To link application of theory to the practical world through and original application of financial planning tools to the real world situations-Case of Toyota Motor Corporation and Ford Motor Company (Ford) listed in NYSE
MEMBERS: 1. 2.CHINGULI, ORIGIN 2011-06-2175 3.
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1. Background Information. 1.1 Toyota Motor Corporation Toyota Motor Corporation is a Japan-based company mainly engaged in the automobile business and financial business. The Company operates through three business segments. The Automobile segment is engaged in the design, manufacture and sale of car products, including sedans, minivans, 2BOX cars, sport-utility vehicles and trucks, as well as the related parts and accessories. The Finance segment is involved in the provision of financial services related to the sale of the Company's products, as well as the leasing of vehicles and equipment. The others segment is involved in the design, manufacture and sale of housings, as well as information and communication business. As of March 31, 2011, the Company had 511 subsidiaries and 217 associated companies. 1.2 Ford Motor Company (Ford) Ford Motor Company (Ford) is a producer of cars and trucks. The Company and its subsidiaries also engage in other businesses, including financing vehicles. The Company operates in two sectors: Automotive and Financial Services. Its Automotive Sector includes Ford North America, Ford South America, Ford Europe and Ford Asia Pacific Africa. Financial Services includes Ford Motor Credit Company and Other Financial Services. Ford North America includes the sale of Ford- and Lincoln- brand vehicles and related service parts in North America (the United States, Canada and Mexico), together with the associated costs to develop, manufacture, distribute and service these vehicles and parts. Ford Motor Credit Company includes vehicle-related financing, leasing, and insurance. Other Financial Services Includes a variety of businesses including holding companies and real estate. On January 15, 2011, the Company completed the acquisition of Cologne Precision Forge GmbH (CPF).
2. Sector Information. (Manufacturing) Both Toyota Motor Corporation and Ford Motor Company (Ford) are global companies operating in two business sectors: Automobile sector and Financial Services sector. 3
The automotive Sector is a wide range of companies and organizations involved in the design, development, manufacture, marketing, and selling of motor vehicles. It is one of the world's most important economic sectors by revenue. The automotive industry does not include industries dedicated to the maintenance of automobiles following delivery to the end-user, such as automobile repair shops and motor fuel filling stations. The finance and leasing business has become an integral part of the automotive industry, particularly in Japan, North America and Western Europe (the Triad markets) since 1920s. More recently, it has also begun to gain a strong foothold in the emerging markets. Aims in this assignment is to examine the industrys key markets (the US, Western Europe, China, India, and Russia), understand how business models are evolving, and consider the major risks and long-term trends impacting the industrys stakeholders The auto-finance industry is very dependent on the developments and current risks affecting the financing industry. Even after some of the most difficult years in the sectors history, car finance organizations present solid business plans and captives make a substantial contribution to their OEMs success. However, particularly in established markets, many have vertically integrated their businesses, pursuing full banking licenses to diversify their financial portfolios. They have also pushed more deeply into services to enhance sell-through and customer experience. In addition, with electric vehicles and the increasing trend towards mobility services, many are looking to expand their product portfolio and develop new ways of financing and leasing. The challenges are different, but no less difficult, in the rapidly growing economies of Asia and Russia, where car financing remains a relatively new concept. Banks and car financiers elsewhere, especially in China and Russia, struggle to overcome customer reluctance to use credit. Study shows that the auto finance industry remains a globally diverse sector. Just as there is no single global standard for cars, there is no standard suite of financing products. The ability to localize products and services is a sure sign of the industrys dexterity. But at the same time, differing rules, regulations and capital requirements can make it difficult for some businesses to scale efficiently. . 3. Industry Information. The modern global automotive industry encompasses the principal manufacturers, General Motors, Ford, Toyota, Honda, Volkswagen, and DaimlerChrylser, all of which operate in a global competitive marketplace. The globalization of the automotive industry has greatly accelerated during the last half 4
