Statement of Originality and Student Declaration

I hereby, declare that I know what plagiarism entails, namely to use another’s work and to present it as
my own without attributing the sources in the correct way. I further understand what it means to copy
another’s work.
1. I know that plagiarism is a punishable offence because it constitutes theft.
2. I understand the plagiarism and copying policy of the University of the West of Scotland.
3. I know what the consequences will be if I plagiaries or copy another’s work in any of the
assignments for this program.
4. I declare therefore that all work presented by me for every aspect of my program, will be my own,
and where I have made use of another’s work, I will attribute the source in the correct way.
5. I acknowledge that the attachment of this document signed or not, constitutes my agreement on
it.
6. I understand that my assignment will not be considered as submitted if this document is not
attached to the attached.

Student’s Signature: …………………………… Date: ………………

1|Page
TASK 1

Take a company of your choice, go through its final accounts of the last two years and make a
comparative study by measuring the profitability, liquidity and risk by using financial
performance measurement techniques.

Word Limit – 1500 words

2 MOHAMED RASHID
 MITSUBISHI MOTORS

Mitsubishi Motors Corporation is a Japanese multinational automotive manufacturer

headquartered in Minato, Tokyo, Japan. In 2011, Mitsubishi Motors was the sixth-biggest
Japanese automaker and the nineteenth-biggest worldwide by production. From October 2016
onwards, Mitsubishi has been one-third (34%) owned by Nissan, and thus a part of the Renault–
Nissan–Mitsubishi Alliance.

3 MOHAMED RASHID
Besides being part of the Renault–Nissan–Mitsubishi Alliance, it is also a part
of Mitsubishi keiretsu, formerly the biggest industrial group in Japan, and the company was
originally formed in 1970 from the automotive division of Mitsubishi Heavy Industries.

STATEME
NT OF PROFIT & LOSS (Millions of yen)
For the fiscal year For the fiscal year
ended March 31, 2018 ended March 31, 2019
Net sales 2,192,389 2,514,594
Cost of sales 1,730,278 2,057,340
Gross profit 462,111 457,254
Selling, general and administrative expenses
Advertising and promotion expenses 110,047 72,971
Freightage expenses 42,316 53,900
Provision of allowance for doubtful accounts 33 395
Remuneration, salaries and allowances for directors
(and other officers) 71,758 74,157
Retirement benefit expenses 3,509 4,071
Depreciation 12,506 13,963
Research and development expenses 56,066 65,920
Other 67,671 60,058
Total selling, general and administrative expenses 363,909 345,439
Operating profit (loss) 98,201 111,815
Non-operating income
Interest income 3,464 5,045
Dividend income 2,090 1,647
Share of profit of entities accounted
for using equity method 20,579 17,005
Other 949 2,996
Total non-operating income 27,084 26,694
Non-operating expenses
Interest expenses 3,499 3,709
Foreign exchange losses 8,370 6,909
Litigation expenses 1,564 1,996
Other 1,723 6,043
Total non-operating expenses 15,158 18,659
Ordinary profit (loss) 110,127 119,850
Extraordinary income
Gain on sales of non-current assets 306 656
Gain on sales of investment securities 328 1
Reversal of provision for fuel consumption test － 2,922
Gain on step acquisitions － 1,081
Gain on dissolution of employee's pension fund 1,434 －

4 MOHAMED RASHID
 Other 217 216
Total extraordinary income 2,287 4,877
Extraordinary losses
Loss on retirement of non-current assets 2,418 2,508
Loss on sales of non-current assets 139 195
Impairment loss 2,636 854
Loss on disaster － 2,216
Loss on fuel consumption test 2,262 －
Compensation for production transfer 984 －
Other 924 600
Total extraordinary losses 9,365 6,376
Profit (loss) before income taxes 103,049 118,352
Income taxes - current 11,675 22,576
Income taxes for prior periods (8,616) (761)
Income taxes - deferred (6,261) (38,458)
Total income taxes (3,203) (16,644)
Profit (loss) 106,253 134,996
Profit (loss) attributable to non-controlling
interests (1,366) 2,124
Profit (loss) attributable to owners of parent 107,619 132,871

