COMPANIES USED FOR THE REPORT: FORD vs TOYOTA

Submitted By: SayantaniNandy

For the purpose of this report, 2 companies in the same industry with the same end products were selected. This
criterion makes comparison easier and effective as the companies have almost the same production process. The
age of inventory and most of the other parameters are also in common.
Toyota Motor Corporation
Toyota Motor Corporation is a multinational company founded in 1937 and headquartered in Toyota, Aichi,
Japan. Toyota was world's largest automobile manufacturer by production in 2010. In 1936 Toyota introduced
its first passenger car, the Toyota AA, after which the brand name Toyoda was replaced by Toyota. The
main markets are Japan and North America, but recently we can see a strong growth in Asian and South
America markets. Toyota has three brands: Toyota, Lexus and Scion. Toyota is one of the first companies to
start a hybrid cars production line (including leasing its technology to Ford). At present, hybrid Toyota - Prius
line, represents approximately 73% of all hybrid vehicles sold in the U.S. In addition, Toyota announced its
intention to manufacture electric cars with lithium-ion batteries Toyota Plug-HV. In 2009, the company had
to withdraw from the market 3.8 million vehicles due to the acceleration system flaw and suffered losses of $ 3
billion in 2010. Ford used the opportunity to organize promotions, giving discount on a new car for customers
who got rid of the old Toyota.
Global Financial Highlights: (source @ Toyota Official website)

Global sales decreased by 144,169 vehicles to 8.97 million, with strong sales in North America and
gains in Europe, offsetting decreases in Japan and other regions.
Consolidated net revenues rose to 27.23 trillion yen (*$248.0 billion), up 6.0 percent
Operating income increased to 2.7505 trillion yen ($25.1 billion), up 20.0 percent and net income
jumped to 2.1733 trillion yen ($19.8 billion), a 19.2 percent increase
(*all currency translations above are approximate and based on an average 109.8-yen-to-dollar exchange rate)

North America Financial Highlights:

Sales increased 185,775 vehicles to 2.72 million

Operating income (excluding valuation gains/losses from interest-rate swaps) increased to 537.9 billion
yen (*$4.9 billion).
(*currency translations above are approximate and based on an average 109.8-yen-to-dollar exchange rate)

Fiscal Year Global Forecast (April 1, 2015 March 31, 2016):

Global consolidated vehicle sales is 8.9 million

Consolidated net revenue is 27.5 trillion yen (*$239.1 billion)
Operating income is 2.8 trillion yen ($ 24.3billion) and net income is 2.25 trillion yen ($19.6 billion)
(*all currency translations above are approximate and based on a projected 115-yen-to-dollar exchange rate)

Ford Motor Company

Ford Motor Company was founded in 1903 by Henry Ford. It is headquartered in Dearborn, Michigan, U.S.
Ford is the second largest automaker in the U.S. and the fifth-largest in the world based on annual vehicle sales
in 2010. Henry Ford designed his first moving assembly line in 1913. Each section of the production process
was divided into component parts combining precision, continuity, and fast-pace thus starting mass-production.
In Highland Park, Model T production reached record levels, every day a car came of the assembly line every
ten seconds.It is the fourth-largest automotive company in the world in terms of sales selling cars on 6
continents. Car Brands include Ford, Mercury, Lincoln and Volvo. Since the mid-90s Ford continually loses

significance in the American market and steadily increases its share in the European market owing to high labor
costs in the U.S., high expenditure on healthcare in the U.S., strong trade unions in the U.S. (high pension
commitments) and strong economic growth in lower combustion cars. Currently, Ford has four hybrid models,
Ford Focus Hybrid being a direct threat to so far the most popular Prius (hybrid line of Toyota). Ford strongly
suffered from a crisis on a real estate market as sales in the U.S. were strongly associated with the property
market. Ford then changed strategy with less emphasis on creating demand and more emphasis on quality and
safety.

