Financial Analysis and Management Report: Nissan's Performance

This report provides a comprehensive financial analysis of Nissan's performance from 2015 to 2017, fulfilling the requirements of a Financial Analysis and Management assignment. It begins with a background on Nissan, outlining its corporate objectives, key opportunities, and challenges. The core ...Read More

Running head: FINANCIAL ANALYSIS AND MANAGEMENT
Financial analysis and Management
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1FINANCIAL ANALYSIS AND MANAGEMENT
Table of Contents
Background:...............................................................................................................................2
Evaluation and Interpretation of Financial Statement:...............................................................3
Evaluation and Interpretation of Common-Size Financial Statements......................................9
Conclusion:..............................................................................................................................13
References:...............................................................................................................................14

2FINANCIAL ANALYSIS AND MANAGEMENT
Background:
Nissan has been introduced since the year 1999 which has been a part of the Renault–Nissan–
Mitsubishi Alliance and further partnership with the Mitsubishi Motors of Japan and Renault
of France. The company is showing steady growth in the coming years of the company where
the objective of the company is to increase the sales by the amount of million units by the
financial year 2022. In case of the products side, the main focus of the company is related to
the growth of the sales in terms of pick up and frame based SUV which have been
inbuiltstrength of the company. The sales growth of Nissan in the previous report as per the
annual report of 2018 has been steady and as per the forecast the sales growth will prosper
which is further driven by the introduction of Terra and enhancing the sales of the Titan
(Härdleet al. 2017).
Nissan is looking to achieve the sustainability growth by the process of delivering the
effective profitability of the business in term of analyzing the available opportunities and
making perfect use of such kind of opportunities in the business. The company is looking for
enhancing the technology and business evolution of the automobile industry which is further
backed by the DNA of technology. The key four words of the company are the Mobility,
Operational Excellence, value to the customers and Electrification (Pollinet al. 2017).

3FINANCIAL ANALYSIS AND MANAGEMENT
Evaluation and Interpretation of Financial Statement:
(Source: NISSAN MOTOR Co 2019)
Gross Profit margin:
Gross profit margin shows the financial health of the company in terms of revenue
generation of the company. The gross profit margin of the company is expressed in terms of
the percentage of sales.It is evaluated in the following manner:
Gross Profit Margin= Gross Profit
Revenue ∗100
From the annual report of the Nissan Global for the past three years which are the
2015, 2016 and 2017 the gross profit margin of the company have been evaluated
accordingly. From the gross profit margin of the company it can be said that in comparison to
the performance in the year 2015 which was 18.76% the gross profit margin of the company
has increased which is a good sign as the profitability of the company has also increased in
that case (Van Dooren, Bouckaert and Halligan 2015).

4FINANCIAL ANALYSIS AND MANAGEMENT
Operating Profit Margin:
Operating profit margin of the company evaluates the capacity of profit making by
effectively utilizing the operating expenses of the company. It is calculated in the following
manner:
Operating Profit Margin=Operating Profit
Revenue ∗100
The operating profit margin of the company has an increasing trend which is a
positive sign. The operating profit was highest in the year 2016 which is 6.51% means that
compared to the overall revenue the operating profit of the firm has increased(Lareau 2018).
Net Profit Margin:
The net profit margin of Nissan is moderate which means that the improvements are
necessary in this case. The net profit margin measures the amount of profit the company can
make out of the total sales in the business.It is calculated in the following manner:
Net Profit Margin= Net Profit
Revenue ∗100
The company must reduce the unnecessary expenses in order to increase the profit margin of
the company (Lynch 2017). The net profit margin of the company is increasing and it is high
in the year 2017 at 5.66% which is a good indicator.The significant improvement from the
year 2016 to 2017i.e, 4.30% to 5.66% needs to be highlighted due to such huge percentage of
increase in the profit of the business.
Current Ratio:

5FINANCIAL ANALYSIS AND MANAGEMENT
The current ratio of the firm measures the ability of the firm to meet the short term
obligations. If the current ratio of the company is between 1.2 to 2, it means that the current
ratio of the firm is quite good. It is calculated in the following manner:
Current Ratio= Current Assets
Current liabilities
The current ratio of Nissan as per computation is good and is highest to 1.62 in the
year 2017. The ratio is more or less same as per the computation of the three years.This
means that the company is successful in meeting the short term obligations of the firmas the
current flow of working capital is quite effective(Shoup 2017).
Acid test Ratio:
Acid test ratio measures the ability of the company to use the cash or quick assets of
the current liabilities of the firm. The standard acid test ratio of the company must be 2.It is
evaluated in the following:
Acid Test Ratio=( Current Assets−Inventories)
Current liabilities
In case of Nissan, the acid test ratio for the last three years is comparatively low due to the
fact that . The acid test ratio of the company has remained constant in the 2015 and 2016
which is at 1.40 and an increase in the year 2017 which is 1.44.The company needs to adopt
certain strategies in order to maintain sufficient liquid cash in the business (Dash 2016).
Inventory Turnover ratio:

