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Financial Statement Analysis, FINA 3314
Section 201
Comparative Ratio Analysis Project between General Motors and Toyota
Rasha Bubshait - 200901816
Deemah AlRumaih - 200800279
Leena AlShibil - 200900172
Ruqaya AlHaj Ibrahim – 200900531
Abstract
This paper will compare between the performances of General Motors with a company
that has its same size, which is Toyota. In order to accurately compare between General Motors
and Toyota we considered having the four types of ratio. Liquidity, activity, leverage and
profitability ratios are the four different types of ratios that we will consider when comparing the
two companies. After defining each ratio we compare the performance of General Motors with
Toyota for two years 2009 and 2010. It was found that GM is better investment if you are willing
to take a big risk and Toyota will be the choose if not.
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II. Table of Contents
I.
Abstract ................................................................................... 2
II.
Table of Contents …...................................................................3
III.
Introduction …........................................................................... 4
IV.
Liquidity Ratio .......................................................................... 5
V.
Activity Ratio ............................................................................ 8
VI.
Leverage Ratio ........................................................................ 11
VII.
Profitability Ratio ....................................................................13
VIII.
Findings. ………………………………….…………………. 14
IX.
Conclusion .................................................................................14
X.
References ................................................................................. 15
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Introduction
General Motors (GM) and Toyota are both automaker companies. GM and Toyota are
both highly competitive in the automobile market. General Motors was founded in 1908 and
headquarter is in Detroit, Michigan. GM manufactures and designs cars, trucks, crossovers and
automobile parts all over the world. The company has so many vehicles like; Buick, Cadillac,
Chevrolet GMC, Opel, Daewoo and many more. GM also has General Motors Financial
Company, inc. it provides automotive financing services and products through GM dealership in
connection with the sale used in the automobile. Toyota was founded in 1933 and headquarter is
in Toyota City, Japan. Toyota designs, manufactures and sales different types of vehicles. It has
passenger cars, minivans and commercial vehicles. It has many parts all around the world; in
Japan, North America, Europe and Asia. It has car brands like Corolla, Camry, Lexus, Vitz, FJ
cruiser and many others. Toyota also offers financial services.
Ratio analysis
1. Liquidity Ratios
Liquidity ratio it also knows as acid test ratio it is used to evaluate the company’s ability
to pay off its short terms debts obligations. The two types of liquid ratio are current ratio and
quick ratio. Current ratio measures the relationship between the current assets and current
liabilities; however, the quick ratio measures the relationship between current assets excluding
inventory over current liabilities. The rule of this ratio is the higher the value of the ratio the
better and safer to the company in covering its short term and to meet its obligations.

Current ratio
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= Current assets ÷ Current liabilities
Years
GM
Toyota
2011
1.2312
1.0962
2010
1.1250
1.2234
Current ratio
1.25
1.231239271
1.223409465
1.2
1.15
1.125029158
1.1
GM
toyota
1.096267281
1.05
1
2011
2010
The performance of GM during 2010 and 2011 was good without any big difference in
ratio; nevertheless Toyota showed a bigger different comparing it with GM, the overall
performance GM was doing well in 2011 however Toyota did better in 2010.

Quick ratio
(Current assets – inventory) ÷ current liabilities
Years
GM
Toyota
5
2011
0.9385
0.9753
2010
0.8679
1.0903
Quick ratio
1.2
1
0.8
GM
0.6
Toyota
0.4
0.2
0
2011
2010
The current ratio performance was better than quick ratio, Toyota did well comparing it
with GM. The best performance was in 2010 with 1.0903 for Toyota, however GM did well in
2011 than in 2010.
2. Activity Ratio:
Activity ratios determine the ability of a firm or company to turn it’s accounts to revenue.
It shows how effectively can a company generate revenue in a form of cash and sales based on
its asset, liability and capital share accounts. Activity ratios are very important in evaluating the
company’s essentials, because other than showing how well the company generates revenues it
will also show how well the company is being managed. There are two basic activity ratios:
-
Fixed Asset Turnover
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-
Total Asset Turnover
The higher the ratio the better the company is.
- Fixed Asset Turnover = Net Sales / Net property, Plant and Equipment
Years
GM
Toyota
2011
6.5459
3.0105
2010
7.0492
2.8239
8
7
6
5
4
GM
3
Toyota
2
1
0
2011
2010
GM is able to generate revenue from its fixed assets more than Toyota. Even though GM
in 2010 was doing better than 2011, it is still doing better than Toyota. Toyota improved in 2011
from 2010.
- Total Asset Turnover = Net Sales / Total Assets
7
Years
GM
Toyota
2010
0.9762
0.6244
2011
1.0392
0.6369
1.2
1
0.8
GM
0.6
Toyota
0.4
0.2
0
2,011
2,010
GM is able to generate revenue from its total assets better than Toyota. There is an
increase in the ratios for both of GM and Toyota from 2010 to 2011. Even with the increase GM
is doing better than Toyota in generating revenue.
3. Leverage ratio
Leverage Ratio is one of the sorts of financial ratio that is using to measure the
company’s ability to cover the financial commitments and debit on time. Leverage ratio has 3
measurements methods debt ratio, debt to equity and times interest earned. We choose to
calculate debt ratio to figure out weather the firm has more debit or credit and then determine the
leveraged of a firm. Also, debt to equity identifies that the more leveraged the ratio, the higher
risk for the investors.
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
Debt Ratio:
According to the table above we can tell that the debt ratio for Toyota Motor Corporation
decreased slightly between 2010 and 2011 from 0.633 to 0.639 and that leads to declining the
Leverage Ratio for Toyota Motor Corporation
2010
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Total Assets
=
Leverage Ratio for General Motors Company
2011
2010
2011
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
=
Total Assets
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
=
Total Assets
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
=
Total Assets
228,018,000
= 0.633
359,775,000
102,718,000
= 0.739
138,898,000
144,603,000
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
Debt
Ratio
207,822,000
method
Debt
324,800,000
= 0.639
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
106,483,000
= 0.736
To
Equity
method
=
207,822,000
110,870,000
= 1.874
=
228,018,000
124,667,000
= 1.829
=
102,718,000
36,180,000
= 2.839
=
106,483,000
38,120,000
9
= 2.793
debt and less financial risk. Furthermore, GMC’s. in compare the TMC and GMS, it’s obvious
that GMS hold a higher debt than TMC, which indicates that they have higher risk for
bankruptcy.
0.76
0.74
0.72
0.7
0.68
GM
0.66
TM
0.64
0.62
0.6
0.58
2011

