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Compose a 750 words essay on Ratio Analysis. Needs to be plagiarism free!It is interesting to see that the organization increased its profit margin from only 1.9% in 2012 to 6% in 2013 and 8.9% in 201
Compose a 750 words essay on Ratio Analysis. Needs to be plagiarism free!
It is interesting to see that the organization increased its profit margin from only 1.9% in 2012 to 6% in 2013 and 8.9% in 2014. As per the Morning Star (n.d.) financial reports, the company’s debt to equity ratio was nearly stable over the 2012-14 period posting 0.57%, 0.60%, and 0.59% respectively in 2012, 2013, and 2014. Comparing to the years just before the global financial crisis, Toyota is yet to achieve a stronger leverage and equity position. The company had a price-earnings (P/E) ratio of 40.46% in 2012, and this high P/E ratio indicates that investors were expecting higher earnings growth in the future because the economy had begun overcoming the recessionary pressures. Toyota’s P/E ratio declined to 15.30% in 2013 and to a further 10.30% in 2014 as the global economy regained its growth momentum, and hence investor did not expect a significant future growth in earnings. Similarly, the company’s inventory turnover ratios for the fiscal years 2012, 2013, and 2014 were 11.20%, 11.17%, and 11.52% respectively. These ratios are low as compared to that in 2011(12.19%) and a low inventory turnover ratio indicates poor inventory management or low sales. The firm’s current ratio was almost stable over the last three years (1.05%, 1.07%, and 1.07%) (Morning Star).
Referring to Allen (2011), since these ratios are greater than 1, it is clear that Toyota is “able to meet its current obligations, with a surplus of working capital” (p.202). While evaluating Toyota’s time interest earned over the 2012-14 period, it is identified that the organization is placed in a better position to meet its debt obligations effectively.
Toyota recovered fast from the severe impacts of the global financial crisis 2008-09 and the organization gained notable increases in revenues in the last two fiscal years. To illustrate, Toyota’s revenue fell to ¥18,583,653 million in 2012 due to global economic turmoil, and some major product recalls due to quality issues.
