Financial Analysis of Toyota Motors and Sustainability Reporting under GRI

This report analyses the sustainability reporting of Toyota Motors under GRI and compares it with BMW Group. It discusses the environmental and social impact of Toyota's operations, compliance with GRI disclosures, and the importance of global reporting standards. It also includes a breakeven analysis and evaluation of success using a balanced scorecard.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
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Author’s Note:

FINANCIAL ANALYSIS
Executive Summary
This report takes an honest attempt to analyse various aspect of sustainability reporting under
GRI for the business operations of Toyota Motors. This report takes into account the major
effects of the business operations of Toyota Motors. After that, it shows the compliance of
the company with the disclosure requirement of GRI. The next part compares the
sustainability reports of Toyota Motors and BMW Group. The last part indicates towards the
benefits of sustainability reporting for the investors.

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Table of Contents
Part A.........................................................................................................................................4
Introduction............................................................................................................................4
Environmental and Social Impact of Toyota Motor Corporation’s Operations.....................4
Four Key GRI Disclosures.....................................................................................................5
Importance of Global Reporting Standards............................................................................8
Part B........................................................................................................................................10
Part C........................................................................................................................................12
Breakeven Analysis..............................................................................................................12
Memo...................................................................................................................................14
Conclusion................................................................................................................................16
Reference..................................................................................................................................17

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Part A
Introduction
In today’s business worlds, it has become mandatory for the business entities around
the globe to disclose all of their activities related to environment and sustainability as the
customers all over the world has become aware of the negative effects of the business
activities on the environment. For this reason, it has become necessary for the companies to
publish their sustainability reports from which the customers can obtain information about the
sustainability activities of the companies. In this context, it is needed to mention about Global
Reporting Initiative (GRI) Standards as it is the first global standards for the purpose of
sustainability reporting. More specifically, ‘GRI-102: General Disclosures’ puts the
obligation on the business organization to disclose all the required information related to the
sustainability reporting of the companies (globalreporting.org, 2018). The main aim of this
report is to conduct an analysis and evaluation of different sustainability reporting related
activities of Toyota Motor Corporation.
Environmental and Social Impact of Toyota Motor Corporation’s Operations
It can be seen from the 2017 Annual Report as well as Sustainability Report of Toyota
Motors that the business operations of the company have some major effects on the
environment as well as the society and they are discussed below:
The first major negative impact of the business operations of Toyota Motors is the
emission of carbon. Carbon emission from the motor vehicles of Toyota Motors has major
negative impact on the environment. Apart from this, another major source of carbon
emission in Toyota Motors is their production facility (Toyota-global.com, 2018). In this
context, it needs to be mentioned that some of the operations of Toyota Motors involve in
massive carbon emission like process of material production and others; and all these

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processes have major negative impact on the society After that, the next major positive
impact of Toyota Motors’ operation comes in the form of Recycling-based society and
system. It needs to be mentioned that, over the last 40 years, the aim of Toyota Motors has
been to recycle the environmental and social resources for the betterment of the society
(toyota-global.com, 2018). After that, excessive usage of water along with wastage of water
has been the major negative impact of the business operations of Toyota Motors. Excessive
use of water can be seen in the plants of Toyota Motors for various purposes like painting,
forging and other processes. For this reason, it is considered as a major environmental issue
of the business of Toyota Motors. At the same time, Toyota Motors has been engaged in
some specific social activities like plantation of trees, environmental consecutive activities
and others that are majorly helpful for the environment as well as the society (toyota-
global.com, 2018).
Four Key GRI Disclosures
It can be seen from the earlier discussion that the GRI reporting framework puts the
obligation on the business entities to disclose different aspects and the below discussion
shows four of them:
According to GRI Disclosure 102-18 Governance Structure, it is the obligation on the
business organizations provide the information related to their governance structure and its
composition. At the same time, it is needed for the companies to provide information of the
role of governance body, governance for audit, sustainability reporting and others. After that,
as per GRI Disclosure 102-45, it is needed for the business entities to include the
consolidated financial statements for providing the required information (globalreporting.org,
2018). After that, as per GRI Disclosure 102-30, the companies are needed to disclose the
details about their risk management process along with their effectiveness. Lastly, as per GRI

