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Toyota Indus Motor Company Ltd

5 Years Analysis of Financial

Statements By

Farwa Farrukh 21P00041

Lahore School of Economics

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Table of Contents
Tittle Page..................................................................................................................................................1
Table of Contents.......................................................................................................................................2
Executive Summary...................................................................................................................................3
Analysis Overview.....................................................................................................................................4
Common Size Insights.............................................................................................................................13
Trend Analysis.........................................................................................................................................18
Short term Liquidity................................................................................................................................19
Capital Structure and Solvency..............................................................................................................22
Return on Invested Capital.....................................................................................................................24
Analysis of Asset Utilization....................................................................................................................25
Analysis of Operating Performance and Profitability..........................................................................26
Market Measure......................................................................................................................................27
Industry Analysis.....................................................................................................................................29
Summary Evaluation and Inferences.....................................................................................................32
References................................................................................................................................................33
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Executive Summary

Indus Motor Company Ltd is the joint project with Toyota, Japan and it started its

operations in 1989 in Pakistan. It manufactured different vehicles for different segments, there

most selling car is Corolla for the most of the consumers, Yaris is their cheap passenger Sedan

car, Hilux is their light commercial vehicle they use for transportation and Fortuner is their SUV,

7 Seat car in sports for the consumers. The other Toyota cars like Land Cruiser, Vitz, Prius and

Aqua are imported from Japan as reconditioned cars by the dealers and not Indus Motors itself,

so the Japanese Imported cars do not exist in their revenue and financial statements.

The Financial statements of Toyota Indus Motors highlight the 5 years financial data by

manufacturing these cars and revenue by selling it. This 5 Year data from 2017 to 2021 is taken

from the annual financial statements of Indus Motor Company Ltd and its analysis is done in

broad perspective and also compared with the other big three giants of the auto industry which

are Pak Suzuki and Honda Atlas. The format used is of Campbell Soup Company with all the

tables, interpretation, formulas used and the comparison of the trends. It is also to note that the

prices in the tables are in the format of ‘000 Rupees.

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Analysis Overview

This is the sales overview for Toyota Indus motors for past 5 years; we can see the

vehicles sold as it is increasing. From the trend we can say that it decreased in 2021 because new

cars were coming in the auto industry. New brands were being launched, Government authorized

the imports and allowed new brands to start their operations in Pakistan, in this aspect, Hyundai,

Kia, United, Prince, Changan, MG, Proton started their operations in Pakistan after approval

from the Government. This lead to decrease in the sales of Toyota Indus, the other aspect was the

Covid-19 impact on decreased sales of Cars.

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Analysis of Cash flow ratio is important which tells about the cash flow in and cash flow

out by the use of operating activities, investing activities and financing activities.

The cash flow adequacy ratio is the measure if cash flow by the operations is enough so

that it can meet its expenses. The calculations are provided above and it is almost equal to 1

which means that company is fine and it meets its financial obligations.

The cash reinvestment ratio is about the cash flow of a business which is again reinvested

for the investments. For different years its percentage is given and in 2021 it was 23.84%.
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This is the analysis of capital structure, the capital they are supposed to pay for in the

future and the equity as well. From this we can see that it is varying in different years. From the

balance sheet, Total Equity and Total Cr. Liabilities are mentioned here.

The above figure is for the 5 years growth rate of company, the sales were at -4.5%, Net

Income decreased to -15.20, dividends decreased to -13.3 and only equity increased to 8.36%.

The calculation of the 5 years growth is done by the formula of Future and Present Value

mentioned above in the table.

For Example for Net Income it is calculated like this.

PV=FV/(1+r)^5

145.74 = 64.66/(1+r)^5

r = 0.84-1 x 100

r = -15.2%
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The Income statement consists of all the costs, their net sales they made for past 5 years

and the profit they made. It consists of EBT and the net income as well, we can also calculate the

earnings per share by dividing earnings from outstanding shares, we can see that in 2021 EPS

has also decreased.

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The Balance sheet consists of the company’s total assets they have, their liabilities and

the equity. The total assets are always equal to the addition of liabilities into total equity. We can

see the assets increased, they expanded their plant as well for their new Toyota Yaris production

which leads to increase their equity and assets in 2021.

