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Toyota Corporation and Ford Motors Comparative Ratios Analysis Report


Executive summary

Comparative studies determine the level of performance between two companies. Financial analyses can ascertain the usefulness of comparative studies. The comparison provides ratio analysis on market trends, financial ratios and the strength of its capital base (Brealey & Myers, 2000). Thus, financial ratio analysis provides an accurate health status of an organization (Brealey & Marcus, 1999). In this report, we will compare financial ratios between two car manufacturing companies. The report is a comparative analysis between Toyota Corporation and Ford Motors. The report shows the liquidity ratio, leverage ratio, market ratio and the profitability ratio. The analysis revealed the stability of Toyota Corporation in growth and performance.

Brief history of Toyota Corporation

Toyota was established in 1937 by Toyody Kiichiro. He invested 100,000 pounds in Toyota Corporation. In 2009, Toyota Corporation ranked first in the can manufacturing business. The company produced 8.76 million cars. The major markets include Japan, Asia, North America and most recently South America. The company produces Toyota, Scion and Lexus cars. Toyota invented hybrid engines and leased its technology to ford motors in 2009.

Brief history of Ford Corporation

Ford Corporation was established in 1913 by Henry Ford. Henry’s vision was to produce cars in mass. He divided the production department into unique parts. Each unit combined effectively to lead the world’s car manufacturers. The first car built by Ford was the T model, built in the Highland manufacturing office. The success of Ford Corporation positioned the company in 4th position, leading the automobile manufacturing companies. Ford Corporations have branches around the globe. Its brand of cars includes: Mercury, Lincoln navigator, Ford and Volvo. The company suffered from recession in 2010. Its sales in the US dropped by 23% while its market sales around Europe increases. The reasons for the drop in sales in the US includes

  1. High cost of labour
  2. Trade unions enforced high standards, such as payoffs and pensions.
  3. The demand for low combustion engines.

Ford Corporation dominates in large vehicles such as, Pick-up vans, SUVs. The company produced its first hybrid engines in 2009. A feat achieved through Toyota Corporation. The company estimated investment in 2010 was $500 million, the investments centered on the production of its original hybrid engines

Comparative analysis between Ford Corporation and Toyota

The report examines data published on websites, and annual company reports. The report analyzed the company’s liquidity ratios, leverage ratios, profitability ratios and market ratios.

Table 1

Current Ratio 2009 2010 Mean Values
Ford Corporation 2.01 1.34 1.35
Toyota Corporation 1.01 1.33 0.34
Liquidity Ratio
Ford Corporation 2.34 1.98 2.32
Toyota Corporation 0.86 0.78 0.82
Quick Ratio
Ford Corporation 0.23 0.22 0.12
Toyota Corporation 1.60 1.34 1.45
Debt Ratios
Ford Corporation 0.65 0.34 0.46
Toyota Corporation 0.67 0.45 0.24
Turn Over Ratios
Ford Corporation 26.98 29.59 28.30
Toyota Corporation 33.23 45.34 29.30

The result in table 1 shows a high index in the liquidity ratio of Toyota Corporation. The liquidity ratio in 2009 is less than the liquidity ratio in 2010. Ford trailed behind Toyota Corporation in table 1. This result implies a high comparative variability of Toyota Corporation. The ratio shows the ability of each company in fulfilling its obligations (Brigham & Joel, 2001). The analysis reveals that Toyota has high liquidity ratio than Ford.

Table 2 Profitability ratios

Return on Assets 2009 2010
Ford Corporation 24.12 26.68
Toyota Corporation 38.34 39.36
Return on Equity
Ford Corporation 23.45 24.43
Toyota Corporation 33.11 34.34
Return on investments
Ford Corporation 45.43 46.46
Toyota Corporation 47.34 56.67

The profitability ratio of Toyota is higher in 2010. The profitability ratio of Toyota is higher than the profitability ratio of Ford Corporation. The profitability ratio determines the performance and the growth index (Ross & Jaffe, 1999). It also reveals the decline in profit of a firm. Ford Corporation is at risk due to its low profitability ratio.

Table 3 Leverage ratios

Capital Ratio 2009 2010
Ford Corporation 24.12 26.68
Toyota Corporation 38.34 39.36
Debit ratio
Ford Corporation 23.45 24.43
Toyota Corporation 33.11 34.34
Interest ratio
Ford Corporation 45.43 46.46
Toyota Corporation 47.34 56.67

Table 3 shows the leverage ratios of both companies. Toyota’s capital ratio was more stable in 2010 than in 2009. The stability of Toyota is high compared to the stability of Ford Corporation. The financial capability of an organization is determined by the ability to service each liability (Roy, 1970). This variable positioned Toyota Corporation as the leading car manufacturing company in 2010.

Table 4 Market value ratio

Earnings per share 2009 2010
Ford Corporation 22.12 24.68
Toyota Corporation 33.34 35.36
Price earnings ratio
Ford Corporation 23.45 24.43
Toyota Corporation 30.11 32.34
Book value/share
Ford Corporation 145.43 146.46
Toyota Corporation 147.34 156.67

The market ratio reveals the performance of the company’s stock value. The earnings per share influence the growth of the organization (Roy, 1970). Toyota’s earning per share increased in 2010, showing the stability of the organization. This is attributed to the aggressive strategy in marketing hybrid engines.

Conclusion and recommendations

The report reveals the correlation between ratio analyses. The ratios correlate each other and this connection influences the success and failure in a firm. The presentation of a company’s annual report reveals the health status of the organization. Comparative studies and similarities in trends can be calculated using different annual reports. The stability of Toyota is higher than Ford Corporation and this account for the growth of the company. The trend can be attributed to the demand for economical cars produced by Toyota.

References

Brealey, R., & Marcus, A. (1999). Fundamentals of corporate finance. New York: McGraw-Hill Companies Inc.

Brealey, R., & Myers, S. (2000). Principles of corporate finance. New York: McGraw-Hill Companies Inc.

Brigham, E., & Joel, F. (2001). Fundamentals of financial management. Harcourt College Publishers: Fort Worth.

Ross, S., & Jaffe, J. (1999). Corporate finance management. New York: McGraw-Hill.

Roy, C. (1970). Analysis and interpretation of financial statements. New Delhi: Orient Longmans.

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IvyPanda. (2020, May 22). Toyota Corporation and Ford Motors Comparative Ratios Analysis. Retrieved from https://ivypanda.com/essays/toyota-corporation-and-ford-motors-comparative-ratios-analysis/

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"Toyota Corporation and Ford Motors Comparative Ratios Analysis." IvyPanda, 22 May 2020, ivypanda.com/essays/toyota-corporation-and-ford-motors-comparative-ratios-analysis/.

1. IvyPanda. "Toyota Corporation and Ford Motors Comparative Ratios Analysis." May 22, 2020. https://ivypanda.com/essays/toyota-corporation-and-ford-motors-comparative-ratios-analysis/.


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IvyPanda. "Toyota Corporation and Ford Motors Comparative Ratios Analysis." May 22, 2020. https://ivypanda.com/essays/toyota-corporation-and-ford-motors-comparative-ratios-analysis/.

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IvyPanda. 2020. "Toyota Corporation and Ford Motors Comparative Ratios Analysis." May 22, 2020. https://ivypanda.com/essays/toyota-corporation-and-ford-motors-comparative-ratios-analysis/.

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IvyPanda. (2020) 'Toyota Corporation and Ford Motors Comparative Ratios Analysis'. 22 May.

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