CHAPTER 1

INTRODUCTION

I. SECTOR PERFORMANCE

Global

Historical

Development started as early as the 17th century with the invention of the first steam-
powered vehicle, which led to the creation of the first steam-powered automobile capable of
human transportation, built by Nicolas-Joseph Cugnot in 1769. Inventors began to branch out at
the start of the 19th century, creating the de Rivas engine, one of the first internal combustion
engines, and an early electric motor. Samuel Brown later tested the first industrially applied
internal combustion engine in 1826.

Development was hindered in the mid-19th century by a backlash against large vehicles, yet
progress continued on some internal combustion engines. The engine evolved as engineers
created two- and four-cycle combustion engines and began using gasoline as fuel. Production
vehicles began appearing in 1887, when Karl Benz developed a petrol or gasoline-powered
automobile and made several identical copies. Recent automobile production is marked by
the Ford Model T, created by the Ford Motor Company in 1908, which became the first
automobile to be mass-produced on a moving assembly line.

II. SECTORS POLICY-LEGAL,ECONOMICAL AND TECHNOLOGY

WORLD MARKET

The Auto industry is going through one of the worst crisis and the sales is slowest in the last 20
years. It is worth mentioning that Auto industry contributes to close to 7% of overall GDP and
nearly half of manufacturing GDP of the Country , contributes 11% to the GST collection and
provides direct and indirect employment to 35 million jobs.
The impact of demand slowdown is so huge that most of the companies are operating at 70% of
their level of potential and there is huge accumulation of Inventory.

INDIAN MARKET

In 1897, the first car ran on an Indian road. Through the 1930s, cars were imports only, and in
small numbers. An embryonic automotive industry emerged in India in the 1940s. In 1953, an
import substitution programme was launched, and the import of fully built-up cars began to be
restricted. Over the number years plethora of Car manufactures both domestic and International
tried knocking on the door of Indian Automotive Industry. Some survived and excelled whereas
some simply perished due to unfavorable economic conditions on offer and the restrictions
imposed by the Government at times. Through all these safe and turbulent conditions the Indian
Automobile Industry sailed ahead, to become today the seventh largest producer of Automobiles
in the world with an annual production of 25.31 million vehicles in FY 2016–17, following a
growth of 5.41 per cent over the last year. The automobile industry accounts for 7.1 per cent of
the country's gross domestic product (GDP). The Two Wheelers segment, with 76 per cent
market share, is the leader of the Indian Automobile market, owing to a growing middle class
and a young population. The overall Passenger Vehicle (PV) segment has 15 per cent market
share. The Commercial Vehicles (CV) and Three-Wheelers together account for the remaining 9
percent of the production in India With the increase in number of production facilities the
Automobile Industry is also contributing to the employment opportunities, contributing in
satisfying the employment needs of a young nation. At present the Automobile Industry is giving
employment to in total of 270,000 , the eighth biggest employer when compared with other
automobile manufacturing nations. In the year 2016 UNIDO provided Training provided to 155
automotive component suppliers on lean manufacturing and continuous improvement initiatives
on the shop floor is helping to position India as a reliable supplier of automotive parts.
Automotive Industry and Economy The automobile Industry has a large impact on the economy
of any country, since it plays a major role in both the secondary and tertiary sector with indirect
influence on the primary sector it’s contribution cannot be left out.

The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 percent
of the country’s GDP. The two wheelers segment with 81 percent market share as the leader of
the Indian Automobile market owing to a growing middle class and young population.
Moreover, the growing interest of the companies in exploring the rural markets further aided the
growth of the sector. The overall Passenger Vehicle (PV) segment has 13 percent market share.

India is also a prominent auto exporter and has strong export expectations for the near future. In
April-January 2016, exports of commercial vehicles registered a growth of 18.36 percent over
April-January 2015. In addition, several initiatives by the Government of India and the major
automobile players in the Indian market are expected to make India a leader in the Two-Wheeler
and Four-Wheeler market in the world by 2020.