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Disclosure 102-35, it is needed for the business organizations to provide all the details about
the remuneration policies of the companies (globalreporting.org, 2018).
It needs to be mentioned that Toyota Motors develops their annual report as well as
sustainability report after complying with the disclosure requirements of GRI 102: General
Disclosures. As per the 2017 Annual Report of Toyota Motors, the company has provided the
required information about corporate governance by complying with the principles of GRI
Disclosure 102-45 (toyota-global.com, 2018). This Section includes fundamental approach of
governance, board composition, business executives and supervisions, audit and supervisory
board and others. After that, it can also be observed from the 2017 Annual Report of Toyota
Motors that the company has included all the required financial statements in their annual
report like consolidated balance sheet, statement of cash flow, consolidated statement of
income and others; and it shows the compliance of the company with GRI 102-45 (toyota-
global.com, 2018). This report of Toyota Motors also includes all the details about the risk
management process that includes business and other risks; and it shows the compliance of
Toyota Motors with GRI Disclosure 102-30. Lastly, Toyota Motors has provided the
information about the remuneration of board members and audit committee in the report that
shows the compliance with GRI Disclosure 102-35 (toyota-global.com, 2018).

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Quality and Depth Analysis of the Sustainability Report.
The sustainability report is prepared by the company along with the annual report of the
company for providing a comprehensive knowledge about the sustainable strategy about the
company and the progress the companies are making in the sustainable corporate progress.
Both the companies have a wide and diversified wide range of the initiatives it takes in
addressing the global environmental issues. The issue, which the Toyota Motor Corporation
deals with is the extreme nature and climate effects such as weather changes, emissions of
greenhouse gas, focus on depleting biodiversity, which gets indirectly influenced by the
operations of the company. The Toyota Motor Corporation has developed and built strategies
like the Toyota environmental Challenge 2050 in lieu of the changing and depleting
environmental resources and the surroundings. The main motive behind such initiatives
would be reducing the environmental burden on automobiles and other products. Addressing
key issues, which directly influence the environment and the biodiversity and measures for
the same would be taken to reduce the same (Toyota Environmental Challenge 2050, 2018).
The major steps taken by the company are:
 Reducing CO2 emissions by enhancing the framework of the production and
designing of the product
 Minimizing and efficient utilization of water
 Creation of a recyclable society and systems involved
 Reducing Energy Consumption by adopting renewable sources of energy.
The BMW group on the other hand the largest automobile company is also having
several measure and steps for reducing the environmental burden and influence on the same
through some key strategies. The BMW 2020 year plan is the key initiative the company is
undergoing through by reducing the emission amount of CO2 and other harmful pollutants,

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which could indirectly influence the environment. The company through its plan has decided
to reduce the emission of the CO2 gas by about 50% in the European new vehicles fleet
(BMW Group, 2017). Some of the key target and measure by the company are:
 Reducing CO2 emissions of the BMW group company.
 Delivering more electric cars
 Creation and adoption of renewable sources of energy.
Importance of Global Reporting Standards
The Global Reporting Standards is the standard for reporting sustainable reporting of
financial information and statements. The Global Reporting standards help the investors,
stakeholders and other shareholder of the company by creating a modular structure and thus
that would enable the best practices of financial reporting (Fernandez-Feijoo, Romero &
Ruiz, 2014). The widespread compliance with the GRI standards from the other motor
vehicle corporations in the industry would benefit the stakeholders of the company’s
operating in and around the same sector of the industry. The common and adherence to the
global reporting standard would enable the investor to form a basis for comparison of
financial information presented in the financial report of the company. The reporting standard
would enable the companies to accurately classify and record transactions according to the
guidelines and principles mentioned by the reporting standards. The common reporting
standard would also enhance the transparency and fairness in the financial information
provided by the company. The main motive behind the global reporting standard is that the
investors and stakeholder of the company should be able to compare returns and financial
information presented by companies by different way of accounting (del Mar Alonso‐
Almeida, Llach & Marimon, 2014).

