Module 4: Simple Analysis and Parsimonious Forecasting

Module 4: Simple Analysis and Parsimonious Forecasting Mairin Talerico

Snapshot of Toyota Limited liability, joint-stock company incorporated under Commercial Code of Japan; started in 1930s Primarily in automotive industry, but also financial services and others Sold 9.98 million vehicles in fiscal 2013 Sell in 170 different countries and regions Primary markets: Japan, North America, Europe and Asia

Return on Enterprise Operations Use average NEA for current and prior year since we do not know actual timing of investments *Note: Forecasting discussed later will use ending NEA

Breaking Apart RNEA Could be one-time items skewing comparison differences EPM  indicates profit generated by each dollar of sales (profitability) EATO  indicates the sales generated by each dollar of NEA (efficiency)

Breaking Apart RNEA EPM is changing significantly year to year, and EATO is relatively stable due to one-time items.

Competitors’ RNEA Break-down Toyota 2013 EPM = 5.80%, EATO = 1.36 EPM of Toyota is toward the upper spectrum of the range, and EATO of Toyota is within the range as well. GM seems to be outlier for EATO.

Parsimonious – Revenues Assume 3.68% ***Predicted industry growth = 2.4% Avg(Toyota average + prediction) = 3.68%

Parsimonious – EPM (from Sales) Assume 1.58% Toyota average = 1.58%

Parsimonious – EATO Assume 1.40 Toyota average = 1.35, heading upward so,

Parsimonious Assumptions Sales growth rate 3.68% Enterprise profit margin (EPM) 1.58% Enterprise asset turnover (EATO) 1.40

Industry Analysis • GM, Ford, and Honda were not sufficient to gather appropriate info in each category consistently on Toyota • Revenue is unique makeup for each firm of both car revenue and financing revenue • Hard to predict future of sales due to macro effects on economy • Consumer disposable income, price of gasoline, future of “green” cars and energy

Questions?

Module 4: Simple Analysis and Parsimonious Forecasting