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Annual Report

Honda Motor Co., Ltd. Leanne Buffington ACG2021 Section 080

Executive Summary

Honda Motor Company has established itself as one of the worlds leading producers of automobiles, as well as the largest manufacturer of motorcycles. At the beginning of their three year mid-term business plan, Honda set some goals that allowed them to make 20 million customers happy, and this challenge allowed them to grow in all business segments. They achieved virtually all of their goals. http://www.world.honda.com/investors

Introduction

Hondas President and Chief Executive Officer is Taeko Fukui. Hondas home office is located at: 2-1-1 Minami Aoyama Minato-ku, Tokyo 107-85566, Japan The U.S. home office is located at: 540 Madison Ave., 32nd Floor New York, NY 10022 The ending date of their last fiscal year was March 31, 2005 The company produces automobiles, motorcycles and power products, as well as providing financial services to its customers. Honda operates in three main geographic locations: Japan United Kingdom United States

Auditors Report

The companys independent auditor is a company known as KPMG, located in Tokyo, Japan. The independent auditors of Honda claim that they have reviewed the companys financial reports fairly, according to the standards set by the Public Company Accounting Oversight Board in the United States.

Stock Market Information


The most recent stock price on the New York Stock Exchange was $28.77. Honda had a twelve month trading range going from $23.55 in October 2004, to $29.15 in October 2005. The dividends per share were $0.47. This stock information is dated October 4, 2005. It is my opinion that current stockholders hold their stock. The stock price seems fairly stable.

Industry Situation

Honda is among one of the top producers of motorcycles and automobiles. They focus on trying to make their vehicles environmental friendly by producing a number of hybrid models. Honda also has its own financing division to assist their customers in purchasing vehicles and other power products.

Company Plans

Hondas primary market is in Japan, where its head office and CEO are located. Therefore, that is the area where they centralize their growth. Consumer spending has increased in Japan, and because of this, they expect the competition in the Japanese market to intensify. They feel that there are some specific areas in need of improvement that are essential to their success: -Research and Development -Production Efficiency -Sales Efficiency -Product Quality -Safety Technologies -The Environment -Continuing to Increase Societys Trust in and Understanding Toward Honda They feel that, through improving in these seven areas, they will achieve the Honda visions, which consist of Value Creation, Globalization, and Commitment to the Future.

Income Statement

The income statement appears to be similar to a single-step income statement. The increases in these numbers seem to be quite small, considering how large of a corporation Honda is. Most of the Net Income for the year ended March 31, 2005, was generated by other subsidiaries operating outside of Japan.

In Millions Gross Profit Income from Operations

2004 $23,771 5,588

2005 $24,322 5,875

Net Income

4,324

4,527

Balance Sheet (in Yen)


Assets Liabilities Stockholders Equity

2004 2005

8,328,768 9,316,970

= =

5,454,368 6,027,676

+ +

2,874,400 3,289,294

It appears that the numbers on the Balance Sheet have increased from 2004 2005. The total assets seem to have increased the most.

Statement of Cash Flows (in Yen)

For the past two years, cash flow from operations have been greater than net income. The cash flow from investing seems to be getting smaller and smaller from past years. Their primary source of financing is the proceeds from long-term debt. In 2004, cash increased a great deal. In 2005, however, cash only increased a little bit.

Accounting Policies
The following are the topics of significant accounting policies that the company mentions in their financial statements. -Description of Business -Basis of Presenting Financial Statements -Consolidation Policy -Use of Estimates -Revenue Recognition -Cash Equivalents -Inventories -Investments in Securities -Goodwill -Depreciation -Impairment of Long-Lived Assets -Income Taxes -Product-Related Expenses -Basic Net Income per Common Share -Foreign Currency Translation -Shipping and Handling Costs -New Accounting Pronouncements not Adopted Yet -Reclassification

Notes to Financial Statements

General and Summary of Accounting Policies Basis of Translating Financial Statements Presentation of Finance Subsidiaries-Receivables in the Consolidated Statement of Cash Flows and the Consolidated Balance Sheet Finance SubsidiariesReceivables and Securitization Inventories

Investments and AdvancesOther Short-Term and Long-Term Debt Other Liabilities Income Taxes Dividends and Legal Reserves Pension and Other Postretirement Benefits Investments and AdvancesAffiliates

Liquidity Ratios
2004 Working Capital (in Yen) Current Ratio Receivable Turnover Avg. Days Sales Uncollected Inventory Turnover Avg. Days Inventory on Hand 318,435 1.09 times 11.9 times 30.7 days 7.3 times 50 days 2005 260,178 1.07 times 11.7 times 31.2 days 7.4 times 49.3 days

Profitability Ratios
2004 2005

Profit Margin
Asset Turnover Return on Assets Return on Equity

5.7%
.98 times 5.6% 16.2%

5.6%
.98 times 5.5% 15.8%

Solvency Ratio
2004 2005

Debt to Equity Ratio

1.9 times

1.8 times