Honda Motor COmpany is a Japanese automobile company with sales equivalent to $80 billion. The company's income statement and balance sheet for the year ended March 31,2000, are shown in Exhibits 16A-1 and 16A-2. Monetary amounts are in Japanese yen.
1. Prepare a common-size income statement, that is, one showing component percentages.
2. Compute the following ratios: A. Current ratio. B. Total debt to equity. C. Gross profit margin. D. Return on shareholders' equity (1999 shareholders' equity was 1,764 billion yen)
3. What additional information would help you interpret the percentages and ratios you calculated?
(See attached file for full problem description)
Please see the attached Excel spreadsheet. Also, here is some extra info for your reference:
Common Size I/S: An income statement in which each account is expressed as a percentage of the value of sales. This type of financial statement can be used to allow for easy analysis between companies or between time periods of a company. Common size income statement analysis allows an analyst to determine how the various components of the income statement affect a company's profit.
A liquidity ratio that measures a company's ability to pay short-term obligations; calculated by dividing current assets by current liabilities. This also helps to give an idea as to the efficiency of the company's operating cycle. The ratio is mainly used to give an idea about the company's ability to pay back their short-term liabilities (debt and payables) with their short-term assets (cash, inventory, receivables). The higher the current ratio the more capable the company is at paying their obligations. A ratio under 1 suggests that the company is unable at that point to pay off their obligations if they came due. While this shows the company is not in good financial health, it does not necessarily mean it will go bankrupt as there are many ways to access financing but it is not a sign of financial health.
The current ratio can give an idea to the efficiency of a ...