FINA3314: Financial Statement Analysis Comparative ration analysis- Ford and Toyota   Done by: Ebtihal Al-Arbash 200700761 Saba Soliman Al-Mohawis 201000230 Haneen Al-Farwan Fall 2012

Table of content Abstract Introduction Ratio analysis of Toyota and Ford Brief history of the Ford and Toyota Profitability analysis Liquidity analysis Current assets SWOT analysis Findings Conclusion

abstract Ford Company has been in operation since 1903 when Sir Henry Ford with his other associates established it. Kiichiro Toyoda established Toyota Corporation in 1936. The two companies have grown to become one of the two largest vehicle industry in the world

Introduction The two companies control specified market size in the industry. Toyota is a motor company established in Japan, Asia while Ford is a motor company established in North America. Despite the different locations, the two companies face each other in terms of competition where each of the players is trying to increase their market size. Ford has been associated with the manufacture of exceptionally powerful vehicles, which are considered as heavy consumers of fuel. Which is opposite of Toyota. Toyota has been engaged in making of vehicles, which have low fuel consumption and usage.

Brief history of both Ford and Toyota Toyota Corporation The founding name for Toyota Motor Corporation was Toyoda, which was changed in the following year to Toyota due to superstitious reasons. Initially the company engaged in production of exceptionally light cars and tracks for the Japanese and outside market. 1980 it was forced to open a branch in the United States due to the heavy tax impositions established on its products. In the year 1990, Toyota started to include in its manufacturing luxury vehicles, sports vehicles, full sized trucks and pickups (Grant 2010). The company went from being private to public in 1999. In 2009, Toyota was recognized as the biggest car manufacturer in the world.. Ford Company It was started with a mere $28,000 in cash when being established. The company went public on 1956 Feb 24. At the time, the company had approximately four hundred shareholders. The company is based in the United States in Dearborn Michigan. The company enjoys a wide market of over two hundred markets across the six continents. Ford is currently rated as the fourth largest company in vehicle industry. The chief brands for the Ford Motor Company are Volvo, Lincoln, Mercury and Ford. The market for the Ford vehicles has been on increase especially in countries in Europe (Grant 2010). .

Profitability Analysis

ROA ( FORD) In the case of the Return on Assets (ROA), the ROA for the company is also hitting its negative peaks whereby in 2006 the ROA of the company was at -2.500%. This is an extremely wanting case as the ROA for a healthy company has to be above 0.2% and should range between 10 and 15%. In the previous years in 2010, the ROA for the company has still been in the negative percent.

ROA ( Toyota) The Toyota Corporation has managed to maintain its return on asset above the 0.2% this is evident where in 2002, the ROA of the corporation was about 7.4%. In 2006, the ROA had dropped to about 5.2%. The ROA, in 2007 hit a 5.5% after which it has been dropping significantly. This is evident in 2009 when it hit its lowest point of about -1.3%. However, the Toyota Corporation recovered to 0.8% in 2010.

ROE ( Toyota) The Toyota Corporation has managed to maintain its return on asset above the 0.2% this is evident where in 2002, the ROA of the corporation was about 7.4%. In 2006, the ROA had dropped to about 5.2%. The ROA, in 2007 hit a 5.5% after which it has been dropping significantly. This is evident in 2009 when it hit its lowest point of about -1.3%. However, the Toyota Corporation recovered to 0.8% in 2010.

ROE ( Ford) In terms of the Returns on Equity (ROE), the Ford Company in 2002 was operating in the negative form but has improved to a positive ROE. On 2006, the company’s ROE was at the 21.7% and slightly reduced in the subsequent years to 14.7%. In 2011, the ROE of the Ford Company is at approximately 19.6%. For a healthy company in operation the ROE should be above 20%. This simply means that the company will be realizing profit in the business. In the case of Ford Company, a ROE of 19.6% is a bad ROE due to the company is not realizing profits.

Current Ratio For a strong company with a high current ratio the acid test should be above one percent. This is converse in the case of the Ford Company. The company has been operating since 2008 on a negative current ratio. This simply means hat the Ford Company has a poor capability to settle its short-term debts. In 2006, the current ratio of Toyota Corporation was at 1.0%, in 2008, it was 1.07%, and in 2011, it dropped to about 1.10%.

The acid test of the Toyota Corporation has been operating in the positive; it has been ranging between 0.7 and 0.87%. This is contrary to- the acid test of Ford Company that has been in the negative since 2006. The working capital reserves for the Toyota Corporation are high compared to those of the Ford Company. The working ratio of the company is in a positive form. This means that the company has more working capi0tal reserves, which can be converted to cash to settle the short-term debts of the company. In addition, the assets are more as they can cover all the short-term debts and emergencies and still the corporation can operate comfortable in the market compared to the Ford Company, which its surplus reserves are strictly for settling debts (Chacko 2011).

Activity ratio: Asset liquidity, Management efficiency

Leverage ratio: debt financing and coverage

SWOT analysis of Toyota and Ford Companies Ford Company Strengths 1. Ford is a well-known brand 2. the hybrid technology Weakness 1. weak sales. 2. lack of flexibility of the company to suit market changes. Opportunities 1. the ability of the company to manufacture hybrid vehicles, which are eco friendly. 2. the role it plays in appealing to the people as a national brand during the period of crisis. Threats 1. the evolution of the crisis that the Ford Company has been facing. 2. The production process of the company has to improve or the company will have to appeal for help to the public.

SWOT analysis of Toyota and Ford Companies Toyota Corporation Strengths 1. hybrid technology. 2.the ability of the company to manage during the time of crisis compared to Ford Company. This is due to presence of more retained returns or profits to attend to crisis (Lee 2009). Weakness 1. lack of protection against changes in demand and prices. 2. the company converts its invoices in terms of yen instead of dollars (Lee 2009). . Opportunities 1.promotes the manufacturing of cars that are environmental friendly. 2. less risk of crisis compared to the Ford Company. (Lee 2009). Threats Currently Toyota Corporation is engaging in production of heavy engine vehicles. The corporation to the threat of being exposed to high production costs that cannot be met by the sales returns.

profitability analysis: Findings profitability analysis: ROA ratio is above the 0.2% ROA that is in negative Healthy Entity the ROE, the Toyota Company has been able to operate in a value close to 20% Ford has been operating in a value close to 20% but has been on a decline that is necessary for a healthy entity that is required for a strong company. Strong Company

Current liabilities Crisis Management liquidity analysis : Ford Company has limited assets that can be converted to cash to attend to its short-term debts. that is in negative Toyota Corporation has a high value of assets that can be converted to cash to pay its short-term debts. Current liabilities It becomes certain that the rate of utilization of the current assets against current liabilities of the Toyota Corporation is high compared to Ford Crisis Management Toyota Corporation is in a positive position to manage the crisis. This is converse to the Ford Company. This is due to in time of the crisis the Ford company may need an external help to manage its crisis.

Conclusion The crisis has made the Ford Company to operative in term of negative operations where it cannot cover its production process. The company has a production process that is expensive to cover by the returns made in the sales. This is converse to Toyota Corporation. Toyota Corporation has been able to produce cars, which are cheap with a production process that is easily covered with the returns on the sales. This has been the reasons for the success story of Toyota Corporation and a failure story for Ford Company.

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