A chunk of India's car manufacturing industry is based in or around Chennai also known as the
Detroit of India with the India operations of Ford, Hyundai, Renault and Nissan headquarters in
the city and BMW having an assembly plant on the outskirts. Chennai accounts for 60% of the
countries Automotive Exports. Gurgaon and Manesar in Haryana and Gujarat are hubs where all
of the Maruti Suzuki cars are manufactured.

The Chaka corridor near Pune, Maharashtra is another vehicular production hub with companies
like General Motors, Volkswagen, Skoda, Mahindra, Tata Motors, Benz, Land, Fiat and Force
Motors having assembly plants in the areas. Ahmedabad with Tata Nano plant and General
Motors plant, Aurangabad with Audi, Skoda and Volkswagen, Kolkata with Hindustan Motors,
Noida with Honda and Bangalore with Toyota are some of the other automotive manufacturing
regions around the country.

III. INDUSTURY STRUCTURE

 History in Japan

Toyota founder Kiichiro

Toyoda

The history of Toyota started in 1933 with the company being a division of Toyoda Automatic
Loom Works devoted to the production of automobiles under the direction of the founder’s son
Kiichiro Toyoda. Kiichiro Toyoda had travelled to Europe and the United States in 1929 to
investigate automobile production and had begun researching gasoline-powered engines in 1930.

Toyoda Automatic Loom Works was encouraged to develop automobile production by the
Japanese government, which needed domestic vehicle production, due to the war with China. In
1934, the division produced its first Type A engine, which was used in the first Model A1
passenger car in May 1935 and the GI truck in August in August 1935. Production of the model
AA passenger car started in 1936. Early vehicles bear a striking resemblance to the Dodge Power
and Chevrolet, with some parts actually interchanging with their American originals.

Although the Toyota Group is best known today for its cars, it is still in the textile business and
still makes automatic looms, which are now computerized and electric sewing machines which
are available worldwide.

History of the Kirloskar Group

The Kirloskar Group is India’s largest engineering and construction conglomerate. The Kirloskar
Group is made up of 8 major companies which export to over 70 countries. The Indian promoter
Kirloskar Group is a century old industrial legacy having a strong presence in various segments
of engineering industry. The Kirloskar group is engaged in manufacturing of transformers,
electric motors, diesel engines, compressors, machine tools, etc. It also has a strong presence in
Industrial casting and pollution control equipment manufacturing. The group is mainly
concentrated its manufacturing facility in and around Karnataka and Maharashtra. Today, the
Kirloskar Group is a conglomerate with interests across a diverse range of industries. It is still
spurred by the simple yet profound ethic born with Laxman Rao Kirloskar, that where there is a
will there are many ways.
 CHAPTER-2

COMPANY PROFILE

2.1BACKGROUND AND INTERCEPTION OF COMPANY

Since its inception in India in 1997, Toyota Kirloskar Motor has witnessed a steady growth in the
Indian automotive market and is today more than ready to seize the enormous opportunity India
offers. The newly built second plant is a testimony to this commitment and also, the start of a
new era for Toyota in India.

Additionally, we believe in giving back to the community we thrive in. The Corporate Social
Responsibility initiatives focus on the area of education, community and environment to create a
company that works in harmony with nature and society at large. TKM’s efforts over the years
have aimed to develop a prosperous society with a sustainable future, thereby mobilizing
happiness.

2.2 NATURE AND BUSINESS CARRIED OUT

2.3 VISION,MISSION AND QUALITY POLICY

Vision

1. Delight the customers through innovative products, by utilizing advanced technologies

and services.

2. Ensure growth to become a major player in the Indian auto industry and contribute to the
Indian economy by involving all stakeholders.

3. Become the most admired and respected company in India by following the Toyota Way.

4. Be a core company in global Toyota operations.

Mission

1. Practice ethics and transparency in all the business operations.

 2. Touch the hearts of the customers by providing products and services of superior quality
at a competitive price.

3. Cultivate a lean and flexible business model throughout the value chain by continuous
improvement.

4. Lead the Toyota global operations for the emerging mass market.

5. Create a challenging workplace which promotes a sense of pride, ownership, mutual trust
and teamwork.

6. Create an eco-friendly company in harmony with nature and society.

QUALITY POLICY

ETIOS LIVA

Toyota gained immense consideration after the launch of Etios sedan in December 2010, which
also marked the turning point for the Japanese car maker in the Indian market. In the following
year, Toyota EtiosLiva was introduced and it helped Toyota establish itself in the numbers game
as well. The Liva was built on the same platform and looked identical except for the missing
boot. Like its sedan sibling, the Liva also has undergone many changes, the latest being in
September 2016.

