Running head: SUBARU CORPORATION 1

Subaru Corporation

Caroline Tade

Arizona State University

OGL 260: Resource Allocation, Module 3

April 9, 2022
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Subaru Corporation

Subaru is a globally recognized corporation mainly known for manufacturing vehicles

and manufactures some of the prevalent vehicles we know as the Subaru Forester, Subaru

Crosstrek, and the Impreza. However, before Subaru became globally known for the various cars

manufactured, Subaru originally started in 1917 in the aerospace industry when they launched

the Nakajima Aircraft Company. The aircraft company helps create technology and design for

building airplanes. In 1953, Subaru began manufacturing automobiles with the launch of Fuji

Heavy Industries Ltd, and in 2017, it became known as Subaru corporation (“Integrated Report,”

2022). Subaru's are sold all over the world, and there are over four hundred locations in Japan

and ninety locations in other countries and regions, allowing Subaru to sell over 700,117 cars a

year, generating over 22 million in revenue (“Integrated Report,” 2022). As we continue, we

look at Subaru's financial history and possible risks as Subaru focuses on future growth.

Subaru was created in 1917 with the launch of Nakajima Aircraft company, and years

later, they launched into the automotive industry. The launch into the automotive industry proved

to be more successful than in the aerospace industry, as Subaru generated 96.7% of net sales

from automotive sales and 3.1% of net sales from aerospace sales (“What is Subaru,” 2022). To

gain a better understanding of the year-to-year breakdown of Subaru's revenue, Keown, Martin,

& Petty state that you can view a company's income statement to identify the amount of profit

generated by a firm over a given period (Keown, Martin, & Petty, 2020, p. 56). When viewing

Subaru's income statement from the past five years, while sales remained high, Subaru

experienced a 2% reduction in revenue from 2017-to 2019 and underwent a 6% increase in

revenue in 2020. However, in 2021, Subaru experienced a 15% reduction in growth. This

reduction was mainly due to the supply and chain demand issues that have affected companies
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worldwide. In addition, when learning more about Subaru's cash inflows and outflows, Subaru's

most significant cash outflows were spent on investing opportunities. Keown, Martin, and Petty

state that the cash statement of cash flows identifies the sources and uses of cash to explain the

change in a firm's cash balance report (Keown, Martin, & Petty, 2020, p. 72). Subaru spent over

$150 million on capital expenditures, with the highest cash outflow being in 2020, when they

spent over $200 million (“Subaru Corp,” 2022). Also, when viewing Subaru's performance over

the past five years, Subaru's return on invested capital over five years averaged 11.3%, with an

increase in return on invested capital in March of 2017 at 19%. Still, it hit an all-time low in

March of 2021 at 3.6% (“Return on Invested,” 2022). With the cash received for future products

and services, Subaru plans to work on developing new models and prototypes that help fulfill its

mission of becoming a more sustainable society. Subaru aims to increase sales by 40% for all-

electric or hybrid vehicles, reduce CO2 by 90%, and target carbon neutrality (“Integrated

Report,” 2022). With the focus on future growth and sustainability, Subaru does recognize the

possible risk that can occur but does not let that stop them from remaining at the top of the

market.

With most corporations, the risk and return on invested capital for stakeholders and

stockholders are essential to understand and consider. Losing stakeholders and shareholders can

hurt a company's growth and create issues further down the road. This is something Subaru is

aware of and has recognized as they focus on the company's future growth. Subaru's investor

relations include the business risks that could significantly influence investors' decisions and

include areas such as economic trends, changes in the market appraisal, product defects, and

dependence on specific suppliers' materials and components (Business, 2022). Understanding

Subaru's future growth and the risk associated with these new ideas allow Subaru to maintain an
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all-time high. Since 2010, Subaru has grown substantially and has been at the top of the market

despite decreasing revenue in 2021. Also, Subaru has a history of strong financial performance

with a significant net cash profit, and an excellent history of free cash flow and sales growth,

allowing Subaru to maintain a limited downside of risk (Tacken, 2021).

Overall, since Fuji Heavy Industries ltd in 1953, Subaru has slowly moved up to the top

of the chart over the market. Subaru is located all over the globe selling over 700,000 cars,

totaling more than 22 million in revenue. Subaru is always looking for ways to improve and has

seen this work in their favor. Subaru has maintained an all-time high in sales for the past ten

years and is a company with limited risk. With a significant net cash position, a great history of

free cash flow, and excellent sales growth, it is easy to understand how Subaru remains high on

the market list.

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References

Integrated Report (2022). Subaru Investor Relations, retrieved from,

https://www.subaru.co.jp/en/ir/library/annual-reports.html.

Keown, A. J., Martin, J. D., & Petty, J. W. (2020). Foundations of Finance: The Logic and

practice of Financial Management (10th ed). New York, NY: Pearson.

Management Risk (2022). Subaru Investor Relations, retrieved from,

https://www.subaru.co.jp/en/ir/library/annual-reports.html.

Return on Invested Capital for Subaru Corporation (2022). Finbox.com, retrieved from,

https://finbox.com/OTCPK:FUJH.Y/explorer/roic.

Subaru Corp. (2022). Wall Street Journal Market Reviews, retrieved from Dow Jones &

Company, https://www.wsj.com/market-data/quotes/FUJHY/financials/annual/cash-flow.

Tacken, D. (2021, March 3). Subaru’s Decade of Strong Performance has left the Share Price

Depressed: A recipe for Outsized Future Returns. Seeking Alpha, retrieved from,

https://seekingalpha.com/article/4410997-subaru-share-price-depressed-recipe-for-

outsized-future-gains.

What is Subaru? (2022). Subaru Investor Relations, retrieved from,

https://www.subaru.co.jp/en/ir/individualinvestors/overview.html.