Financial Risk Management a Case Study on Toyota Motors Corp.

Module leader: Ajay Yadav

Submitted by: Avinash Agarwal Aashish Garg Nitin Yadav Rajesh Ch. Sumit Garg

History of Toyota

Sakichi Toyoda founded Toyota.

Kiichiro opened auto department.

He faced competition from Ford and GM.

Estb of company Ltd took place in 1937.

Second World war Suffered a lot and financial problems. Company had to be bailed out by consortium of banks. Downsized and restructured.

Cntd
By 1952, Toyotas financial health restored coz of the Korean war. Showed interest in TQM. Launch of Corolla and more than 71,000 cars.

Joint Venture with GM.

Had a major achievement in US market when it successfully launched the Lexus and even Celica. Appreciation of yen and restrictions put on imports of Japanese cars by western counties, Toyota stepped up its efforts to set up plants abroad.

Toyota had increase in operating income and vehicle sales. Made plans to buy 5% stake in Yamaha. By early 2000s, Analysts considered Toyota to be the strongest of Global auto manufacturers.

Problems faced by Toyota & the solutions

Expensive vehiclesUndercoated prices Govt. help

After effects of World War-II Banks helped Downsizing and segregating business. Korean war Higher Cost of Production Tracing problm to its roots Dies Market Expansion Joint ventures with GM, Tianjin Automobile in China Buying/Increasing stakes in Daihatsu, Hino motors. Opening plants in Britain, France Re-positioning Corona TQM

Strategies used by Toyota to overcome risks: Financial risks are those due to which the company might get affected in its cash flows thus unable to meet its financial obligations. Risks that are involved in Toyota are:

Credit Risk:

Market Risk:
Derivative Type Amount Invested (Yen) Amount Invested ($)

Foreign Exchange Forward Contracts

Interest rate and currency swap agreements Option contracts purchased Option contracts written TOTAL

(2464)
103038

(21)
857

5935
(3581) 115018

49
(30) 957

Currency Risk: Translation Risk:

Transaction Risk
% Change to 20022001 % change 20032002

Particulars

2001

2002

2003

Revenues

12955237 14190308 15501553

8.70%

8.46%

Operating Income Net Income

790729 674898

1093632 556567

1271646 750942

27.70% -21.26%

14.00% 25.88%

Interest Rate Risk:Commodity Price Risk:-

Equity Price Risk

S.No. 1. 2. 3. 4. Particulars Time deposits Total Receivables Short term Borrowings Long Term Debts TOTAL Amount ($ millions) 461 39,308 15,438 44,969 100,176

Derivatives Financial Instruments

Adopted in 2001 By Toyota Classifies Derivatives in 4 Types (FAS 133)
No Hedge Fair Value Hedge- loss 2002 $5.12 million, 2003 $4 million Cash Flow Hedge Foreign Currency Hedge

 Thank You