Toyota's Financial Management and Crisis

This assignment delves into the financial management strategies of Toyota Motor Corporation. It examines the company's response to the recent fuel emission control system crisis, including recall procedures and modifications. The analysis aims to identify weaknesses in their financial management practices and propose effective solutions to mitigate the negative impacts on the firm's financial stability and reputation.

CORPORATE FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Link between events and value of the company:..............................................................1
1.2 Industry and overall stock market comparisons...............................................................2
TASK 2............................................................................................................................................3
2.1 Analysis of group affected by scandal:............................................................................3
2.2 Commentary and supported views on the exactness and appropriateness of response:...4
TASK 3............................................................................................................................................5
TASK 4............................................................................................................................................6
TASK 5............................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Quality standards are the major part in the auto-mobile sector, as each company wants to
perform their performance by modifying changes in the car, which could provides the adequate
standards and quality among them (Chandra, 2011). Toyota company is one of the best auto
mobile company which believes in providing innovative things to the company that could lead to
make their business operations effective. Toyota company after having accidental acceleration,
invent things for providing better safety to the consumers.
TASK 1
1.1 Link between events and value of the company:
There is a direct relationship between the accident and value to the firm. If the events
frequently occurs then in that case, then the value of the company would ultimately goes down.
Toyota's role in defining the modern approach to the quality improvement (Ling, and Archer,
2012). In the 1960s, Toyota develop various quality improvement methods, that renders the
operational basis for Japanese total quality control. TQC renders the basic building blocks for
Six sigma methodology, that had be positively grasp by leading U.S. Auto-mobile companies
like-GE and Boeing. With such time, Toyota management began to assess the critical connection
between quality, customer satisfaction and profits. The value of these links became highly rooted
in Toyota's management philosophy and an inherent section of the firm's employee training and
growth. Quality developed as a central component in Toyota's international strategy and became
integrated in the famous Toyota production system. TQ related issues arise in the US were
signaled with the initial recall in the late 2009 for issues with floor mats, but they did not end
there, and Toyota recalled around 7 million vehicles. However, there were so many issues
occurred: potentially sticky gas pedals, pedal entrapment and software glitches which affected
breading on few models.
There is no doubt that the company's quality image suffered with the recalls a lot. Few
people observed that the company's quality decreased in the last few years. In 2008, Consumer
Reports did not give automatic recommended ratings to entire Toyota models based on their
earlier evaluations. Adverse quality perception among the consumers can remain long after the
objective issues have been corrected. While few experts thinks that the Toyota company
overcome these issues and come out with the new refreshment things. Company's growth moved
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into high gear in the year of 1995 with the appointment of Hiroshi Okuda was the firm's new
president. He was known for his aggressive efforts to remake Toyota and also recognise the firm
in a global platform by making international growth strategy. In 2008, the company's global
market share was reached to 13%. then all of sudden, in 2009, Toyota's Accidental Acceleration
issues occurred in USA. Under such a case, many driver claims that Toyota's vehicles
automatically accelerate that might lead to its own. This also results to affect the value of the
firm. Which will ultimately affects the business operations of the firm. Company decisions
regarding recall might damage its reputation, but deceiving customers makes that damage far
more lasting (Altman and Hotchkiss, 2010).
1.2 Industry and overall stock market comparisons
The auto-mobile sector is highly competitive market as there are so many players in this
sector. Toyota have tough competition from automotive producers in the markets under which
this operates. However, global economy is rapidly to grow. Apart from that, competition is
likewise increasing due to the globalisation in the international automotive industry, possibly
emerging in the industry reorganisations (Chandra, 2011). There are certain factors that could
influence the product quality and features, safety, reliability and fuel economy. Enhanced
competition might lead to make lower vehicle unit sales, that might emerge in the further
downward price pressure and negatively affects firm's financial positions and results of
operations. Firm's ability to appropriately respond to the current rapid changes in this sector and
handle its competitiveness would be fundamental to its future success in the existing and
advanced markets and to handle its market share (Higgins, 2012).
List of Toyota's motor corporation's competitors' stock market comparisons:
COMPANY NAME TICKER SEGMENT NAME
OF TOT.
REV.
OF TOT. IN
C.