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Statement of Cash flow is telling us that from where cash is coming in and going out,

there are three categories, cash flow from operating activities, from financing activities and from

investing activities.

Stock in trade is also called inventory data, this is their inventory and we can see that in

2020 they had high inventory because of new car launch in 2021.
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Sales per share is the lease since past 5 years in 2021, the net income per share is

decreased to 64.6, dividends per share to 30 and only book value per share has increased. The

formulas are shown above for the calculation of per share results, they are calculated using excel

formulas. Book value per share tells us about the net asset value per share of a company. Sales

per share is telling, how much sale is made for each share, dividends per share is the dividend

company has issued for every outstanding shares in a company and net income per share is also

called EPS which tells us that what is the earning for every 1 share.

For Example, Sales per share = Net sales/outstanding shares

= 86167016/78600000

= 1.1

Net Income per share = net income/ outstanding shares

=5082027/78600000

= 64.66

Dividends per share = div paid / average shares outstanding

Book value = Total equity-preferred stock/ outstanding shares

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Common Size Insights

Common size on income statement tells us the percentage of each for the value of Net

sales, we can see the percentages and judge how much cost of sales, expenses, income was

according to net sales in percentage terms.

Calculated by following

For Example, Cost of Sales/ Net sales x 100

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= 78716157/86167016 x 100 = 91.35. It can tell us that how much percentage we spent on cost

in terms of net sales.

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Common size balance sheet tells us the insights that how much a particular nature of

asset is the percentage of the total asset, just like asset same is the case for the equity and total

liabilities. We can see the trends right above. We can calculate it like this

For Example, PPE/ Total Assets

= 16501642/80278564 x 100 = 21%. So it means PPE is 21% of the total assets. We can see the

trends for all the 5 years and can say that increased with respect to previous years. We can

calculate the others Liabilities and Equity the same way we did for assets and can see the trends

of common size.
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Common Size statement of Cash flows has 3 aspects, lets say for example how much

cash from operations is generated with respect to total operations cash flow. We can do this for

financing and investing activity as well.

For Example

Cash from operations/Total cash flow from operations x100

= 24617778/21641397 x 100 = 87.6%

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Current Assets and Current Liabilities are short term. They have high liquidity; here there

is common size analysis of current assets and current liabilities.

For example, take stores and spares/ Total Cr Assets x 100

In 2020, 478455/63617222 x 100 = 1% which means stores and spares were only among 1% of

the total current assets. We can do the whole calculation for other aspects as well.
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Just like we did the common size analysis of current assets and current liabilities, we can

also do the capital structure analysis based on the liabilities and equity.

For Example, Long term loan/Total equity and liabilities x 100

= 479236/39109173 x 100 = 1%. It means that 1 % long term loan was taken among the whole

total equity and liabilities for the capital structure.

We can calculate using the respective formulas to calculate other values for capital

structure.

Trend Analysis
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The trend is related to the year 2017 and year 2021. We have divided values of 2020 from

2006 and multiplied by 100 to see the trend with respect to 2006

For Example Cash and Equivalent 2020 / Cash and equivalent 2017 x

100 26684246/24722888 x 100 = 108% for 2021 with respect to 2017.

This tells us that now in 2020 cash and cash equivalents present are improved to 108% as

compared to the 2017.

We can do the similar for the other years and see the trend and the trend for other aspects as well.

Short Term Liquidity

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Short Term Liquidity is also calculated with different aspects. It is related to the

organizations short term assets to pay the short term liabilities. For this different formulas are

used.

 Current Ratio tells us the company’s ability to pay short term debt. It can be calculated by

Total Current Assets/Total Current Liabilities. = 63,617,222/ 38,626,048 =1.65. The

trend seems to be fine over the 5 years.

 Acid test ratio is also called quick ratio, which compares the short term assets with the

short term liabilities and see if the company can pay their short term debt. It can be

calculated by Total current Assets-inventory/total current liabilities. = 63,617,222-

15,932,791 / 38,626,048 = 1.23. It is the value of the company.

 Account receivables turnover is the efficiency of a company telling that how much they

collect receivables or the credit. It can be calculated by dividing net sales from the

average of total receivables.