of the 1990's due to the construction of important overseas facilities and establishment of mergers between giant multinational automakers. Industry specialists indicate that the origins in the expansion of foreign commerce in the automobile industry date back to the technology transfer of Ford Motor Company's mass-production model from the U.S. to Western Europe and Japan following both World Wars I and II. The advancements in industrialization led to significant increases in the growth and production of the Japanese and German markets, in particular. The second important trend in industrial globalization was the export of fuel efficient cars from Japan to the U.S. as a result of the oil embargo from 1973 to 1974. Figures from the International Organization of Motor Vehicle Manufacturers show that the countries that manufactured the most vehicles were in descending order - China, the U.S., Japan, German, and South Korea - with China's manufacturing being about double that of the U.S. Sales figures indicate that while registrations grew between 2005 and 2013, the growth by country was uneven. In 2009 sales in the U.S. hit their lowest point while in EU countries their lowest point was and -though overall losses were offset by a doubling of sales in Asia generally, and more specifically in China. Increasing global trade has enabled the growth in world commercial distribution systems, which has also expanded global competition amongst the automobile manufacturers. Japanese automakers in particular, have instituted innovative production methods by modifying the U.S. manufacturing model, as well as adapting and utilizing technology to enhance production and increase product competition. There are a number of trends that can be identified by examining the global automotive market, which can be divided into the following factors: Global Market Dynamics - The world's largest automobile manufacturers continue to invest into production facilities in emerging markets in order to reduce production costs. These emerging markets include Latin America, China, Malaysia and other markets in Southeast Asia. U.S. automakers, "The Big Three" (GM, Ford and Chrysler) have merged with, and in some cases established commercial strategic partnerships with other European and Japanese automobile manufacturers. Overall, there has been a trend by the world automakers to expand in overseas markets. Industry Consolidation - Increasing global competition amongst the global manufacturers and positioning within foreign markets has divided the world's automakers into three tiers, the first tier being GM, Ford, Toyota, Honda and Volkswagen, and the two remaining tier manufacturers attempting to consolidate or merge with other lower tier automakers to compete with the first tier companies. 1st Tier Company Mergers - Volkswagen-Lamborgini; BMW-Rolls Royce 2nd Tier Company Mergers - Chrysler-Mercedes Benz; Renault-Nissan-Fiat 3rd Tier Company Mergers - Mazda-Mitsubishi; Kia-Volvo 5
This section presents literature that examines three major automotive markets in North America, Europe and East Asia. This information baslly intended to provide a thorough examination of industry trends, structure, and the effects of global market dynamics of the automotive industry within each region, as well as their interrelationships.
4. Study objectives.
Applications of financial planning tools in Toyota Motors Corporation and Ford Motor Company against the real world situations. The key issues are as follows;
5.0 Literature Review 5.1 Definition of Financial Planning According to Investopedia, Financial Planning refers to a comprehensive evaluation of an investor's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans. A good financial plan can alert an investor to changes that must be made to ensure a smooth transition through life's financial phases, such as decreasing spending or changing asset allocation. Financial plans should also be fluid, with occasional updates when financial changes occur In business, a financial planning give focus on items in balance sheet, income statement, and cash flow statement. According to Wikipedia, A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing or issuing additional shares in a company. Financial planning is a process by which you assess your financial situation and your sources of finance, determine your objectives, and then formulate financial strategies to achieve those objectives (Shakar Elahi 2008). 5.2 Types of Financial Plan(ing). 6
5.3 Why Planning? The future is uncertain Business can be complex Risk and rewards Management is improved by planning Increased chances of success. 5.4 Key Decisions in Financial Planning Financial planners cement their ties in the areas of crucial decisions that will impact the firms current and future performance. Those decisions involve the following areas: Investment decisions Financial Decisions and strategies Budgeting 5.4.1 Investment Decisions: The investment decision relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall into two broad groups; long-term assets and short term assets. The firm must invest in those assets that will generate enough cash flow to the organization.
