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Industry and Company Analysis Essay

This paper seeks to have an analysis of the external environment of the automotive industry where Toyota Motors operates and competes as well as the company’s internal capabilities in terms of its financial performance. The results of the analysis will be used to make a `buy/don’t buy` recommendation for the company’s stocks. The automotive industry may be described as a capita intensive industry which requires big capital investments which could discourage new entrants just to come in thus making a big opportunity for the present players including that of Toyota and Ford Motors.

The industry may also be considered to be mature having reached the point where present companies are enjoying economies of scale that would really bar new entrants. Given also the changing technology and the demand for more environment-friendly products, present companies like Toyota have all the advantage to make the necessary investments for research and development which is necessary for the need for innovation in the industry. Equally evident however the strong rivalry in the industry is brought the presence of few big players like GM, Ford, and Honda.

Given therefore the difficulty of entry the, present players cannot but compete more in terms of innovation for and better

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market share as they are left to beat one another. Toyota however has proven better than its American competitors (Yahoo Finance, 2008c) although it came much later in the industry than Ford Motors and General Motors especially in terms profitability. At present industry players including Toyota, and BMW after joining with Daimler and General Motors are now competing in as expand for third-generation hybrid car production (The Thinking CEO, n. d).

Despite this it may be said that the market is encouraging brought by the increase demand for hybrid cars in the US and bigger car market in China (About. com, 2008). After the industry analysis above, this part will now look down into company level as the company’s financial performance is evaluated through a financial analysis. After extracting financial rations from the its financial statements, the company is found profitable based on its return on assets (ROA) which showed a uniform 0. 05 for the years 2007, 2006 and 2005. Its return on equity (ROE) was maintained in the years 2005 and 2006 at 0. 13 and further increased to 0.

14 in 2007 (Yahoo Finance, 2008b). Its price earnings ratio of 9. 38 (Yahoo Finance, 2008a) is also very good which appears to confirm its profitability in terms of ROA and ROE when one gets it reciprocal at 10. 6%. Profitable operation normally result results to better liquidity for the company which is also confirmed as per is financial statement. To conclude, this paper has found the automotive industry to be in a position to make industry players grow more a result of strong barriers to entry by new comers coupled with the expanding demand for hybrid cars in the US and bigger market for cars in China.

The company’s is also found to be strong financially in terms of profitability, liquidity and solvency. Based on the foregoing investors are advised to choose a buy decision of the company’s stocks as the stocks of the company may be deduced to promise high returns to investors.


About. com (2008), China, the Next Big Auto Market, {www document} URL http://cars. about. com/b/a/91534. htm, Accessed January 24, 2008 The Thinking CEO, n. d. Profits from The Lean Business Model {www document} URL http://www.thinkingmanagers. com/the-thinking-ceo/lean-business-model, Accessed January 24, 2008 Yahoo Finance (2008a) Toyota Motors: Summary {www document} URL http://finance. yahoo. com/q? s=TM, Accessed January 24, 2008 Yahoo Finance (2008b) Toyota Motors: Financial Statements (2005-2007) {www document}, http://finance. yahoo. com/q/is? s=TM&annual, Accessed January 24, 2008 Yahoo Finance (2008c) Toyota Motors: Competitors {www document} URL http://finance. yahoo. com/q/co? s=TM, Accessed January 24, 2008

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