Corporate Valuation of Toyota Motors Corporation

Toyota

Toyota (Toyota Motors Corporation) is a major Japanese automobile manufacturer with its headquarter in Aichi, Japan. Kiichiro (a leading Japanese industrialist) founded this company in 1937 to create indigenous Japanese automobiles. Current Toyota sells its automobiles under the following brand names: Toyota, Hino, Lexus, Ranz, FAW (Chinese co-venture) and Scion. According to various automobile generals (World Motor Production, 2014), Toyota is the top automobile manufacturer of the world:

Further, Toyota has more than 550 subsidiaries and total number of employee approx.33, 875 and currently listed in all major stock exchanges in the world (London, New York, Tokyo etc.). The financial details will be discussed later in the report.

Automobile industry from its humble beginning in the last decade of nineteenth century has become now one of the leading industries of the world both in terms of innovation and economics (Nieuwenhuis, 2015). This is a very dynamic industry with intense competition in all reginal and international markets. There are many car manufacturers, but can be separated in three broad categories of manufactures (S. Berry et al, 1995): high volume, full range producers (General Motors, Toyota, Nissan, Ford, Honda etc.); Specialist producers (BMW, Mercedes, Volvo, Audi etc.) and niche producers (Lamborghini, Ferrari, Lotus etc.) Like all other industries, automobile industry suffered significantly during the recession of 2008.

However, since then automobile industry has recovered and in a much better shape than 2008. The overall sales have improved especially in the US market where it has accompanied by better margins as well and similar trends are being observed in China and Europe. This trend is expected to continue and by 2020, global profits in the automobile industry are going to increase by approx. 50 % (Peter, 2015). In light of above, for the purpose of Financial Policy Project I have selected Automobile industry in general and Toyota Motor Corporation for corporate valuation and assessment.

The key objective of the study is to perform a detailed and comprehensive financial review of Toyota Motors Cooperation with the help of corporate valuation model. It is pertinent to note that calculating the value of a company is not an easy task by any stretch of imagination. However, doing so is an essential for effective management and also for any key financial decisions. Another important this is that valuation of the business depends on the purpose of the valuation e.g. calculation for acquisition, valuing a company in distress etc.

Automobile Industry

The corporate model valuation helps effectively do the corporate valuation with help of publically available statement: Income Statement and Balance sheet. Further, it uses various ratios help determine the final valuation. For the purpose of this assignment, this paper does a detailed corporate valuation of Toyota Motors Corporation. All data (Income Statement and Balance Sheet) including financial fundamentals used for corporate valuation have been collected from the Bloomberg’s website. Bloomberg is a well know and reputed privately held financial software used by researchers and financial institutions all over the world. Further, additional data has been collected from Capital IQ website as well for reviewing historical trends.

The Gap between Theory and Practice of Firm Valuation: Survey of European Valuation Experts (Usha R. Mittoo, 2014)

This paper with help of survey valuation of 236 experts across 10 different European countries with at least Chartered Financial Accountant position tries to identify that while more expert use both Discounted Cash Flow (DCF) and Relative Valuation (RV) models, Most importantly their assumption vary widely. For example, 65% (out of35%) use less than three-year data estimation; 58% (out of 42%) use ex-post (ex-ante) market risk premium; 40% (out of 29%) use market value weights for weighted average cost of capital.

These wide variations indicate that even if two experts utilise the same method but would arrive significantly results for the same data set. While most disparities arise because theory provides little guidance on estimation, some are also a result of practitioners not following theoretical guidelines This paper finding suggest that serious investigation and debate among researchers and practitioners is required to make valuation process more consistent.

This paper presents a new model that captures the effects of legal protection (provided to the minority shareholders) and more importantly of cash flow ownership through controlling shareholder on the firms valuation. This paper then uses a same for 371 organisations from various developed countries for analysis. The results are consistent with for all and confirm that in the countries which provide more protection to minority shareholder there is an evidence of higher valuation. Further, the results show that the benefits of cash flow ownership (by controlling shareholder corporate valuation) are very weak.

This paper describes the most widely used 4 groups for company valuation methods: cash flow discounting based, balanced sheet based, mixed and income statement methods. It is important to note that generally methods which are based on cash flow discounting are considered conceptually correct. This paper also provides a brief commentary on the methods that are not considered conceptually correct but are frequently used. The paper concludes that the most common error in the corporate valuations in form of a comprehensive list. This list contain common errors detected after reviewing more than one thousand different valuations

This paper reviews and discusses both practical and theoretical features of the commonly used discounted cash flows (DCF) valuation method. This paper tries to ascertain the strengths and weakness of this method. Number of companies have been analysed that particularly use DCF methods. These results of this paper confirm that DCF is an effective method to assess and analyse even the most complex situation. Nevertheless, the results are subject to a number of assumptions, but only minor changes in the assumption can result in drastic changes in the final valuations results. A good number of examples identifying this implication have been added in the paper.

Effective investment decisions cannot be guaranteed without active research and management. Generally, Financial Analysist purchase research from the money earned as commission from the clients as expenses, however there is little evidence or transparency regarding the real value generated by that research. There are multiple approaches available to the financial analyst and decision maker. This paper discusses eight commonly used approaches including bottom-up and top-down approach. The result of this research paper shows that firms are equally liked to use both bottom-up and top down approaches for budgeting and valuation. They key goal of the research is to deliver consistent results that can accommodate a wide variety of priced and unpriced research products. Therefore, provide clear results for the client and in some cases regulators that there has been value addition due to the research and associated cost is justified,

The results of the corporate b from the income statement and balance sheet data extracted from Bloomberg are as follow: