Ford versus Toyota - Essay Example

Toyota versus  Ford

Financial Comparison for Toyota and Ford Motor

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The Current Financial Plans

Toyota’s most operations are in the automotive industry. It also has operations in the finance industry among other industries. In the fiscal year 2016, the company sold 8,681,000 vehicles on a joint basis. According to a report by the U.S. Securities Exchange and Commission (2016, p.9), these sales generated a net income of 2312.6 billion Japanese yens. Toyota Motors’ sales over the last three fiscal years are as follows:

                                                                 Yens in millions

                                                                Year ended 31st March

2014                                                    2015                                         2016

23,733,855                                          25,006,224                              25,923,813

Toyota Motors shareholder’s equity stands at 35.17% with an additional non-controlling interest proportion of 1.80%. The summation gives a total shareholder’s equity of 36.97%. The liabilities of the company stand at 63.03%. Toyota’s equity in earnings of the affiliated companies rose between the year 2013 and 2014, then decreased between the year 2014 and 2015. The affiliated companies increased between the year 2013 and 2014 but fell significantly in the year 2014 and 2015. The Return on Assets, on the other hand, upgraded between 2013 and the year 2014 but fell in the 2014/2015 fiscal year (U.S Securities Exchange and Commission, 2016)

On January 29, 2016, Toyota Motors entered into a share agreement with Daihatsu with the goal of strengthening competition in the automotive industry. This action made Daihatsu a subsidiary fully owned by Toyota. This agreement is bound to aid the companies to plan and enforce strategies such as a combination of technical expertise, developing next-generation technology, a combination of the operation bases, product development, and general cost reduction. The company can enter into more such agreements with other upcoming automotive companies to diversify their global market. Focus on the Asian continent should also be emphasized if the company wants to improve its sales. Past comparison with the present financial status can also help the company to improve its operations. Toyota may also opt to increase the equity shareholding so as to generate more finances so as to increase its financial base.

On the other hand, Ford Motors clinched a pre-tax income of $ 10.8 billion for the year ended 2015. The after-tax earnings per share summed up to $1.93. The profits varied across the different bases of operations. The global market share of the company improved by 0.2% totaling to 7.3% of the market share. Ford has significantly improved its share in the Asia Pacific region. The company sold 6 635 000 cars in the year 2015 (US Securities Exchange and Commission, 2016 p.10). The company uses selected distributors and car dealers as the main way of making the sales. The channels and dealers are independently owned. Ford motors payables rose consistently between the year 2013 and 2015, while the total equity reduced between the year 2013 and 2014, but then increased between the year 2014 and 2015. The company had common stockholders totaling to about 137, 858 as at February 2016.

Year

2015

2014

2013

Revenue in US million $

140,566

135,782

139,369

Finding that the company mainly targets the whole of the American continent and Europe, it should aim at venturing in Asia, where there is a larger population and companies such as Toyota have not majored. Regarding the financial strategies that the company could put into place, it should, first, consider offering the shareholders a raise in the market share when the company makes more profits as indicated.

Future External Financing Needs

There are some areas that Toyota and Ford Motor should look into if they want to achieve better financial status in the future. Areas such as diversification and technology need immense considerations especially after the drop in the automobile industry. The companies are world leaders regarding motor technology, but due to stiff competition, they need to upgrade the level of technology in their operations. To achieve these projections, plus the other strategic issues addressed in the first portion of the report, the company needs to have external financing. The funding may be acquired from several sources. The first source would be through expanding the company’s equity shareholdings usually by the sale of the company shares (Stewart & Ramman, 2007, p.12). This source of capital is much more reliant than any other since the company will basically enlarge its asset base. No loss will be realized from the expansion thereby making it the most suitable means. It is also considered costly since the bonus share allocated to shareholders is nontaxable. Another factor to be considered is pursuing operations outside the automotive industry. These may include asset finance investments, temporary bonds, and even real estate. The returns brought by these investments can be used by the company to invest in the main business of car manufacturing.

As for the case of Ford, the assessment done indicates the following figures.