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The benefits and the features of common financial reporting would be that the
classification of accounts based on accrual and judgemental basis is eliminated when certain
guidelines and principles will be accounted. There might be companies recording the same
nature of income or expenses for the company in different ways. Companies following the
global reporting standard would be benefited by treating expenses and income for the
company under common head. Common Accountability and transactions of the accounts is
necessary for the industry. Thus global accounting standard would bring about best corporate
governance in the industry by common reporting of financial informations and statements
(Tschopp, & Nastanski, 2014).

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Part B
1) The major costs associated with the ongoing operations of the production line with the
Smart Vehicle is all about developing the overall company from an hardware
company to a new companies, which has the capabilities of transforming itself into a
technology driven company. The improvements by the company could be in the field
of Artificial intelligence, automated driving facilities, robotic and high tech advanced
features for the new modern and smart cars. The cost associated with the same would
be advancement in the field of technology, which could be explored by company
investing more into the research and development section of the company. The
advancement in the field of Artificial Intelligence, which would help the company
gather important relevant data about the taste and preference of the consumers. The
advancement in the smart car through robotic features and tech drive cars could
enhance the driving experience of the customers. Advancement in the human
resources skills and knowledge could be one of the major factor driving the company
toward long term growth and prosperity (Palia, 2014).
2) The cost behaviour may be classified into three major categories either fixed or
variable cost. The major costs identified was creating and pooling of data through
artificial intelligence, whose classification of expense could be classified as variable
expense. Inclusion of robotic features and new tech driven facilities and amenities in
the car would be done by the company by investing more and more into technology
driven software’s, hardware’s and equipment’s. The classification for such expenses
done would come other as fixed expenses as the cost incurred for buying those
products will be used in the long term. Advancement in human resources skills and
knowledge could be done through extensive training and development of the

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employees. The classification for such kind of expenses would be variable as the cost
would depend from employee’s base to training requirements.
3) Yes the use of breakeven analysis could be one of the useful and reliable screening
tools for the Toyota Motor Corporation. The company should go along with the
scenario analysis and breakeven strategy in order to perform a better screening tool
for the company cost benefit analysis. The desirability of the new product would only
fit into the company’s business model if the cost incurred for the same and the return
generated from the same is sufficient for the company. The breakeven analysis for the
product would give the company an estimate about the minimum products, which
needs to be sold and delivered in the market to at least get cover for the primary costs
of developing the products.
4) Evaluation of success of Toyota Motor Corporation and the strategy used is
elaborated with the help of a balanced scorecard. Both financial and non-financial
measures were taken into account during the review.
Perspective Objective Measures
Financial Growth in
Revenue
Lead: Increase in Revenue though advance booking
and increasing quarter sales.
Lag: Financial statement and the annual production,
revenue generated by the company.
Customer
Trend,
Performance and
Demographics
Lead: Increase in Customer base through safety car
techniques , advanced high tech pro features in the
car could drive more customer base
Lag: Traditional framework and Approach of
working
Internal
Business
Processes
Value Creation
Lead: Increase in Return on Equity and the margins
of the company by increasing revenue and sales per
region
Increase in Margins by reducing operation costs
Learning and
Growth
Human Resource
Development
Lead: Better Output of Existing Labour through
extensive skills development
Lag: Increasing Staff and employee turnover to
increase and get the best labour delivering better
output.

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The key features involved in the scorecard and the reasons which explains the overall
success of the Toyota Motor Corporation is about development of products and ideas through
which the company caters its customers. The financial perspective taken, which explains the
growth in revenue can be done through different strategies of revenue generation like
advance booking and by increasing the sales of the company. The old traditional method
should be avoided which just include buying selling products instead of buying selling
products and after sales services. The customer approach was identified in order to get an
overview of the type and category of customer, which the company caters. The quality and
the type of advanced services they expect to be included in the product. Internal Business
process or the value creation as the primary objective was chosen to check and observe the
return company generates. Companies should operate in a way, which would adhere to the
customer according to their preference and the type of product expectation they. Traditional
method included volume activity of buying and selling similar products, which would not
differentiate between various classes and kinds of customer base and profile. The learning
and development of the human resources of the company is the most important and
significant category in the overall success of the company. The company through extensive
training and development of trained and skilled employee could achieve the same. Turnover
of employee base would often distort the company’s working environment and would be
ineffective for long-term growth and prosperity of the company.
Part C
Breakeven Analysis
There were a total number of three hypothetical products selected of which the
breakdown of the cost and variance analysis is performed. The fixed cost and the variance
cost of the company is broken down as per unit production cost to the company. The breakout
for Product A will be when the company produces product greater than 100 units. In case of