5.4.2 Financing Decisions: 7
The concern of the financing decision is the capital structure (leverage) of the firm and dividend policy decisions. Capital structure refers to the proportionate of debt financing and equity financing of the company. Debt facility includes long term and short term loans from banks or other sources. Equity financing basically includes the money (cash) injected by shareholders (share capital, share premiums) and retained profits. The financing decision plays the role of fixing the appropriate mix of these sources to finance the investment requirements. The use of debt implies a higher return to the shareholders as also the financial risk. A proper balance between debt and equity to ensure a trade-off between risk and return to the shareholders is necessary. Dividend Policy Decision The dividend decision should be analyzed in' relation to the financing decision of a firm. Two alternatives are available in dealing with the profits of a firm: they can be distributed to the shareholders in the form of dividends or they can be retained in the business itself. The decision as to which course should be followed depends largely on a significant element in the dividend decision. 5.4.3 Budgeting The output from financial planning takes the form of budgets. The most widely used form of budgets is Pro Forma or Budgeted Financial Statements. The foundation for Budgeted Financial Statements is Detail Budgets. Detail Budgets include sales forecasts, production forecasts, and other estimates in support of the Financial Plan. Collectively, all of these budgets are referred to as the Master Budget. (Matt H Evans).
6.0 Ratios Used in Planning: One of the key fundamental tasks of ratio analysis is to measure business progress over time. Financial ratios are used to project a firms future financial position. a) Return On Assets 8
This ratio helps to examine the figure for profit earned in relation to the assets invested in the business. For a company, the ROA trend over the years is useful indicator of performance. b) Return on Equity Return on equity refers to a measure of how much earnings a company can generate compared to its shareholder's equity. It is measured as a percentage. In planning, the assumption is if the company retains its profit, we expect to influence its future earnings. c) Sales Growth ratios It tells how business is performing over a given period of time. Percentage increase or decrease of sales over a period of time signals stability of pricing strategy. d) Profit Ratios: This ratio is helpful to assess the adequacy of profit earned and their trends in comparisons with the past. The trend can predict the future outlook of the company. Gross Profit Margin, Net Profit Margin and Earning per Share (EPS) ratios will relatively meet our forecast need for two companies for the year 2013. e) Solvency Ratio In order to maintain the status of going concern as a key fundamental assumption in accounting, a business must be able to service its debts obligations. This can only be attained by having enough working capital. No body plans for failure, so its important to determine solvency of the firm, so as to think about working capital requirement as well as determine avenues to invest in capital assets or long-term business growth. Working Capital and Liquidity ratios are important ratios in planning f) Leverage Ratio This ratio defines capital structure of gearing. Debt Equity Ratio= Total Financial Debt/ Shareholders Equity
6.1 Additional funds needed (AFN) Additional funds needed (External Financing Needed) is the amount of money a company must raise from external sources to finance the increase in assets required to support increased level of sales. (AFN) is also called external financing needed. A thumb rule portrays that a company favors to increase its sales, due to this fact it also increases its assets such PPE, accounts receivable, etc. To cater for this increase it needs the funding beyond the internal sources (retained earnings). 6.2 Valuation Models Used Valuation of a firm is based on the fact that owners (shareholders) of the company are interested in maximizing their equity or in other words they prefer to see positive direction of increasing the value 9
of the firm. In financial planning, as planner we need to ensure that this primary goal of the firm is being attained. In that case we need to ensure that as we plan to increase the value of the firm by benchmarking our plan to the current value to be ascertained. The model used in our planning to value the firm is free cash flow models.