Year

2015

2014

2013

Assets

227 902

210 531

203 930

Debt

132 854

119 171

99 005

Total equity

28 657

24 465

15 924

From the above figure, it is evident that Ford has consistently increased its equity base over the last three years. It has achieved the increment by increasing its asset base every year. The company can, therefore, achieve more sources of finance by only increasing the assets and consequently decreasing the debts.

Taking a look at the trend in Toyota regarding units sold, there is a clear indication of inconsistency in the units sold. There is an increase between the year 2013 and 2014, whereas the situation changes between the year 2014 and 2015. This case portrays wavering sales in the company. Toyota should, therefore, aim at strategies that improve their sales volume (Kito et al., 2014, p.8). The relaxation in manufacturing the automobiles is an indicator of such situations. The company should find quicker means to correct the situation such as by increasing the production of new-technology cars. This measure is bound to counter competitors such as Ford, who, on the other hand, has majored in the manufacture of automobiles.  

Year

2015

2014

2013

Units sold

8971 864

9116 033

8870, 664

Access to target sources

To raise the required external finances, the companies will take a considerable amount of time. Each of the companies requires assessing its target in its strategic plans. Ford, on the one hand, sees a growth opportunity in the mobility and auto world. The company needs to invest innovative ideas if it is to achieve this target within a short-term duration. Ford aims at investing in $ 4.5 billion by the year 2020, in new electric cars and accessories. The company will have to cut expenses by reforming parts that do not generate reasonable profitability. Ford also has an aim at pursuing ford smart mobility which was launched early last year. The program’s primary goal include SYNC connection that enables synchronizing of the car locking system with the owner’s smart phone to 10 million cars in North America. Increase production in the automobile industry also comes along with the ford smart mobility. Raising the capital for such expansions will be tough. Accessing the company’s source of the target will require going over the past financial status of the company regarding equity, future profit levels, and the cash cycles of the companies (Edge- Ford Motor Company, 2016, p.4).

Banks and other financial institutions require the company’s financial statements that show the asset, liabilities and revenue of the company. By so doing, they can determine the amount to give to the company. Both Ford and Toyota motors have reputable standards, and so the banks will not hesitate issuing them with the required external finances. The company will also be able to woo outside investors due to their reputation. These companies have international recognition, and, therefore, they will attract these investors within the shortest time. By assessing their financial standards and business cycles, these companies will have no problem getting external financing. The shares of both companies are traded internationally at favorable prices which may also be used as a means of acquiring more shareholders to the companies.  

Individually, Ford may opt to use its thriving business in the automobiles as a key strategy in wooing investors. The company also has a broad market coverage across the world which makes it a widely accepted company that people are willing to invest. There are many other ways that Ford would apply such as reviewing its marketing strategy. On the other hand, Toyota may pursue the sources of finance through capitalizing on technology which will attract many investors. The technology sector is one of the few sectors that attract billionaires in the world who are willing to invest enormously so as to fetch the high returns. Reconsidering its sustainability procedure may also help in attracting other financial sources. Another way that the company may use is restructuring the warranty they offer their customers. A company’s customers are the most valued assets and may help the company gain more sales through positive advertisement. More sales for the company will indicate more finances at their disposal.

Viability of the Plan

Lastly, the proposed financial plans of any company must indicate positive changes over the next 3-5 years after being implemented. Plans that are not worthwhile to the company ought to be disbanded and new ones initialized. The proposed plans affecting Ford’s operations may be achieved only if the management is dedicated and the goals of the company accommodate these changes. The goals of Ford are mainly aimed at improving the fuel economy, and increasing its sales. The goals will be in line with the proposed plans, and, therefore, they can take effect within the shortest time possible. With the vast resources at the disposal of the company, the plan is valid. On the other hand, Toyota Motor may opt to review its set goals which are set to be achieved in the next 35 years. The goals were set late in 2015, and aim at maintaining the addressed global environmental goals. The company has the required resources needed to implement the plans and expect positive transmission for the company’s short-term period.