Honda Financial Report 2008 Analysis With Ratio Analysis

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TABLE OF CONTENTS

I.

II. A

II. B

COMPANY COMPANY OVERVIEW OV ERVIEW Company Profile

3

Industry and Products

3

Geographical distribution

3

Listed Stock Exchanges

4

Financial Stance

4

News summary

4

FINANCIAL ANALYSIS ANALYSIS Sales Analysis

5

Dividend Analysis

6

Profitability Analysis

7

Inventory Analysis

8

Financial Position

8

RATIO ANALYSIS a. Current Ratio b. Acid Test Ratio

III.

IV. IV.

8 9

c. Inventory Turnover Ratio

10

d. Fixed Asset Turnover Ratio

11

e. Total Asset Turnover Ratio

12

f. Net Profit Turnover Ratio

13

LAST TWO YEARS FINANCIALS AND STATISTICS ANALYSIS

14

BIBLIOGRAPHY

16

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HONDA MOTOR C COMP OMPANY ANY FINANCIAL FINA NCIAL REPORT ANALYSIS ANALYSIS 2008

I. COMPANY PROFILE Honda Motor Company, Limited is a multinational corporation, engine manufacturer and engineering

corporation headquartered in Tokyo, Japan. Founded on September 24, 1948 by founder & then CEO Soichiro Honda. The Company has grown to become the world’s largest motorcycle manufacturer and one of the leading automakers. With With a global network of 501subsidiaries 501 subsidiaries and affiliates.

INDUSTRY AND PRODUCTS

The company manufactures automobiles and motorcycles, motorc ycles, trucks, scooters, robots, jets and jet engines, ATV, water craft, electrical generators, marine engines, lawn and garden equipment, and aeronautical and other mobile technologies. Honda's lines of luxury cars are branded Acura in North America and China. The Group's major trademarks includes Honda, Acura, Accord, Civic, Fit, Odyssey, CR-V, Pilot, Mobilio, Element, Step WGN, MDX, Stream, Life, ACTY, Vamos, That’s, CUB, Wave and Gold Wing.

Honda is the 5th largest automobile manufacturer in the world as well as the largest engine-maker in the world, producing more than 14 million million internal combustion combustion engines each year. year. As of August 2008 Honda surpassed Chrysler as 4th largest automobile manufacturer in United States. Currently, Honda is the second largest manufacturer in Japan behind Toyota and ahead of Nissan.

GEOGRAPHICAL DISTRIBUTION

Honda is headquartered in Tokyo, Japan. American Honda Motor Co. is based in Torrance, California. Honda Canada Inc. is headquartered in the Scarborough district of Toronto, Ontario, and is building new corporate headquarters in Markham, Ontario, scheduled to relocate in 2008. Hero Honda, a joint venture

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between India's Hero Group and Honda, is the largest manufacturer of two wheelers in the world. Honda of Canada Manufacturing is based in Alliston, Ontario. Honda has also created joint ventures around the world, such as Honda Siel Cars India Ltd, Hero Honda Motorcycles India Ltd, Guangzhou Honda and Dongfeng Honda Automobile Company in China and Honda Atlas Cars Pakistan

LISTED STOCK EXCHANGES

Honda is headquartered in Tokyo, Japan. Their shares trade on the Tokyo Stock Exchange and the New York Stock Exchange, as well as exchanges in Osaka, Nagoya, Sapporo, Kyoto, Fukuoka, London, Paris and Switzerland.

