Financial Analysis Report for Honda Company Years 2011-2012

Prepared By: Rimaz Obied Mohammed. Mohamed Zain Abdalla Mohammed Ali. Gayas Mohammed Gesm Elseed. Tahir Fikri Tahir Mohammed. Mohammed Kamal Eldin Mohammed.

INDEX:

• INTRODUCTION.

• ABOUT HONDA.

• HONDA FINANCIAL STATEMENTS.

• HONDA RATIOS ANALYSIS.

• CONCLUSION.

INTRODUCTION:

This financial report is conducted for Honda Co.Ltd for

years 2011 and 2012 when Honda faced a great

economic impact overall their operating levels of

manufacturing which affect their sales and their status

with their shareholders.

Here is an introduction about Honda, and financial

status during the mentioned period.

ABOUT HONDA: History

• In October 1946, Soichiro Honda established the Honda Technical Research Institute

in Hamamatsu, Japan, to develop and produce small 2-cycle motorbike engines,

after years later, Honda Motor Company, Ltd. was born, in 1959 .

• Honda grown to become the one of the largest motorcycle manufacturing and

automakers.

• Honda has global network subsidiaries and 88 affiliates.

• Honda, is No 3 topped an annual ranking of global green brands by consultancy

firm Interbrand in 2012.

Honda has three lines :

• Motor cycles : working under objectives of durability ,

quietness , fuel economy).

• Automobile business: working under having environmental

technology to enhance the Honda brand.

Objectives: better fuel economy ,reducing CO2 emission of all

Honda products by 30%, using IMA(integrated motor assist ).

• Power product and other business: working under philosophy

( technology for people ) established in 1953 by agriculture

machinery ( water pump , snow blower)

• During the this two years Honda faced a challenging economic

environment.

• In Europe, the sovereign debt crisis, rising oil prices and other

factors led to stagnation which slowed economy to crawl in USA

also

• meanwhile there was slide growth in some Asian countries like

China and India.

• In Japan remained challenging under these conditions Honda’s

net sales and other operating revenue declined 11.1%to 7.948

yen.

HONDA FINANCIAL STATEMENTS

COMPANY ANALYSIS

BALANCE SHEET RATIOS

Current Ratio:

2011 2012

1.31

1.32The Liquidity ratio measures the

ability of the company to meet its

short term liabilities by the available

current assets of cash and cash

equivalents.

Honda during 2011 has the ability to

cover its current liabilities more than

one third by its current assets which

is being stable during 2012.

Quick Ratio:

2011 2012 Series 3

1.06

1.03

Quick Ratio

In the event of quick current

liabilities coverage case Honda has

the ability to cover its short term

liabilities by using its most liquid

assets in addition to surplus of 6% of

its quick assets during 2011 which

being reduced during 2012 to 3%

surplus.

Debt to Assets Ratio

2011 2012 Series 3

0.6

0.62

Debt to Assets Ratio

During 2011 the debts forming

60% of the company’s assets which

increased during 2012 to 62% that

reflect that Honda relay on

financing its investments by debt

by more than 60% during the two

years which exposing the company

to a huge risk of solvency if the

performance not going as desired.

Debt to Equity Ratio

2011 2012 Series 3

1.52

1.6

Debt to Equity Ratio

Honda in 2011 relied on the

external financers 1.52 times to

its dependency on its owner’s

equity which increased during

2012 to 1.6; that shows a clear

sign of deterioration of the

business.

Assets to Equity Ratio

2011 2012 Series 3

2.6

2.67

Leverage Ratio

It indicates that during 2011 Honda

financed its 61.54% of assets by

dept more than utilizing its equity

which increased during 2012 to

62.63% ; generally Honda exposed

to high risk by relay on the external

debt more than utilizing its own

capabilities.

STATEMENT OF INCOME ANALYSIS

Coverage Ratio:

2011 2012 Series 3

75.41

25.8

Coverage Ratio

During 2011 Honda Motors has an

ability to cover the interest

expenses over 75.41 times which

illustrate stronger financial

capability than the next year that its

ability to cover the interest

expenses reduced to 25.80 times.

Activity Ratios - Receivables Turnover

2011 2012

5.67 4.89

64.34

74.59

Receivables Turnover RatioReceivables Turnover in days

Its clearly shown that Honda in

2011 had an ability to receive its

credit sales 5.67 times during the

year by an interval 64.34 days for

each time; in 2012 Honda

collection activity deteriorated

which lead reduction on

receivables cycle to 4.89 times by

an intervals 74.59 days each

time.

Activity Ratios - Inventory Turnover

2011 2012 Series 3

7.22 5.72

50.55

63.87

Inventory Turnover Ratio Inventory Turnover in days

The above analysis shown that

Honda in 2011 succeeded to sell

its inventory 7.22 times during

the year by an interval of 50.55

days while its sales progress fall

during 2012 to reach that its

ability was reduced to 5.72 times

to sell the inventory by an interval

of 63.87 days for each time.

Total Assets Turnover:

2011 2012 Series 3

0.77

0.67

Total Assets Turnover

Honda has the succeeded to

generate a revenue equal to 77% of

its total assets value during 2011

which reduced during 2012 to 67% of

its total assets value.

Operating Cycle

2011 2012 Series 3

114.89

138.46

Operating Cycle

By the end of 2011 Honda

succeeded to circulate its

activity about three times by

114.89 days for each cycle

which reduced to two and

half during 2012 by 138.46

days for each cycle.

Profitability in relation to sales

2011 2012

27.30%

25.52%

Profitability in relation to sales

Hereby Honda earned 27.3%

gross Profit margin from its

sales during 2011 in

comparing with 25.52%

gross profit margin during

2012 from its annual sales.

Net Profit Margin

2011 2012

5.98%

2.66%

Net Profit Margin

The Net Profit Margin that

Honda earned during 2011 is

5.98% from its total sales

while it was earned 2.66% as

a net profit margin during

2012 from its total annual

sales.

Return on Investment (ROI)

2011 2012

4.62%

1.80%

Return on Investment (ROI)

The effectiveness of Honda to

generate a profit from its

available assets for 2011 is

4.62% as profit margin for the

total assets value while it was

deteriorated to 1.8% during

2012 which shows ineffective

utilization of assets.

Return on Equity (ROE)

2011 2012

12.00%

4.80%

Return on Equity (ROE)

The effective exploit of the

shareholders equity during

2011 that done by Honda to

generate a return on equity

is 12% while it was reduced

to 4.8% in 2012.

CONCLUSION

• Considering the crisis that Honda is facing during the second

year of this report its clearly that all of the ratios supports this

fact of deterioration of company operation and observed fall

in all of the company’s activities as well as the profitability

and its ability to meet its debts. Also Honda lose a lot of its

equity support which enforced the company to relay on the

external financers and debt to cover this gap.

• In conclusion Honda Motors performance in 2011 is better

than its performance in 2012.

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