The paper “ Financial Ratios of Toyota Company" is an informative example of a statistic project on finance & accounting. The returns on Toyota shareholders' funds decreased from 4.12% to 1.92 % from the year 2009 to 2010. It means that shareholders were experiencing loss or decrease in the interest they had in the Company. Liquidity/ Solvency Ratios Working Capital (or Current) Ratio Component 2009 2010 Current Assets 11298929 1.07: 1 13073604 1.22:1 Current Liabilities 10589293 10686214 In order for a company to able to cover its short term liabilities, it requires necessarily have a current ratio of 1:1 (Penwell 1994). Thus, during the years 2009 and 2010, Toyota had enough liquid assets to cover short term obligations; 1.07:1 and 1.2:1 respectively. Quick Asset (or Acid Test) Ratio Component 2009 2010 Current Assets-Inventory (11298929-1459394) 0.93:1 (13073604-1422373) 1.09:1 Current Liabilities 10589293 10686214 In the year 2009, it seems that Toyota had a slightly less liquid resource to meet its short term obligations compared to the year 2010.
However, this is risky for the business, because in the short term all the available liquid assets may become depleted and thus the company may not be able to meet its obligations. Asset Efficiency Ratios Stock Turnover Component 2009 2010 Cost of sales Closing stock 17468416 1459394 11.97 times per annum 15971496 1422373 11.23 times per annum Days in year 365 30 days 365 33 days Stock turn 11.97 11.23 There was no much big difference in the years 2009 and 2010 for Toyota in terms of a number of times it sold out its stock. Debtors Turnover Component 2009 2010 Credit sales Closing trade creditors 19173720 1392749 13.77 times per annum 17724729 1886273 9.40 times per annum Days in year 365 26.5 days 365 39 days Stock turn 13.77 9.40 In the year 2010, the number of days that the debtors took in order to clear their debts increased for 27 days in the year 2009 to 39 days.
That means the overall cash the company received was less compared to what its customers owed the company. Creditors Payment Period Component 2009 2010 Cost of sales Closing trade creditors 17468416 1299455 13.44 times per annum 15971496 1956505 8.16 times per annum Days in year 365 27 days 365 45 days Stock turn 13.44 8.16 In the year 2010, Toyota took longer than usual to pay its suppliers and this worked to its advantage in that it was more predisposed at using creditors’ money to generate income. Working Capital Operating Cycle 2009 20102003 Stock takes 30 days to sell after it has been manufactured, then 33 Debtors take 27 days to pay, meaning that 39 57 days will have elapsed before any cash arrives 72 but Creditors are paid in (27) days, which means that the business has to finance (45) 30 days of activity from cash reserves or overdraft 27 The working capital management policy of Toyota improved in the year 2010 and this is favorable in that the number of days required being financed from cash reserves reduced for 30 in 2009 to 27 in 2010. Asset Turnover Component 2009 2010 Revenue 1717879 0.093 times 209456 0.012 times Total capital employed (29062037-10589293) (30349287-10686214) In the year 2010, the management of Toyota became inefficient in managing the assets of the company.
Asset turnover decreased to 0.012 up from 0.093. Capital Structure Ratios Gearing Ratio Component 2009 2010 Loans and borrowings (10589293 +7872007)x100 99.94% (10686214+8732630)x 100 98.76% Total capital employed (29062037-10589293) (30349287-10686214) The gearing ration of Toyota in the years 2009 and 2010 was extremely high meaning that it had a large number of loans compared to its own equity.
This is however tolerable for a company in the auto industry as it requires a huge capital investment which ultimately implies the potential to make huge profits. Fixed Interest Cover Component 2008 2009 2010 Operating profit 2270375 49 times (461011) (9.83) times 147516 4.42 times Interest payable on borrowings 46113 46882 33409 In the year 2008, Toyota had sufficient operating profit to cover the interest it was supposed to pay on loans and other borrowings. However, in the years 2009 and 2010, the reduced significantly to less than 0 and 4.42 respectively hence it incurred a lot of loss in paying for loan interest. Investor’ s RatiosDividend per Share (DPS) DPS = Earnings Distributed to Shareholders/Number of Shares This is given in the consolidated income statement: for the years 2008, 2009 and 2010 DPS amounted to ¥ 140, ¥ 100, and ¥ 45 respectively. An increase in dividend per share implies an increased value of shareholders' wealth in a company.
For Toyota DPS decreased sharply for the years 2008, 2009, and 2010. This can be attributed to decreased unit sales as a result of vehicle recalls in the years 20009 and 2010.Market Price Per Share (MPS)MPS = value of common stock/ Number of shares issued