Ratio Analysis And Statement Of Cash Flows

General Motor's and Toyota were the two publicly traded companies within the same industry that were selected by Team Excel. Both companies had extreme opposite fiscal years based upon operating profitability, asset utilization and risk management.

Toyota, on the coat tails of General Motors to become the world's No. 1 automaker, documented a group net profit of 426.8 billion yen ($3.6 billion) in the three months ended Dec. 31, 2006 up from 397.6 billion yen the same period the previous year. Quarterly sales soared a substantial 15.2 percent to 6.15 trillion yen ($51.2 billion) from 5.33 trillion yen a year ago, as the modified RAV 4 sport utility vehicle and Camry mid-sized sedan sold diligently in North America, and desire was secure for the Yaris compact in Europe. According to reach, Toyota's numbers are extremely strong; net profit and sales have reached outstanding records. Toyota, has a reputation for reliable, fuel-efficient cars, has received a large jump from the rise in oil prices. It also is a leader in producing hybrids, which use electricity and gasoline. Toyota has long beaten struggling General Motors Corp. in profitability, but it still trails GM in annual global vehicle production. GM its group automakers produced 9.18 million vehicles worldwide in 2006 - about 162,000 vehicles more than its Japanese rival. However, the Detroit-based GM plans to shut 12 factories in North America by 2008 in response to declining demand for trucks and sport-utility vehicles while Ford Motor Co., which reported a third-quarter loss of $5.8 billion, is eliminating 38,000 jobs.

Toyota's U.S. sales have gained 12.5 percent compared with an 8.2 percent drop for General Motors. Worldwide, the Toyota group increased sales 8 percent to 6.61 million vehicles in the first nine months of 2006, versus GM's 2.5 percent sales decline to 6.89 million units. GM hasn't given a forecast for next year. Toyota has forecast record profit for a Japanese company for this fiscal year as buyers in the U.S. favor cars and smaller SUVs. Toyota's RAV4 with a 2.4-liter engine gets 28 to 30 miles per gallon in highway driving compared with 17 to 22 miles per gallon for GM's 4.2-liter Chevrolet Trailblazer SUV.

In the area of asset utilization, General Motors is rapidly improving their manufacturing flexibility. They recently implemented a new technology called C-Flex in its assembly plants. C-Flex allows multiple body panels, such as floor pans, deck lids, hoods and engine compartments, to be welded with the same set of programmable tools and robots. Model-specific tooling is not required. With C-Flex, GM is reducing the size of its body shops by as much as 150,000 square feet. Also, these recent manufacturing improvements will reduce GM's cost of introducing new products into a body shop by approximately $100 million. The benefits of C-Flex are plants that can build a higher variety of differentiated products at much lower costs. The combining of their technology, product development and manufacturing plans, GM would be able to deliver great products to the market at a more rapid pace. Improvements in manufacturing flexibility are also driving increases in GM's manufacturing capacity utilization. According to reports, GM's North American capacity utilization is approximately 90 percent. The company has committed to increase capacity utilization to 100 percent by mid-decade.

Toyota Motor Corp. is no different than any other company. Like the rest, the automaker wants maximum uptime at the least cost possible. But it differs from many manufacturers in that it has an aggressive program aimed at cutting costs by tens of percentage points. Not to mention that, intelligent predictive maintenance is an important element of its strategy for doing so. Toyota's management, for example, now wants to install more intelligent maintenance systems to repeat the success in its plants worldwide. Other manufacturers in a variety of industries also have taken note, and are trying to implement the basic principles in their factories. The Toyota researchers plan to achieve their goal by learning to predict failures, rather than simply monitoring the status of machinery and reacting to problems as they develop.

Toyota is the most efficient car manufacturer in the world. It is well known for its lean manufacturing and lean product development practices. Eliminating waste is a core business philosophy at Toyota. Less well known is Toyota's ability to respond effectively to customer needs. Nevertheless, even the most mature industry like automobiles, risks occur. Toyota believed the profitability of its automotive operations was affected by factors like

* Vehicle unit sales volumes,

* The mix of vehicle models and options sold,

* The levels of price discounts and other sales incentives and marketing costs,

* The cost of customer warranty claims and other customer satisfaction actions,

* The cost of research and development and other fixed costs,

* The efficient use of production capacity,

* Changes in the value of the Japanese yen and other currencies in which Toyota did business,

* Intensifying competition,

* Regulatory issues.

The one area where both companies are similar is risk management. General Motors like Toyota is exposed to many risks: legal risk, currency risk, interest rate risk, commodity price risk and equity price risk. GM was exposed to fluctuations in foreign currency exchange rates, interest rates, and certain commodity and equity prices. GM entered into a variety of foreign exchange, interest rate, and commodity forward contracts and options, to hedge these exposures. A risk management control system was utilized to monitor foreign exchange, interest rate, commodity and equity price risks, and related hedge positions. GM also measured the sensitivity of the fair value of financial instrument

Team Excel chose the following financial ratios to describe the financial climate of Toyota and General Motors Corporation: Long Term Debt, Total Debt, Networking Capital to Assets, Current Ratio, Quick Ratio, and Cash Ratio. Long Term Debt Ratio and Total Debt Ratio are considered Leverage Ratios. Leverage Ratios show how heavily a firm is in debt. The first Leverage ratio we will explore is the Long Term Debt Ratio. The purpose of this ratio is to measure the proportion of the capital structure made up of debt and lease obligations. In order to find a company's long term debt, we divide the firm's long-term debt by the sum of its long term debt