Toyota EtiosLiva is one of the most power-packed hatchbacks of its kind. The petrol version of
Etios comes equipped with a 1.2-litre engine that produces a maximum power output of 79bhp
with peak torque of 104Nm. The diesel variant of Liva gets the same 1.4-litre diesel engine from
the Etios, rolling out a maximum power of 67bhp with 170Nm of peak torque. Both engine come
mated to a five-speed manual transmission.

The front wheels feature ventilated discs while the rear ones have drum brakes. The mid-level
variant of EtiosLiva feature ABS with EBD as standard feature. The safety features include two
airbags (driver and passenger), ABS (Anti-lock brake system) with EBD (Electronic brake-force
distribution) and energy absorbing body shell.
This hatchback is ranked among one of the most powerful as well as spacious cars and gives
competition to the Hyundai Grand i10, Tata Bolt and Maruti Suzuki Swift.

ETIOS SEDAN

Made for those who do not believe in compromise, the new Toyota Etios offers best-in-class
cabin space, new dual ton premium interiors; superior cabin quietness, best in class boot space
and trendy 12 spoke alloys, creating a driving experience like no other. No wonder it has earned
the reputation of being the real sedan. Every winner knows there’s only one way to achieve
victory. By going out there and giving it your best; day after day, with grit, determination,
confidence and style.
INNOVA CRYSTA

The new generation Innova is almost an entirely new car except for the remnants of the body
shell.Built to meet the demands of the new age Indian car buyer, the InnovaCrysta looks and
feels more premium than the outgoing car. The InnovaCrysta looks boxy as compared to the
Innova.The twin horizontal slats in the radiator grills blend in to the wrap around double barrel
headlamps. The lower half of the hexagonal grille gets thin black slats and is flanked by the fog
lamps housings on both sides.The touch-screen infotainment system on the dash doesn’t feel like
a retro fit and is intuitive to use. The new steering wheel gets metal highlights and steering
mounted controls.

COROLLA ALTIS

The Toyota Corolla is a line of subcompact and compact cars manufactured by Toyota.
Introduced in 1966, the corolla managed to become the best-selling car worldwide by 1974 and
has been one of the best selling cars since then. In 1997, the corolla became the bestselling
nameplate in the world, surpassing the Volkswagen Beetle.
FORTUNER

The current generation Toyota Fortuner, which was launched way back in 2009, has attained

almost a cult status and has been a great sales success. However, the Fortuner now gets an all
new model.The new generation Fortuner features a much flashier exterior, comfortable cable and
the bulletproof reliability that is a characteristic of every Toyota product.

CAMRY
Toyota unveiled the face lifted Camry at the Moscow Motor Show in early 2014. The
manufacturer then put the car on sale in Russia at the end of the same year.

ETIOS CROSS

Toyota Etios Cross was originally released by Toyota automobile for the Brazilian market.
Toyota, taking a cue from the Volkswagen Cross Polo, has unveiled the 2014 Toyota Etios Cross
in India during the 2014 Indian Auto Expo.

PRIUS
When the Prius was born at the dawn of the 21 st century, it combined the power of an engine and
a motor in the world’s first mass production hybrid car. Much more than delivering exceptional
fuel efficiency, it shaped a revolution in various ways including advanced design and powerful
driving performance and received great acclaim around the world. The Prius anticipated and
answered the needs of an environment-conscience world, shaping a new direction for what is
possible, and settling the benchmarks for cars of the future.