FINANCIAL STANCE

Market cap

US$ 58.74 Billion (2008)

Revenue

US$ 119.801 Billion (2008)

Operating income

US$ 9.513 Billion (2008)

Net income

US$ 5.989 Billion (2008)

Total assets

US$ 125.916 Billion (2008)

Total equity

US$ 45.356 Billion (2008)

Employees

167,231 (Sep 2008)

Fiscal year ends

March

WORLD’S FIRSTS BY HONDA

Although Although a relatively relatively small manufacturer manufacturer compared to the other Japanese Japanese automakers, automakers, Honda is the largest engine maker in the world. Honda has a number of firsts in many categories, including the first engine to meet the 1970 19 70 US Clean Air Act (1975 CVCC), the first luxury Japanese car (1985 Legend)

4 and motorcycle (2006 Gold Wing bikes) equipped with an airbag, as well as the first mid-size pickup truck with independent rear suspension (2006 Ridgeline) Honda has also pioneered new technology in its HA-420 HondaJet that allows new levels of reduced drag, increased aerodynamics and fuel efficiency thus reducing o perating costs. In Takanezawa, Takanezawa, Japan, on June 16, 2008, Honda Motors produced the first assembly-line FCX Clarity. Clarity. More efficient than a hybrid vehicle, the FCX Clarity combines hydrogen and oxygen from ordinary air to make electricity. The vehicle does not emit any pollutants and its only byproducts are heat and water. The FCX Clarity also has an advantage over hybrids in that it does not require a rechargeable battery and the use of electricity. electricity.

HONDA ROBOTICS

ASIMO is the part of Honda's Research & Development robotics program. It is the eleventh in a line of successive builds starting in 1986 with Honda E0 moving through the ensuing Honda E series and the Honda P series. Weighing 54 kilograms and standing 130 centimeters tall, ASIMO resembles a small astronaut astronaut wearing a backpack, and can walk on two feet in a manner resembling resembling human locomotion, locomotion, at up to 6 km/h. It is the world's only humanoid robot able to ascend and descend stairs independently.

COMPETITOR ANAL ANA LYSIS

Honda Motor Co., Ltd. operates in the Motor vehicles and car bodies sector. This analysis compares Honda Motor Co., Ltd. with another company in this sector in Japan: Mitsubishi Motors Corporation (2008 sales of 2.68 2 .68 trillion Japanese Yen Yen [US$25.32 billion] b illion] of which 99% was Automobile).

II A. FINANCIA FI NANCIAL L ANALYSIS ANALYSIS

SALES ANALYSIS ANALYSIS Honda Motor Co., Ltd. reported sales of ¥12.00 trillion (US$113.31 billion) for the fiscal year ending March of 2008. This represents an increase of 8.3% versus 2007, when the company's sales were ¥11.09

5 trillion. Sales at Honda Motor Co., Ltd. have increased during each of the previous five years. Honda Motor Co., Ltd. also saw significant increases in sales in Motorcycle Business (up 13.7% to ¥1.56 trillion). Sales Comparisons (Fiscal Year ending 2008) Sales Company

Sales

Sales/

(trlns) Growth Emp (US$) (US$) Largest Largest Region Region

Honda Motor Co., Ltd. 12.003 8.3%

633,140

North America (50.8%)

Recent Sales at Honda Motor Co., Ltd.

9 8

10

11

12

8

2003 2004 2005 2006 2007 2008 (Figures in Trillions of Japanese Yen)

Just over half of the company's 2008 sales were in North America: in 2008, this region's sales were ¥6.09 trillion, which is equivalent to 50.8% of total sales. In 2008, sales in Rest of the World were up at a rate that was much higher than the company as a whole. Honda Motor Co., Ltd. also experienced significant increases in sales in Europe (up 22.3% to ¥1.50 trillion) and Asia (up 27.6% to ¥1.31 trillion).

DIVIDEND ANAL A NALYSIS YSIS During the 12 months ending 30/6/2008, Honda Motor Co., Ltd. paid dividends totaling ¥88.00 per share. Since the stock is currently trading at ¥3,340.00, this implies a dividend yield of 2.6%. Honda Motor Co., Ltd. has increased its dividend during each of the past 5 fiscal years, in 2003, the dividends were ¥16.00 per share. During the same 12 month period ended 6/30/2008, the Company reported earnings of ¥338.02 per share. Thus, the company paid 26.0% of its profits as dividends.

