basic accounting assignment

1. SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
Centre for Modern Architecture Studies in Southeast Asia
Foundation of Natural and Built Environments (FNBE)
Basic Accounting ​[ACC30205/FNBE0145]
Prerequisite: None
Lecturer: Chang Jau Ho
Assignment: Financial Ratio Analysis
Submission: by 12pm, Friday, 4​th​
June 2015 (Week 16)
Kiraly Renaud 0320322
Lam Wee Wee 0320129
Nur Iman Bin Mohd Zahari 0321736

2. COMPANY BACKGROUND
TOYOTA MOTOR CORPORATION is an automotive company that based in Japan. It
was founded by Kiciro Toyoda in 1937 as a result from his father company. Toyota is
the most famous automotive brand in Japan as the company was ranked the twelfth­
largest company in the world .Toyota was the top brand name of the automotive, ahead
from Volkswagen Group and General Motors by its production. It’s produced 5.5 million
units worldwide which is equivalent to produce 1 unit of the car in 6 seconds. The
company made named when they created their first product, the type A engine in 1934
.and their first passenger car in 1936. There are 5 brand names of car that are produced
under Toyota Motor Corporation which include Lexus , Hino , Toyota and Ranz.The
vision of Toyota Motor Corporation is to lead the way to the future of mobility , enriching
lives around the world with the safest and most responsible ways of moving people .

3.
Recent Developments
On 15 May 2015, Toyota Motor Corp said that it is recalling 637,000 vehicles in the
United States as part of massive expansion of global recall to replace potentially
defective air bag that could burst, with metal fragments sending shrapnel into the
vehicle occupants. Document posted by the National Highway Traffic Safety
Administration(NHTSA) and air bag supplied by Takata Corp with the effort of Toyota in
helping them.
To raise up to 500 billion yen,Toyota Motor Corp have issued up to 50 million first class
series of Class AA shares through public offering on 28 April 2015. Stating that the
issue period will last for 1 year starting from May 9 2015 to May 8 2016. The money with
then used for development of fuel cell electric vehicle, infrastructure research.
Furthermore, Toyota Motor Corp have announced that they have agreed to cooperate
with Mazda Motor as their business alliance to work on environmental technology and
advanced safety technology.

4. Profitability Ratios
Profitability Ratios 2013 2014 Interpretation
Return on Equity
(ROE)
Net Profit ​x100%
Average O/E
=​962,163 ​x100%
13,995,921.5
=6.9%
Net Profit ​x100%
Average O/E
=​1,823,119 ​x100%
13,995,921.5
=13.5%
During the period of 2013-
2014, the ROE has increased
from 6.9% to 13.02%. This
means the Toyota are
getting higher return on
their capital this year.
Net Profit Margin
(NPM)
Net Profit​x100%
Net Sales
=​962,163 ​x100%
20,914,150
=4.6%
Net Profit​x100%
Net Sales
=​1,823,119 ​x100%
24,312,644
=7.4%
During the period of
2013-2014, the NPM has
increased from 4.6% to
7.4%. This means the
business ability to control
overall expense has
improved.
Gross Profit Margin
(GPM)
Gross Profit ​x100%
Net Sales
=​4,053,623 ​x100%
20,914,150
=19.4%
Gross Profit ​x100%
Net Sales
=​5,703,666 ​x100%
24,312,644
=23.5%
During the period of
2013-2014, the GPM has
increase from 19.4% to
23.5%. This means the
business ability to control
Cost of goods sold expenses
has improved
Selling Expense Ratio
(SER)
Selling Expense ​x100%
Net Sales
=​1,051,154.5 ​x100%
20,914,150
=5.03%
Selling Expense ​x100%
Net Sales
=​1,299,330​x100%
24,312,644
=5.3%
During the period of
2013-2014, the SER has
increased from 5.03% to
5.3%. This means the
business ability to control
the SER is slightly
worsening.
General Expense Ratio
(GER)
General Expense ​x100%
Net Sales
=​1,051,154.5 ​x100%
20,914,150
=5.03%
General Expense ​x100%
Net Sales
=​1,299,330​x100%
24,312,644
=5.3%
During the period of 2013 –
2014, the GER has increased
from 5.03% to 5.3%. This
means the business ability
to control the GER is slightly
worse.
Financial Expense Ratio
(FER)
Financial Expense ​x100%
Net Sales
=​22,967 ​x100%
20,914,150
=0.11%
Financial Expense ​x100%
Net Sales
=​19,630 ​x100%
24,312,644
=0.081%
During the period of
2013-2014, the FER has
decreased from 0.11% to
0.081%. This means the
business ability to control
the FER has increased.
Average O/E: (12,772,856 + 15,218,987) / 2 = 13,995,921.5
Gross Profit 2013: 22,064,192-18,010,569 = 4,053,623
Gross Profit 2014: 25,691,911-19,988,245 = 5,703, 666
General, selling and administrative expenses 2013: 2,102,309/2 = 1,051,154.5

