Case study - module 01 - session Long Project

This paper seeks to apply ideas and concepts for the current module to a real world situation by selecting an organization for the subject to approval by the professor. The organization selected is Toyota Motors.

Toyota Motors is a company belonging to the car manufacturing industry. As a company it has are external and internal environments to operate. Its external environment include the various aspects outside its operation including but not limited to its economic and political environments while its internal environment includes its financial situation and capabilities on whether the company can attain its defined objectives. In attaining its objectives however, the company will have to prepare and implement plans or strategies.

From the point of view, however, of an investor in the company’s stocks, one must be able to see good indicators in the external environment that would be favorable to the industry and well as financial strength of the company to meet its obligations to its stockholders such as dividends and more importantly higher price of stocks. The result therefore of this analysis will make a recommendation whether there is basis to buy stocks of the company from the stock market as a form of investments.

The automotive industry is characterized by its being a capital intensive industry because of the need for big capital investments. This situation will necessarily dishearten new entrants if they attempt to put new factories just to compete with the existing ones like Toyota Motors. For investors this must be viewed as a opportunity for greater profit at a greater profitability..

This also speaks of the presence of economies of scale which allows present companies to mass produce and which means better profits because of lower cost. A threat in the industry is however present also in terms of increasing prices of oil and the changing technology that would  demand for the production of more environment-friendly products. Toyota in this case is a winner with this situation as the company can take advantage the same for more profits. On the part of the investors, it is also an advantage since they could be assured of higher price of stock in the future.

For its internal environment the Toyota may be assessed to be profitable based on the financial analysis conducted. Extracted financial ratios from the its financial statements, show return on assets (ROA) of 0.05 for the years 2007, 2006 and 2005. This ratio means the that the company generates enough profit from the use of its assets. Similarly , its return on equity (ROE) ratios show 0.13 for the years 2005 and 2006, which is actually a further increase from 0.14 in 2007 (Yahoo Finance, 2008b).

The latter ratio is better measurements of company’s good profitability compared with ROA since this now speaks from the investors’ point of view rather than management.  Toyota’ price earnings ratio of 9.38 (Yahoo Finance, 2008a)  confirmed further the very high profitability when one gets its reciprocal at 10.6%, which is very close to the ROA and ROE.  From its profitability, liquidity and solvency could not be farther from the company.

To conclude, there is basis to buy stocks of Toyota for anyone who plans to invest money in stocks. The favorable developments in automotive industry based on the environmental analysis are a good signs to invest in such industry. Since the company is also profitable and liquid, the reason to invest in the company’s stock should become more reliable.

References:

Yahoo Finance (2008a) Toyota Motors: Summary {www document} URL http://finance.yahoo.com/q?s=TM, Accessed January 27, 2008

Yahoo Finance (2008b) Toyota Motors: Financial Statements (2005-2007) {www document}, http://finance.yahoo.com/q/is?s=TM&annual, Accessed January 27, 2008