6FINANCIAL ANALYSIS AND MANAGEMENT
Inventory turnover ratio of the company measures the efficiency of the inventory
management of the company by comparing the cost of goods sold with the average inventory
during the period. It is evaluated in the following manner:
Stock Turnove r Ratio= 365
Cost of Revenue
Inventories
The inventory turnover ratio of Nissan is quite satisfactory and further strategies are needed
to be taken in order to reduce the stock turnover in days (McNeil, Frey and Embrechts
2015).The inventory turnover of the company has reduced from 51.74 to 49.32 from the year
2015 to 2017 which means that inventory of the company is not converting into cash quickly
due to the fact that the inventory of the business has increased.
Debtor’s turnover Ratio:
Debtor’s turnover ratio of the company actually measures the effectiveness of the
company in extending the credit in terms of debt collections. It is evaluated in the following
manner:
Debtors Turnover Ratio= 365
Revenue
Accounts Payable
The overall debtor’s turnover ratio of Nissan for the past three years is goods which
are that the company is maintaining a 30 days credit set up policy. The ratio has further
decreased in the year 2016 and 2017 due to the fact that the debtors are unable to pay off the
debts in time.
Creditors Turnover ratio:

7FINANCIAL ANALYSIS AND MANAGEMENT
Creditor’s turnover ratio of the company measures the number of times the accounts
payable are paid during the period. It is evaluated in the following manner:
CreditorsTurnover Ratio= 365
Cost of Revenue
Accounts Payable
If the turnover is declining it means that company is making payment to its suppliers more
slowly. Higher the turnover ratio better is the picture in terms of payables. It has increased
form the year 2016 to 2017 which is due to the fact that the creditors of the company is not
paid on time and the reason behind such increase.In case of Nissan, the creditor’s turnover
ratio is pretty high which means that the company is effective in quickly paying off the
creditors (Abbasiet al. 2017).
Return on Asset:
Return on Asset of the company measures the return generated by the company by
utilizing the assets in the business.It is evaluated in the following manner:
Return on Asset Ratio= Net Profit
Total Assets
In case of Nissan, the return on asset of the company is satisfactory where the company is
generating return of around 3.60% by effectively utilizing the underlying assets (Ehrhardt and
Brigham 2016).
Gearing Ratio:
The gearing ratio is the combination of debt and equity of the firm which measures
the proportion of the debt and equity used for financing the business of the company. It is
evaluated in the following manner:

8FINANCIAL ANALYSIS AND MANAGEMENT
Gearing Ratio= NonCurrent liabilities
NonCurrent Liabilities−Equity
A gearing ratio of within 25-50% of the company is satisfactory. In case of Nissan the
gearing ratio is about 50% for the past three years which means that the financial ratio of the
firm is quite satisfactorydue to the fact that the company has properly geared the non-current
liabilities(Gitman, Juchau and Flanagan 2015).
Interest Coverage ratio:
Interest coverage ratio of the company is used for the purpose of paying the interest
expenses out of the outstanding debt. It is evaluated in the following manner:
Interest Coverage Ratio= Operating Profit
Intere st Expenses
The interest coverage ratio is not satisfactory due to the facts that the company is struggling
to meet the expenses. It needs to make certain changes in the inventory system to make it
right for the coming three years.
P/E Ratio:
The price earnings ratio of the company measures the earning from the investments
made by the company. It is evaluated in the following manner:
Price Earning Ratio= Market Price Per Share
Earning Per Share

9FINANCIAL ANALYSIS AND MANAGEMENT
The standard of the EPs is more than 1 where in case of Nissan it is near about 1 in the past
years which means that the EPS of the company is satisfactory due to the reason that the
company is effective in attaining profit in the business (Brooks 2019).
Earnings per Share:
The earning per share of the company is calculated by the net profit with the number
of outstanding shares. It is evaluated in the following manner:
Earning Per Share= Net Profit
No . of Outstanding Shares
In case of Nissan, the earning per share of the comp-any is pretty high at the year 2017 which
is 331.92.The reason of such high EPS is that investors are making huge profit out of the
invested assets in the business(Pilbeam 2018).
Evaluation and Interpretation of Common-Size Financial Statements
(Source: NISSAN MOTOR Co 2019)

