Capital structure analysis of Toyota Motor Corporation

Abstract

Toyota Motor Corporation (TMC) is a leading multinational automotive company headquartered in Tokyo, Japan. It is having a high brand recognition and market position. However, it also faces some risks such as the product recall in 2010 which led to a decline in consumer confidence. Besides, Toyota's operation is subject to factors like currency, interest rate fluctuations, economic recessions and prices of raw materials, etc. Despite the risks it faces, based on capital structure analysis of Toyota, its performance remained stable with steady growth. The stable achievement is reflected by indicators such as solvency ratios and profitability ratios. For Toyota, though its debt ratio is high relative to its competitors like Honda, it still maintains a good financial position to repay its long term debt as shown in the high interest coverage ratio and stable long term debt to total assets ratio. Moreover, Toyota experienced a steady growth in net income since 2009 and its increased debt financing also lead to its improvement in ROA and ROE which shows its ascending potential profit. To conclude, even with increased debt financing, Toyota is not over-leveraged. It still possesses a high ability to meet its long-term obligations . Also, Toyota's product market strategy is to expand overseas market and meet the changing market requirements, which are consistent with its capital structure changes, an increased leverage. In the future, Toyota can increase its leverage to finance its heavy R&D. With its great ability to meets its obligations, high liquidity and credit ratings, it is believed that Toyota’s sales and profit will surge further in coming years.