Toyota and Volkswagen

Team 6 Eric (IM12B004) Nanako (IM12B012) Rachel (IM12Y009) Reza (IM12O007) Cheenu (IM12Y005)
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Analysis of Ratios:

Ratios for Volkswagen (VW) and Toyota

Particulars Ratios Current Ratio Quick Ratio Debt to Equity Ratio Financial Leverage Asset Turnover Days Receivables Days Inventory Days Payables Day Cash Cycle Gross Profit (GP) Margin Operating Margin Profit (Net Income) Margin Return on Assets (ROA) Return on Equity (ROE) 1.05x 0.77x 1.63x 4.41x 0.63x 101 77 45 133 17.6% 7.1% 9.7% 6.7% 26.8% 1.05x 0.80x 1.09x 2.77x 0.61x 120 37 52 106 11.8% 1.9% 2.0% 1.2% 3.3%

Sources: 1. Volkswagen AG Annual Report 2011 pdf 2. Toyota Motor Corporation FY2012 Financial Summary pdf

Key Financials Ratios Volkswagen Dec 31, 2011

Analysis of Ratios

Toyota March 31, 2012

Key differences among ratios : Profitability Ratios (Gross, Operating and Profit margins)

Rates of Return (ROE, ROA)

Solvency Ratios o Debt-to-Equity Ratio o Financial Leverage Cash Conversion Cycle Strategic Overview VW Group focused on being worlds leading automobile manufacturer by investing heavily in acquisitions. Toyota focused on building strong business base under the TOYOTA brand to achieve sustainable growth even in tough business environments. Toyota wants to provide high quality cars at affordable price VW Group owns Audi, Bentley, Bugatti, Ducati, Lamborghini and Porsche

Profitability Ratios
Volkswagen AG Gross Margin 17.6% Toyota Motor Corp.

Operating Margin 7.1%

Profit Margin 9.7%
Analysis of Profitability Ratios

VS.

Gross Margin 11.8%

Operating Margin 1.9%

Net Income Margin 2.0%

VWs strategy to offer vehicles at various price points including a wide range of luxury brands which carry huge margins. Toyotas strategy to offer high quality vehicles at affordable prices and their dominating presence is restricted to the Asian and the US markets. ~36% of VWs sales represents sales from luxury cars which explains reasons for high margins compared to Toyota Due to the earthquake in 2011, Toyota suffered operating margin erosion and ended up with -0.10% margin on their automotive business, however was offset by the profits made from their financing business amounting to 35%. On the other hand VW showed record results for 2011 and overtook Toyota as the Number 1 brand in the world. VWs profit margins also boosted by its investments in various automobile entities. They recognised profits of ~2.1b Euros as share of equity profits in 2011.
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Solvency Ratios & Rates of Return

Volkswagen AG Debt to Equity 1.63x Financial Leverage 4.41x Toyota Motor Corp. Debt to Equity 1.09x

VS.

Financial Leverage 2.77x

Return on Assets 6.7%

Return on Equity 24.3%
Analysis of Solvency Ratios

Return on Assets 1.2%

Return on Equity 3.3%

We have combined the solvency ratios and the rate of return ratios to address the equity base of both companies in one place along with their debts. VW has an equity base of US$74.8b as against Toyotas equity base of US$132b. The debt balance for VW is US$122b as against Toyotas debt balance of US$150b The strategy for VW is to rely a lot on the debt markets to provide necessary capital to make key acquisitions for brand diversification and fund product development. This is further emphasized by the affect the turbulent Euro economy plays in raising funds through equity. On the other hand, Toyota relies on stability and expanded its equity base in the earlier years by offering more shares to the public. Toyota has paid up capital of ~US$11.8b which is ~7.6 times more than the paid up capital of VW which has a paid up capital of ~US$1.5. Toyotas strategy is also to maintain low debt levels and keep unusually large amounts of 4 cash on hand as key philosophy since 1950s.

Cash Conversion Cycle

Volkswagen AG Receivable days 101 Inventory days 77 Toyota Motor Corp. Receivable days 120

VS.

Inventory days 37

Payable days 45
Cash Cycle days 133
Analysis of Cash Conversion Cycle

Payable days 52
Cash Cycle days 106

VW sells a lot of luxury brands which has an effect of increasing production cycle time, and thus inventory levels. Also, acquiring diverse brands make it more difficult to manage levels across a wider range of inventory. Hence their inventory days are significantly higher than Toyota who are on other end, and practice their world-famous Just-in-Time production system. Receivable days are similar which reflects the overall pattern in the automobile industry of selling vehicles on finance. Toyota payable days are better due to better negotiation with suppliers. They have designated suppliers who understand TPS well and have worked with Toyota for many years. VW on the other hand have marginal lower payable days due to acquiring different brands who do not necessarily have the same suppliers as VW. Hence, Toyota have a shorter cash cycle primarily due to their strategic dedication to minimise inventories.
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