Pre-tax profit of $1.4B, up $24M from last year

23rd consecutive profitable quarter
After-tax earnings per share of 23 cents, excludingspecial items, down 2 cents compared with a year ago
Net income of $924M, or 23 cents per share,down $65M or 1 cent compared with a year ago
Automotive operating-related cash flow positive;cash and liquidity in line with targeted levels
Wholesale volume and Company revenue downdue to major product launches and the impact ofthe
strong U.S. dollar on international revenue
North America, Asia Pacific andMiddle East & Africa profitable
Three of 15 global new product launches complete;remainder on track
Strong profit at Ford Credit
Continued Lincoln growth in China
Confirmed commitment to the Russian market
Inaugurated assembly plant in Hangzhou, Chinaand assembly and engine plants in Sanand, India
Raised first quarter dividend by 20 percent to15 cents per share
Company reconfirms 2015 pre-tax profit guidance of$8.5B to $9.5B; improves North America
operatingmargin guidance to 8.5-9.5 percent and revises South America profit guidance down in light of
external environment

Stocks performance comparison

The year of 2014 did not start so well for the car stocks (with the exception of Tesla (NASDAQ:TSLA), which
many fans consider more of a technology stock than a car stock) after they had a great time between the summer
of 2012 and fall of 2013. During this period, Ford (NYSE:F) jumped from $8s to $17s and Toyota (NYSE:TM)
jumped from $75 to $135. When the rally of the car industry was the hottest (around last fall), many people
were going crazy and claiming Ford would see prices like $30, $40 or even above within a year. Now the rally
seems to be over but all the analysts pushing these stocks have disappeared.Toyota Motor Corp (ADR)
(NYSE:TM) stock has handily trumped the S&P 500 over the last year, with its 30% advance more than
doubling the 14% return of the S&P.Toyota is growing sales at a faster pace in 2015 than any of its big-name
rivals, with sales up 10.5% year-to-date. Consider its competition: General Motors Company (NYSE:GM) has
seen a 5.3% YTD rise, Ford Motor Company (NYSE:F) sales are up a measly 2% from 2014, Honda Motor Co
Ltd (ADR) (NYSE:HMC) sales are up 2.6% thus far in 2015, Nissan Motor Co Ltd (ADR)
(OTCMKTS:NSANY) has moved 3.6% more units so far this year. If these trends continue, the TM stock price
shouldnt have much of a problem continuing its rally. The second catalyst driving TM stock higher is an
equally macro-level factor: exchange rates. With the U.S. dollar soaring, foreign carmakers enjoy huge cost
benefits as theyre able to manufacture cars at a lower input cost than their American competitors. The U.S.
dollar has strengthened 35% against the Japanese yen in just three years.That advantage is so significant its
gotten Ford executives asking for international currency manipulation rules. Bloomberg reported in January that
Ford CFO Bob Shanks estimated the massive currency fluctuationsgives Japanese automakers as much as
$11,000 more profit per car and allowed Toyota Motor Corp. to earn an extra $10 billion in 2013.Toyota also
has big plans to expand in China, the worlds single largest auto market. Specifically, TM plans to drop two
hybrid cars in China later this year, which could help the notorious polluter reduce its carbon footprint.The good

news for TM stock is that Toyota has plenty of credibility in creating low-emission vehicles. Its Toyota Prius
was the first successful mass-market hybrid car, and it even plans on releasing a hydrogen car, the Toyota
Mirai, in 2015.While the Mirai wont be an instant game-changer for TM stock, it poses a very real threat to
Wall Street darling Tesla Motors Inc (NASDAQ:TSLA) and its efforts to steer consumers away from gasguzzling traditional cars. The comparison of F and TM stocks are attached herewith:

Analysis of Financial Statements (See appendix for statements)

Current stock price is used as a critical input into the analysis. This is done by using a uniform discounted cash
flow model and adjusting the numbers to generate current stock price. While the story around the company can
be great, it does not immediately follow that the stock price will go higher. In order for that to happen,
expectations have to get better than what current price reflects. Below are tables showing a stock price
sensitivity analysis for both companies, comparing EBITDA margins to revenue growth rates. Note that the
highlighted portion of each table represents a range of prices based on average trends.
Ford:

Toyota:

