Comprehensive Technical Analysis of Toyota Company - Research Paper Example

TOYOTA COMPANY The Toyota motor corporation is headquartered in Toyota, Aichi in the country of Japan. The company was founded in 1937 by Kiichiro Toyoda as a spinoff from the parent company Toyota industries which main aim was to create automobiles. In1934, Toyota had created Type A engine, its first product. It is in 1936 that Toyota motor company made its first passenger car, the Toyota AA. Toyota began producing luxury brands in the 1980’s; the launch of this luxury division was epitomized by the introduction of Toyota Lexus (Hino, 2006). In the 1990’s Toyota started producing larger and more luxurious car as compared to the compact cars it had been producing. Its revenues were growing by the day, this is because its presence in Europe and Africa. The company in the 1990’s started diversifying its range of cars and opened up manufacturing industries in many parts of the world. This boosted their sales in the countries where they were manufacturing the cars. Toyota by 2010 was still the motor company to beat in terms of sales; it had sold over 8,557,351 units which represents an 11.0% market share. In order to measure if a company is profitable it must be compared with its competitor, Toyota sales from only automotive operations as for the fiscal year of April through September the first six months amounted to approximately 8,863.6 billion yen, this translates to $104 billion dollars at an exchange rate of 85 yen to the dollar. Looking at General motors, the revenues during the two quarters is approximately $67.2 billion. Thus, Toyota auto operations averaged about 12% of all sales done in the motor industry in the fiscal year of 2009 to 2010. Toyota auto operations are over 50% larger than all GM sales. When Toyota and General Motors are compared to the motor industry, they rank way higher than other companies in the industry, this is in terms of the market share and the profitability, the companies have a history of their profits running to billions of dollars and their assets size running into hundreds of billions. They are two of the largest motor companies in the world and they are in frequent competition. The closest company that comes close to the two is the German company Volkswagen, however, it grosses lesser than the two mega companies. The following is a comparison of the industry. Toyota 8,557,351 GM 8,476,192 Volkswagen 7,341,065 Hyundai Motor 5,764,918. Toyota ascent has been attributed to the ever improving profits and this growth compared with the sales is inevitable. To assess the relativity of the status of Toyota and general motors, five key indicators are used, the dominance of the home market, the expansion in the fast growing abroad market, partnerships with the automakers and lastly the technology used in the production of the automobiles. The complete dominance of Toyota in its home market in Japan surpasses that of GM; however, on the down side the Japan market has been stagnating for the past 20 years (Hino, 2006). Toyota has rolled out new technologies and vehicles in its home market, it has also increased its volumes oversees. By contrast the general motor company has no presence in Japan, thirty years ago, the general motor company had over 50% dominance in the United States market, however, and this trend has been decreasing over the years. During the financial period of 2009 to 2010, GM market share in the U.S market decreased to 21%, while Toyota has now become the nation’s second biggest car manufacturer. GM has tapped into the world’s fastest growing economies and they have successfully established their companies in these economies. GM has considerable head starts in Russia, China and Brazil; this is according to George Magliano, the current director of auto research located at the Global insight (yahoo, 2011). Thus in terms of over sees market, General Motors have a better global imprint that Toyota, this might be because they have made more aggressive moves in all emerging markets, GM has sold over 1.4 million units in Brazil, india, Russia and china, while there is still a projection of selling approximately 981,000 units before the end of the year. However, this trend may change soon because Toyota currently is heavily investing in new assembly plants (yahoo, 2011). Therefore, from the above statistics it would be advisable to invest in the Toyota company, it is rapidly expanding and further introducing new models. Its share price is increasing by the day, while General Motor’s it’s biggest