Toyota Motor Corp (Toyota) has a solid risk profile based on our proprietary risk assessment of the vehicle manufacturing sector in the automotive industry. Country and operational risk pillars strengthened the overall risk score for Toyota. A strong brand position and substantial operational presence are its strength, but low liquidity and a high proportion of debt could be causes of concern.
Headquartered in Toyota City, Aichi, Japan, Toyota designs, manufactures, and sells passenger cars, buses, minivans, trucks, specialty cars, and recreational and sport-utility vehicles. It also finances dealers and customers to purchase or lease Toyota vehicles. It also offers retail installment credit and leasing through the purchase of installment and lease contracts originated by Toyota dealers.
Toyota reported revenue of $256.70 billion in the financial year 2021 (FY2021), a decline of 6.57% over that in FY2020. However, net income increased 10.27% in FY2021 over FY2020.
Our proprietary risk assessment uses a combination of four risk pillars – Country, Industry, Operational, and Financial. The risk scores are based on a scale of 1 to 5, 1 being the lowest risk and 5 being the highest.
Toyota’s overall risk scores fare better than the sector average, driven by country and operational risk pillars. Companies like Subaru, Hero Motor Corp, Porsche, and Geely are the leaders in the sector.
The company derived a majority of its revenues from North America (34.89%), followed by Japan (31.82%), Asia (16.02%), Europe (10.49%), and Other regions (6.78%). It has more than 50 overseas manufacturing facilities in 27 countries and regions besides Japan. The company’s vehicles are sold through 168 distributors in 203 countries. A wide geographical presence helps Toyota mitigate various risks associated with dependence on a particular market, resulting in a country risk of 4.35.
The company generates most of its revenues (89.63%) from the vehicle manufacturing sector and the remaining from the consumer finance sector. Strong revenue growth characterizes the vehicle manufacturing sector, but low-profit margins and higher cyclicity hinder the sectors, resulting in an average industry score of 2.58.
Toyota has a solid operational score of 3.89. The company’s firm operational network enables it to capture significant markets worldwide and increase its market share. It also allows the company to achieve improved sales, substantial profit margins, and economies of scale. The company also has a strong focus on R&D, with low to mid-single-digit R&D expenses as a percentage of sales. It currently focuses on technologies such as connected vehicles, electrification, and automated driving to realize a future mobility society. Strong EBITDA margins and average profit per vehicle boosted the operational efficiency pillar.
The company has a financial risk score of 2.48, below the sector average. Despite a healthy inventory turnover, low current and quick ratios impacted the company’s overall liquidity profile. Compared to its peers, a high proportion of debt on the balance sheet affected the leverage ratios. High single-digit operating margins impacted the company’s cash flow and interest coverage ratios.
GlobalData risk scorecard for a sector provides the analysis of various risks a company is vulnerable to. Our risk framework comprises four pillars – country, industry, operational and financial. The country risk for an entity signifies the risk of operating in a particular country. GlobalData’s proprietary country risk assessment framework is used to calculate the risk for individual countries. Industry risk is an integral part of risk analysis, and it implies the riskiness and stability of the industries in which a company operates. The operational and financial risk profile comprises a company’s risk and return potential based on its key operational and financial metrics. Our scores are based on an average of the latest three fiscal year data.
United States of America
United States of America
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