Debt to Equity ratio is termed as the ratio of the total liabilities of the company to its shareholders. It is regarded as the leverage ration as measures the degree to which the assets of the company can be financed by the shareholder’s equity and debts of the business. Over the past five years, the debt to equity ratio for Toyota has been less. This is favorable and indicates less risk. The leverage has been fluctuating, but there was a spike form 2013-2014. This happened when the debt to equity ratio of Toyota was high. The industry leverage is high within these two years as compared to Honda. This is unfavorable as it indicated that the business is dependent on external lenders thus charging higher interest rates. This is also evident when it was less than 55% up until 2017 then another high spike. To lower the debt to Equity ratio is a problem based on the interest rate of money borrowed and this can moderately close within 6 years.
Inventory turnover is termed as the ratio of the cost of goods sold to the average inventory. It is an activity/efficiency ratio and measured how many times with a specific period, a company can sell and replace its inventory again. Over the past years, Honda has been inefficient in controlling the inventory level as compared to Toyota. This is an indication of overstocking as this may pose the risk of obsolescence due to increased inventory cost. Toyota has been able to keep its inventory low, and that is why it has been able to generate sales as compared to fixed assets. The high turnover means that Toyota has a high ratio of sale to average inventory. This means that Toyota is able to make quicker sales of its stock as compared to Honda.
Liquidity ratio or Quick ratio refers to the ability of a company to pay its short term obligations as when they become due. Notably, both Toyota and Honda are required to have a liquidity ratio of 1:1 as this is considered as the acceptable norm. Over the past years, the liquidity ratio for Honda is lesser than the accepted benchmark. Honda liquidity ratio is less that i.0. Besides, it is still below that of the industry leverage. On the other hand, the current ratio for Toyota is higher than the accepted benchmark and industry leverage. This indicates that Honda could not repay all its debts using its most liquid assets.
Current Ratio= Current Asset/Current Liabilities.
It measures whether or not a company has enough cash or liquid assets to pay for its current liability over the next fiscal year. The accepted benchmark that Honda and Toyota need to ensure is that the current assets are twice as much as current liabilities giving it a ratio of 2:1. Over the past five years, the current ratio for Honda is lesser than the accepted benchmark. Also, it is still below that of the industry leverage. On the other hand, the current ratio for Toyota is higher than the accepted benchmark and industry leverage. Nevertheless, Honda was able to maintain a decent ratio for the company to meet its short term goal liabilities.
Net margin=Net profit/revenue
Net profit=Revenue-COSG-Operating cost- interest, and Taxes.
Net profit ratio is termed as the ratio of net profits of a company after taxes to the net sale. The percentage shown by net profit margin does not depict any specific benchmark. This is so because the net profit margin of a small business and big business cannot be the same. Therefore, the benchmark cannot be set. Over the past years, the net margin of Honda and Toyota has been consistent. Generally, moving together except for 2015, 2016 Honda drips almost half because of high operational cost and limited revenue.
On the other hand, Toyota Was able to reduce their operational cost and increase its revenue. The Return on Equity (ROE) tend to reveal how much profit a company has made in comparison to the total amount of shareholder equity that is obtained in the balance sheet. The normal benchmark for the ROE figure is usually 12 %. Some companies that make good investment generate up to 15%. The ROE for Toyota grew over Honda in 13-13.9. This is an indication that Toyota has been efficient in generating income in new investments. The higher industry figure during this period is due to an increase in Honda figure as it was much more versatile.