Both stocks appear to be discounting margins worse than their past performance justifies.From this perspective,
Ford now appears to be a better stock. The company's current margin performance could justify a price close to
$40. However, that is not the end of the story. How a company redeploys capital and invests in its business is a
critical variable in both corporate performance as well as stock performance. Generating cash from sales is one
thing, but making the critical investments so the company is in a position to continue it, is another. Practically,
here is where the conversation moves from a company's income statement to its balance sheet. We are interested
in sustained free cash flow. The only way a company can sustain anything is by making the necessary
investments which accumulate on its balance sheet. Toyota has operated with a much higher capital intensity
(and much closer to the industry) with 7% of revenues versus Ford's 4%. It does not seem feasible that Ford
maintains its current market share and production levels given this relatively low level of capital expenditures.
In a nutshell, for Ford's stock to move higher, its capital intensity has to remain below the competition. In a
competitive, and capital intensive business, this seems pretty unlikely.
On the other hand, Toyota appears to be largely ignored. The current stock price is discounting below average
margins, and average to high capital intensity. One interpretation of this analysis would be to say the market
anticipates most of the companies' EBITDA margins to be in the 11% range, except for Toyota's. This is despite
the company having a track record of doing much better (in contrast to F). As a result, it seems reasonable that
Toyota keeps pace with expectations for the overall industry, and doing so leads to a higher stock price. In fact,
looking at the above table, it is possible the stock doubles from its current value without much change in its
margin performance or historical growth trends. Current market price can be justified with COGS around the
five-year average of 80%, despite the fact that Toyota is working closer to 77% level. Additionally, there is no
doubt management can operate at these levels because they have done it before.
Conclusion
In conclusion, the expectations appear to be the lowest for Toyota, giving the stock the most upside. Said
another way, because the expectations are already low, the stock probably has the least downside risk and a lot
of upside optionality.
Peer comparison

Industry Peers
Industry Peers

Ford Motor Co
Ford Motor
CoCorp (USD,JPY)
Toyota
Motor

Market
Cap
Mil
Market
Cap Mil
54,132
54,132
212,770

Toyota Motor
Motor Corp
Corp (USD,JPY)
(USD,JPY)
Toyota
Toyota Motor
Corp (USD,JPY)
Daimler
AG (USD,EUR)

212,770
211,351
211,351
87,156

Net
Income Mil
Net P/S P/B
Income Mil P/S P/B
4,770 0.4
2
4,770
0.4
2,304,614 0.8
1.52
2,304,614
0.8
1.5
2,304,614 0.8
1.5
2,304,614
0.8
1.5
7,713 0.5
1.6

5-Yr
Dividen
Rev
Med Interest
5-Yr
OMed
per. Coverag
Dividend CAGR
Rev
Interest
P/E
Yield%
% Margin%
e D/E
d CAGR
O per. Coverag
P/E
Yield%
% Margin%
e D/E
11.4
4.4
1.7
4.4
6.4 4.1
11.4
4.4
1.7
4.4
6.4 0.6
4.1
10.4
2.9

7.5
127.5
10.4
2.9

7.5
127.5
0.6
10.3
2.9

7.5
127.5 0.6
10.3
2.9

7.5
127.5
10.3
3.3

7.8
12.5 0.6
1

Daimler AG
AG
Daimler
Daimler
AG
Volkswagen

(USD,EUR)
(USD,EUR)
(USD,EUR)
AG
(USD,EUR)

87,156
87,135
87,135
71,716

7,713
7,713
7,713
6,165

0.5
0.5
0.5
0.3

1.6
1.6
1.6
0.7

10.3
10.3
10.3
10.9

3.3
3.2
3.2
3.6

7.8
7.8
7.8
6.1

12.5
12.5
12.5

11
0.81

Volkswagen
Volkswagen
Volkswagen
Volkswagen

AG
AG
AG
AG

(USD,EUR)
(USD,EUR)
(USD,EUR)
(USD,EUR)

71,716
71,502
71,502
67,920

6,165
6,165
6,165
6,165

0.3
0.3
0.3
0.3

0.7
0.7
0.7
0.7

10.9
10.9
10.9
10.4

3.6
3.6
3.6
3.8

6.1
6.1
6.1
6.1

0.8
0.8
0.8
0.8

VolkswagenMotoren
AG (USD,EUR)
Bayerische
Werke AG (USD,EUR)
Bayerische
Motoren
Werke AG
AG (USD,EUR)
(USD,EUR)
Bayerische Motoren Werke
Bayerische Motoren
Werke AG (USD,EUR)
Volkswagen
AG (USD,EUR)