5. General, selling and administrative expenses 2014: 2,598,660/2 = 1,299,330

6. Financial Stability Ratios
Financial Stability
Ratio
2013 2014 Interpretations
Working Capital
Ratio(WCR)
Total Current Asset
______________
Total Current Liabilities
13,784,890
12,912,520
= 1.068 : 1
​15,717,706
14,680,685
= 1.071 : 1
Over the period 2013 to
2014, Working Capital have
increased from 1.068:1 to
1.071:1. The business ability
to pay off its current
liabilities is getting better.
However, it does satisfy the
minimum 2:1 ratio.
Total Debt Ratio(TDR)
Total
Liabilities
________ x100%
Total
Assets
22,710,461​ ​x​100%
35,483,317
= 64%
26,218,486​ ​x​100%
41,437,473
= 63.3%
Over the period 2013 to
2014, Total Debt have
decreased from 64% to
63.3%. The business total
debt have decreased. In
addition it is still above the
maximum 50% level.
Inventory Turnover
Ratio(ITR)
​ Cost of
Goods
Sold
365days / ________
Average
Inventory
18,010,569
365 days / ____________________
(1,715,786+1,622,282)/2
18,010,569
= 365 days / __________
1,669,034
= 33.8 days
19,988,245
365 days / ____________________
(1,894,704+1,715,786)/2
19,988,245
= 365 days / __________
1,805,245
= 32.9 days
Over the period 2013 to
2014, Inventory Turnover
have decreased from 33.8
days to 32.9 days. The
business is selling its goods
faster.
Debtor Turnover
Ratio(DTR)
Credit
Sales
365days / ________
Average
Debtors
10,457,075
365 days / ____________________
(1,971,659+1,999,827)/
2
10,457,075
= 365 days / _________
1,085,743
= 38 days
12,156,322
365 days / ____________________
(2,041,232+1,971,659)/
2
12,156,322
= 365 days / _________
2,006,445.5
= 59.8 days
Over the period 2013 to
2014, Debtor Turnover have
increased from 38 days to
59.8 days. The business is
taking a longer to collect off
their debts.
Interest Coverage
Ratio(ICR)
Interest Expense +
Net Profit
________________
Interest Expense
22,967+962,163
_______________
22,967
= 42.9 times
19,630+1,823,119
_______________
19,630
= 93.9 times
Over the period 2013 to
2014, Interest coverage
have increased from 42.9
times to 93.9 times. The
business ability to pay off its
interest is getting better. ​In
addition, it satisfy the
minimum requirement of 5
times.

7. Price/Earnings Ratio
P/E= Current Share Price
Earnings per share
= ​116.55
11.17
=10.43
The ratio measures how expensive a share is. The higher the P/E ratio, the more expensive it is.
The P/E ratio for Toyota Motors is 10.43 therefor we say that it will take investors 10.43 years to
recoup their investment.

8. Investment Recommendations
A) Profitability
From the information we gathered about profitability investing in Toyota Motors Corporation
for the period of 2013 to 2014 is beneficial. This is because based on the profitability ratios
the business has improved. The return on equity shows an increase of 6.9% - 13.5% which
means that Toyota Motors owners are getting a higher return on their capital during that
period. Also the businesses ability to control its overall expenses has improved. The Net Profit
Margin has increased from 4.6% to 7.4% giving a rise of 2.8%. The Gross Profit Margin has also
made an improvement of 4.1% meaning that the businesses has improved at controlling its
Cost of Goods Sold expenses. On the other hand the Selling expense ratio and General
Expense ratio haven’t done quite well, both showing an increase during that period. But it is
only a slight increase of 0.27%. This means the business hasn’t worsened by a large margin.
And lastly the Financial Expense Ratio has improved compared to the previous year from
0.11% to 0.081%.This is a decrease of 0.029% and will result in a higher Net Profit Margin.
B) Stability
Toyota Motors Corporation demonstrates small signs of being financially stable. During the
period of 2013 to 2014 the Working Capital Ratio has increased from 1.068:1 to 1.071:1. This
shows a slight improvement albeit does not satisfy the minimum 2 : 1 ratio. The Total Debt
Ratio also shows improvement as there is a decrease from 64%-63.3% as well as exceeding
the maximum 50% limit we believe that this does not hinder its stability. The Inventory
Turnover Ratio proves that the business is selling its goods faster (33.8 days previously to 32.9
days currently), the Debtor Turnover Ratio shows that the business is collecting its debt by a
margin of 21.8 days (38 days to 59.8 days. Toyota is taking longer to collecting its debt. And
finally the Interest coverage Ratio has increased from 42.9 times to 93.9 times in addition it
exceeds the minimum requirement 5 times.
C) Price
Toyota Motors Corporations share price is considerably cheap.
To conclude from all the information gathered and compiled investors are encouraged to
invest in this company seeing as it shows good profitability, signs of financial stability and the
share prices are not exaggerated.

9. Appendix

13. REFERENCES
http://www.toyota­global.com/innovation/environmental_technology/hv­record/
http://topics.nytimes.com/top/news/business/companies/toyota_motor_corporation/index
.html
http://en.wikipedia.org/wiki/Toyota
http://www.reuters.com/finance/stocks/TM/key­developments