3.0 METHODOLOGICAL ISSUES 3.1 Information Gathering In this study, most of information has been collected using Secondary data means. Financial statements of both Ford Motor Company and Toyota Motor Company were obtained from NYSE website. Other financial journals and related study materials were gathered from online sources 3.2 Analysis of the Report In simple terms financial analysis refers to viability, stability and profitability of a business. The key information to be used for analysis basically comes from financial statements. Financial analyst focus on balance sheet statement to assess solvency, liquidity and stability of the firm while in income statement measure profitability and stability. In conducting financial analysis in this report, several methods (tools) have been used. This includes; Trend analysis using financial ratios Past performance (2010, 2011 and 2012) to plan or predict future performance. Common size financial statement analysis
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DATA ANALYSIS AND FINDINGS Both Ford Motor Company and Toyota Motor Company serve into two similar subsectors namely automobile sector and financial service sector. Automobile sector covers about 90% of business of each company. Hence in the study, we have analyzed both automobile and financial services segment of the two company operations. Financial Analysis of the companies
2012 2011 2010 Sales Growth -1% 7% - The growth trend is keep on decreasing overtime Gross Profit Margin 5% 6% 7% Measures margin performance strictly on cost of goods sold. It indicates that the COGS increased ,as a result the profit will keep on decreasing after taking into account other cost. Net Profit Margin 6% 6% 6% Measures operating performance, The firm has fairly stable margin, hence to improve this a company needs to increase its margin or lowering the expenses. Current Ratio 1.83 1.91 1.99 Measures the ability to meet current obligations in a timely manner. A healthy current ratio is greater than 2. Since our ratio is approximately equivalent to 2, then firm is helthier to meet current obligations Working Capital 56,928.00 57,115.00 59,732.00 The firm is having plent of working capital that can be invested in profit genertaing investments ROA 0.04 0.05 0.04 It inplies efficient asset usage to generate sales. Since the ratio is fairly improving, hence the management make efficient utilisation of the assets. ROE 0.48 0.58 -11.14 It indicates how effective the management team is in converting the reinvested money into profits. The ROE flactuatin however in a positive direction. This impliesthe company is generating more money for the same dollar amount spent. Debt-Equity Ratios 10.9 10.8 -257.5 The ratio is increasing, hence the company is being financed by creditors rather than from its own financial sources which may be a dangerous trend RATIO CALCULATED RATIO TYPE REMARKS RATIO ANALYSIS-FORD MOTOR COMPANY 11
2012 2011 2010 Sales Growth -2% 1% - The growth trend is keep on decreasing overtime Gross Profit Margin 2% 2% 1% Measures margin performance strictly on cost of goods sold. It indicates that the COGS decreasing,hence as a result it improves the profit of the company. Net Profit Margin 2% 3% 2% Measures operating performance, The firm has fairly stable margin, hence to improve this a company needs to increase its margin or lowering the expenses. Current Ratio 1.05 1.10 1.22 Measures the ability to meet current obligations in a timely manner. A healthy current ratio is greater than 2. But our current ratio is keep on decreasing,hence it fosters decrease in liquidity. Working Capital 539,615.00 1,038,765.00 2,387,390.00 The firm working