A STUDY ON FINANCIAL

PERFORMANCE ANALYSIS OF
TOYOTA COMPANY
CHAPTER-I
INTRODUCTION OF THE STUDY
BACKGROUND OF THE COMPANY

Toyota Motor Company is very well known around the globe for manufacturing high
quality automobiles. Toyota has been in the automobile industry for a long time now
and every time they introduce new automobiles, they introduce newness and
innovation of its own kind. But manufacturing automobiles is not the only
contribution from Toyota Company. Over the years, after World War II, Toyota has
put in a lot of efforts to meet the advancement required in the Japanese automobile
to give a stiff competition to its western nations. Toyota introduced many techniques
for its famous Toyota Production System like Just-in-Time System, Kanban System
and Jidoka. The main goal was to lower down production costs and increase in
productivity by simply removing the unwanted functions and practices in the
factories. But these systems were so unique in its own way that other companies
around the globe in manufacturing sector implemented the Toyota Production
System strategies, but very few were able to reach the success of Toyota. The sole
reason for the failure of implementation of Toyota Production System in overseas
companies was the difference in industrial relationship, many small social systems
and its business climates available in Japanese firms. Moreover, the whole Toyota
Production System took many years of
patience and struggle to form this successful system, which is currently the heart of
Toyota Company. There were no scholars who formed and laid out rules and
structure for this Toyota Production System, it was the regular practice and day
situation occurrences in the Toyota factories which laid down these methods by trial-
and-error processes in manufacturing sites of Toyota Motor Company. Lately, there
has been a lot of criticism for Toyota for sticking to its decades old production
system, which has led to shut down on various occasions in the past, mainly due to
its Justin-Time System. Just-in-Time system stresses the importance to increase
production efficiency and decreasing the wastage of goods only if they are required
in the production process, which helps in lowering down inventory costs[Monden,
2012]. While it can be argued that due to Toyota‟s Just-inTime System, in the past
there have been situations which ultimately lead to closure of Toyota factories only
because of lack of inventory for its production.
 SCOPE OF THE STUDY

As a part of completing the post graduate degree in Bachelor of Business

Administration, it is required to undertake a project work on operations
management, which is one of my specialisation subject. This study helped to
familiarize the practical side of an organization. An analysis is made during
the study on the basis of theoretical aspect. This study is significant to analyze the
“Just in Time practice
at Toyota” by using secondary data. The purpose of the research is to understand
about the awareness regarding practice, implementation,advantages,limitations and
prerequisites for implementing JIT at Toyota. This study helps to find out how
quickly they manufacture the product and satisfy the market demand. This analysis
is pivotal in identifying, expressing, and facilitating necessary changes in
organizational operations. The scope of business analysis work, derived from its
deliverables, contributes to the project's overall scope.
 SIGNIFICANCE OF THE STUDY

Contribution to Academic Knowledge:

• The study will thoroughly examine [certain aspects of Toyota for which one
such perspective is suitable, e.g. supply chain management, CSR activities,
marketing strategies, etc.providing an added value on the research base on the areas
of business and management, sustainable development and corporate governance.
• It will also have an impact to other researchers on how large multinational
corporations like Toyota for instance can manage their profit making business and
at the same time social responsibility and environmental concerns. This is an
increasing subject of research in academia.

Practical Implications for Industry:

• Recommendations based on this study would assist other companies in the

transport sector by establishing a best practice framework on sustainable
procurement, product creation, and consumer engagement.
• For practitioners functioning in this sector, the study will give them useful
recommendations which they will implement to optimize organizational
performance, improve corporate social activities, and boost creativity.
CHAPTER-II
COMPANY OF PROFILE
HISTORY OF TOYOTA

The LANSON TOYOTA is a company which is an automobile industry. This

industry deals with four wheelers marketing. The four wheelers marketing in India
has been the fastest growing industry segment. Mainly 4 million units of vehicles
were sold in the year
2019 and expected to grow at a rapid pace. Automobile export grow at a rapid rate
of 14.5% during FY 19 in India. The automobile industry comprises wide range of
Companies and organisations involved in the design, development, manufacturing,
marketing and selling of motor vehicles. It is one of the world largest industry by
revenue. It is also the industry which highest spending on the research and
development.

