 1,11,39,947 1,00,08,059 1,01,82,529 1,15,42,070 1,31,50,988
CURRENT
LIABILITY 1,06,86,214 1,07,90,990 1,17,81,574 1,29,12,520 1,46,80,685
LIQUID RATIOS 1.04 0.92 0.86 0.89 0.89

INTERPRETATION:-

The liquid Asset ratio was 1.04 in 2017 which has shown a gradual decrease to 0.92 % in
2018 to further decreased to 0.86% in 2019. Between 2019-2020 and 2020-2021 the
Liquid Asset Ratio has remained stable at 0.89 % in both the financial years.

CONCLUSION
 Toyota registered a record profit of $8.2 billion for the fiscal first quarter as of
March 2021; currency accounted for 80% of the operating profits in the past three
quarters. But the high profits have not deterred the company from its relentless cost
saving initiatives. It saved 210 billion yen in the past three quarters. This achievement is
due to the Japanese Prime Ministers new monetary policy. Toyota is also focusing a lot
on its luxury brand Lexus. This segment offers much higher margins and often ends up
being the carmakers' cash cow.

Lexus saw record global sales of 523,000 vehicles half of which came from the
U.S. -- its largest market. Toyota has set a lofty target of growing the brand 10% each
year for the next 30 years, while exploring the emerging markets. If cash is received fast
then it can be reinvested which increases profitability of the company. Income statement
Analysis shows company’s profitability over a period of time. Return on assets, return on
equity and expense to revenue are used to check the automobile industries profitability.

When we look at the Income Statement of Toyota, we observe that the company
has been generating huge profits consistently over the last three years. This shows that
their revenue is growing year on year. Hence we can conclude that the profitability is
strong for Toyota, being the Market leader.