2.6 AREA OF OPERATION

The main operations of Toyota is carried out in

 Japan
 North America.
 Latin America.
 Europe.
 Africa.
 Asia Pacific

2.6 OWNERSHIP PATTERN AND ORGANISATIONAL STRUCTUR

Toyota Motor Corporation entered India in 1997 in a joint venture with

the Kirloskar Group. Toyota Motor Corporation (TMC) holds 89% of the share and the
remaining 11% is owned by Kirloskar Group.

ORGANISATIONAL STRUCTURE OF TKM

G. COMPETITORS INFORMATION

Toyota’s market share in india is 4.46% in FY19 with Ford being its closest competitors. Maruti
Suzuki remains at the top followed by Hyundai, Mahindra, Renault and Tata.
H. STUDY OF VARIOUS DEPARTMENT

 Production. This is the largest department, because it has hundreds of factory

workers, and dozens of team leaders. They do and oversee the work that happens on
the factory floor. They keep the machines running, and fix them when they break
(unless it’s a problem for an engineer). However, both the workers on the floor and the
top production managers, and everyone in between, get direction from…
There are mainly 4 parts of Production as follows
I) PRESS

The car manufacturing process begins in the Press Division where the body panels are pressed
for the cars built on site. To start with: flat metal sheets that have already been cut into the basic
shape of the panel are received. These are then loaded onto the process:

 The first press draws or forms the panel

 The second press trims the panel to remove excess metal

  The third press bends the panel to create flanges for later processes

 The fourth and final press pierces holes for other fittings (optional)

 The panels are then inspected and transferred to automatic storage before being delivered
to the Weld department in car plants 1 and 2

II) WELD

The Weld Department produces complete welded car bodies from panels supplied both by their
own Press Department as well as external suppliers.

The process begins with the right and left wheel houses welded to the lower dash and front
bulkhead to form the complete engine compartment. This is then combined with the front and
rear floor complete.

The right and left side panels are sub-assembled and transferred to the General Welder (GW).
This is the heart of the department where the parts that have been produced within the various
areas (side panels, floor, roof, upper dash and rear parcel tray) come together and the GW welds
all the parts together to produce a completed body.

The car body is then transformed to a manual line for additional welding and door hinge
installation. In the final part of the process, the doors, tailgates, fenders and bonnet are fitted and
the body undergoes a series of final quality checks. The completed body is then transferred but
the lift conveyor to the paint department.
III) PAINT

The main objective of the paint division is to provide vehicles with high gloss, attractive,
colorful finish and along with a long term durable resistance to corrosion

Toyota completely immerses the car bodies in powerful chemicals to prepare the steel for
painting. Following this, corrosion proof paint is applied to every metal surface both inside and
outside. All of the panel joints are sealed to guarantee they are watertight before the final color
paint layers are applied, utilizing state of the art robots.

Whilst the car bodies are painted, the plastic operations department are molding and painting
bumpers and other smaller components which will all be brought together for installation on the
final assembly line.
IV) ASSEMBLY

The body shell is received from the paint facility and begins the process of transformation into
the finished product. Components are physically installed onto the painted body while larger
components such as the dashboard, doors and engine are pre-assembled in sub-assembly areas
next to the main line

With the doors still removed, the cars are transferred on to the trim conveyor. Various processes
are carried out here including fitting the wiring harness, roof lining and instrument panel. To
save space, many parts travels by overhead conveyor to the correct location on the production
line.

Next the cars are transferred to an overhead conveyor where the bumpers, fuel lines and exhaust
assemblies are fitted. The engine is fitted and the suspension and the front and rear windscreens
are installed.

The cars are now entering the final stages of assembly. The carpets, seats and doors are installed
and fluids (including screen wash, coolant and brake fluid) are filled. Each car also receives
enough fuel for it to be driven off the production line straight in to the vehicle quality department
for inspection.
  Quality. It is the characteristics of product or service that confirms to customer’s
requirement or the degree of excellence which a thing possesses.

Concept of quality

Quality was earlier looked upon as a part of production. Whose role was to separate the good and
bad parts. This was the time when whatever was produced was sold as a customer had a little
choice in the market.

However, the liberalization and entry of global players in all field has change the scenario from
seller market to buyer market. The customer is bettering educated and much aware of his rights
and preference in the light of such scenario organization all over prevention of defect waste and
preference in the light of such scenario organization all over prevention of defect waste control
improved technology better design and reliable product. This has resulted in change of concept.

