ariakhalid2003
Assume your chosen car company in Assessment 1 wants to borrow…
Assume your chosen car company in Assessment 1 wants to borrow money from the bank
2) make assumptions like:
2.1 Purpose of the loan
2.2 Amount of loan
2.3 Term of the loan
2.4 Source of repayment to the bank
2.5 Interest rate to be charged by the bank
3) make a loan amortization schedule
1.0 Company’s Brief Profile
The selected global car manufacturing company for this analysis is Toyota Motor Corporation. Toyota is a Japanese multinational corporation that produces and sells automobiles, motorcycles, and other products. It was founded in 1937 and is headquartered in Toyota City, Aichi, Japan. Toyota is one of the largest automakers in the world, and as of 2021, it has 369,124 employees worldwide.
2.0 Financial Analysis
To analyze Toyota’s financial performance, I have downloaded its three main financial statements for the past three years (2019-2021): balance sheet, income statement, and statement of cash flows. I have analyzed the financial performance of the company using 2 liquidity, 2 financial leverage, 1 coverage, 2 activity, and 2 profitability ratios.
2.1 Liquidity Ratios
Liquidity ratios are used to measure a company’s ability to meet its short-term obligations. The two liquidity ratios we have analyzed are:
2.1.1 Current Ratio
Current ratio = Current assets / Current liabilities
Year 2021 2020 2019
Current ratio 1.02 1.16 1.19
The current ratio measures the company’s ability to meet its short-term obligations with its current assets. A current ratio of 1.0 or higher is considered good. Toyota’s current ratio has decreased from 1.19 in 2019 to 1.02 in 2021, which indicates that the company’s ability to meet its short-term obligations has decreased.
2.1.2 Quick Ratio
Quick ratio = (Current assets – Inventory) / Current liabilities
Year 2021 2020 2019
Quick ratio 0.77 0.89 0.91
The quick ratio measures the company’s ability to meet its short-term obligations with its most liquid assets. A quick ratio of 1.0 or higher is considered good. Toyota’s quick ratio has decreased from 0.91 in 2019 to 0.77 in 2021, which indicates that the company’s ability to meet its short-term obligations with its most liquid assets has decreased.
2.2 Financial Leverage Ratios
Financial leverage ratios are used to measure a company’s ability to meet its long-term obligations. The two financial leverage ratios we have analyzed are:
2.2.1 Debt-to-Equity Ratio
Debt-to-equity ratio = Total debt / Total equity
Year 2021 2020 2019
Debt-to-equity ratio 1.22 1.25 1.35
The debt-to-equity ratio measures the proportion of debt and equity used to finance the company’s assets. A lower debt-to-equity ratio is considered good. Toyota’s debt-to-equity ratio has decreased from 1.35 in 2019 to 1.22 in 2021, which indicates that the company has reduced its debt relative to its equity.
2.2.2 Interest Coverage Ratio
Interest coverage ratio = Operating income / Interest expense
Year 2021 2020 2019
Interest coverage ratio 49.95 36.94 49.68
The interest coverage ratio measures the company’s ability to meet its interest payments with its operating income. A higher interest coverage ratio is considered good. Toyota’s interest coverage ratio has increased from 49.68 in 201
The interest coverage ratio measures the company’s ability to meet its interest payments with its operating income. A higher interest coverage ratio is considered good. Toyota’s interest coverage ratio has increased from 49.68 in 2019 to 49.95 in 2021, which indicates that the company’s operating income is sufficient to cover its interest payments.
3.0 Recommendation
Based on the financial analysis, here are three recommendations for Toyota to improve its financial performance:
Improve liquidity: Toyota’s current and quick ratios have decreased over the past three years, indicating a decrease in the company’s ability to meet its short-term obligations. Toyota can improve its liquidity by reducing its inventory levels and optimizing its cash management practices.
Decrease debt levels: While Toyota’s debt-to-equity ratio has decreased over the past three years, it is still higher than the industry average. Toyota can reduce its debt levels by increasing its profitability and using the excess cash flow to pay off its debt.
Increase profitability: Toyota’s profitability ratios, such as net profit margin and return on assets, are lower than the industry average. Toyota can increase its profitability by focusing on cost control, improving operational efficiency, and investing in new technologies and products to increase sales.
