The Automobile Industry: Renault and Suzuki - Essay Example

The Automobile Industry: Renault and Suzuki Introduction The automobile industry is marked by stiff competition from the key players resulting into a competitive market structure in which the individual firms depend on the natural forces of demand and supply to determine their prices as well as outputs. Key players in the industry such as Toyota and General Motors register huge sale each year even as other competitors rise to gain some share in the globally competitive market (Styles, 68). The main purpose of this paper is o make comparison between the financial statements of two companies in the automobile industry. Renault and Suzuki will be used to make in this paper owing to the fact that they fall in the same category in terms of sale turnover per year (Nieuwenhuis, 77). Company Background Renault Renault is a multinational motor vehicle manufacturing firm that was first established France in the year 1899 with its headquarters in Boulogne-Billancourt. Some of the vehicle models that it produces ranges from cars, vans, buses, tractors and tanks. In the recent past, the firm was ranked ninth in the world and third in Europe in terms of the largest automobile firms. The firm’s current chairman and CEO is Carlos Ghosn. The firm is partly private and as well as owned by the government in which the French government owns 15% share. It has formed many alliances which have seen its output and revenue increase tremendously (Saint, 43). Suzuki Suzuki is a Japanese multinational form which its headquarters in Minami-ku, Hamamatsu and was founded in 1909 by Michio Suzuki. However, actual manufacture of motor vehicles began in 1937 due to the demand from the locals on the need to diversify their product line. It is rated the tenth largest automaker in the world and second largest in Japan. Its current CEO is Osamu Suzuki from the family lineage of the founder (Odaka, 309). Trend analysis Metric 2012 Renault (million of euros) 2013 Renault (million of euros) % Change 2012 Suzuki (million Japanese Yen) 2013 Suzuki (million Japanese Yen) % Change Sales 41,270 40,932 -0.82% 2,578,317.0 2,512,186.0 -2.56% Net Income 695 1,735 149.64% 53,887.0 80,389.0 49.18% Total expenses 6,685.0 6,593.0 -1.38% 477,653.0 515,147.0 7.85% Total Assets 75,414.0 74,992.0 -0.56% 2,302,439.0 2,487,635.0 8.04% Total Liabilities 50,867.0 51,778.0 1.79% 1,190,682.0 1,189,083.0 -0.13% Total Equity 24,547.0 23,214.0 -5.43% 1,111,757.0 1,298,552.0 16.80% Cash 11,180.0 11,661.0 4.30% 291,670.0 279,009.0 -4.34% Data source: Bloomberg BusinessWeek Links: http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=RNSDF http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=7269:JP From the above chart, total revenues of Renault during 2013 grew at a 1.74% higher rate than that of Suzuki. The net income of Renault had a much better growth rate than Suzuki during the two year period. The total expenses of Suzuki experienced a 7.85% growth in 2013 which is 9.23% higher than that of Renault. The total liabilities of Suzuki diminished in 2013, while the liabilities of Renault grew by 1.79%. The cash reserves of Suzuki diminished in the year 2013 while that of Renault experienced an increase by 4.30%. The total assets of Suzuki grew at a rate of 8.04%, while Renault had its total assets balance go down by 0.56%. Advantages Ratio Analysis The best approach to be used in comparing the financial performance of Renault and Suzuki is ratio analysis. One of the virtues of ratio analysis is that its results can be compared against the results of other companies or against the industry. A database that can be used to retrieved information regarding the industry standard financial ratios is Dun & Bradstreet. Ratio analysis is also useful to compare a firm’s financial performance across time. Ratio Analysis: Renault Vs Suzuki The gross margin is a measure of the absolute profitability of a company. In 2013 Renault had a margin of 2.75%, while Suzuki had a net margin of 1.53%. The gross margin of Renault is 1.22% better than Suzuki. The industry standard gross margin for airlines in 2013 was -1.9% both companies had better profitability than the industry. The return on assets (ROA) of Renault was 0.61% in 2013 while Suzuki had a return on assets of 4.53%. Suzuki’s ROA was 3.92% better than Renault. Return on assets shows how effective a company has been at generating profits from its assets. The average ROA of the motor industry for 2013 was 0.12%. Both companies performed better than the industry ( Plunkett, 55). The current ratio shows the ability of a company to pay off its short term debt. The formula to calculate current ratio is current assets divided by current liabilities. In 2013 Renault and Suzuki had current ratios of 1.0 times and 1.7 times respectively. The industry average current ratio was 1.7. Therefore Renault is in a better position to pay off its short term debt than Suzuki. Suzuki must pay close attention to this ratio to ensure the company maintains its liquidity. The debt ratio shows the how prepared a company is to pay off its entire debt. Renault had a debt ratio in 2013 of 145.5 times while Suzuki had a debt ratio of 31.1 times in that year. The debt ratio of Suzuki is better than Renault which implies that the company is in a better position to pay off all its debt. The earnings per share (EPS) of Renault in 2013 were 2.15 euros while that of Suzuki was 10.14 Japanese Yen. Investors prefer higher EPS results. The debt to equity ratio measures the amount of assets being provided by creditors for each dollar of assets being provided by stockholders. Renault and Suzuki had debt to equity ratios of 1.46 and 21.98 respectively. The operations of Renault are thus much more leveraged than Suzuki. Conclusion The financial analysis performed on both companies’ shows that Renault has a much bigger operation than Suzuki. The net margin and return on assets metrics demonstrated that Renault profitability is better than Suzuki. Based on the current ratio Renault is better positioned to pay off its short term debt, but the debt ratio showed a tendency that Suzuki is better positioned to pay off all its debt. In choosing between Renault and Suzuki, an investor will be better off purchasing Renault common stocks in the stock exchange market. Work Cited Nieuwenhuis, Paul, and Peter Wells. The Automotive Industry and the Environment: A Technical, Business and Social Future. Cambridge [u.a.: Woodhead Publ. [u.a., 2003. Print. Odaka, Kōnosuke. The Motor Vehicle Industry in Asia: A Study of Ancillary Firm Development. Singapore: Published for Council for Asian Manpower Studies by Singapore University Press, 1983. Print. Plunkett, Jack W. Plunkett's Automobile Industry Almanac 2009: The Only Comprehensive Guide to Automotive Companies and Trends. Houston, Tex: Plunkett Research Ltd, 2008. Print. Saint, Loup A. Renault. J. Lane, 1957. Print. Styles, David G. Alfa Romeo: The Spirit of Milan. Stroud, Gloucestershire: Sutton, 1999. Print. Read More