Honda Company Ratio Analysis
Honda global motor company’s ratio analysis
Liquidity Ratios
Debt Ratio
Efficiency ratios
Specifically reason for the change in 2019 compared to 2018/2017 and implication on business strategy by these ratio’s
All the ratios presented below have been obtained from Honda Motor Company financial analysis, as done by (Macrotrends, 2019).
Liquidity Ratios
| Ratio | 2017 | 2018 | 2019 |
| Current ratio | 1.2075 | 1.2314 | 1.2284 |
| Quick ratio | 0.88 | 0.92 | 0.96 |
| Cash ratio | 0.38 | 0.44 | 0.42 |
Honda Motor Company’s liquidity ratios have been increasing for the last three years, with 2018 registering the higher rates. The increase in liquidity ratios can be attributed to rising in revenues which have shown positive growth for the last three years. In 2017, Honda Company’s revenue grew by 7.43 per cent, in 2018, it grew by 6.19 per cent, and in 2019 it grew by 3.43 per cent (Macrotrends LLC, 2019). The increase in revenue may indicate that the company had enough cash to pay off the debts and increase the value of its assets. The positive trend by the liquidity ratios has a favourable implication on the company’s strategy of being local rather than global. It shows that Honda’s localised subsidiaries are performing well.
Debt Ratio
| Ratio | 2017 | 2018 | 2019 |
| Debt ratio | 0.8995 | 0.8257 | 0.8559 |
Honda’s debt ratio was high in 2017, reduced in 2018 and increased slightly in 2019. The increase of debt ratio is 2019 compared to 2018 is linked to the company’s plant to invest $2.75 billion in General Motors, of which some was acquired as a debt. This has had a negative impact on the localisation strategy, which advocates for localising subsidiaries through the establishment of plants to meet the needs of the consumers in that area.
Efficiency Ratios
| Ratio | 2017 | 2018 | 2019 |
| Inventory turnover ratio | 7.9654 | 7.8772 | 7.9286 |
| Asset Turnover ratio | 0.7384 | 0.7939 | 0.7781 |
| Receivables Turnover | 5.2968 | 5.8161 | 5.7885 |
The inventory turnover has maintained a constant trend, with only a slight drop in 2018. The asset turnover ratio, on the other hand, has been increasing with 2018 registering the highest growth and with a slight decline in 2019. Receivable turnover has been growing too at the same trend as the asset turnover ratio. The increase in efficiency ratios shows that Honda is using its assets appropriately, and the liabilities are well-managed while generating revenues. The high ratios registered in 2018 depicts the highest revenue growth in the same year compared to 2019. The positive trend of the efficiency ratios illustrates the favourable of the company’s localisation strategy. It is an indication that the local subsidiaries are expanding and at the same time, revenues are increasing.
References
Macrotrends LLC, 2019. Honda Revenue 2006-2019 | HMC. [Online] Available at: https://www.macrotrends.net/stocks/charts/HMC/honda/revenue [Accessed 27 October 2019].
Macrotrends, 2019. Honda Financial Ratios for Analysis 2005-2019 | HMC. [Online] Available at: https://www.macrotrends.net/stocks/charts/HMC/honda/financial-ratios [Accessed 27 October 2019].