competitor is falling. This means that very soon the Toyota company will be making super profits and this will be translated to increased dividends to the shareholders of the company. Therefore, from the financial statements of the Toyota Company I would largely advise one to make investments in this company as its profits will skyrocket in a few years time. According to the New York Times, GM took nearly $50 billion in government help, however, the Wall Street argue that it is more than that figure; this is because the company was nearing bankruptcy and needed approximately $75 billion to come afloat again, the Toyota company on the other hand has never neared bankruptcy but it has asked for a government bailout (Wimmer, 2011). Toyota’s financial unit asked for an emergency loan from the state on March 16th, 2009. The company asked for approximately US $3billion. The global financial crisis is the one that is responsible for nearly squeezing Toyota out of business. Therefore, Toyota again beats General Motors when it comes to credit worthiness to its shareholders. Therefore, the debt paying ability of General Motors is brought into question, will they be able to pay this mega debt, and the Toyota Company on the other hand took a very soft loan which they may pay easily. The General Motors Company has defaulted credit in the past and therefore, its credit worthiness can be put into question. Therefore, General Motors might be a bad place to put your money, this is because it defaults on payments and its profit over the couple of years has been decreasing. The company also is losing its market share to Toyota and the sales receivable take forever to trickle down to the shareholders due to the large debts it has to pay. The Toyota Corporation has had revenue of approximately 24,820,510 as at March 31st 2008, the number has decreased to 17,820,520 in the March 31st 2011, the total revenues therefore amount to 18,993,688 as compared to 26,289,240 as at March 31st 2008 (yahoo, 2011). This represents a 7.8% decrease in revenues. The operating income of the company has been in the spotlight for a while now, it was negative 46,113 as at 2008, however, this number is decreasing and as at 31st march 2011, the numbers had completely changed and the operating income was negative 29,318. The net income of the company was 1,717,879 as at 31st march (yahoo, 2011). The Gross profit margin of the company in the financial year 2011/2012 (the most recent) is 17.6%, the EBIT margin is -3.0%, however the pretax profit margin is -3.1%, this therefore, means that the quick ratio of the company is below 1, the quick ratio of the corporation at this specific financial year is 0.8 (yahoo, 2011). The net income of the company for the period of 2008/2009, is 1,717,879, this is can be compared to 408,183.0 of the 2010/2011 financial period. From the above statistics it can be seen that the company has been on a downward trend since 2008. This is can be attributed to the financial breakdown that has rocked the world since 2008. The world has not yet recovered from this shock and thus more people in the world have suspended their ambitions and goals of buying cars (Wimmer, 2011). This therefore, has had negative impact the motor industry and has reduced considerably the amount of sales, The amount of sales is directly related to the financial environment and therefore, a hostile financial environment like the one being experienced currently is detrimental for the motor industry and especially to large companies such as Toyota and General motors (yahoo, 2011). There are three ratios that need to be examined in order for the two companies and the industry to be accurately compared. These three ratios include the liquidity of the companies, the profitability and the long debt paying ability. In liquidity rations the Toyota company ranks higher than general motors and the industry as a whole, the company has a liquidity preference which is evident in many of Japan’s industries. The liquidity of General Motors conforms to the pattern in the industry and therefore, it is same with the industry. However, there is a variation when it comes to the profitability of the two companies, even though General Motors and Toyota sell approximately the same number of units, the Toyota Company is more profitable by approximately $1.67 billion. It must be noted that these two companies rank the highest in the market in terms of profitability and therefore, when the profitability of the two companies are compared to the industry, they rank way higher than other