Toyota Motor Corp TM Total - -
General Electric Company GE Consumer Finance 10.54% 9.58%
Cit Group Inc CIT Total 100.00% 100.00%
Paccar Inc PCAR Financial Services 6.69% 21.34%
General Electric Company GE Commercial Finance 10.48% 6.88%
Keycorp KEY National Banking 39.02% 51.26%
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Cit Group Inc CIT Transport Finance 61.11% 93.56%
American International Group Inc AIG Financial Services 14.76% -
Cit Group Inc CIT
Commercial Finance
Group 100.00% 100.00%
General Motors Company GM GM Financial 2.93% 37.46%
Huntington Bancshares Inc HBAN AFCRE 14.24% 28.96%
General Electric Company GE Capital 10.48% 6.88%
Ford Motor Credit Co Llc F1 Total 100.00% 100.00%
Mint Leasing Inc MLES Total 100.00% -
Nicholas Financial Inc. NICK Total - -
General Motors Financial
Company, Inc. ACF Total 100.00% 100.00%
Ally Financial Inc. ALLY Total 100.00% 100.00%
Avangard Capital Group, Inc AVGC Total 100.00% -
Credit Acceptance Corp CACC Total 100.00% 100.00%
Consumer Portfolio Services Inc CPSS Total 100.00% 100.00%
General Electric Capital Corp GEH Total 100.00% 100.00%
Onemain Holdings, Inc. LEAF Total 100.00% 100.00%
Santander Consumer Usa Holdings
Inc. SC Total 100.00% 100.00%
Toyota Motor Credit Corporation TMCC Total - -
Ford Motor Co F Ford Credit 5.77% 31.13%
Ford Motor Co F Automotive 94.23% 71.18%
Paccar Inc PCAR Truck 75.83% 52.98%
General Motors Company GM GM Automotive 97.07% 62.54%
Tesla, Inc. TSLA Automotive sales 99.72% 100.78%
Federal Signal Corp FSS Total 100.00% 100.00%
Navistar International Corp NAV Total 100.00% -
Oshkosh Corp OSK Total 100.00% 100.00%
Saleen Automotive, Inc. SLNN Total 100.00% 100.00%
Spartan Motors Inc SPAR Total 100.00% -
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Zap ZAAP Total 100.00%
TASK 2
2.1 Analysis of group affected by scandal:
The company needs to make their business operations effectively so that the company
could lead to get sustainable development (Brigham and Daves, 2012). However, mostly the
middle income group were affected by the fuel emissions control incidents. In this incident,
company recalled around 3 million cars on the basis of fault in emission control units. About 1
million care get affected by both potential defects. Due to that overlap, this is presumed to the
number of vehicles recalled was 3.37 million. Company's fuel emission control units in the
models manufactured from 2006 to 2015 covering the Prius, Auris compact hatchback and
Corolla were prone to cracks, that could lead to fuel leaks over the time.
Stakeholder mapping: It is an important process to determine who is key stakeholders
of the company. It is a collaborative stage which consists of research, debate and explanation that
presented from multiple perspectives.
2.2 Commentary and supported views on the exactness and appropriateness of response:
After gone through crack in a fuel emission, this have been observed that the company's
top level authority decided to recall their cars from the entire market in order to do overcome
further issues. This is the most effective manner by which company can take back of all the cars
on which crack in the fuel efficient tools occurs (Brealey, R. ans et. al., 2012). There are required
to make certain tools that are required to be adhere by the top level authority so that any further
incidents can be avoided. If they were not take such action then the further incident would have
occur by which company's goodwill or brand value would have mitigated. This is the only one
that are the only one by which company could attain their business operations effective.
Purchasers and other important affects the way people interact with each company's
resources. It is mostly related with situational factors those are affecting temporary conditions
that affect the buyers.
A stockholders will get two or three shares for one without any charges of cost. It will
make easy for the company to determine the actual reason of impact. Mergers affects the
shareholder's of various companies in plenty of ways. Dividend are cash or inventory pay out
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that a company essential to pay to investors. If they are not paid on right time they can get
affected.
TASK 3
a). The unintended acceleration in the motor vehicle force the firm to recalls their cars which
adversely affects the value of the firm in the global market. This kind of incidents makes the firm
reputation so embarrassing which ultimately affects its sales. Faulty airbags incidents also
occurred in the firm which stills affects the sales of the firm. Which still affects the firm
performance. Firm's event would make long term impact on the image and reputation of the firm.
This is the reason, that is why Toyota recalls around 1.4 Million motor vehicles. As, these kinds
of events in the firm leads to discourage consumers to buy its products. That would ultimately
affect the sales of the firm, and this also affect the image and reputation of the firm.
b). These kinds of events leads to Long term impact on the dividend and distribution policy.