For Example, 54,558,855/1,580,366+5,657,464 /2 = 15

From the trend we can see their efficiency of collecting receivables which is

decreasing every year.

 Inventory turnover means how many times the inventory is sold in year, for this formula

used is net sales/ average of inventory = 78,716,157 / 15,932,791+ 13,560,393 / 2

= 5.3 which has also decreased since past years.

 Days sales receivables tells us about the size of outstanding receivables with respect to

days. The formula is Total receivables / net sales / 360 So, 1,580,366/ 54,558,855/ 360 =

10 which is decreasing year to year.

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Days sales in inventory is the time a company takes to turn over its inventory in a day, its

formula to calculate is inventory/ cost of sales, 15,932,791/ 78,716,157 = 72.87. It is

has increased as compared to the previous years which is a good sign.

 Approximate conversion period is the addition of days sales in receivables with days

sales in inventory. For Example, 10 + 72.87 = 73.

 Cash to Current Assets tells how much the assets of a company are made up with the

cash. It is calculated by Cash and Cash Equivalent / Total Current Assets x 100,

41,865,896 / 63,617,222 x 100 = 66%. It means that 66% assets are from cash and cash

equivalent, which is highest among previous years.

 Cash to Current Liabilities tells how much the Liabilities of a company are made up with

the cash. It is calculated by Cash and Cash Equivalent / Total Current Liabilities x 100,

41,865,896 / 38,626,048

x 100 = 108%. It means that 108% liabilities are from cash and cash equivalent, which is

normal trend among previous years.

Working capital is the operating liquidity of a company. It is in dollars, and value is

16909464 in ‘000 Rupees.

 Days purchases in account payables is the efficiency a company takes average days to

pay to its suppliers. It is calculated by trade payables/cost of sales/360 = 13,593,480 /

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78,716,157/360 = 62.17 which is the number of days it takes on average to pay to its

suppliers. It is increasing as compared to past years.

 Average Net trade cycle is the number of days cash is held in trade before it can be

changed to cash again. It is calculated by difference of approximate conversion period

from the days purchase in the accounts payable, 73-62.17 = 10 it also has increased as

compared to the past years.

 Cash Provided by Operations to Average Current Liabilities is the cash generated from

operations to pay its current liabilities. It is calculated by Net cash flow from operations /

Average of total current liabilities. 21,641,397 / 38,626,048+24,178,833/2 = 69% and

highest among previous years.

Capital Structure and Solvency

Capital Structure and Solvency Ratios tells us about the relationship between debt and equity.
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 Total Debt to equity is the debt as a percentage of shareholder’s equity. It is calculated by

Total Debt/Total Liabilities. 39109173/41169391.00 = 0.95. So 95% debt is the

percentage of shareholders equity. It has normal variation since past years.

 Total Debt ratio is the measure of the company’s leverage extent. It is calculated by Total

Debt/Total Assets. 39109173.00/80278564 = 0.49, It means that 49% of assets are

through debt. It has normal variation since past years.

 Long Term debt to equity is calculated by Long term liabilities/Total Equity.

483125.00/41169391.00= 0.01. It is almost same since past years.

 Equity to total debt is calculated by dividing Equity from the total liabilities. For

Example, 41169391/39109173.00 = 1.05 It has decreased as compared to 2019.

 Fixed assets to equity ratio tell us about the contribution of shareholders in fixed assets. It

is calculated by PPE / Equity, 16501642/41169391 = 0.4, which means 40% shareholders

contributed in assets. It has increased since past 5 years.

 Current Liabilities to total liabilities ratio tells us the measure of liabilities that are due in

short term. It is calculated by Current Liabilities/Total Liabilities.

38,626,048/39,109,173 =0.99 and the figure is same for the rest of years.
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Return on Invested Capital

 Return on invested capital is used to assess a company's efficiency at allocating

the capital for good investments.

It is to note that tax rate is variable for different years which are regulated by

Government of Pakistan.
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 Return on Net Operating Assets = NOPAT/NOA 82,823,508/ 55245996 = 150% for

2020.