67,920
67,454
67,454
67,443

6,165
6,107
6,107
6,107

0.3
0.7
0.7
0.7

0.7
1.5
1.5
1.5

10.4
11
11
10.9

3.8
3.2
3.2
3.2

9.1
9.1
9.1

6.1
10.4
10.4
10.4

20.4
20.4
20.4

0.8
1.2
1.2
1.2

67,443
67,078
67,078
57,150

6,107
6,165
6,165
548,089

0.7
0.3
0.3
0.5

1.5
0.7
0.7
1

10.9
10.2
10.2
12.7

3.2
3.9
3.9
2.3

9.1

10.4
6.1
6.1
5.3

20.4

45.3

1.2
0.8
0.8
0.6

57,150
56,591
56,591
53,765

548,089
548,089
548,089
5,408

0.5
0.5
0.5
0.4

11
1.61

12.7
12.6
12.6
12.7

2.3
2.3
2.3
3.8

3.1

5.3
5.3
5.3
3.3

45.3
45.3
45.3
11.5

0.6
0.6
0.6
1.2

53,765
51,902
51,902
42,773

5,408
6,107
6,107
546,157

0.4
0.5
0.5
0.4

1.6
1.2
1.2
1.1

12.7
8.4
8.4
9.5

3.8
4.2
4.2
3

3.1
9.1
9.1
7.6

3.3
10.4
10.4
5.1

11.5
20.4
20.4
24.6

1.2
1.2
1.2
0.8

42,773
42,564
42,564
38,539

546,157
546,157
546,157
7,346,807

0.4
0.4
0.4
0.4

1.1
1.1
1.1
0.8

9.5
9.5
9.5
4.5

33
2.73

7.6
7.6
7.6
-1

5.1
5.1
5.1
9.5

24.6
24.6
24.6
34.1

0.8
0.8
0.8
0.7

38,539
32,680
32,680
32,026

7,346,807
4,465
4,465
345,334

0.4
0.5
0.5
1.2

0.8
1.5
1.5
3.3

4.5
6.7
6.7
11.4

2.7
0.6
0.6
2.2

-1
12.5
12.5

9.5
10.1
10.1
9.9

34.1
21.9
21.9
136.1

0.7
0
0.10

32,026
31,215
31,215
29,715

345,334
345,334
345,334
2,537

1.2
1.2
1.2
0.6

3.3
3.2
3.2
1

11.4
11.1
11.1
10

2.2
2.2
2.2
2.1

9.9
9.9
9.9
1.6

136.1
136.1
136.1
5.3

0.1
0.1
0.1
0.2

Renault
SA (USD,EUR)
Tesla
Motors
Inc (USD)
Tesla Motors
Inc (USD)
Renault
SA (USD,EUR)

29,715
28,419
28,419
28,129

2,537
-675
-675
2,537

0.6
7.3
7.3
0.6

21.61
21.6
1

10

9.5

2.1

2.2

1.6
-95.4
-95.4
1.6

5.3
-1.8
-1.8
5.3

0.2
1.5
1.5
0.2

Renault SA
(USD,EUR)
Hyundai
Motor
Co (USD,KRW)
Hyundai
Motor
Co (USD,KRW)
Fiat Chrysler Automobiles
NV (USD,EUR)

28,129
24,551
24,551
23,091

2,537
7,346,807
7,346,807
500

0.6
0.2
0.2
0.2

0.51
0.5
1.5

9.5
2.9
2.9
35.9

2.2
2
2

-14
-1
15

1.6
9.5
9.5
1.8

5.3
34.1
34.1

0.2
0.7
0.7
2.2

Fiat Chrysler Automobiles NV (USD,EUR)