Because, company will not able to earn the favourable revenue and profits and that is the reason,
company will make long term impact on the dividend and distribution policy (Brigham and
Ehrhardt, 2013).
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Declared Date Type Amount
03/15/2017 Normal 1.966
09/15/2016 Normal 1.772
03/24/2016 Normal 2.015
09/23/2015 Normal 1.628
In the above mentioned chart, this has been seen that the management of the Toyota
issued dividend to their shareholders. In 2015, $1966 issued which was raised to 2.015 in 2016
and then in the month of September $1.772 also issues and in 2017, dividend issued $1.996. this
is observed that the company is cash rich and it is paying dividend at an increasing rate after
having so many incidents.
c). By using effective strategies like recall the defective model from the market, help the firm to
get back to the earlier position. But this takes time for the recovery as most of the numbers are
used in order to use by the firm in order to frame certain strategies. Around this will take about
2-3 years to come to the former position in the global market after applying the certain
alternatives.
TASK 4
Efficient market theory is an investment theory which states that it is not possible to “beat
the market” as stock effectiveness causes current share prices to ever incorporate and reflect
entire relevant information.
Company's expected return is calculated by using undermentioned formula. Company's expected
return is:
E(RTM) = RF + βTM [E(RM) – RF]
= 2.72% + 0.65 [12.99% – 2.72%]
= 9.41%
While on the other hand, firm's actual return is 10.63 which reflects the firm is
overvalued then in that case, there is a need to buy the firm's shares because of AR>ER.
TASK 5
Ethical investing is an umbrella term which elaborates any investment strategy which
establishes moral belief into the procedures (Brigham and Houston, 2012). Such approach covers
socially conscious investing or sustainable investing related decisions which impacts by various
other ethical factors like workers' right, animal welfare, philanthropy and common social good.
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This is not about ditching personal gains to make the planet in a greater place. This is all about
strategic balance and makes an efforts to achieve financial and ethical goals with the one
strategies.
Ethical investment: Socially responsible investing, that consider environmental,
religious, labour or various social factors of firms apart from the firms' financial performance, is
increasing. This means that people can invest in such a manner which is regular with their
values. Consumers are needed such kind of investment as they needs to put their money in firm's
with accountable workplace policies and governance and which takes societal values in the
account.
If the client is the ethical investor, then in that case, there is a need to know about the
companies which are incorporating their business most ethically by applying various regulatory
norms and objectives. Then there is a need to list of those companies which are operating their
business in most profitable manner, and among them and refer those company in an effective
manner.
But decisions would change by in investor have non ethical investor. There is a needs to make
certain changes as per the investor behaviour or changes. Firm only provides the data as the
behaviour of the company. There are certain tools that could be used in order to attract various
investors. The company total reliability is depends by providing better consulting techniques so
that the investors get the exact information which he wants to achieve (Arnold, 2013). There are
certain tools that could be used by the firm for attaining pre-set targets of the firm.
If the investor is non ethical and he wants to have maximum return then there is a need to
provides list of those company on which those investors could get the maximum return.
CONCLUSION
From the above mentioned report, this is observed that the Toyota needs to adhere
various tools in order to avoid the mishap or incidents. Recalling of defective cars and modified
them in an effective manner so that the business can recover from various impacts which affects
the firm financial problems. Under this report, Toyota's crack in the fuel emission control system
needs to reviewed in a most effective manner by recalling those model and modified accordingly
so that they can provides various tools. Certain recommendations are used in order to overcome
these issues so that the firm could attain its objectives in a sustainable manner.
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REFERENCES
Books and Journals:
Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage
Learning.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage
Learning.
Brealey, R.A., Myers, S.C., Allen, F. and Mohanty, P., 2012.Principles of corporate finance.
Tata McGraw-Hill Education.
Brigham, E. and Daves, P., 2012.Intermediate financial management. Nelson Education.
Chandra, P., 2011. Financial management. Tata McGraw-Hill Education.
Higgins, R.C., 2012.Analysis for financial management. McGraw-Hill/Irwin.
Altman, E.I. and Hotchkiss, E., 2010. Corporate financial distress and bankruptcy: Predict and
avoid bankruptcy, analyze and invest in distressed debt (Vol. 289). John Wiley & Sons.
Ling, D. and Archer, W., 2012. Real estate principles: A value approach. McGraw-Hill Higher
Education.
ONLINE
Financial Management - Meaning, Objectives and Functions. 2017. Available
through<http://www.managementstudyguide.com/financial-goal.htm>. [Accessed on 2nd
November 2017].
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