Macroeconomic analysis Japan
As of the end of March 2012, Toyota conducts its business worldwide with 50 overseas manufacturing companies in 27 countries and regions. Toyota's vehicles are sold in more than 160 countries and regions.
As the biggest part of manufacturing process is in Japan and considerable part of sales are made there (Appendix 2), the profitability of Toyota is dependent on macroeconomic factors of Japan.
Japan’s economic growth took a dive because of the natural disasters, but 2012 will clearly be a bounce-back year, fueled by rebuilding as well as the general economic strength of the areas not directly affected by the earthquake and tsunami. (Appendix 3)
However, there’s significant uncertainty surrounding this view of the future. Japan’s issues include:
Earthquake/tsunami rebuilding are obviously triggering substantial rebuilding efforts, but no one knows just how fast the construction crews can progress. Total building activity will be stronger than in recent years, but the actual pace that can be achieved in 2012 is uncertain. What does not get rebuilt in 2012 will spill over to 2013, so it’s more a matter of timing than ultimate magnitude.
Electricity reliability is still a problem in many areas of Japan. As more reconstruction is completed, electrical loads will increase, probably overwhelming the supply that is now limited by worries about all nuclear power plants.
Export markets are an important question mark for Japan’s economy. They account for about 13 percent of the country’s gross domestic product, so the uncertain global economy constitutes a major concern. The good news for Japan is that Europe accounts for roughly ten percent of its exports. Europe is, of course, the greatest risk for the global economy, and the lower one’s exposure to Europe right now, the better. Other countries in East Asia account for about half of Japan’s exports. Even though China is not Europe, all of Asia will feel the effects of a meltdown on the Continent. Thus, one of Japan’s greatest risks is a global recession triggered by the European financial crisis.
The value of the yen has been rising, against not only the Euro but also the dollar. Taking into account both trade patterns and inflation rates, the yen is about 25 percent higher than it was in 2007, reducing Japan’s competitiveness on global markets.
Finally, Thailand’s floods pose a problem for Japan, as if their own natural disasters are not bad enough. Many Japanese corporations opened offshore manufacturing plants there, including Toyota, Hitachi and Canon, totaling 60 percent of Thailand’s foreign direct investment. The problem is not simply a financial one, whereby Japanese subsidiaries located in Thailand have sustained a loss. In addition, those subsidiaries are key players in the supply chain for factories in Japan. Although the floodwaters are now receding, some plants may take months to clean up and bring back to full production. (6)
As far as key macroeconomic indicators are concerned, the Gross Domestic Product has fallen dramatically to almost -7% in 2010 affected by tsunami, which caused the recession, which resulted in growth in unemployment rate and decline in investments. (Appendix 4)
However, Japan is now on its rebuilding stage so long term investments could be considered.
USA
Ford is American based company with almost half of the sales made in North America. (Appendix 5)
As USA is the main country of production and selling of Ford cars, the USA economy plays considerable role in Ford company’s financial position.
Among rich nations, the U.S. outlook remains pessimistic. In the United States, the economy faces growing challenges especially taking into consideration political wrangling over the $600 billion in government spending reductions and fiscal cliff that could send the economy back into recession.
The forecast for fourth-quarter U.S. GDP growth to a 0.2 percent annual pace from 1 percent. (7)
For 2013 as a whole, economists expect a 2 percent rate of growth, much the same as this year.
Hiring at the start of next year was seen slowing to an average 127,000 a month, before picking back up to 150,000 in the second quarter.
Expectations for inflation for 2012 held steady at 2.1 percent, while forecasts for next year were notched up to 2.1 percent from 2.0 percent in the last poll. (8)
US economy is going through tough recovery process from the crisis of 2008, which can be seen on major economic indicators. (Appendix 6) However, it can be a good time to invest, as stocks are becoming cheaper, so higher return might be expected even though the risks are very high.
Toyota
Toyota was hit considerably by the crisis and earthquake, however, the company increased the investments in R&D (Appendix 7) and actively develops the electric cars, which can be a key to automotive industry’s sustainability in future.
The biggest markets for Toyota are North America and Japan, however its presence in emerging markets becomes more and more significant, especially in Asia.