COMPANY PROFILE
Founded in 1937, Toyota Motor Corporation is a Japanese company that
engages in the design, manufacture, assembly, and sale of passenger cars, minivans,
commercial vehicles, and related parts and accessories primarily in Japan, North
America, Europe, and Asia. Current brands include Toyota, Lexus, Daihatsu and
Hino. Toyota Motor Corporation is the leading auto manufacturer and the eighth
largest company in the world. As of March 31, 2013, Toyota Motor Corporation’s
annual revenue was $213 billion and it employed 333,498 people.
Toyota Motor Corporation competes in the automotive industry. The past five years
were tumultuous for automobile manufacturers. Skyrocketing fuel prices and
growing environmental concerns have shifted consumers' preferences away from
fuel-guzzling pickup trucks to smaller, more fuel-efficient cars. Some automakers
embraced the change by expanding their small-car portfolios and diversifying into
the production of hybrid electric motor vehicles.
Other automakers were more reluctant to shift their focus from big to small cars,
expecting the price of fuel to contract eventually, bringing consumers back to the
big-car fold. When fuel prices did fall during the second half of 2008, it was due to
the US financial crisis ripping through the global economy.
This had a domino effect throughout the developed and emerging worlds, with many
Western nations following the United States into recession. Industry revenue fell
about 15.4% in 2009. 2 Pent-up demands will aid industry revenue growth, estimated
at 2.1% in 2013, thus bringing overall revenue to an estimated $2.3 trillion.
Overall, the large declines followed by recovery are expected to lend the industry
average growth of 2.2% per year during the five years to 2013. Throughout the past
five years, growth in the BRIC countries supported production. Rising income in
these countries led to an increase in the demand for motor vehicles.
Also, Western automakers moved production facilities to BRIC countries to tap into
these markets and benefit from low-cost production. Over the next five years, the
emerging economies will continue their growth, and demand for motor vehicles in
the Western world will recover.
Industry revenue is forecast to grow an annualized 2.5% to total an estimated $2.6
trillion over the five years to 2018.

VISION AND MISSION OF TOYOTACOMPANY

VISION: "To be the most successful and respected car company in America."

MISSION: "To attract and attain customers with high-valued products and services
and the most satisfying ownership experience in America."
PRODUCT AND SERVICES OFFERED

Toyota Industries develops and manufactures automobiles and automobile-

related products, such as vehicles, engines, car air-conditioning compressors, car
electronics components and devices, and stamping dies.

The Toyota Motor Corporation produces vehicles under four brands:

Daihatsu, Hino, Lexus and the namesake Toyota.
TARGET MARKETS AND CUSTOMER SEGMENTS
1. Demographic Segmentation
• Age Groups:
• Younger than 18: Products such as Grocery and Relaince fresh line of grocery
products.
• Youngsters/Seniors: reliance digital, Electronic products.
• Adults: Fashion commodities, premium products, petro chemical.
• Elderly: Reliance Health Infinity for eleder people for hospitality.•
• Income Levels:
• Reliance Trends' retail strategy. It discusses their target market as young
males and females from the middle and upper middle class
2. Geographic Segmentation
• Urban Areas:
• Rural Areas:
• A focus on convenience foods, quick-to-prepare foods (white bread), high-
end brands or beverages.
• Basic consumables such as milk, cooking aids and common sweets that are
cheap.
3. Behavioral Segmentation

