Interpret on Decomposition Analysis - Research Paper Example

The relationship between return on assets and return on equity is that return of assets shows how profitable a company is before they consider giving advantage to investments, hence two thirds of the DuPont equation of measuring return of quality is comprised up of return on assets. (Peppers, 2005, pp 124) Net Income ROA = Value of assets Return on assets and return on help in calculating the rate of growth of a company. The value of return on assets helps in calculating the internal growth rate of a company.

Internal growth rate is the maximum rate of growth that a company can achieve without getting help from external financing. It therefore tells how independent a company is. The value of the return on equity helps in determining the sustainable growth rate of a company; this is the maximum attainable income of a company with the inclusion of assets and investments. This gives the potential of the company with the exploitation of all avenues of income generation. Capital intensity is the current status of funds available in the company with the consideration of other factors in the company such as labor and other forms of production.

Companies that use heavy machinery and have many laborers do work that is more effective; hence, an increase in the capital intensity increases the labor productivity. Companies that use so much initial investment always get lower return on assets than those, which use less initial investment funds; however, increased productivity makes the company have a greater growth rate. Quantitatively, capital intensity is the ratio of total value of capital equipment to the total potential output of the company.

(Masterman, 2007, pp 47). The world’s leading car-manufacturing company, Toyota, use the JIT production method. The JIT production method involves, the processes of waste elimination participative culture of work, and, continuous improvement of quality of production hence by using this system, Toyota reduce the need for raw materials, this in many ways increase the returns on quality of the company because less money is used in the production expenses of the company. This also minimizes wastes hence more economical in that the company does not spend on ways of ways of waste disposal.

The Kanban system is the control unit of the JIT it implements everything that happens in the system. This helps in making sure that there are no any early or late productions in the company. The efficient method of production that Toyota uses makes it the largest vehicle producing company in the world. Though there has been a falling trend in the sales of the vehicles, this is mainly due to external causes in the market, the sales mainly fell in the country, and the drop in production was by 11.7%. Outside Japan, the sales improved and went up by 6.2%. The policy of minimum wastage and efficient production ensures that the production and sales remain high.

The return on quality remains high (Tracey, 2008, pp 54). Honda is a Japan based motor p[production company. recently Honda made their all time biggest production quantity of all time. Hondas strategy of production and marketing is different from that of Toyota, while Toyota mainly majors in the production of motor vehicles, Honda, on the other side has a diversity of products from vehicles to motorbikes, they even produce robots, in fact, Honda produced the only human robot that can walk up and down a