10FINANCIAL ANALYSIS AND MANAGEMENT
(Source: NISSAN MOTOR Co 2019)

11FINANCIAL ANALYSIS AND MANAGEMENT
(Source: Corporation 2019)
(Source: Corporation 2019)

12FINANCIAL ANALYSIS AND MANAGEMENT
(Source: Financial News 2019)
(Source: Financial News 2019)
Interpretation:
The commonsize income statement and balance sheet of all the three companies
which are the Nissan, Toyota and Volkswagen have been duly evaluated from the annual
report of the company. Compared to the Nissan the net income of Toyota is comparatively
higher in the year 2017 due to the fact that the company has been able to generate huge
revenue in that case.The long term debt of Volkswagen is much lower compared to the three

13FINANCIAL ANALYSIS AND MANAGEMENT
years common size compared with the other two companies which are the Nissan and
Toyotadue to the reason that the company has been able to meet its long term obligations
with the help of working capital. The financial performance of all the three companies is
satisfactory and quite comparable among the others. This is the main reason behind the
variance firm the last three years comparison. The short term debt is comparatively lower in
case of Nissan for the past three years compared to the other two companies. The income
before tax is higherdue to huge revenue of the business in case of the Nissan compared to the
other two companies. There companies have been effective in providing enough dividends to
the shareholders of the companies (Diener, Oishi and Lucas 2015).
Conclusion:
From the above discussion it can be concluded that the financial performance of
Nissan is good in the financial year 2017. The overall financial strength of all the companies
is goods as per the relevant strength and weakness. But the financial performance of Nissan is
comparatively better than the other two companies. This is clear by the computation of the
ratios of Nissan and the financial strength for the past three years has been decent but in the
year 2017 it was quite good. This means that the management system of the company is
appropriate in every aspects and further the management system needs to undertake some of
the significant project which can really enhance the growth of the company.

14FINANCIAL ANALYSIS AND MANAGEMENT
References:
Abbasi, W.A., Wang, Z. and Abbasi, D.A., 2017. Supply Chain Finance: Generation and
Growth of New Financing Approach. Journal of Finance, 5(2), pp.50-57.
Brooks, C., 2019. Introductory econometrics for finance. Cambridge university press.
Corporation, T., 2019. Annual Financial Report | Toyota Industries Corporation . [online]
Toyota-industries.com. Available at:
https://www.toyota-industries.com/investors/library/reports/ [Accessed 5 Jul. 2019].
Dash, J.W., 2016. Quantitative Finance and Risk Management: A Physicist's Approach
Second Edition. World Scientific Publishing Company.
Diener, E., Oishi, S. and Lucas, R.E., 2015. National accounts of subjective well-being.
American psychologist, 70(3), p.234.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage
learning.
Financial News, A., 2019. Annual Reports. [online] Volkswagenag.com. Available at:
https://www.volkswagenag.com/en/InvestorRelations/news-and-publications/
Annual_Reports.html [Accessed 5 Jul. 2019].
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Härdle, W.K., Chen, C.Y.H. and Overbeck, L. eds., 2017. Applied quantitative finance (Vol.
2). Springer.

15FINANCIAL ANALYSIS AND MANAGEMENT
Lareau, A., 2018. Journeys through ethnography: Realistic accounts of fieldwork. Routledge.
Lynch, L.J., 2017. MGM Mirage—Accounts Receivable. Darden Business Publishing Cases,
1(1), pp.1-6.
McNeil, A.J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts.
Economics Books.
NISSAN MOTOR Co., L., 2019. NISSAN | For Investors | IR Library | Annual Report |
2018. [online] Nissan-global.com. Available at:
https://www.nissan-global.com/EN/IR/LIBRARY/AR/2018/ [Accessed 5 Jul. 2019].
Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.
Pollin, R.E., Downey Jr, B.E. and Fleming, S.A., Autoscribe Corp, 2017. System and method
for registering financial accounts. U.S. Patent 9,576,279.
Shoup, C., 2017. Public finance. Routledge.
Van Dooren, W., Bouckaert, G. and Halligan, J., 2015. Performance management in the
public sector. Routledge.