capital is keep on decreasing, this poses the challenge on availability of funds for operation and investment. ROA 0.01 0.02 0.01 It inplies efficient asset usage to generate sales. Since the ratio is fairly improving, hence the management make efficient utilisation of the assets. ROE 0.04 0.05 0.03 It indicates how effective the management team is in converting the reinvested money into profits. The ROE flactuatin however in a positive direction. This impliesthe company is generating more money for the same dollar amount spent. Debt-Equity Ratios 1.8 1.7 1.8 The ratio is increasing, hence the company is being financed by creditors rather than from its own financial sources which may be a dangerous trend RATIO ANALYSIS-TOYOTA MOTOR CORPORATION RATIO TYPE RATIO CALCULATED REMARKS For the years ended December 31, 2012 2012-Common size 2011 2011-Common size 2010 2010-Common size Sales and Revenue Automotive sales 126,567 94.28% 128,168 94.06% 119,280 92.50% Financial service 7,685 5.72% 8,096 5.94% 9,674 7.50% Total revenues 134,252 100.00% 136,264 128,954 Cost and Expenses Automotive Cost of Sales 112,578 83.86% 113,345 83.18% 104,451 81.00% Selling, Administrative and other expenses 12,182 9.07% 11,578 8.50% 11,909 9.24% Financial services interest expense 3,115 2.32% 3,614 2.65% 4,345 3.37% Financial servicesprovision for credit and insurance 86 0.06% (33) -0.02% (216) -0.17% Total costs and expenses 127,961 95.31% 128,504 94.31% 120,489 93.44% Automotive Interest expense 713 0.53% 817 0.60% 1,807 1.40% Interest Income and other non operating income (expenses) 1,185 0.88% 825 0.61% (362) -0.28% Financial services other Income (loss) 369 0.27% 413 0.30% 315 0.24% Equity in net income (loss) of affiliated company 588 0.44% 500 0.37% 538 0.42% Income (loss) before income taxes 7,720 5.75% 8,681 6.37% 7,149 5.54% Provision for (Benefit) from income taxes 2,056 1.53% (11,541) -8.47% 592 0.46% Net Income 5,664 4.22% 20,222 14.84% 6,557 5.08% Less: Income (loss) attributable to non-controlling interest (1) 0.00% 9 0.01% (4) 0.00% Net Income attributable to Ford Motor Co. 5,665 4.22% 20,213 14.83% 6,561 5.09% FORD MOTOR COMPANY COMMON SIZE STATEMENT OF OPERATIONS Figures in Millions-USD 12
For the years ended March 31, 2012 2011-Common Size 2011 2011-Common Size 2010 2010-Common Size Net Revenues Sales of products 17,511,916 94.23% 17,820,520 93.82% 17,724,729 93.53% Financing operations 1,071,737 5.77% 1,173,168 6.18% 1,226,244 6.47% Total net revenues 18,583,653 100.00% 18,993,688 100.00% 18,950,973 100.00% Cost and Expenses Costs of products sold 15,795,918 85.00% 15,985,783 84.16% 15,971,496 84.28% Cost of financing operations 592,646 3.19% 629,543 3.31% 712,301 3.76% Selling, General and Administrative 1,839,462 9.90% 1,910,083 10.06% 2,199,660 11.61% Total costs and expenses 18,228,026 98.09% 18,525,409 97.53% 18,883,457 99.64% Operating Income 355,627 1.91% 468,279 2.47% 147,516 0.78% Other income (expense) Interest and dividend income 99,865 0.54% 90,771 0.48% 78,224 0.41% Interest expense (22,922) -0.12% (29,318) -0.15% (33,409) -0.18% Foreign exchange gain,net 37,105 0.20% 14,305 0.08% 68,251 0.36% Other income (loss), net (36,802) -0.20% 19,253 0.10% 30,886 0.16% Total other income (expense) 77,246 0.42% 95,011 0.50% 143,952 0.76% Income (loss) before income taxes 432,873 2.33% 563,290 2.97% 291,468 1.54% Provision for income taxes 262,272 1.41% 312,821 1.65% 92,664 0.49% Equity in earnings of affiliated companies 197,701 1.06% 215,016 1.13% 45,408 0.24% Net Income 368,302 1.98% 465,485 2.45% 244,212 1.29% Less: Net Income attributable to non controlling interests toyotar Co. (84,743) -0.46% (57,302) -0.30% (34,756) -0.18% Net Income attributable to Toyota Motor Co. 283,559 1.53% 408,183 2.15% 209,456 1.11% TOYOTA MOTOR CORPORATION COMMON SIZE STATEMENT OF INCOME Figures in Millions-YEN 13