companies in the industry. When it comes to the debt paying ability, General Motors lags far behind Toyota. It has a bad history in terms of bad debt; this concept has been explained elsewhere in this paper. It must be noted that the Toyota Company is traded in Tokyo, Fukuoka, Nagoya, Osaka and Sapporo exchanges bearing the company code TYO: 7203. The company is also foreign listed on the New York stock exchange under the name NYSE:TM, and also on the London stock exchange under the name LSE: TYT. The company has 540 consolidated subsidiaries coupled with over 226 affiliates. If the financial analysis of a company is to be done then the balance sheet should be supposed to be used, the balance sheet of the company for the last five years is as follows (yahoo, 2011). From the Toyota’s balance sheet, the profitability and assets size of Toyota cannot be questioned. The asset size is growing by the day; this is due to the rapid expansion program that the company has initiated. However, the pattern changes when it comes to the year 2009, in this year the company seem to have been experiencing tantrums (yahoo, 2011). This is the first time in the history of Toyota that the company made a loss, this was however, recovered in the following year after Toyota realized that the market was in fact located in the developing companies and not necessarily the developed countries (Wimmer, 2011). When observed keenly countries that are developing at a very fast rate like India is where Toyota had decided to base their focal points and that is where they are operating from. However, when its profits are looked into it can be seen that they are constantly decreasing, in the past it was hard to even dream that Toyota could ask for a bailout from the government, therefore, at the present I would advise one to hold on to his or her money rather than investing it in the Toyota company. Although it has no history of bad debts, it may soon be in financial problems due to the sales receivable not being received by the common shareholder. Furthermore, its expansion seems to have stalled due to the financial meltdown. With all these factors underlying I would advise one to be cautious when dealing with the Toyota’s shares. In conclusion Toyota is one the upward trend and it has overtaken General Motors by both sales and revenues. It is establishing new frontiers in different developing and developed economies. In the near future, the company will be one of the largest companies manufacturing automobiles. All this can be attributed to the rapid growth of the company, and the subsequent increase in its share price in the different stock exchanges where the stock is traded (Wimmer, 2011). This therefore means that the future is bright for the company and the only way to go is up. General Motors nearly collapsed during the financial crisis. However, Toyota held tight and did not bulge all they needed was just about 3$billion to keep them afloat. This is unlike General Motors who had to borrow over $50 billion to pay their employees and keep the company at bay and above board. Appendices Toyota financial statement In Millions of JPY (except for per share items) 3 months ending 2011-12-31 3 months ending 2011-09-30 3 months ending 2011-06-30 3 months ending 2011-03-31 3 months ending 2010-12-31 Revenue 4,865,205.00 4,574,872.00 3,441,050.00 4,642,083.00 4,673,113.00 Other Revenue, Total - - - - - Total Revenue 4,865,205.00 4,574,872.00 3,441,050.00 4,642,083.00 4,673,113.00 Cost of Revenue, Total 4,254,635.00 4,052,175.00 3,136,867.00 4,136,708.00 4,094,967.00 Gross Profit 610,570.00 522,697.00 304,183.00 505,375.00 578,146.00 Selling/General/Admin. Expenses, Total 460,886.00 447,307.00 412,146.00 459,286.00 479,076.00 Research & Development - - - - - Depreciation/Amortization - - - - - Interest Expense(Income) - Net Operating - - - - - Unusual Expense (Income) - - - - - Other Operating Expenses, Total - - - - - Total Operating Expense 4,715,521.00 4,499,482.00 3,549,013.00 4,595,994.00 4,574,043.00 Operating Income 149,684.00 75,390.00 -107,963.00 46,089.00 99,070.00 Interest Income(Expense), Net Non-Operating - - - - - Gain (Loss) on Sale of Assets - - - - - Other, Net 7,906.00 2,206.00 4,013.00 -21,038.00 3,756.00 Income Before Tax 198,602.00 79,128.00 -80,531.00 41,549.00 129,668.00 Income After Tax 46,067.00 64,150.00 -37,343.00 -5,705.00 63,950.00 Minority Interest -20,779.00 -23,053.00 -1,699.00 -3,171.00 -17,247.00 Equity In Affiliates 55,656.00 39,324.00 40,202.00 34,274.00 46,926.00 Net Income Before Extra. Items 80,944.00 80,421.00 1,160.00 