• Healthy Consumers:
• Health-related claims; low calorie; organic; fortifieds
• Convenience Seekers:
• Ready-to-eat meals; instant drinks or snacks
• Brand Loyalty:
• Customers who prefer Nestle products because they trust their brand
especially in baby food category, coffee etc.
CHAPTER-III
FINANCIALPERFORMANCE
ANALYSIS
 Studies regarding Just-in-Time System activities of various firms are mainly
focused on large companies. This research is mainly focused on the overall
production system of Toyota and its essential strategy of Just-in-Time.
In plain words, Just-in-Time is basically an inventory strategy deployed by
companies to decrease its waste, allowing it to increase its efficiency in the
production process. By doing so, it allows the company to receive goods only in
hour of actual requirement. This further lower downs the cost of maintaining the
inventory and requires accurate forecast of demand from the top management. The
main advantage of this strategy is to allow manufacturers easily move from one type
of product to another by keeping the production run span short. Moreover, this
allows complete removal ofwarehouse storage requirements and lowering the
spending on raw materials, resulting in lower cost of production. But Just-in-Time
inventory strategy has also received a lot of criticism due to disruptions in the supply
chain. For instance, a single supplier of raw material faces some sort of challenge
and is unable to deliver the required goods on time, it could lead to shut down for
the production house. To make this strategy work in a positive way, manufacturers
and retailers should work together, so that they can monitor the supply of resources
from manufacturers and meet the demand from consumer end (JIT, 2016).
On February 24, 2010, Mr. Akio Toyoda in his testimony mentioned, “At Toyota,
we believe the key to making quality products is to develop quality people. Each
employee thinks about what he or she should do, continuously making
improvements, and by doing so, makes even better cars” (The Guardian, 2010).
Furthermore, Mr. Toyoda also discussed the philosophy of Toyota‟s quality control.
“I myself, as well as Toyota, am not perfect. At times, we do find defects. But in
such situations, we always stop, strive to understand the problem, and make changes
to improve further. In the name of the company, its long-standing tradition and pride,
we never run away from our problems or pretend we don‟t notice them. By making
continuous improvements, we aim to continue offering even better products for
society. That is the core value we have kept closest to our hearts since the founding
days of the company” (The Guardian, 2010).
Yasuhiro Monden, an author of Toyota Production System, said “This explains the
basic idea of “continuous improvement” in the Toyota Production System and in
Toyota‟s quality assurance activities” (Monden, 2012).

Moreover, Monden specified that, “strength of Toyota Production System lies

in the fact that it is a system of supply chain management in the industry as a whole.
Inter-firm coalitions are well-executed in Japanese industries. These inter-firm
networks work well in the product development phase as well as in manufacturing.
The Toyota Production System is equivalent to the management system of inter-firm
relations” (Monden, 2012).

According to David Hutchins, “nature of the Japanese quest for continuous

project by project improvement. Every deviation is examined, the causes identified
and remedies applied. Nothing is left to chance, and no deficiency, no matter how
rare, is ever regarded as a purely random event which should be ignored. This
mentality is essential to the achievement of real Just-in-Time. All attention is
focused on the continued uninterrupted flow of operations. In the calendar 1986,
from a labor force of 60,000, Toyota received 2.6 million improvement proposals,
96 per cent of which were implemented either by management or by the employees
themselves” (Hutchins, 1999).
 The literature discussed in this research stresses on the overall working and
importance of Toyota Production System and its most valued element “Just-in-
Time” system. Just-in-Time System In automotive industry, efficient production
system is only possible by removal of following three distinguished problems.
The typical automotive industry will consists of mass production assembly type,
which will involve assembly of each vehicle from several thousand parts which have
also gone through numerous processes. So removal of any obstacle in any of these
processes will keep the proper functioning of the production system. Otherwise, it
may create a huge mess in whole production system if any of these processes are
having trouble.

Huge fluctuations as per the demand of a particular model. Whereas, the

production house consists of numerous types and variations in other models.
After every couple of years, the vehicle is completely remodeled. This also leads to
change of various other small and big parts to complete a particular model.
In automotive industry, the ordinary production control system allows fulfill the
schedules of production by holding work-in-progress inventory. It allows in
absorbing troubles of processes and fluctuation in demand for all the processes. On
the other hand, such a system also creates excessive and unbalanced inventory within
many processes, which are mostly not sold at the same time.
Moreover, such a situation in production house will lead to condition of excessive
equipment‟s and more than required labor, which does not match up with Toyota‟s
expectation.