5 MOHAMED RASHID
STATEMENT OF FINANCIAL POSITION

(Millions of yen)
As of March 31, 2018 As of March 31, 2019
Assets
Current assets
Cash and deposits 571,911 500,924
Notes and accounts receivable - trade 176,020 126,398
Finance receivables － 294,423
Merchandise and finished goods 143,332 175,052
Work in process 21,901 18,553
Raw materials and supplies 38,551 40,803
Short-term loans receivable 806 681
Other 95,542 125,410
Allowance for doubtful accounts (1,229) (1,790)
Total current assets 1,046,837 1,280,457
Non-current assets
Property, plant and equipment
Buildings and structures, net 89,314 106,095
Machinery, equipment and vehicles, net 113,266 131,431
Tools, furniture and fixtures, net 46,237 61,482
Land 94,565 116,201
Construction in progress 33,698 37,306
Total property, plant and equipment 377,082 452,517
Intangible assets 29,022 39,786
Investments and other assets
Investment securities 97,699 93,328
Long-term loans receivable 6,218 5,115
Retirement benefit asset 4,198 5,033
Deferred tax assets 20,925 58,772
Other 70,178 81,724
Allowance for doubtful accounts (5,921) (6,426)
Total investments and other assets 193,298 237,548
Total non-current assets 599,402 729,852
Total assets 1,646,240 2,010,309

6 MOHAMED RASHID
Liabilities
Current liabilities
Notes and accounts payable - trade 426,312 391,785
Electronically recorded obligations - operating 22,897 50,311
Short-term loans payable 10,589 44,419
Commercial papers － 50,800
Current portion of long-term loans payable 15,893 50,377
Lease obligations 504 777
Accounts payable - other and accrued
expenses 165,963 196,695
Income taxes payable 11,272 11,352
Provision for product warranties 46,733 48,915
Provision for loss on fuel consumption test 15,478 3,758
Other 29,896 74,072
Total current liabilities 745,541 923,267
Non-current liabilities
Long-term loans payable 90 83,122
Lease obligations 639 1,499
Deferred tax liabilities 22,601 20,018
Retirement benefit liability 42,596 51,615
Other 38,209 49,582
Total non-current liabilities 104,135 205,838
Total liabilities 849,677 1,129,105
Net assets
Shareholders' equity
Capital stock 284,382 284,382
Capital surplus 203,938 200,072
Retained earnings 363,382 463,092
Treasury shares (220) (1,728)
Total shareholders' equity 851,482 945,818
Accumulated other comprehensive income
Valuation difference on available-for-sale
securities 7,158 7,353
Deferred gains or losses on hedges 526 652
Foreign currency translation adjustment (59,966) (61,281)
Remeasurements of defined benefit plans (18,232) (20,758)
Total accumulated other comprehensive
income (70,514) (74,033)
Share acquisition rights 106 356
Non-controlling interests 15,487 9,062
Total net assets 796,562 881,203
Total liabilities and net assets 1,646,240 2,010,309

7 MOHAMED RASHID
CURRENT RATIO
The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables.

FORMULA AND CALCULATION OF CURRENT RATIO

To calculate the ratio, analysts compare a company's current assets to its current liabilities.
Current assets listed on a company's balance sheet include cash, accounts receivable, inventory
and other assets that are expected to be liquidated or turned into cash in less than one year.
Current liabilities include accounts payable, wages, taxes payable, and the current portion of
long-term debt.

CURRENT RATIO = CURRENT ASSET / CURRENT LIABILITIES

CURRENT RATIO OF MITSUBISHI MOTORS IN 2019 = 1280457 / 926237

= 1.38

CURRENT RATIO OF MITSUBISHI MOTORS IN /2018 = 1046837745541

= 1.40

8 MOHAMED RASHID
QUICK RATIO
The quick ratio is an indicator of a company’s short-term liquidity position and measures a
company’s ability to meet its short-term obligations with its most liquid assets.

Since it indicates the company’s ability to instantly use its near-cash assets (that is, assets that
can be converted quickly to cash) to pay down its current liabilities, it is also called the acid test
ratio.

FORMULA AND CALCULATION OF QUICK RATIO

LIQUID ASSETS / CURRENT LIABILITIES

(LIQUID ASSETS= CURRENT ASSET- INVENTORY- PREPAID EXPENSES)

QUICK RATIO OF MITSUBISHI MOTORS FOR 2019 IS:

Liquid Assets = 1280457 - 234408

= 1046049 / 923267

= 1.13

QUICK RATIO OF MITSUBISHI MOTORS FOR 2018 IS :

Liquid Assets = 1046837 – 203784

= 843053 / 745541

9 MOHAMED RASHID
 = 1.13

GROSS PROFIT RATIO

Gross profit ratio is the ratio of gross profit to net sales i.e. sales less sales returns. The ratio thus
reflects the margin of profit that a concern is able to earn on its trading and manufacturing
activity. It is the most commonly calculated ratio. It is employed for inter-firm and inter-firm
comparison of trading results.