25,398.00 93,629.00 Accounting Change - - - - - Discontinued Operations - - - - - Extraordinary Item - - - - - Net Income 80,944.00 80,421.00 1,160.00 25,398.00 93,629.00 Preferred Dividends - - - - - Income Available to Common Excl. Extra Items 80,944.00 80,421.00 1,160.00 25,398.00 93,629.00 Income Available to Common Incl. Extra Items 80,944.00 80,421.00 1,160.00 25,398.00 93,629.00 Basic Weighted Average Shares - - - - - Basic EPS Excluding Extraordinary Items - - - - - Basic EPS Including Extraordinary Items - - - - - Dilution Adjustment 0.00 0.00 0.00 0.00 0.00 Diluted Weighted Average Shares 3,136.15 3,135.69 3,135.69 3,135.84 3,135.84 Diluted EPS Excluding Extraordinary Items 25.81 25.65 0.37 8.10 29.86 Diluted EPS Including Extraordinary Items - - - - - Dividends per Share - Common Stock Primary Issue 0.00 20.00 0.00 30.00 0.00 Gross Dividends - Common Stock - - - - - Net Income after Stock Based Comp. Expense - - - - - Basic EPS after Stock Based Comp. Expense - - - - - Diluted EPS after Stock Based Comp. Expense - - - - - Depreciation, Supplemental - - - - - Total Special Items - - - - - Normalized Income Before Taxes - - - - - Effect of Special Items on Income Taxes - - - - - Income Taxes Ex. Impact of Special Items - - - - - Normalized Income After Taxes - - - - - Normalized Income Avail to Common - - - - - Basic Normalized EPS - - - - - Diluted Normalized EPS 25.81 25.65 0.37 8.10 29.86 Financial statement of General Motors Company In Millions of USD (except for per share items) 3 months ending 2011-12-31 3 months ending 2011-09-30 3 months ending 2011-06-30 3 months ending 2011-03-31 3 months ending 2010-12-31 Revenue 37,990.00 36,719.00 39,373.00 36,194.00 36,882.00 Other Revenue, Total - - - - - Total Revenue 37,990.00 36,719.00 39,373.00 36,194.00 36,882.00 Cost of Revenue, Total 33,396.00 31,946.00 33,979.00 31,850.00 33,170.00 Gross Profit 4,594.00 4,773.00 5,394.00 4,344.00 3,712.00 Selling/General/Admin. Expenses, Total 3,245.00 2,942.00 2,924.00 2,994.00 3,429.00 Research & Development - - - - - Depreciation/Amortization - - - - - Interest Expense(Income) - Net Operating - - - - - Unusual Expense (Income) 828.00 35.00 10.00 395.00 -197.00 Other Operating Expenses, Total 8.00 25.00 19.00 6.00 3.00 Total Operating Expense 37,477.00 34,948.00 36,932.00 35,245.00 36,405.00 Operating Income 513.00 1,771.00 2,441.00 949.00 477.00 Interest Income(Expense), Net Non-Operating -213.00 152.00 308.00 604.00 797.00 Gain (Loss) on Sale of Assets - - - - - Other, Net - - - - - Income Before Tax 165.00 1,822.00 2,594.00 1,404.00 1,026.00 Income After Tax 458.00 1,715.00 2,655.00 1,267.00 1,199.00 Minority Interest -22.00 15.00 -45.00 -45.00 -66.00 Equity In Affiliates 289.00 377.00 382.00 2,144.00 273.00 Net Income Before Extra. Items 725.00 2,107.00 2,992.00 3,366.00 1,406.00 Accounting Change - - - - - Discontinued Operations - - - - - Extraordinary Item - - - - - Net Income 725.00 2,107.00 2,992.00 3,366.00 1,406.00 Preferred Dividends - - - - - Income Available to Common Excl. Extra Items 472.00 1,726.00 2,524.00 2,863.00 510.00 Income Available to Common Incl. Extra Items 472.00 1,726.00 2,524.00 2,863.00 510.00 Basic Weighted Average Shares - - - - - Basic EPS Excluding Extraordinary Items - - - - - Basic EPS Including Extraordinary Items - - - - - Dilution Adjustment -4.00 10.00 21.00 26.00 - Diluted Weighted Average Shares 1,668.00 1,682.00 1,654.00 1,668.00 1,663.00 Diluted EPS Excluding Extraordinary Items 0.28 1.03 1.54 1.73 0.31 Diluted EPS Including Extraordinary Items - - - - - Dividends per Share - Common Stock Primary Issue 0.00 0.00 0.00 0.00 0.00 Gross Dividends - Common Stock - - - - - Net Income after Stock Based Comp. Expense - - - - - Basic EPS after Stock Based Comp. Expense - - - - - Diluted EPS after Stock Based Comp. Expense - - - - - Depreciation, Supplemental - - - - - Total Special Items - - - - - Normalized Income Before Taxes - - - - - Effect of Special Items on Income Taxes - - - - - Income Taxes Ex. Impact of Special Items - - - - - Normalized Income After Taxes - - - - - Normalized Income Avail to Common - - - - - Basic Normalized EPS - - - - - Diluted Normalized EPS 0.53 1.05 1.54 1.17 0.23 G References Hino, S. (2006). Inside the mind of Toyota: management principles for enduring growth. New York: Kumamoto Publishers. Wimmer, E. (2011). Motoring the Future: VW and Toyota Vying for Pole Position. New York: John Wiley & sons. yahoo. (2011, April 1). Toyota financial analysis. Retrieved from Yahoo.com: http://finance.yahoo.com/q/is?s=TM+Income+Statement&annual Read More