 Quality control has changed to quality assurance

 Defect detection has changed to defect prevention

Built in quality

The process by which the team member checks his own quality after the completion of
his process is known as built in quality. So as to ensure no defect is passed to next station or next
process.
How to check the Built in Quality?

While checking process member has to check whether there is any missing part, wrong
assembly, NG fitment, missing weld etc. this is done in Toyota by magic check.

Building Quality in Process

1. Do not accept defective parts

2. Do not make defective parts

3. Do not pass defective parts

QUALITY INSPECTION

5’s Concept

5s concept is a systematic methods/tool adapted in work place to improve safety & to create a
better work place environment.

Better work place Environment

Better work place environment means the work place should support us to carry out our work in
easiest way ensuring, safety, quality, production, low cost, good morale and motivation.

Goal/Aim /Objective of 5’s (why should we do 5s?)

1) To improve safety.

2) To create better work place Environment.

Explanation of 5s, its meaning and activity in each step

1. SERI (SORTING)

2. SEITON (SYSTEMATIC ARRANGEMENT)

3. SEISO (SPIC & SPAN)

4. SEIKETSU (STANDARDISATION)

5. SHITSUKE (SELF DISCIPLINE)

Explanation

1. SEIRI: Sorting what is required and what is not required. Dispose what is not required.
Segregation required things based on frequency of usages and type of item

2. SEITON: Arranging systematically what is based on frequency of usage, type of item

considering safety and easy accessibility.
3. SEISO: Cleaning and wiping of your area. Identifying abnormality like oil leak, more
dust, broken parts etc., identify root cause and eliminating it.

4. SEIKETSU: standardize by creating identification, visual displays, fixing responsibility,

communication, Kanban etc. to maintain above good condition always.

5. SHITSUKE: Maintaining standardized condition always, identify abnormality in daily

activity and eliminate it. Continuously improve the work place.

 Sales and Purchasing. There are surprisingly few of these people, because the
parts we make more or less sell themselves. Although they sometimes go to trade
shows, they do almost no formal marketing. Their job is more following orders
through than it is trying to get people to buy, which is why they also do the buying.
Finally, they are the people who read our customer’s plans for the year, and it is
based on those goals that sales goals and initial production schedules are made.
 IT. These guys are like the plumbers of the company. If any computer has any sort
of issues, they’re the guys who will come and fix it.
 Environmental Health and Safety.
 Technical Planning (also known as Engineering). Before a new part goes into
production, a lot of design has to go into it. These guys work with our customers to
develop test parts, which they then send to the customers. Based on the customer’s
response, they will then either redesign it, or send the specifications to Production.
Also, they are responsible for buying all of the equipment, ensuring that it can run to
our specifications, and training representative staff from Production.
 Corporate Support. All of the administrative support for the whole company. This
includes…
o Translation and interpreting. A lot of the engineers are from Japan,
and both our parent company and our customers are Japanese. So a lot of
interpreting has to happen, both between the engineers from Japan we have, the
tech reps who come for only a few months, the auditors who sometimes come
from Japan, and the rest of the company.
o Payroll. HR. The paperwork that has to be done when someone gets
hired or fired. The cars that the guests from Japan drive have to be bought,
serviced, and fueled, and we pay for it. We liaise with the hotels that we put
Japanese guests in. We put up bulletin board displays. We answer the phones
 when someone calls. We do all of those fiddly little things that keep the company
running.
 Accounting. These people count up all the money spent anywhere in the company,
and how much money we have. They give the OK or the red light if any department
wants to spend more than its budget for the month. They calculate how much each
piece costs to make, and at what prices we must sell them for. They read the tax code
every year and make sure that when we do our taxes, we do so in accordance with the
law. If there’s any of that reading or counting up they can’t do, they send the work to
large accounting firms.

I. INFRASTRUCTURAL FACILITIRES

TKM Overview

Company name: Toyota Kirloskar Motor Private Limited

Equity participation: TMC: 89%, Kirloskar group: 11%

Number of employees: 8000+

Land area: 432 acres

Building area: 74,000 sq. m

The Toyota Kirloskar mainly has two plants for the production of cars.