 Return on Common Equity = Net Income/Average Shareholder's Equity 5,082,027/

41,169,391+ 40,257,654/2 = 12%

 Return on Long term Debt to Equity is the long-term debt to equity ratio is a method used

to determine the leverage that a business has taken on. It is 12% the lowest in 5 years for

2020. The calculation is extensive and with the excel sheet.

 Equity Growth Rate is 2% the lowest in 5 years. The calculation is attached in the excel

sheet.

Analysis of Asset Utilization

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Assets Utilization tells us the total revenue earned for every amount of asset a company

owns, we can also see the revenue earned for every cash and equivalents, short term liabilities,

working capital and receivables.

It is calculated by dividing the Net Sales from the respective value. For Example,

Sales to Fixed Assets = Net Sales / Fixed Assets = 86,167,016/16,501,642 = 0.191,

which is the highest since previous years and means the total revenue earned for 2021 with

respect to fixed assets money which is 0.19.

Analysis of Operating Profit and Profitability

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 Gross Profit Margin: It is the amount of profit made before subtracting the costs and

taxes. The higher profit margin, the better company. So Toyota was having 9%.

 Operating Profit Margin: Operating Profit Margin is the profit a company makes on

sales after the payment of operating expenses. Toyota has 8%.

 Net Profit Margin: Net profit margin means how much income is generated with respect

to sales and revenue. It is 6% for 2021.

Market Measures

Market Measures tells us about the shareholders information. Price to earnings ratio tells

us about the price of share to company’s EPS, calculated by market price per share/EPS,

994.99/64.66 = 15.4.
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 Price to Book Ratio tells us about the current market value of a company with respect to

its book value; it is calculated by Market price per share/ Book Value. 994.99/523.78 = 2.

18.0
16.0 15.4

14.0

12.0 10.8 Price to Earnings Ratio

Price to Book Ratio
10.0
Earnings Yield
Dividend Yield
8.0 6.9 7.1
6.4 Divident Payout Ratio
6.0
5
4.0 3
2 3
2
2.0
46% 13% 66% 70% 70% 16% 69%
6 3% 9% 9% 8% 11%
12% 12%
0.0 %
Year 2021 Year 2020 Year 2019 Year 2018 Year 2017

.
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Industry Analysis

For the industry analysis the comparison of Toyota Indus will be with the Suzuki and Honda

Atlas. All of the ratios and their comparison will be sideways

 Current Ratio: We can see the Current ratios of all three companies, and in 2020, Honda

is performing better, it means that Honda has more ability to pay its short term debts.
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 Acid test Ratio: It means that if a company has cash to clear its current liabilities, For

Toyota it is better than Suzuki and Honda

 Days to sell inventory: It means how many days it takes to sell the inventory, for Toyota

it is less and better, Toyota is taking only 72.87 days to sell the inventory which is better

than the others.

 Total Debt to Equity: It is the debt of a company with respect to percentage of

shareholder’s equity. If it is less than 1 then firm is less risky, Suzuki is the most riskier

than the others, then Toyota and Honda are almost near.

 Long Term debt to Equity: It is the Company’s financial leverage, it should be less than

2, all 3 competitors are fine in this regard, but Toyota is more efficient.

 Return on Assets: It means how much the company is earning with respect to asset. The

more, the better. Toyota is better than others as it has 150% ROA and it is better.

 Return on Common Equity: Return on common equity is the return which investors get

for their investments. It is different for 2021 and 2020 because of Covid impact; let’s

consider only 2021 so Toyota is giving better returns on common equity.

 Gross Profit Margin: It is the amount of profit made before subtracting the costs and

taxes. The higher profit margin, the better company. So Toyota was having 9%, while

Honda had 7% and Suzuki had only 4% so Toyota is better.

 Operating Profit Margin: Operating Profit Margin is the profit a company makes on

sales after the payment of operating expenses. Toyota has 8% which is better than any

other. Honda is at 1% and Suzuki at -21%.

 Net Profit Margin: Net profit margin means how much income is generated with respect

to sales and revenue. Toyota is better than the other 3s.

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 Cash Turnover: Cash turnover means how many times cash has turned over in a fiscal

year. It was at 3 and in this regard Honda is better compared to others.