Just-in-time production system helps in avoiding such situations, where

problems related to unbalanced inventory and excessive equipment‟s and labor are
due to troubles and demand fluctuations. In order to achieve this, all efforts are put
in to develop a production system that will reduce the lead time from the moment
materials are entered to the completion of vehicle.

IDENTIFICATION GAPS IN EXISTING RESEARCH

To identify gaps in the existing literature on Toyota, one should look into
available reports, reviews and studies to find out the grey areas that need to be
explored further.
These are some potential research gaps associated with toyota:
3.1 Case Study – I: AISIN Seiki Fire (1997)
Aisin Seiki Co., Ltd. is a Japanese corporation in the automotive industry
which deals in development and producing the automobile systems and components.
It was established on August 31, 1965. Its Head Office is located in Aichi, Japan. It
has a employee strength of 99,389 (as of March 31, 2016). AISIN Group currently
deals in three business lines as mentioned below:
Manufacture and Sales of Automotive Parts: Adhering to the principle of “Quality
First”, the AISIN Group provides high quality automobile parts which are very
essential towards the completion of a vehicle like brake system, chassis, body,
engine and information technology.

Disruption in Supplies of P-valves to Toyota – AISIN FIRE (1997)

AISIN Seiki is a major and trusted supplier of automobile components to

Toyota. During 1990‟s, Toyota was largely depended upon AISIN Seiki for its
proportioning valves; also known as P-valves, used in Toyota vehicles for break-
related part.
On February 1, 1997, a fire erupted at one of the AISIN Kariya plant number 1. This
leads to halt in Toyota Group operations for couple of weeks. Both Toyota and
AISIN Seiki were dedicated towards the principles of just-in-time production, which
allowed both of them to have a stock of two or maximum three days available. A
Toyota plant at that time was in full
capacity which had a lot of temporary workers. Everyday lost was potentially huge
in financial losses in sales and profits for Toyota.

Case Study – II: Niigata Earthquake (2007)

RIKEN is a 100 years old research organization. It is the largest research
organization in Japan. RIKEN has world-class research centers over whole Japan.
Its main research center is in Wako, Japan. Since 1917, RIKEN has mastered itself
in the fields of natural sciences, biology, neuroscience, quantum physics and
computer science.
RIKEN also deals in automotive and machinery parts like Piston rings,
camshafts, seal rings, brake parts, valve seats and lifters, and parts for suspension
systems and steering systems.
RIKEN has also indulged itself in other products and services like EMC
products dealing in radio frequency, shield rooms. Moreover, it has also got
into thermal engineering products like industrial furnaces and electric
heating materials.
CHAPTER-IV
SWOT ANALYSIS OF
TOYOTA COMPANY
SWOT ANALYSIS

Strong market position and brand recognition: Toyota has a strong market position
in different geographies across the world. The company's market share for Toyota
and Lexus brands, (excluding mini vehicles) in Japan was 45.5% in FY2012.
Similarly, Toyota has a market share of 12.2% in North America, 13.4% market
share in Asia (excluding Japan and China), and 4.3% market share in Europe. In
addition, the company holds a 7% share of the Chinese market and a significant
market share in South and Central America, Oceania, Africa and the Middle East
regions. Such strong market position allows the company to gain competitive
advantage and also expand into international markets. In addition, Toyota holds a
portfolio of strong brands in the automotive industry. Thus, the company's strong
market position gives it significant competitive advantage and helps it to register
higher sales growth in domestic and international markets. 8 • Strong focus on R&D:
Toyota has a strong focus on R&D to expand its product portfolio and improve the
functionality, quality; safety and environmental compatibility of its products. The
company's R&D efforts are directed at developing new products and processes and
improving the capabilities of existing products. The company conducts its R&D
operations at 14 facilities worldwide. Strong focus on R&D has helped the company
in incorporating newer features to its existing range of products and also in bringing
out latest technologies in the varied areas. The company's strong focus on R&D
allows it to uphold the technological leadership in most of its product segments. It
also enables Toyota to develop innovative products, leading to strong sales. 9 •
Extensive production and distribution network: Toyota has an extensive production
and distribution network. Toyota and its affiliates produce automobiles and related
parts and components through more than 50 manufacturing companies in 27
countries and regions besides Japan. During FY2012, the company produced
7,435,781 vehicles, including 3,940,000 vehicles in Japan and 3,495,000 vehicles
across all other manufacturing locations. In addition, Toyota has an extensive
distribution network. While the company’s geographically well spread production
base diversifies business risks, its extensive distribution network provides a wider
reach, thus boosting revenues.