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PROFITIBILITY PROFITI BILITY ANALYSIS ANALYSIS On the ¥12.00 trillion in sales reported by the company in 2008, the cost of goods sold totaled ¥8.02 trillion, or 66.9% of sales i.e., the gross profit was 33.1% of sales which is better than in comparison as achieved achieved in 2007, when cost of goods sold totaled 67.6% of sales. This profit margin margin is lower than the level the company achieved in 2007, when the profit margin was 5.3% of sales. The company's return on equity in 2008 was 13.4%. This was a decline in performance from the 14.4% return that the company achieved in 2007.

Profitability Comparison Gross Profit Company

Earns EBITDA bef.

Year Margin Margin

extra

Honda Motor Co., Ltd. 2008 33.1%

12.3%

5.0%

Honda Motor Co., Ltd. 2007 32.4%

11.0%

5.3%

Honda Motor Co., Ltd. reports profits by product line. During 2008, the itemized operating profits at all divisions were ¥953.11 billion, which is equal to 7.9% of total sales. Of all the product lines, Financial Services had the highest operating profits in 2008, with operating profits equal to 22.1% of sales. Power Products and Other Businesses had the lowest operating profit margin in 2008, with the operating profit equal to only 5.3% of sales. However, in 2007, Automobile Business had the lowest profit margin.

INVENTORY ANAL AN ALYSIS YSIS

7 As of March 2008, the value of the company's inventory totaled ¥1.20 trillion. Since the cost of goods sold was ¥8.02 trillion for the year, the company had 55 days of inventory on hand. In terms of inventory turnover, this is an improvement over March 2007, when the company's inventory was ¥1.18 trillion, equivalent to 58 days in inventory.

FINANCIAL POSITION As of March 2008, the company's long term debt was ¥1.84 trillion and total liabilities (i.e., all money owed) were ¥7.75 trillion. The long term debt to equity ratio of the company is 0.39. As of March 2008, the accounts receivable for the company were ¥2.36 trillion, which is equivalent to 72 days of sales. This is an improvement over the end of 2007, when Honda Motor Co., Ltd. had 82 days of sales in accounts receivable.

Financial Positions Honda Motors Pvt., Ltd. LT Debt/ Debt/ Days Days R&D/ Company

Year Equity

Honda Motor Co., Ltd. 2008 0.39

AR Inv. Sales

72

55

4.9%

II B. RATIO ANALYSIS ANALYSIS

a. CURRENT RATIO: Current Ratio shows a firm’s firm’s ability to meet current liabilities with its current assets. Computation: Current Ratio = Current Assets/ Current Liabilities

2007 (for Honda)

2007 (for Mitsubishi)

Current Ratio = 5192609/4287527

Current Ratio = 1059633/1110874

Current Ratio = 1.21 times.

Current Ratio = 0.95 times

2008 (for Honda)


8 Current Ratio = 5231568/4678550

Current Ratio = 964133/1030913

Current Ratio = 1.11 times.

Current Ratio = 0.93 times

Current Company

Year Ratio

Honda Mo Motor Co Co., Ltd.

2008 1.11 2007 1.21

Mits Mitsubi ubish shii Mot Motor or Co., Co., Ltd. Ltd. 2008 2008 0.93 0.93 2007 0.95

Analysis:

The current ratio is lower in 2008 as compared to 2007.There is an increase in all the current assets assets except other receivables receivables which which decreased decreased in 2008. The net current current assets assets increased increased by ¥38959 ¥38959 million in 2008 and at the same time the net current liabilities increased by ¥391023 million in 2007.

b. ACID TEST RATIO: RATIO: Acid Test Test Ratio or Quick Ratio shows a firm’s ability to meet current liabilities with its most liquid assets. Computation: Quick ratio = (Current Assets-Inventory)/Current Liabilities. 2007 (for Honda)


Quick ratio = (5192609-1183116)/4287527

Quick ratio = (1059633-351991)/1110874

Quick ratio = 0.93 times.