 Inventory Turnover: It means how many times the inventory has turn over, the higher

the better. It was 5.3 for Toyota at 6.4 for the Honda, Suzuki was at 4.

 PPE Turnover: It is how much a company uses its fixed assets with respect to sales, the

higher the better. In this regard Honda is performing better than others.

 Total Asset Turnover: It measures the efficiency of a company’s asset in generating

revenue.

 Price to Earnings Ratio: It indicates the amount investor invests and gets back the same

invested amount. The less and much higher is not ideal situation. So Toyota is at 15.4%

which is very ideal situation for investor to invest.

 Earnings Yield: It shows the % of the company’s EPS and it is reciprocal of P/E. Toyota

is at 6% which means that investors know that how much he has earned per share.

 Dividend Yield: It shows how much company pays out dividends every year with

respect to stock price. It helps investors to know the profit for every amount they are

investing and judge the risks of investing in a company. Between 2 and 6 is good

dividend yield. So Toyota stands at 3% which is good.

 Dividend Payout ratio: It is the ratio of the total amount of dividends paid to

stockholders with respect to the net income. From 35% to 55% is good dividend payout

ratio, and Toyota has 46% which is very good.

 Price to Book: Companies use the price-to-book ratio for comparing firm’s market

capitalization to its book value. Less than 1 is better, so in this aspect Honda is better than

others.
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Summary Evaluation and Inferences

The Covid-19 Pandemic has hit hard all of the sectors of Pakistan, especially the

automobile sector. The Plants were shut down due to lock down, which affected the operational

capability and reduced number in sales too. Higher taxation, Shrinking GDP, Devaluation of

PKR and Lockdown has added more burdens to automobiles sector and these economic

challenges will continue to happen till the PKR appreciates some relief in taxations, custom

duties and Covid-19 situation settles down. The further burden on Toyota Indus motors was due

to more brands coming in the market which had more features in their cars and their cars were

more cheap, more reliable in terms of quality which hit the big 3 giants of the Automobile sector.

Though, Toyota remained to be much better as compared to Suzuki and Honda even though

these 2 companies are also selling bikes and other automobile accessories like Honda atlas

batteries.

The Net sales turnover in fiscal year 2021 end reduced to 46%, (Rs. 86 Billion) as

compared to the 158 Billion Rupees of 2020. Toyota still has been the better player because they

introduced a new car Toyota Yaris, while the Honda still doing the facelifts of their current cars

instead of bringing new generations and Suzuki discontinued the Suzuki Mehran which was the

highest selling car of Pakistan. No R&D led them to decrease in sales. Now talking about the

investor Relation which is very important to discuss as it is related to the shareholder pattern and

their performance in the market.

The Market measures of Toyota are still better as compared to the other 3 companies and

people are still buying the shares and have shown the trust in Toyota Company. The Price to

Earnings ratio for 2021 was 15.4% which is very ideal for investor to invest. The Earnings yield
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was 6%, very ideal and investor knows how much they will get in return if they invest. From

35% to 55% is good dividend payout ratio, and Toyota has 46% which is very good. The Share

Price was not too much high nor too much low as compared to PSX 100 Index and very

attractive to the shareholders. Return on Common Equity is 12% and it is the return investors get

for their investments. For Sure Toyota Indus Motors is a company which can be trusted and as an

investor the investments can be done with them and stocks could be bought for positive returns.

So Overall, Talking about the Toyota Indus, they are still running good in the automobile

market and investors have shown good trust in them because of good returns on their

investments. They have vision to enhance the corporate values with their investors and

shareholders for long term benefit and growth. They give their shareholders and investors timely

and fair disclosure of all the financials and results from operations. In 2021 Financial Statement

they built trust with their shareholders that they will still perform better in pandemic situation

and are planning to bring Electric Vehicles in Pakistan. They also thanked their shareholders for

trust and confidence with Toyota Indus and management will be remain committed to monitor

the development, research and proactively tackling the situation for the better future of Indus

Motors and automobile sector of Pakistan.

References

https://www.toyota-indus.com/

https://www.toyota-indus.com/financial-results/

Subramanyam, K.R. Financial Statement Analysis.

https://dps.psx.com.pk/company/INDU