For the years ended December 31, 2012 2012 CS 2011 2011 CS 2010 2010 CS ASSETS Cash and cash equivalents 15,659 8.22% 17,148 9.61% 14,805 8.99% Marketable securities 20,284 10.64% 18,618 10.44% 20,765 12.61% Finance receivables 71,510 37.53% 69,976 39.24% 70,070 42.55% Other receivables 10,828 5.68% 8,565 4.80% 8,381 5.09% Net Investment in operating leases 16,451 8.63% 12,838 7.20% 11,675 7.09% Inventories 7,362 3.86% 5,901 3.31% 5,917 3.59% Equity in net assets of affiliated company 3,246 1.70% 2,936 1.65% 2,569 1.56% Net property 24,942 13.09% 22,371 12.54% 23,179 14.07% Deferred Incoome taxes 15,185 7.97% 15,125 8.48% 2,003 1.22% Net Intangible Assets 87 0.05% 100 0.06% 102 0.06% Other Assets 5,000 2.62% 4,770 2.67% 5,221 3.17% Total Assets 190,554 100.00% 178,348 100.00% 164,687 100.00% LIABILITIES Payables 19,308 10.13% 17,724 9.94% 16,362 9.94% Accrued liabilities and deferred revenue 49,407 25.93% 45,369 25.44% 43,844 26.62% Debt 105,058 55.13% 99,488 55.78% 103,988 63.14% Deferred Income taxes 470 0.25% 696 0.39% 1,135 0.69% Total liabilities 174,243 91.44% 163,277 91.55% 165,329 100.39% EQUITY Capital Stock - 0.00% - 0.00% - 0.00% Common stock, par value $.01per share (3875millions share issued) 39 0.02% 37 0.02% 37 0.02% Class B Stock, par value $.01 per share (71 millions shares issued) 1 0.00% 1 0.00% 1 0.00% Capital in excess of par value of stock 20,976 11.01% 20,905 11.72% 20,803 12.63% Retained earnings 18,077 9.49% 12,985 7.28% (7,038) -4.27% Accumulated and Other comprensive income (22,854) -11.99% (18,734) -10.50% (14,313) -8.69% Treasury stock (292) -0.15% (166) -0.09% (163) -0.10% Total equity attributable to Ford Motor Company 15,947 8.37% 15,028 8.43% (673) -0.41% equity attributable to non controlling interests 42 0.02% 43 0.02% 31 0.02% Total Equity 15,989 8.39% 15,071 8.45% (642) -0.39% Total equity and Liabilities 190,232 99.83% 178,348 100.00% 164,687 100.00% FORD MOTOR COMPANY COMMON SIZE BALANCE SHEET Figures in Millions-USD 14
For the years ended March 31, 2012 2012-CS 2011 2011-CS 2010 2010-CS ASSETS Current Assets Cash and cash equivalents 1,679,200 5.48% 2,080,709 6.98% 1,865,746 6.15% Time deposits 80,301 0.26% 203,874 0.68% 392,724 1.29% Marketable securities 1,181,070 3.85% 1,225,435 4.11% 1,793,165 5.91% Trade accounts and notes receivable 1,999,827 6.52% 1,449,151 4.86% 1,886,273 6.22% Finance receivables 4,114,897 13.43% 4,136,805 13.87% 4,209,496 13.87% Other receivables 408,547 1.33% 306,201 1.03% 360,379 1.19% Inventories 1,622,282 5.29% 1,304,242 4.37% 1,422,373 4.69% Deferred Incoome taxes 718,687 2.34% 605,884 2.03% 632,164 2.08% Prepaid expenses and other current assets 516,378 1.68% 517,454 1.74% 511,284 1.68% Total current assets 12,321,189 40.20% 11,829,755 39.67% 13,073,604 43.08% Non current finance receivables,net 5,602,462 18.28% 5,556,746 18.64% 5,630,680 18.55% Investments and other assets 0.00% 0.00% 0.00% Marketable securities and other securities investment 4,053,572 13.22% 3,571,187 11.98% 2,256,279 7.43% Affiliated companies 1,920,987 6.27% 1,827,331 6.13% 1,879,320 6.19% Employees receivables 56,524 0.18% 62,158 0.21% 67,506 0.22% Other 460,851 1.50% 661,829 2.22% 730,997 2.41% Total Investments and other assets 6,491,934 21.18% 6,122,505 20.53% 4,934,102 16.26% Property Plant and equipment Land 1,243,261 4.06% 1,237,620 4.15% 1,261,349 4.16% Building 3,660,912 11.94% 3,635,605 12.19% 3,693,972 12.17% Machinery and equipment 9,094,399 29.67% 8,947,350 30.01% 9,298,967 30.64% Vehicles and equipment