FINANCIAL RATIOs OF HONDA MOTOR

CORPORATION LTD.
Introduction:
Honda Motor Co., Ltd. is a Japanese public multinational corporation primarily known as
a manufacturer of automobiles, motorcycles and power equipment.
Honda has been the world's largest motorcycle manufacturer since 1959, as well as the
world's largest manufacturer of internal combustion engines measured by volume,
producing more than 14 million internal combustion engines each year. Honda became
the second-largest Japanese automobile manufacturer in 2001. Honda was the eighth
largest automobile manufacturer in the world behind General Motors, Volkswagen
Group, Toyota, Hyundai Motor Group, Ford, Nissan, and PSA Peugeot Citron in 2011.
Honda was the first Japanese automobile manufacturer to release a dedicated luxury
brand, Acura, in 1986. Aside from their core automobile and motorcycle businesses,
Honda also manufactures garden equipment, marine engines, personal watercraft and
power generators, and other products. Since 1986, Honda has been involved with
artificial intelligence/robotics research and released their ASIMO robot in 2000. They
have also ventured into aerospace with the establishment of GE Honda Aero Engines in
2004 and the Honda HA-420 HondaJet, which began production in 2012. Honda has
three joint-ventures in China (Honda China,Dongfeng Honda, and Guangqi Honda).

Management:
Founder:

Soichiro Honda

Chairman:

Fumihiko Ike

President/C.E.O:

Takanobu Ito

Vision Statement:
We are a company built on dreams. And these dreams
inspire us to create innovative products that enhance
human mobility and benefit society. We see "The Power of
Dreams" as a way of thinking that guides us and inspires
us to move forward. The strength of our company comes
from this philosophybased on the visionary principles of
our founder, Soichiro Honda. Our success in the global

marketplace is the result of our continued investment in

America's future. We thank our customers for the support
and trust they've shown us. We look forward to
challenging ourselves to create new products and
services that bring value to our customers and society
during the next 50 years.

Mission Statement:
Maintaining a global viewpoint, we are dedicated to supplying products
of the highest quality, yet at a reasonable price for worldwide customer
satisfaction.

Financial Ratios:
1 Liquidity Ratios
It shows firms ability to satisfy its short term obligations.
a

Current Ratios

It shows firms ability to cover its current liabilities with its current assets.
Current Ratio =

Current Assets
Current Liabilities

Current Ratio for 2012 =

4739086
3579759

= 1.32

b Quick Ratios
It shows firms ability to meet its current liabilities with its most liquid assets.

Quick Ratio =

Current AssetInventory
Current Liabilities

Quick Ratio for 2012 =

47390861035779
3579759

= 1.03

2 Activity Ratios:
It shows how effectively a firm is using its assets that are converted into sales or cash.
a

Inventory Turnover

It shows how effectively the firm is managing its inventory.

Cost of good sold
Inventory Turnover =
Inventory
5919633
Inventory Turnover for 2012 = 1035779

= 5.71

Average age of inventory

It tells about average period of time taken by inventory to be sold.
Average age of inventory =

365
inventory turnover

Average age of inventory for 2012 =

365
5 . 71

= 63.92

b Average collection Period

It shows average amount of time needed to collect account receivables.

Average Collection Period =

Account Receiveable365
Annual Sale

Average Collection Period for 2012 =

1893876365
7948095

= 86.97

Average Payment period

It shows average amount of time to pay account payable.

Average Payment Period =

Account Payable365
Annual Purchase
968943365

Average Payment Period for 2012 = 0.720088000 = 241.97

Note: There is difficulty in calculating this ratio because is not available in published
financial statement. So, we assume that Toyotas purchases equaled 70% of its CGS.
d Total Asset Turnover
It shows how effectively a firm uses its assets to generate sales.

Total Asset Turnover =

Sale
Total Assets

Total Asset Turnover for 2012 =

7948095
11787599

= 0.67

Debt Ratios

It measures the proportion of total assets financed by the firms creditors.

Debt Ratio =

Total Liabilities
Total Assets

Debt Ratio for 2012 =

7395373
11787599

= 0.62 = 62%

4 Profitability Ratios
These are the ratios that relate profits to sales and investment.

a.

Gross Profit Margin

It measures the percentage amount of profit after paying the cost of goods sold.
Gross Profit Margin =

Gross Profit
Sale
2028462
7948095

Gross Profit Margin for 2012 =

= 0.255 = 25.5%

Operating Profit Margin

It represents the pure profits earned on each sale of Dollar. It measures the amount
of profit after paying the CGS and expenses other than interest, expenses and
preferred Stock Dividends are deducted.
Operating Profit Margin =

Operating Profit
Sale

Operating Profit Margin for 2012 =

231364
7948095

= 0.029 = 2.9%

b Net Profit Margin

It measures the percentage amount of profit after paying the CGS, and expenses
including interest, expenses and preferred Stock Dividends are deducted.
Net Profit Margin =

Net Profit
Sale

Net Profit Margin for 2012 =

211482
7948095

= 0.026 = 2.6%

Earnings per share

It represents the amount of profit earned during the period on behalf of each
outstanding share of common stock.

Earning Available For Common StockholderNet Profit

Number Of Share Of Common Stock Outstanding

Earnings per Share =

Earnings per Share for 2012 =

211482
1802

= 117.35

d Dividend per Share

It shows the amount of cash that is actually distributed to each stockholder on each
share. There is no formula for calculating dividend per share and it is declared at
annual general meeting of BOARD OF DIRECTORS.
Dividend per share for 2014 = 82

Return on Total Assets

It is often called return on investment. It measures the effectiveness of management in

generating profits with its assets.
Return on Total Asset =

Earning Available For Common StockholderNet Profit

Total Assets

211842
Return on Total Asset for 2012 = 11787599

= 0.017 = 1.7%

Return on Equity

It measures the return earned on the common stockholders investment in the firm.
Return

on

Common

Earning Available For Common StockholderNet Profit

Common Stock Equity
211842
Return on equity for 2012 = 4392226

= 0.048 = 4.8%

Equity

5 Market Ratios
a

Price per Earning Ratio

It measures the amount that the investors are willing to pay for each Dollar of a firms
earning.
Price per Earning Ratio =

Market Price Per Share of common stock

Earnings Per Share ing

Price per Earning Ratio for 2012 =

2697.87
117.35

= 22.99