The selected company is Toyota Motor Corporation (TMC), which is the leading global automotive company. It was established in 1937, and its head office is located in Aichi, Japan. The company operates through its subsidiaries, including Lexus, Daihatsu, Hino Motors and others in different countries. It is registered as incorporation, and the full name of the corporation is “Toyota Jidosha Kabushiki Kaisha.” The company is ranked as the largest car manufacturer and also the tenth biggest company in terms of its revenue with its distribution and sales network in almost every country. Its stock code is 7203 (TYO), and its shares are listed on the Tokyo Stock Exchange. TMC employs nearly 400,000 employees, and its market capitalization is $175.648 billion, which means that it is one of the largest firms globally. The global automotive industry is highly competitive, with many multinational and local companies designing, manufacturing, and distributing vehicles in different markets. The key competitors of Toyota Motor Corporation include Honda Motor Company Ltd., General Motors Company, Nissan Motor Company, and Ford Motor Company. The market share of leading companies in the global automotive market is graphically represented in the following figure:
TMC is one of the first companies that successfully developed and sold electric vehicles. Tesla is a key competitor in this segment of the automotive market. Its stock symbol TSLA and is trading at $835 per share. Tesla’s revenue was $24.578 billion as compared to JPY 29.929 trillion. The financial performance of Toyota Motor Corporation is evaluated by conducting common-size analysis and financial ratio analysis.
Common-Size Financial Statement Analysis
This analysis determines changes in the values of financial elements in the financial statements of Toyota Motor Corporation.
|Change %||2018||Change %||2019|
Table 1. Income Statement (Horizontal Analysis)
Table 1 is the horizontal analysis of the key financial elements in the company’s income statement. It is noted that the company’s revenue increased by 2.86% in 2018, but it declined by -0.97% in 2019. On the other hand, the cost of sales increased because of the rise in material costs. The company reported a significant decline in its net income in 2018 due to a major problem in its vehicles that resulted in the call-back of more than two million vehicles. However, its net income grew by 10.27% in the last year.
|Change %||2018||Change %||2019|
Table 2. Balance Sheet (Horizontal Analysis)
Table 2 is the horizontal analysis of the key financial elements in the company’s balance sheet. It is noted that the company’s assets increased in the last two years as the company expand its distributorship and also invested in new capital assets. TMC managed to keep its liabilities low, which resulted in the growth of its equity.
Table 3. Income Statement (Vertical Analysis)
Table 3 indicates that the gross profit margin did not change in the last two years, but its net profit margin increased from 6.2% in 2018 to 6.9% in 2019, which was a positive sign as the company overcame the negative publicity because of its engine problems and also managed to lower its operating expenses. However, the profitability remained low due to the increased market saturation in China and the US. Moreover, the coronavirus pandemic is expected to lower the demand for new vehicles that could force companies, including TMC, to incur a net loss.
Table 4. Balance Sheet (Vertical Analysis)
Table 4 indicates that the company’s liabilities declined as a proportion to its total assets in 2019, but the equity improved.
Financial Ratio Analysis
The following table provides values of key financial ratios of TMC in the last two years:
|Quick Ratio||18,879,237 – 2,656,396 / 17,902,377||0.91||18,642,531 – 2,434,918 / 18,226,938||0.89|
|Return on Equity||1,882,873 / 19,348,152||9.73%||2,076,183 / 20,060,618||10.35%|
|Total Liabilities / Total Equity||31,869,812 / 19,348,152||1.65||31,942,754 / 20,060,618||1.59|
|P/E Ratio||6,399.65 / 645.11||9.92||6,797 / 744.33||9.13|
Table 5. Financial Ratios
Table 5 indicates that the quick ratio value was less than 1, which means that the company had large inventories that could affect its liquidity. The company’s return on equity improved in 2019 due to the increase in its net income. Furthermore, the total liabilities to total equity ratio had a lower value in 2019 as the company’s equity increased. The P/E ratio did not change much in 2019, but a high multiple implies that investors had positive expectations of the company’s prospects.
Although I have tried to provide a comprehensive discussion of the financial performance of TMC, I feel that I could have done much better if I had more space to write the analysis. I would present more information from the company’s annual report, and discuss the implications of its business decisions on its prospects.