on operating leases 2,575,353 8.40% 2,491,946 8.36% 2,613,248 8.61% Construction in progress 275,357 0.90% 298,828 1.00% 226,212 0.75% Total Propert Plants and Equipment 16,849,282 54.97% 16,611,349 55.71% 17,093,748 56.32% Less: Accumulated Depreciation (10,613,902) -34.63% (10,302,189) -34.55% (10,382,847) -34.21% Total Propert Plants and Equipment,net 6,235,380 20.34% 6,309,160 21.16% 6,710,901 22.11% Total Assets 30,650,965 100.00% 29,818,166 100.00% 30,349,287 100.00% LIABILITIES Current liabilities short term borrowing 3,450,649 11.26% 3,179,009 10.66% 3,279,673 10.81% Current portion of long term debt 2,512,620 8.20% 2,772,827 9.30% 2,218,324 7.31% Accounts payable 2,242,583 7.32% 1,503,072 5.04% 1,956,505 6.45% Other payables 629,093 2.05% 579,326 1.94% 572,450 1.89% Accrued expenses 1,828,523 5.97% 1,773,233 5.95% 1,735,930 5.72% Income taxes payable 133,778 0.44% 112,801 0.38% 153,387 0.51% Other current liablities 984,328 3.21% 870,722 2.92% 769,945 2.54% Total current liabilities 11,781,574 38.44% 10,790,990 36.19% 10,686,214 35.21% Long Term Liabilities Long term debt\ 6,042,277 19.71% 6,449,220 21.63% 7,015,409 23.12% Accrued pension and severance costs 708,402 2.31% 668,022 2.24% 678,677 2.24% Deffered income taxes 908,883 2.97% 810,127 2.72% 813,221 2.68% Other long term liabilities 143,351 0.47% 179,783 0.60% 225,323 0.74% Total long liabilities 7,802,913 25.46% 8,107,152 27.19% 8,732,630 28.77% Total liabilities 19,584,487 63.90% 18,898,142 63.38% 19,418,844 63.98% SHAREHOLDERS EQUITY Capital Stock Common stock, no par value,authorised 10,000,000,000 shares, issued 3,447,997,492 397,050 1.30% 397,050 1.33% 397,050 1.31% Additional paid in capital 550,650 1.80% 505,760 1.70% 501,331 1.65% Retained earnings 11,917,074 38.88% 11,835,665 39.69% 11,568,602 38.12% Accumulated and Other comprensive income (1,178,833) -3.85% (1,144,721) -3.84% (846,835) -2.79% Treasury stock (1,135,680) -3.71% (1,261,383) -4.23% (1,260,425) -4.15% Total equity attributable to Toyota Motor Corporation 10,550,261 34.42% 10,332,371 34.65% 10,359,723 34.13% Non controlling interests 516,217 1.68% 587,653 1.97% 570,720 1.88% Total Equity 11,066,478 36.10% 10,920,024 36.62% 10,930,443 36.02% Commitment and Cotingencies - 0.00% - 0.00% - 0.00% Total equity and Liabilities 30,650,965 100.00% 29,818,166 100.00% 30,349,287 100.00% TOYOTA MOTOR CORPORATION COMMON SIZE- BALANCE SHEET Figures in Millions-YEN 15
FREE CASH FLOW MODEL Free cash flow (FCF) is one of the most important concepts in valuing a stock. Technical analysts aside, in valuing a firm, FCF assess the company ability to generate more cash than it spends. The following schedule shows the FCF for both Toyota and Ford;
Major Investment and Financing decisions for the period of study
YEARS 2012 2011 2010 2012 2011 2010 EBIT 455,795 592,608 324,877 8,433 9,498 8,956 Add Depreciation & Armotization 1,067,830 1,175,573 1,414,569 5,204 4,256 5,584 Subtotal 1,523,625 1,768,181 1,739,446 13,637 13,754 14,540 Less Change in Net working Capital 539,615 1,038,765 2,387,390 56,928 57,115 59,732 Capital Expenditure 1,532,082 1,691,191 1,437,601 5,459 4,272 4,066 FCF (548,072) (961,775) (2,085,545) (48,750) (47,633) (49,258) TOYOTA MOTOR CORPORATION FORD MOTOR COMPANY COMPANY VALUATION USING Free Cash Flow Method. COMPANY VALUATION USING Free Cash Flow Method. Toyota Motor Corporation has Negative Free Cash Flow figure. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run. REMARKS Ford Motor Company has Negative Free Cash Flow figure. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run. figures in million Yen figures in millions USD 16
Sales Forecasting
Assumptions used in forecasting .. .