TKM Plant 1:

Established: October 1997(Start of Production: Dec 1999)

Location: Suburb of Bengaluru, Karnataka

Products: Innova, Fortuner, Prado, Land Cruiser and Prius imported as CBUs

Production capacity: 1,00,000 units

TKM Plant 2:

Established: 2010
Location: Suburb of Bengaluru, Karnataka

Products: Corolla Altis, Etios, EtiosLiva, Yaris, Etios Cross

Production capacity: 2,10,000 units

Bird’s eye view of Toyota Kirloskar plant – Bidadi

Legend:

1. Toyota Technical Training Institute [TTTI]

2. National Parts Centre [NPC]
3. Test Track
4. Afforestation Zone
5. Plant 1
6. Plant 2
7. On-Site Supplier’s Park [OSS]

J. AWARDS/ACHIVEMENTS

SL NAMEW OF AWARD YEAR THEM OF AWARD

NO
 1 Asia pacific No.1 Environment 2015 Environment Management
Management
2 Domain Excellence Award 2014 Sustainable Supply Chain

3 Green Car Of The Year 2014 Green Car Of The Year

4 Green steering Wheel 2014 Green Steering Wheel

5 Innovation Of The Year Award 2014 Innovation

6 Global Kaizen Award 2013 VOC emission reduction in paint

Shop
7 The Best Safe Industry [Large 2013 For Best Safety Practices followed
Scale Industries Category]
K. WORK FLOW MODULE

L. Future growth and prospectus of TKM

Toyota will not suspend its expansion plans in the Indian market, the company has clarified. In a
statement on Tuesday, Toyota Motor Corp. said it remains committed to the Indian market and
its local unit has announced an investment of more than 2,000 crore

Vikram Kirloskar, vice-chairman of Toyota Kirloskar Motors said, “The future of sustainable
mobility is strong here in India and Toyota is proud to be part of this journey. We are investing
2000+ crore towards the electrification of vehicles. Toyota Kirloskar Motor would like to state
that we continue to be committed to the Indian market and our operations in the country is an
integral part of our global strategy. We need to protect the jobs we have created and we will do
everything possible to achieve this. Over our two decades of operations in India, we have worked
tirelessly to build a strong, competitive local supplier ecosystem and develop strong, capable
human resources. Our first step is to ensure full capacity utilization of what we have created, and
this will take time"

M. Ratio analysis

Ratio analysis is the process of examining and comparing financial information by calculating
meaningful financial statement figure percentages instead of comparing line items from each
financial statement. Managers and investors use a number of different tools and comparisons to
tell whether a company is doing well and whether it is worth investing in. The most common
ways people analysis a company’s performance are horizontal analysis, vertical analysis, and
ratio analysis. Horizontal and vertical analyzes compare a company’s performance over time and
to a base or set of standard performance numbers.

Types of ratios are given below:

1. Liquidity Ratios

This type of ratio helps in measuring the ability of a company to take care of its short-term debt
obligations. A higher liquidity ratio represents that the company is highly rich in cash.

The types of liquidity ratios are: –

1.1 Current Ratio: The current ratio is the ratio between the current assets and current liabilities
of a company. The current ratio is used to indicate the liquidity of an organization in being able
to meet its debt obligations in the upcoming twelve months. A higher current ratio will indicate
that the organization is highly capable of repaying its short-term debt obligations.

Current Ratio = Current Assets / Current Liabilities

1.2 Quick Ratio: The quick ratio is used to ascertain information pertaining to the capability of a
company in paying off its current liabilities on an immediate basis.

The formula used for the calculation of a quick ratio is-

Quick Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts

Receivables) / Current Liabilities
2. Profitability Ratios
This type of ratio helps in measuring the ability of a company in earning sufficient profits.

The types of profitability ratios are: –

2.1 Gross Profit Ratios: Gross profit ratios are calculated in order to represent the operating
profits of an organization after making necessary adjustments pertaining to the COGS or cost of
goods sold.