Quick ratio = 0.63 times

2008 (for Honda)


Quick ratio = (5231568-1199260)/4678550

Quick ratio = (1059633-351991)/1030914



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Quick Company

Year Ratio

Honda Motor Co., Ltd.

2008 0.86 2007 0.93

Mits Mitsubi ubish shii Mot Motor or Co., Co., Ltd. Ltd. 2008 2008 0.64 0.64 2007 0.63

Analysis:

We have seen that the company had a lower current ratio in 2008 and was unable u nable to meet its short term obligations as compared to 2007. Where as the quick ratio identifies the role played by the inventories in this context. Therefore the ratio shows that in year 2008 it has decreased as compared to 2007 due to the fact that the investment in inventories is increased by ¥16144 million only and current liabilities have increased by ¥391023 million.

ASSET MANAGEMENT RATIOS. c. INVENTORY TURNOVER RATIO Computation: Inventory Turnover Ratio = Sales/Inventory 2007 (for Honda)


Invent entory Turn urnover ver Rati atio = 9819 819973/ 73/1183 183116

Inven ventory Turnov nover Ratio =2202869 869/351991

Inventory Turnover Ratio = 8.32 times


2008 (for Honda)


Invent entory Turn urnover ver Rat Ratiio = 11304485 485/1199260

Inven ventory Turnov nover Ra Ratio =2 =2682103 103/299644



Company

Year

Inventory Turnover Ratio

10


2 00 8

9.42

2 0 07

8.32

Mits Mitsub ubis ishi hi Mo Moto torr Co., Co., Ltd. Ltd. 2008 2008

8.95 8.95

2 0 07

6.25

Analysis:

The inventory turnover ratio in the year 2007 was 8.32 which indicate that 8.32 times in a year the inventory of the firm is converted into receivables or cash. However, in 2008, the inventory turnover ratio slightly increased to 9.42. This was due to the fact that the company’s current assets have increased by ¥38959 million and a slight increase of 1.3% in inventories.

d. FIXED ASSETS TURNOVER RATIO

This ratio measures the extent of turnover or volume v olume of gross income generated by b y the fixed assets of a company or in other words the efficiency in their utilization. Computation: Fixed Assets Turnover Ratio = Sales/Fixed Assets 2007 (for Honda)


Fixed Fixed assets assets Turn Turnover over Rati Ratio o = 9819973/2 9819973/20787 078728 28

Fixed Fixed assets assets Turn Turnover over Ratio Ratio = 220286 2202869/5 9/55599 55994 4

Fix Fixed assets Turnove over Rat Ratiio = 4.72 times

Fixed assets Turnove over Ra Ratio = 1.23 .23 ti times

2008 (for Honda)


Fixed assets assets Turnove Turnoverr Ratio = 11304485/ 11304485/2201299 2201299

Fixed assets assets Turnove Turnoverr Ratio = 2682103/ 2682103/485278 485278

Fix Fixed assets Turnove over Rat Ratiio = 5.13 times

Fixed assets Turnove over Ra Ratio = 4.40 .40 ti times

Company

Year

Fixed Asset Turno ver Ratio


20 08

5.13

200 7

4.72

20 08

4.40

Mitsubishi Mo Motor Co Co., Lt Ltd.

11

200 7

1.23

Analysis:

According to the calculations above the productivity of fixed assets in year 2008 is better than it was in previous years. In 2007, it was 4.72 times and now it has been slightly increased to 5.13 times. This change was brought about by increase in total sales by 13.13%, where as the fixed assets increased only by 5.57%.

e. TOT TOTAL AL ASSETS TURNOVER TURNO VER RATIO Computation: Total Assets Turnover Ratio Rati o = Sales/Total Assets 2007 (for Honda)


Total Assets Assets Turnover Turnover Ratio=9819 Ratio=9819973/120 973/120336500 336500


Tota otal Assets Tu Turnover Ratio = 0.81 ti times


2008 (for Honda)


Total Assets Assets Turnover Turnover Ratio=1 Ratio=11304485/ 1304485/12615543 12615543