Product recalls could affect brand image: Toyota has conducted a number of
product recalls in the recent past, which could affect the brand image and overall
sales of the company. For instance, in 2011, Toyota recalled 111,000 models of
Toyota and Lexus brands’ vehicles due to the damage to elements of the substrate
and potential shutdown of the hybrid system. Further in the year, Toyota recalled
181,000 vehicles in Japan in relation to abnormal noise and oil leakage that Analysis
of Toyota Motor Corporation by Thembani Nkomo may have resulted from slack of
bolts in the sub transmission and the rear wheel differential. In addition, the company
was involved in government investigations related to product recalls. For instance,
in February 2012, the National Highway Traffic Safety Administration initiated a
preliminary investigation of a potentially faulty power window master switch in the
driver-side doors in model year 2007 Camry and RAV4 vehicles. This could also
result in significant penalties, which could affect the operational margins.

Declining sales in key geographic segments: Toyota witnessed a decline in its

sales in key geographic segments. In FY2012, the company witnessed declining
sales across North America, Asia, Europe and other geographic reasons, which
together accounted for 60.8% of the total revenues of the company. Thus, a
continuous decline in the company's key geographic segments could put pressure on
the profit making segments and the overall revenues of Toyota. 12 • Poor allocation
of resources as compared to peers: Toyota has low return on equity (ROE) and return
on assets (ROA) compared to its peer companies. The company's competitors such
as Honda Motor and Nissan Motor have more ROE when compared to Toyota.
Honda Motor's ROE was 4.8%, while Nissan Motor's ROE was 8% in FY2012. In
contrast, Toyota's ROE was 2.7% in FY2012. Lower ROE and ROA compared to
its peers indicates that the company is not using the shareholders' money efficiently
and that it is not generating high returns for its shareholders. Thus, poor allocation
of resources could hurt shareholder's value and confidence in the long term.

Opportunities: • Growing global automotive industry: The global automotive

industry was severely affected by the economic downturn, with a decline in revenues
being recorded in 2008 and 2009. However, 2011 saw a strong rebound which has
continued into 2012. According to MarketLine, the global automotive
manufacturing industry grew by 8.9% in 2012 to reach a value of $1,563.9 billion.
The recovery of global automotive industry thus provides Toyota an opportunity to
gain more customers and increase revenues. 14 • Toyota poised to benefit from
growing partnership with BMW: Toyota is poised to benefit from the growing
partnership with BMW. In June 2012, BMW and Toyota signed a memorandum of
understanding aimed at long-term strategic collaboration on technological fields. As
part of the agreement, the two companies will partner for the joint development of a
fuel cell system, joint development of architecture and components for a future
sports vehicle, collaboration on power-train electrification and joint research and
development on lightweight technologies. The growing partnership between the two
companies is expected to boost the technological know-how of the companies and
may result in the development of new products thus increasing revenues in the long
run. Also, in the short run, the combined partnership will result in significant
synergies and cost-savings, boosting the operational margins.