Gross profit is what is revealed by the trading account. It results from the difference between net
sales and cost of goods sold without taking into account expenses generally charged to the profit
and loss account. The larger the gap, the greater is the scope for absorbing various expenses on
administration, maintenance, arranging finance, selling and distribution and yet leaving net profit
for the proprietors or shareholders

FORMULA FOR THE CALCULATION OF GROSS PROFIT RATIO

GROSS PROFIT = Gross profit / (Net sales × 100)

GROSS PROFIT RATIO OF MITSUBISHI MOTORS FOR 2019

GROSS PROFIT RATIO = 457254 / 2514594 x 100

= 18.18

GROSS PROFIT RATIO OF MITSUBISHI MOTORS IN 2018

GROSS PROFIT RATIO = 462111 / 2192389 x 100

= 21.07

10 MOHAMED RASHID
NET PROFIT RATIO
It is also known as Net Profit Margin ratio, it establishes a relationship between net profit earned
and net revenue generated from operations (net sales). Net profit ratio is a profitability ratio
which is expressed as a percentage hence it is multiplied by 100.

Net sales include both Cash and Credit Sales, on the other hand, net profit is the net operating
profit i.e. the net profit before interest and taxes. Net profit ratio helps to find out net profit
earned in comparison to revenue earned from operations.

NP ratio helps to determine the overall efficiency of the business’ operations, furthermore, it is an
indicator of how well a company’s trading activities are performing.

FORMULA FOR THE CALCULATION OF NET PROFIT RATIO

NET PROFIT RATIO = NET PROFIT / NET SALES x 100

NET PROFIT RATIO OF MITSUBISHI MOTORS IN 2019

NET PROFIT RATIO =111815 / 2514594 x 100

= 4.44

NET PROFIT RATIO OF MITSUBISHI MOTORS IN 2018

NET PROFIT RATIO = 98201 / 2192389 x 100

= 4.47

11 MOHAMED RASHID
RETURN ON INVESTMENT
ROI (Return on Investment) measures the gain or loss generated on an investment relative to the
amount of money invested. ROI is usually expressed as a percentage and is typically used for
personal financial decisions, to compare a company's profitability or to compare the efficiency of
different investments. It is a performance measure used to evaluate the efficiency of an
investment or compare the efficiency of a number of different investments. ROI tries to directly
measure the amount of return on a particular investment, relative to the investment’s cost. To
calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment.
The result is expressed as a percentage or a ratio.

FORMULA FOR THE CALCULATION OF RETURN ON INVESTMENT

ROI=PROFIT BEFORE INTEREST,TAX,DIVIDEND / CAPITAL EMPLOYED x 100

CAPTAL EMPLOYED= FIXED ASSETS+CURRENT ASSETS-CURRENT LIABILITIES

ROI OF MITSUBISHI MOTORS IN 2019

ROI =111815 / 1087042 x 100

= 10.2

ROI OF MITSUBISHI MOTORS IN 2018

ROI =98201 / 900699 x 100

= 10.9

12 MOHAMED RASHID
CAPITAL GEARING RATIO
Capital gearing ratio is a useful tool to analyze the capital structure of a company and is
computed by dividing the common stockholders’ equity by fixed interest or dividend bearing
funds.

Analyzing capital structure means measuring the relationship between the funds provided by
common stockholders and the funds provided by those who receive a periodic interest or
dividend at a fixed rate.

A company is said to be low geared if the larger portion of the capital is composed of common
stockholders’ equity. On the other hand, the company is said to be highly geared if the larger
portion of the capital is composed of fixed interest/dividend bearing funds

FORMULA FOR THE CALCULATION OF CAPITAL GEARING RATIO

CAPITAL GEARING RATIO = NON CURRENT LIABILITIES / SHAREHOLDERS

FUND

CAPITAL GEARING RATIO OF MITSUBISHI MOTORS IN 2019

CAPITAL GEARING RATIO =205838 / 945818

= 0.21

CAPITAL GEARING RATIO OF MITSUBISHI MOTORS IN 2018

CAPITAL GEARING RATIO =104135 / 851482

= 0.12

13 MOHAMED RASHID
REFERENCES
1) www.investopedia.com

2) www.myaccountingcourse.com

3) www.wikipedia.com

4) www.mitsubishimotors.com

14 MOHAMED RASHID