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product B and C 100 units is a sufficient breakout strategy for the company (Goldenberg et
al. 2015).
Particulars Product A Product B Product C
Non- Current Investment
Plant and Property 90,000 80,000 70,000
Machinery 50,000 40,000 45,000
Total Fixed Cost 140,000 120,000 115,000
Current Investment
Cash or Working Capital 20,000 10,000 10,000
Inventory 25,000 20,000 15,000
Expenses
Training and Development Cost 8,000 7,000 5,000
Marketing Cost 5,000 4,000 3,000
Total Variable Cost 58,000 41,000 33,000
Total Investment 198,000 161,000 148,000
Total Output Expected and Return from the Current Investment and Assets Capacity
Expected Number of Output 100 90 85
Total Production Fixed Cost Per Unit 1400 1333 1353
Total Production cost per unit 140000 120000 115000
Margin on each product 10% 8% 10%
Total Selling Price Per Unit 1540 1440 1488
Total Revenue for the company 154000 129600 126500
Less: Variable Cost 58,000 41,000 33,000
Less: Depreciation cost 70000 60000 57500
Profit Before Tax 26,000 28,600 36,000
Tax Expenses 7800 8580 10800
Profit After Tax 18,200 20,020 25,200
Return on Investment 9.19% 12.43% 17.03%
Breakeven Output <100 Units 100 Units >100 Units
Workings
Less: Tax Rate 30% 30% 30%
Useful life of Assets
Plant and Property 2 Years 3 Years 2 Years
Depreciation Amount Per Year 45000 40000 35000
Machinery 2 years 3 Years 2 Years
Depreciation Amount Per Year 25000 20000 22500
Table 1: Break-even Analysis

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Memo
To: Toyota Motor Corporation
Cc: Toyota Directors
From: Accounts Department
Date: September 16, 2018
Subject: Strategic Initiatives for Toyota Motor Corporation
The letter is to address about the key strategies, which can be implemented by the Toyota
Motor Corporation. The strategies, which can enhance the breakeven point is by reducing the
variable cost of the product or by increasing the selling price of the product. The same will
enable the company to deliver more revenue and deliver better output of the capital invested.
Three major strategies defined for the company to enhance the breakeven are:
 Increasing Selling Price
 Eliminating and Reducing Fixed Cost component
 Cross selling of products and services.
The initiatives and strategies implemented could affect the companies selling price, variable
costs such as marketing costs for the company and reducing fixed costs by efficiently
utilisation of assets. The company would have to invest more into Research and development
cost for the product in order to deliver quality products. The company variable cost will be
dependent on the unit produced so the production and the turnover of the units produced. The
ability for the company in efficiently utilising its fixed and variable costs to enhance the
return on investment for the stakeholders of the company. The working shown in Table 1
shows the impact of changing variable and fixed costs for the company and the return

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generated from the same. The company could also enhance the annual profit of the company
by the new product by the following strategies:
 Removal of Unutilised products and services of the company
 Creation of new customer base
 Increasing the Inventory Turnover Ratio for the company.
 Reviewing and monitoring the pricing structure of the company.
The following strategies could be beneficial for the company in enhancing the breakeven
point and the annual profit for the company.
Regards,
Andrew Lewis
Accounts Department
Toyota Motor Corporation.

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Conclusion
The above discussion indicates towards the fact that Toyota Motors complies with
GRI for the development of their sustainability and integrated report. Some of the major
environmental issues of the company are carbon emission, wastage of water, waste disposal
and others. However, the above discussion also indicates towards the fact that the company
has complied with the major disclosure requirement of GRI at the time of sustainability and
financial reporting. The comparison between Toyota Motors and BMW Group shows that
both the companies have take initiatives while Toyota Motors has longer sustainability
initiatives than BMW.

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