during 2008-2012. However, forecasts suggest this will accelerate to strong

double digit growth during the 20122016 periods. Thus, the strong outlook for the
global new car market coupled with the company’s new product launches provides
a growth opportunity for the company. 16 Threats: • Intense competition: The
worldwide automotive market is highly competitive. Toyota faces strong
competition from automotive manufacturers in its various markets. The competition
among various auto players is likely to intensify in light of continuing globalization
and consolidation in the worldwide automotive industry. The factors impacting
competition include product quality and features, the amount of time required for
innovation and development, pricing, reliability, safety, fuel economy, customer
service and financing terms. Increased competition may lead to lower vehicle unit
sales and large inventory, which may result in downward pricing pressure, thus
impacting the financial condition and results of operations of the company. 17 •
Appreciating Japanese Yen a major concern: Toyota is sensitive to the fluctuations
in foreign currency exchange rates and is principally exposed to fluctuations in the
value of the Japanese Yen, the US dollar and the Euro. The strengthening of the
Japanese Yen against the US dollar and fluctuations in foreign exchange rates would
have a material adverse effect on Toyota's reported operating results, which in turn
would impact the valuation of the company. 18 • Natural disasters could impact
production structure: Toyota is subject to disruption of production due to natural
disasters such as earthquakes, floods, among others. Toyota primarily operates in
Japan which is a highest earthquake prone region in the world. The country has
witnessed many devastating earthquakes in the recent years which seriously
disrupted the economy. In 2011, the country witnessed one of the worst hit
earthquakes in its history in the form of 2011 Tohoku earthquake, which led to a
temporary production halt at its domestic auto manufacturing facilities. In the same
year, major floods occurred in Thailand which halted its operations and production
of about 150,000 Toyota automobiles. Such natural calamities, if occur frequently,
could severely influence the production output of the company due to work
stoppages and in turn impact the overall revenue base and profitability.
CHAPTER-V
FINANCIAL PERFORMANCE ANALYSIS
Objective of Financial Analysis

The term ‘financial analysis’, also known as analysis and interpretation of

financial statements’, refers to the process of determining financial strengths and
weaknesses of the firm by establishing strategic relationship between the items of
the balance sheet, profit and loss account and other operative data.
The primary objective of financial statement analysis is to understand and diagnose
the information contained in financial statement with a view to judge the profitability
and financial soundness of the firm, and to make forecast about future prospects of
the firm. The purpose of analysis depends upon the person interested in such analysis
and his object.
However, the following purposes or objectives of financial statements analysis:
(i) To assess the earning capacity or profitability of the firm.
(ii) To assess the operational efficiency and managerial effectiveness.
(iii) To assess the short term as well as long term solvency position of the firm.
(iv) To identify the reasons for change in profitability and financial position of the
firm.
(v) To make inter-firm comparison.
(vi) To make forecasts about future prospects of the firm.
(vii) To assess the progress of the firm over a period of time.
(viii) To help in decision making and control.
(ix) To guide or determine the dividend action.
(x) To provide important information for granting credit
CASH FLOW STATEMENT
CHAPTER- VI
FINDINGS AND ANALYSIS
 Overall, Toyota has outperformed the industry over the past five years. Total
assets increased 586.8 billion yen from the end of the previous fiscal year to 3,243.7
billion yen due mainly to an increase in market value of investment securities.
Liabilities amounted to 1,718.8 billion yen, an increase of 259.7 billion yen from the
end of the previous fiscal year due mainly to an increase in deferred tax liabilities.
Net assets amounted to 1,524.9 billion yen, an increase of 327.1 billion yen from the
end of the previous fiscal year. Cash flows from operating activities increased by
151.2 billion yen in fiscal 2013, due mainly to posting income before income taxes
of 80.1 billion yen. Net cash provided by operating activities increased by 49.5
billion yen compared with an increase of 101.7 billion yen in fiscal 2012. Cash flows
from investing activities resulted in a decrease in cash of 274.2 billion yen in fiscal
2013, attributable primarily to an increase in payments for purchases of property,
plant and equipment amounting to 112.4 billion yen. Net cash used in investing
activities increased by 264.8 billion yen compared with a decrease of 9.4 billion yen
in fiscal 2012. Cash flows from financing activities resulted in an increase in cash of
7.0 billion yen in fiscal 2013, due mainly to 51.7 billion yen of net increase in short-
term loans payable, despite the redemption of bonds payable of 54.1 billion yen.
After adding translation adjustments and cash and cash equivalents at beginning of
period, cash and cash equivalents as of March 31, 2013 stood at 179.3 billion yen, a
decrease of 117.5 billion yen, or 40%, over fiscal 2023.