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Management Accounting and Finance Assignment (Doc)

   

Added on  2020-10-04

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Management Accounting andFinance1
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TABLE OF CONTENTSINTRODUCTION.............................................................................1EXTERNAL ANALYSIS.....................................................................1Political environment...................................................................................................................1Economic environment................................................................................................................2Social and cultural environmental................................................................................................2Technological environment..........................................................................................................2Legal Environment.......................................................................................................................3ANALYSIS OF FINANCIAL RATIOS...................................................3Current Ratio................................................................................................................................3Operating Profit Margin Ratio.....................................................................................................4Gross Profit Margin Ratio............................................................................................................4Earnings per Share Ratio..............................................................................................................5Price to Earnings ratio..................................................................................................................6Price to book value ratio..............................................................................................................6Gearing Ratio...............................................................................................................................7Asset Turnover Ratio...................................................................................................................8Return on Capital Employed (ROCE).........................................................................................8Dividend payout ratio...................................................................................................................9Interest Cover Ratio.....................................................................................................................9PART 2........................................................................................10Internal and External Sources of finance for Toyota.................................................................102
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PART 3........................................................................................13Importance of budgeting in the modern environment................................................................13CONCLUSION...............................................................................18REFERENCES...............................................................................203
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INTRODUCTION Toyota Motor Corporation (TMC) is a Japanese automotivemanufacturing organization that is listed on Tokyo Stock Exchange, LondonStock Exchange and New York Stock Exchange. It is the world’s biggestautomotive manufacturing organization that produces greater than 10million vehicles every year. In Global Fortune 500, TMC stood at 5th positionwith total revenue of $254,694 million (The Global 500: The Top 10, 2017). Itdesigns, manufactures and sells commercial vehicles as well as passengervehicles and its associated parts and accessories. Its operational modelincludes Automotive, Financial Services and other segments. Firm also offershybrid cars under Alphard, Esquire, NX300h, Prius and other names. Qualityproducts embedded with advanced technologies enable firm to develop aworldwide image and established firm’s position as market leader. Today, firm manufactures a diversified range of vehicles and deliversit all around the globe. It had established a well-known position due to itssound managerial philosophy and superb mass-market hybrids. The missionof the company is to attract and retain their customer base by offering themhigh value products and services. The vision is to become the mostrespected and successful automotive manufacturing firm. It aims to buildreliable and sustainable products using latest technologies to drivecompetitive benefits. The aim of current investigation is to expose theopportunities and threat that the company may face due to external marketvolatility. Moreover, its financial performance will be assessed throughvarious ratios for FY 2015 and FY 2016. Besides this, different internal andexternal sources and the importance of budgeting in the business successand growth will be evaluated. 1
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EXTERNAL ANALYSIS Being operation at worldwide pace, company is subjected with variousexternal market risks. Its external market risks in global level are evaluatedbelow: Political environment Toyota is a global automotive brand that is operating at worldwide. Atthe end of FY 2017, it has established 51 companies in overseas markets andits commercial and passenger vehicles are sold in greater than 170 countriessuch as Europe, North America, Africa, Asia, Middle East, Oceania and others.Political stability of every country has a direct impact over its operations thatdepend upon trading policies. Recently, political turmoil due to Brexitaffected Toyota adversely because of devaluation of sterling and the impacton currency exchange rate as well. However, Asian market politicalenvironment remain stable which favorably affects its revenue andprofitability. Thus, stable political environment in the major markets is seenas an opportunity for the Toyota. Moreover, Free Trade Agreements (FTAs)with Japan & other nations provide opportunity to the firm to penetratemarket. In addition, support of government for the sustainable &environment-friendly products is an opportunity that enables firm exceedingtheir expectations. Economic environment Toyota needs to focus on expanding their export volume because ofweaker Japanese Yen in relation to US dollar. Moreover, US economy’sgradual growth provides an opportunity to expand or grow their marketwhich is its largest market after Japan. Despite this, considering the rapidgrowth of emerging markets and developing economies, it can expand theirbusiness and maximize their revenues. Widening growth in Asian regionattracts vehicle makers to expand in such markets to maximize theirprofitability. Despite this, rising employment level raised purchasing power2
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of people which simply means higher dispensable money which contributedtowards maximizing sales & profitability. Social and cultural environmental As Toyota operates on a global scale thus, social & cultural factors areconsidered as a significant barrier. It is the reason why Toyota needs to focuson localization so as to build a stronger connection with the customers indifferent region. Changing preferences and rising demand of eco-friendly &electrical vehicles raised Toyota’s sales volume (Ferguson, 2017). In order tograb larger market, Toyota had planned to engage in massive production ofelectrical vehicles by the end of FY 2020. Its hybrid vehicles salescontinuously shows a rising global sales because of rapid increase indemand. Technological environment No-doubt, Toyota promoting innovations in their products through theadoption of new technologies to outer perform than competitors. Latesttechnology use in hybrid and electrical vehicle manufacturing helps firmsaving the consumption of fuel. Moreover, Smart Mobility Society is used toconnect its products, community and people to build a happier society. Inaddition, Robotics technology, new transportation methods, interconnectedtraffic safety systems, Automated Driving Technology helps promotingsafety, mobility and efficiency. On the other side, cybercrime is a majorthreat for the establishment. Legal Environment As government is working towards strengthening Intellectual PropertyRights which helps Toyota to minimize infringement concern so thatcompetitor cannot copy their design. Rising environmental laws is afavorable aspect because Toyota is already striving towards sustainableproducts which help complying with emission standards and build safety3
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products. In despite this, consumer protection laws, trade laws and othersneed to be complying with. ANALYSIS OF FINANCIAL RATIOS Toyota is a profitability-oriented business that aims to maximize theirprofitability by delivering exceptional quality products to their customers.Ratio Analysis is a great way to determine and examine that how well theentity is performing in the market and whether its performance has beenimproved or deteriorated. It is useful to assess both the financial health aswell as profitability performance. For analyzing financial performance andposition of Toyota Plc over the year’s ratio analysis tool has been applied.This is one of the most effectual financial tools which in turn provide highlevel of assistance in summarizing and evaluating monetary performance ofthe firm in the context of several areas such as profitability, liquidity,solvency as well as efficiency. Current Ratio2015(In 000)2016(In 000)Current assets149,563,000162,014,000Current liabilities137,015,000143,462,000Current ratio=149,563,000/137,015,000 = 1.09:1=162,014,000/143,462,000= 1.13:14
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Currentratio:CurrentAssets/CurrentLiabilitiesIn FY 2016, Toyota’s CR shows a gradual increase from 1.09:1 to 1.13:1shows increased liquidity (Toyota’s Financials, 2017). The annual reportshows that company had invested and tied money in the net receivables andfocused on maximizing its cash balance which shows an increase of 37%. Itis comparatively greater than the increase in their accounts payable andshort-term debt (Mohanty and Mehrotra, 2018). As a result, liquidity gotstrengthened, still, in line with the recommended industry benchmark 2:1,the ratio is still far below that suggest firm to invest their short-term assetssomewhere for a short duration so that they can generate some return anduse it for productive purpose (Saleem and Rehman, 2011). Operating Profit Margin Ratio2015(In 000)2016(In 000)Operating profit 22,936,00025,392,000Net sales 227,096,000252,708,000operating margin =22,936,000/227,096,000*100= 10%=25,392,000/252,708,000*100= 10%OperatingProfitMarginRatio=Operatingprofit/NetSales∗1005
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