Table of Contents Introduction Quick Facts...3 History...3

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1 Accounting Prepared by: Spencer Miller Prepared for: Dr. Phillip Wessels November 27,

2 Table of Contents Introduction Quick Facts...3 History...3 Currency/Economy...3 Accounting Standards...4 Research Analysis Income statement and related ratio analysis...4 Balance sheet and related ratio analysis...4 Conclusion...5 Citation...6 Appendix...7 2

3 Introduction Quick Facts Ticker: 7203 Market Cap: 192.8B Industry: Automotive Head Office: Toyota, Aichi Prefecture CEO: Akio Toyoda History Toyota is one of the world s largest auto manufacturers automobiles were produced worldwide by Toyota in 2012 making them one of the largest auto manufactures in the world. Toyota stands in 9 th place in the Fortune 500 taking back seat to only Volkswagen in car producers. Toyota began in 1933 founded Kiichiro Toyoda. The first Toyota car hit the markets in 1935 with the A1 passenger car. Toyota Motor Co. Broke off from Toyoda automatic loom in Timing was ill as WW2 followed swiftly in 1939 leaving little room for any type of growth. After many tough years Toyota finally established a presence in the United States and in 1957, Toyota released its first car in the American market. This is also historical as it was the first Japanese car to ever enter the North American market. Since then Toyota has survived many market downturns, most recently With high fuel prices and dropping incomes Toyota declared double digit declines in their sales. However Toyota weathered the storm and is still one of the largest car companies today. Currency/economy Japan operates on the Japanese Yen (JPY). It currently trades at to 1 Canadian dollar (CAD). The Yen has taken many volatile spikes over the years with events such as in 1997 and most recently in Since the Yen has little resources to back it like in Canada, Japan mostly relies on their manufacturing industry. This would include Toyota and other car companies like Sububuru and tech companies like Sony, Toshiba, etc. These industries tend to be more volatile which would explain a higher standard deviation than many other developed country as per the MSCI All Country Asia ex Japan Currency [USD] Index. It tends to be that commodities such as gold have an inverse relationship to the equity market. This leaves little safe guarding against the event of a market downturn. The Yen tanked in 2008 leaving substantial ground to make up. It now trades over 30% higher than its 10 year low that occurred in

4 Accounting Standards Japanese accounting standards follow Japanese GAAP which is regulated by the Accounting Standards Board of Japan (ASBJ). Japan is currently working to implement IFRS into Japanese accounting standards. Japanese GAAP while similar to IFRS does have a few minor discrepancies. As of 2010, certified listed companies have been allowed to use the IFRS framework in place of Japanese GAAP in consolidated financial statements. Japan may face mandatory full implementation of IFRS, however no definite decision has been made. In the interim, Japan has been promoting certain aspects of the IFRS framework. This being said, there are still a number of discrepancies between the accounting standards of Canada, but there is certainly a movement towards adopting a universal system. Financial Analysis Income Statement and Related ratio analysis Over the past 3 years Toyota has done a remarkable job recovering from the 2008 crisis. From 2012 to 2014 (period end march), return on equity has risen from 3% to 13%. This is certainly a stark contrast from 2009s ROE which was -(4%). Since 2010 Toyota has bounced back with a 35.5% increase in Revenue and 8% growth in Net income. With 24.6% raise in COGS between 2010 and 2014, there has still been a 115.7% rise in Gross profit. Taking a look at expenses, there has been a 22% increase in operating expenses in the last 5 years. As of period ended 2014, Toyota holds a 31.45% bill in taxes which is just over 7 Billion CAD. Investors have been able to reap the rewards on 760% increase in EPS (basic) making the jump from 66 to 575. Toyotas biggest expense allocation lies in operating expenses. This is common of the industry. In fact Toyota appears undervalued. Toyota has a P/E ratio of This is 0.4 points lower than the industry and 6.9 points lower than the S&P 500 average. Although one could only speculate, this could certainly be due partly to low oil prices where the market has not seen the value in the automotive industry. Until 2013, Toyota was trading at a higher P/E than the S&P 500 were it peaked at 42.6 in Toyota currently has an 8.6% return yield TTM. Still better than a 3% 30 year T-Bond yield. Balance Sheet and Related Ratio Analysis Toyota has seen a 36.5% increase in assets which is due in large part to growth in short term investments and inventories. This could be due to the extremely low interest rates of post 2008 to get the economy moving again. Toyota has shown promising numbers as investors are clearly getting back into the markets. In 2010 Toyota showed a debt-equity ratio of As of last quarter it now sits at However Toyota has also seen a steep increase of 122% in long term debt since 4

5 2010. This correlation between short term investments and the long term debt bears a sturdy resemblance. As of last quarter Toyota had a current ratio of This appears very low, however it is not out of character with the highest ratio of 1.22 appearing in 2010 and the lowest in 2007 of 1. Inventory turnover remains consistent at with a turnover rate of 33 days. Collection of Account Receivable has risen slightly going from days in 2012 to days currently. Payment on accounts payable has seen a reduction of 28% going from 49 days in 2012 to 38 days in P/B ratio is 1.5. This is right on par with the industry average but far below the S&P 500 average of 2.7. This could be another sign that this company is potentially undervalued. In the last 5 years the P/B has never surpassed the S&P average. Conclusion Toyota is a company rich in history and carries the Japanese tradition well. Known for their high quality vehicles, Toyota does not disappoint. Toyota, like many other companies has had an uphill battle since 2008 fighting to return to profitability. To answer the question would you buy this stock/company? My official recommendation would be to buy a call option just before Toyotas next earnings report. This company is in good financial health boasting solid sales growth and well managed expenses. With a well seasoned CEO and President with 30 years of experience with Toyota, Toyota s well seasoned management team appears to be prepared for what lies ahead. This past year Toyota celebrated 75 years of business and we wish them another successful 75 years to come. 5

6 Citation IAS Plus. (n.d.). Retrieved November 25, 2014, from History of Toyota. (n.d.). Retrieved November 25, 2014, from MSCI Global Currency Indexes. (n.d.). Retrieved November 25, 2014, from *Charts and other industry numbers provided by Questrade* 6