2010
Debt To Equity:
Between 2010 and 2011 TMC’s debt has a decreased marginally which is in benefit for
the company to reduce the risk for the investors. Moreover, GMC’s debt ratio has a big dropped
too. GMC has a greater debt to equity comparing with TMC. This illustrate that the company
holds a high amount of debt to the equities and that will make the investors in a risky situation.
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3
2.5
2
GM
1.5
TM
1
0.5
0
2011
2010
4. Profitability Ratios
Profitability ratios usually show if the company is well managed by measuring the overall
efficiency of its performance. The following tables will show two types of profitability ratios.
The first is the return on assets, which calculates all the company’s profit in relation to its
resources. The second is the return on equity, which calculates the percent of the shareholder’s
equity from its income. In both cases the higher the result is, the better the company runs.

Return on Assets (ROA)
= Net Income ÷ Total Assets
Years
GM
TM
2010
0.0444 = 4.4%
0.0136 = 1.4%
2011
0.0635 = 6.4%
0.0092 = 0.9%
11
0.07
0.06
0.05
0.04
GM
0.03
TM
0.02
0.01
0
2011

2010
Return on Equity (ROE)
= Net Income ÷ Shareholder’s Equity
Years
GM
TM
2010
0.1705 = 17.1%
0.0395 = 4.0%
2011
0.2410 = 24.1%
0.0268 = 2.7%
12
0.3
0.25
0.2
GM
0.15
TM
0.1
0.05
0
2011
2010
The previous numbers show an increase by 2% in ROA, and 6% in ROE of GM from the
year of 2010 to 2011, which shows a very good performance of the company. This states that the
company is making more cash on less investment. Also, the company manages the use of its
equity efficiency. However, TM’s dropped by 0.5% in ROA, and 1.3% in ROE. This means that
TM should improve their management and the overall performance in order to sustain their
success in the future.
Findings
After calculating the four types of ratio which are liquidity, activity, leverage and
profitability. We found that GM did better than Toyota in activity, leverage and profitability,
however, Toyota did better in liquidity ratio. Yet, this shows that GM take more risk that Toyota,
and higher risk means higher returns.
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Conclusion
General Motors and Toyota Motors are a huge and well-known successful motors
companies. They have been operating since a long time now. Both companies provide unique
and special services to their costumers specially their loyal customers. Definitely, in every case
all investors are looking for a firm that has a strong stock in the market to invest and play their
money with. Moreover, it depends on the investor’s personality. Some investors are welling to
take all kinds of risks, and some accept low returns, but not getting involved with high risks. This
report collected financial data of both GM and TM, and then calculated about eight types of
ratios from liquidity ratios, activity ratios, leverage ratios, and profitability ratios. As a result,
this report discovered that GM operating perfectly based on the resulted numbers of the ratios,
which have shown how very well the company has been managed to gain even more returns in
the future. So, to invest, this report suggests going with GM. But also, the report shows that
investing in GM are riskier than investing in TM.
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References
General Motors Company (GM. (n.d.). Retrieved December 13, 2012, from Yahoo Finance:
http://finance.yahoo.com/q?s=GMToyota Motor Corporation (TM). (n.d.). Retrieved
December 13, 2012, from Yahoo Finance: http://finance.yahoo.com/q?s=TM
Liquidity Ratios Definition. (n.d.).
Investopedia.com - Your Source For Investing Education .
Retrieved December 22, 2012 from
http://www.investopedia.com/terms/l/liquidityratios.asp#axzz1fC0oz6XJ
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