Industry Average
Industry Average

23,091
26,932
26,932

500
646,823
646,823

0.2
0.5
0.5

1.5
1.6
1.6

35.9
13.4
13.4

2.6
2.6

15
8.5
8.5

1.8
-382.6
-382.6

113.9
113.9

2.2
1
1

Volkswagen
Honda
MotorAG
Co (USD,EUR)
Ltd (USD,JPY)
Honda
Motor
Co
Ltd (USD,JPY)
(USD,JPY)
Honda Motor Co Ltd
Honda Motor
CoCo
Ltd(USD)
(USD,JPY)
General
Motors
General Motors
Co (USD)
Bayerische
Motoren
Werke AG (USD,EUR)
Bayerische
Motoren
AG (USD,EUR)
Nissan
Motor
Co Ltd Werke
(USD,JPY)
Nissan Motor
Motor Co
Co Ltd
Ltd (USD,JPY)
(USD,JPY)
Nissan
Nissan Motor
CoCo
Ltd
(USD,JPY)
Hyundai
Motor
(USD,KRW)
Hyundai
Motor
Co
(USD,KRW)
Audi AG (USD,EUR)
AudiHeavy
AG (USD,EUR)
Fuji
Industries Ltd (USD,JPY)
Fuji Heavy
Heavy Industries
Industries Ltd
Ltd (USD,JPY)
(USD,JPY)
Fuji
Fuji
Heavy
Industries
Ltd
Renault SA (USD,EUR) (USD,JPY)

Changes in financial position(Ratio Comparison, see appendix)

Return on Assets (ROA) comparison between Toyota and Ford: ROA is an indicator of how profitable a
company is relative to its total assets. In addition, ROA gauges how efficient management is at using its assets
to generate earnings. As shown in the chart Toyota has outperformed Ford during each of the five year being
analyzed.
Current Ratio comparison between Toyota and Ford:Current ratio is a balance-sheet financial performance
measure of a company's liquidity. A current ratio of more than 1 indicates that a company's current assets
exceed its current liabilities. As show by the ratios in the chart, Toyota's current asset is approximately equal to
its current liabilities. Whereas Ford's current assets is equal to approximately half of its current liabilities. Again
Toyota has the more favorable ratio between the two companies.
Debt to assets between Toyota and Ford: The debt to asset ratio shows the proportion of a company's assets
which are financed through debt. If the ratio is less than one, most of the company's assets are financed through
equity. If the ratio is greater than one, most of the company's assets are financed through debt. Companies with

high debt to asset ratios are said to be "highly leveraged," and could be in danger if creditors start to demand
repayment of debt. Toyota has lower and more favorable ratio between the two companies.
Total Asset Turnover comparison between Toyota and Ford: Total asset turnover measures a firm's
effectiveness at using its assets in generating sales, the higher the number the better. Companies with low profit
margins typically tend to have high asset turnover, while those with high profit margins typically tend to have
low asset turnover. Toyota holds a slight edge over Ford in this category.
Analysis of Operation:
The world has witnessed a constant transformation as regards the automobile production/operations philosophy.
The Ford's mass production (produce to stock) philosophy received ample appreciation and was convicted to be
the right path by most other manufacturers (1914). This has been evidenced by the way the Big Three, (Ford
Motors, General Motors and Chrysler) flourished during early and mid-20th century. But the onset of Toyota
production system, which is based on the philosophy of "lean manufacturing", started sending tremors into the
well complacent American automobile industry's regime. The principle of Toyota Motor Company (TMC) to
eliminate wastes and subsequent TMC's success attracted other manufacturers who tried to copy, but in vain.

Analysis of Competitive position

Analysis of Product Lines:

I chose to compare these two mainly because some automobile experts have been comparing their latest models
suggesting that they quite belong in the same class.As the chart above shows, as of 2008, U.S. sales of Ford
Fusion were nowhere near that of Toyotas (TM) Camry. Interestingly enough, Fords Fusion sales grew
impressively during the recession, while Camry sales dipped significantly. Sales of Toyotas Camry didnt
decline because something was inherently wrong with the model. It was just the trend in the automobile
industry at the time. This shows that Ford actually made a tweak during the recession that boosted its business.
That tweak was to improve the design of Fusion and make it more fuel efficient. In fact, Fusion 2010 was the
most fuel-efficient mid-size sedan in the world. Considering that high oil prices contributed to decline in auto
sales in 2008, it was obvious that consumers were ready to trade in gas-guzzlers for fuel efficiency. However,
while making the Fusion more fuel efficient, Ford ensured that it has since continued to improve both the design
and fuel efficiency of the Fusion. As a testament to this, the Fusion 2015 (non-hybrid) is more fuel efficient
than the Toyotas 2015 Camry (non-hybrid). This wasnt the case in 2008. The image below sums it all up.

Conclusion and recommendation

To conclude, it makes more sense looking at all the above analysis that market has more faith on Toyota stock
though Ford can also generate comparable returns in the long run. I have included some valuation information
to conclude the report.