For the years ended March 31, 2013 Forecast 2012 2011 2010 Net Revenues Sales of products 17,685,722 17,511,916 17,820,520 17,724,729 Financing operations 1,157,050 1,071,737 1,173,168 1,226,244 Total net revenues 18,842,771 18,583,653 18,993,688 18,950,973 Cost and Expenses Costs of products sold 15,795,918 15,795,918 15,985,783 15,971,496 Cost of financing operations 592,646 592,646 629,543 712,301 Selling, General and Administrative 1,839,462 1,839,462 1,910,083 2,199,660 Total costs and expenses 18,228,026 18,228,026 18,525,409 18,883,457 Operating Income 614,745 355,627 468,279 147,516 Other income (expense) Interest and dividend income 100,864 99,865 90,771 78,224 Interest expense (22,922) (22,922) (29,318) (33,409) Foreign exchange gain,net 37,476 37,105 14,305 68,251 Other income (loss), net (37,170) (36,802) 19,253 30,886 Total other income (expense) 78,248 77,246 95,011 143,952 Income (loss) before income taxes 692,993 432,873 563,290 291,468 Provision for income taxes 376,855 262,272 312,821 92,664 Equity in earnings of affiliated companies 199,678 197,701 215,016 45,408 Net Income 515,816 368,302 465,485 244,212 Less: Net Income attributable to non controlling interests Toyota Motor Corporation (85,590) (84,743) (57,302) (34,756) Net Income attributable to Toyota Motor Corporation 430,225 283,559 408,183 209,456 TOYOTA MOTOR CORPORATION FORECASTED STATEMENT OF INCOME Figures in Millions-YEN 17
Assumptions used in Forecasting ..
For the years ended December 31, 2013 Forecast 2012 2011 2010 Sales and Revenue Automotive sales 124,672 126,567 128,168 119,280 Financial service 8,485 7,685 8,096 9,674 Total revenues 133,157 134,252 136,264 128,954 Cost and Expenses Automotive Cost of Sales 111,452 112,578 113,345 104,451 Selling, Administrative and other expenses 12,060 12,182 11,578 11,909 Financial services interest expense 3,084 3,115 3,614 4,345 Financial servicesprovision for credit and insurance 85 86 (33) (216) Total costs and expenses 126,681 127,961 128,504 120,489 Automotive Interest expense 706 713 817 1,807 Interest Income and other non operating income (expenses) 1,173 1,185 825 (362) Financial services other Income (loss) 365 369 413 315 Equity in net income (loss) of affiliated company 582 588 500 538 Income (loss) before income taxes 7,890 7,720 8,681 7,149 Provision for (Benefit) from income taxes (2,876) 2,056 (11,541) 592 Net Income 10,766 5,664 20,222 6,557 Less: Income (loss) attributable to non-controlling interest 1 (1) 9 (4) Net Income attributable to Ford Motor Co. 10,764 5,665 20,213 6,561 FORD MOTOR COMPANY FORECASTED STATEMENT OF OPERATIONS Figures in Millions-USD 18
Calculations of AFN FORD MOTOR COMPANY
Increase in assets = 20Y2 assets sales growth rate 2012 Total assets 190,554 Sales Growth 1% 2,244.95 Spontaneous increase in liabilities = 20Y2 liabilities sales growth rate 20Y2 liabilities 174,243 Sales growth rate 1% 2,052.78 20Y3 sales 135,853 Profit margin 7% Retention rate 94% 8,651 Additional funds needed = increase in assets - increase in liabilities increase in retained earnings AFN (8,459.08) A negative figure for additional funds needed means that there is a surplus of capital. Increase in retained earnings = 20Y3 sales profit margin retention rate = 20Y2 sales (1 + sales growth rate) profit margin retention rate 19
CALCULATIONS OF AFN TOYOTA MOTOR CORPORATION
Increase in assets = 20Y2 assets sales growth rate 2012 Total assets 12,321,189 Sales Growth 1% 169,436.11 Spontaneous increase in liabilities = 20Y2 liabilities sales growth rate 20Y2 liabilities 19,584,487 Sales growth rate 1% 269,318.11 20Y3 sales 18,842,771 Profit margin 3% Retention rate 64% 390,716 Additional funds needed = increase in assets - increase in liabilities increase in retained earnings AFN (490,598.49) A negative figure for additional funds needed means that there is a surplus of capital. Increase in retained earnings = 20Y3 sales profit margin retention rate = 20Y2 sales (1 + sales growth rate) profit margin retention rate 20
Strategies for Investment and Financing future activities of the companies under consideration (Including some behavioral aspects)