Region |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
North America |
2,436.1 |
2,738.3 |
2,822.2 |
2,441.8 |
1,975.4 |
1,935.5 |
1,806.9 |
Latin America |
270.5 |
339.4 |
379.4 |
370.2 |
293.6 |
342.1 |
333.5 |
Europe |
995.2 |
1,124.1 |
1,238.6 |
1,119.5 |
886.0 |
785.8 |
801.9 |
Africa |
227.2 |
265.7 |
313.5 |
288.1 |
201.4 |
197.6 |
211.9 |
Asia |
1,062.9 |
1,106.7 |
1,329.6 |
1,438.6 |
1,533.9 |
1,895.9 |
1,998.2 |
Oceania |
236.9 |
250.3 |
275.9 |
277.7 |
231.2 |
249.6 |
215.9 |
Middle East |
325.3 |
404.8 |
482.7 |
590.1 |
482.5 |
532.0 |
527.5 |
Overseas total |
5,554.1 |
6,229.3 |
6,841.9 |
6,526.1 |
5,604.0 |
5,961.1 |
5,895.9 |
Japan |
1,713.1 |
1,692.3 |
1,587.3 |
1,470.0 |
1,375.5 |
1,566.1 |
1,201.0 |
Worldwide total |
7,267.3 |
7,921.6 |
8,429.3 |
7,996.1 |
6,979.6 |
7,527.3 |
7,096.9 |
(1 unit = 1,000 vehicles) Note: Regional classifications are those of the Japan Automobile Manufacturers Association, Inc. The number of vehicles produced includes the Toyota and Lexus brands. As a result of rounding, the numbers do not necessarily add up to the total shown here.
Source: Toyota Motor Corporation
The financial ratios are still weak:
Fiscal Year |
Financial Indicator |
|||||
Operating income return on revenues |
Pretax return on revenues |
Pretax return on capital |
Return on assets (R.O.A.) |
Return on equity (R.O.E.) |
Shareholders' equity ratio |
|
FY2012 |
1.9% |
2.3% |
1.4% |
0.9% |
2.7% |
34.4% |
FY2011 |
2.5% |
3.0% |
1.9% |
1.4% |
3.9% |
34.7% |
FY2010 |
0.8% |
1.5% |
1.0% |
0.7% |
2.1% |
34.1% |
FY2009 |
|
2.7% |
1.8% |
1.4% |
4.0% |
34.6% |
FY2008 |
8.6% |
9.3% |
7.5% |
5.3% |
14.5% |
36.6% |
FY2007 |
9.3% |
9.9% |
7.8% |
5.4% |
14.7% |
36.3% |
FY2006 |
8.9% |
9.9% |
7.9% |
5.2% |
14.0% |
36.8% |
FY2005 |
9.0% |
9.5% |
7.6% |
5.1% |
13.6% |
37.2% |
FY2004 |
9.6% |
10.2% |
8.4% |
5.5% |
15.2% |
37.1% |
FY2003 |
8.2% |
7.9% |
6.2% |
3.8% |
10.4% |
35.3% |
FY2002 |
7.7% |
6.9% |
5.4% |
3.1% |
7.8% |
37.6% |
FY2001 |
6.1% |
8.5% |
6.6% |
4.0% |
9.6% |
41.6% |
2.2%(1 unit = 1,000 vehicles) Note: Regional classifications are those of the Japan Automobile Manufacturers Association, Inc. The number of vehicles produced includes the Toyota and Lexus brands. Excludes KD sets. The total includes other regions. As a result of rounding, the numbers do not necessarily add up to the total shown here.
Source: Toyota Motor Corporation
However, Toyota is the company that invests a lot in long term R&D and it has been hit by recession and natural disasters, so it is on its recovery stage, which makes it affordable for public and can also drive price up. (Appendix 8)
The table below shows the key trading indicators for Toyota:
52 week range |
63.27 - 87.15 |
Volume: |
252,353 |
Avg Vol (3m): |
341,508 |
Market Cap: |
136.33B |
52-Week Change: |
29.49% |
S&P500 52-Week Change: |
14.69% |
Beta: |
0.78 |
50-Day Moving Average: |
81.48 |
200-Day Moving Average: |
79.12 |
P/E |
14.26 |
EPS (ttm): |
6.04 |
Div & Yield: |
1.36 (1.60%) |
In average, Toyota seems to show positive trend and sustainable growth in the last year.
Profit Margin (ttm): |
3.49% |
Operating Margin (ttm): |
6.27% |
Return on Assets (ttm): |
2.88% |
Return on Equity (ttm): |
7.96% |
Qtrly Revenue Growth (yoy): |
18.20% |
Gross Profit (ttm): |
26.67 % |
Qtrly Earnings Growth (yoy): |
220.70% |
Total Debt/Equity (mrq): |
104.08 |
Current Ratio (mrq): |
1.06 |
Book Value Per Share (mrq): |
86.18 |
Currency in USD Source: finance.yahoo.com The profitability and management efficiency ratios are positive and show the growth, as well as the balance sheet looks stable with the debt almost equal to equity and current ratio greater than one.
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The mean target price is 98.99 USD while now the price is around 81 USD. Taking into consideration the book value of 86 USD, we can see that the stock is undervalued and can grow considerably.