Ratio Analysis Of Toyota Company

As we can see above, Honda is maintaining its inventory by cost of goods sold with average inventory 7.03times to 7.14 times during its annual year. High inventory turnover meant that replenishing the cash on quick basis and lower the risk of becoming stuck with obsolete inventory. Whereas Toyota’s inventory turnover is decreasing by 15.4times to 13.06 times, which indicates that it is holding its inventory longer than the previous 2015 which shows poor inventory management or poor sales. Excess inventory stuck the Toyota’s cash and hence making the company susceptible to drop down in industry.
“It is used to analyze the performance of a business. This ratio defines the effectiveness of the business while utilizing its working capital blocked in debtors. It also defines the frequency of alteration of receivables into
Considering Toyota, high ratio means quick payment to all the suppliers for the goods purchased on credit while compared to Honda it indicates a low ratio which shows a sign of delayed payment.
A high ratio (prompt payment) is desirable but company should always avail the credit facility allowed by the suppliers.
c) Solvency Ratios
Solvency ratios are used to measure long‐term risk and are of interest to long‐term creditors and stockholders.
Equity Ratio
The equity ratio is an investment leverage or solvency ratio that measures the amount of assets that are financed by owners’ investments by comparing the total equity in the company to the total assets.
The equity ratio highlights two important financial concepts of a solvent and sustainable business. The first component shows how much of the total company assets are owned outright by the investors. In other words, after all of the liabilities are paid off, the investors will end up with the remaining assets. The second component inversely shows how leveraged the company is with debt.
=shareholder’s Equity /
Total