Company

Year

Total Assets Turnover Ratio


2 00 8

0.89

2 0 07

0.81

Mits Mitsub ubis ishi hi Mo Moto torr Co., Co., Ltd. Ltd. 2008 2008

4.40 4.40

2 0 07

1.23

Analysis:

12 According to the calculations above the productivity of assets in year 2008 is good as it was in previous years. In 2007, it was 0.81 times and now it has been increased to 0.89 times. This change was brought about by increase of only 4.59% in the total assets, where as the total sales increased by 13.13%.

f. NET PROFIT TURNOVER RATIO Computation: Net Profit Turnover Ratio = Sales/Net Profit 2007 (for Honda)


Net Net Prof Profit it Turnov urnover er Rati Ratio o = 98199 9819973 73/5 /592 92322 322

Net Net Prof Profit it Turnov urnover er Ratio Ratio = 220 220286 2869/ 9/87 8745 45

Net Profit Turnov nover Ratio = 16.57 times

Net Profit Turnov nover Rati atio = 251.6 times

2008 (for Honda)


Net Net Pro Profi fitt Tur Turnov nover er Rat Ratio io = 113 113044 04485 85/6 /6000 00039 39

Net Net Prof Profit it Tur Turnov nover er Rat Ratio io = 268 268210 2103/ 3/34 34710 710

Net Profit Turnov nover Ratio = 18.83 times

Net Profit Turnov nover Rati atio = 77.27 times

Company

Year

Net Profit Turnover Ratio


20 08

18.83

200 7

16.57

20 08

77.27 .27

200 7

2 5 1 .6

Mitsubi ubishi Motor Co., Ltd.

Analysis:

The net profit turnover ratio has increased by 2.26 times in 2008 as compared to the previous year. This change was brought about by the increase in the total sales in 2008 by 13.13% as compared to 2007. There has also been an increase in the net profit in 2008 by an amount of ¥7717 million.

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III. COMP COMPARA ARATIV TIVE E ANAL ANALYSIS YSIS OF CURREN CURRENT T FISCAL FISCAL YEAR WITH WITH THE PREVIOUS FISCAL YEAR. Honda’s consolidated net sales and other operating revenues for the fiscal year ended March 31, 2008 grew ¥915.6 billion, or 8.3%, compared with fiscal 2007, to ¥12,002.8 billion. Factors behind this increase were higher unit sales in the motorcycle business in Other Regions, higher unit sales in the automobile business in all overseas regions, and higher unit sales of power products in Asia, as well as the positive impact of foreign exchange rate changes. Domestic net sales decreased by ¥95.4 billion, or 5.7%, to ¥1,585.7 billion, but overseas net sales were up ¥1,011.1 billion, or 10.7%, to ¥10,417.0 ¥10, 417.0 billion as compared to FY 2007. Net income rose ¥7.7 billion or 1.3% from the previous year, to ¥600.0 billion. Consolidated cash and cash equivalents for the year ended March 31, 2008 increased by ¥105.3 billion from March 31, 2007, to ¥1,050.9 billion. This can be primarily attributed to higher unit sales in motorcycle business.

The provision for credit losses increased by ¥19.3 billion, which was at ¥25.5 billion on 2007 and rose to ¥44.8 in 2008, primarily as a result of the weakening U.S. economy. economy.

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IV. IV. BIBLIOGRAPH BI BLIOGRAPHY Y

1) Honda Honda Motor Motor Co., Ltd. Ltd. Annu Annual al Report Report 2007-2 2007-2008 008 2) Mitsubish Mitsubishii Motor Co., Ltd Annual Report 2007-2008 2007-2008 3) www.honda.co.jp 4) Abrarish Abrarish Gupta Gupta (2006), “Financial “Financial Accounting Accounting for Management”, Management”, Pearson Pearson Education, Education, 3rd Edition, PP.605-673.

Honda Financial Report 2008 Analysis With Ratio Analysis

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