The formula used for the calculation of gross profit ratio is-

Gross Profit Ratio = (Gross Profit / Net Sales) * 100

2.2 Net Profit Ratio: Net profit ratios are calculated in order to determine the overall
profitability of an organization after reducing both cash and non-cash expenditures.

The formula used for the calculation of net profit ratio is-

Net Profit Ratio = (Net Profit / Net Sales) * 100

2.3 Operating Profit Ratio: Operating profit ratio is used to determine the soundness of an
organization and its financial ability to repay all the short term and long term debt obligations.

The formula used for the calculation of operating profit ratio is-

Operating Profit Ratio = (Earnings Before Interest and Taxes / Net Sales) * 100
2.4 Return on Capital Employed (ROCE): Return on capital employed is used to determine
the profitability of an organization with respect to the capital that is invested in the business.

The formula used for the calculation of ROCE is:

ROCE = Earnings Before Interest and Taxes / Capital Employed

3. Solvency Ratios
Solvency ratios can be defined as a type of ratio that is used to evaluate whether a company is
solvent and well capable of paying off its debt obligations or not.
The types of solvency ratios are: –

3.1 Debt Equity Ratio: The debt-equity ratio can be defined as a ratio between total debt and
shareholders fund. The debt-equity ratio is used to calculate the leverage of an organization. An
ideal debt-equity ratio for an organization is 2:1.

The formula for debt-equity ratio is-

Debt Equity Ratio = Total Debts / Shareholders Fund

3.2 Interest Coverage Ratio: The interest coverage ratio is used to determine the solvency of an
organization in the nearing time as well as how many times the profits earned by that very
organization were capable of absorbing its interest-related expenses.

The formula used for the calculation of interest coverage ratio is-

Interest Coverage Ratio = Earnings Before Interest and Taxes / Interest Expense
4. Turnover Ratios
Turnover ratios are used to determine how efficiently the financial assets and liabilities of an
organization have been used for the purpose of generating revenues.

The types of turnover ratios are: –

4.1 Fixed Assets Turnover Ratios: Fixed assets turnover ratio is used to determine the
efficiency of an organization in utilizing its fixed assets for the purpose of generating revenues.

The formula used for the determination of fixed assets turnover ratio is-

Fixed Assets Turnover Ratio = Net Sales / Average Fixed Assets

4.2 Inventory Turnover Ratio: Inventory turnover ratio is used to determine the speed of a
company in converting its inventories into sales.

The formula used for calculating inventory turnover ratio is-

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventories

4.3 Receivable Turnover Ratio: Receivable turnover ratio is used to determine the efficiency of
an organization in collecting or realizing its account receivables.

The formula used for calculating the receivable turnover ratio is-

Receivables Turnover Ratio = Net Credit Sales / Average Receivables

5. Earnings Ratios
Earnings ratio is used for the purpose of determining the returns that an organization generates
for its investors.

The types of earnings ratios are: –

5.1 Profit Earnings Ratio: P/E ratio indicates the profit earning capacity of the company.

The formula used for the calculation of profit earnings ratio is:

Profit Earnings Ratio = Market Price per Share / Earnings per Share
5.2 Earnings per Share (EPS): EPS signifies the earnings of an equity holder based on each
share.

The formula used for EPS is:

EPS = (Net Income – Preferred Dividends) / (Weighted Average of Outstanding Shares)

 CHAPTER 3

PEST ANALYSIS

POLITICAL FACTORS IMPACTING TOYOTA 

1. GLOBAL BRAND
Toyota is a multinational global brand and operating its business in over 170 countries. The
automotive company is subject to various political influences and government regulations.
Therefore, the brand has to keep in mind the worldwide influences.

2. POLITICAL ENVIRONMENT
The political environment of any country impacts the decision making of the multinational
brand. For instance, Toyota was going to invest approximately over 69 million dollars in
Thailand back in 2014. The protests and processions destabilized the political environment of the
country. The automotive company changed its expansion plan and shifted its focus to other
countries.
3. CONFLICT WITH CHINA
The conflict between China and Japan is no secret to anyone, and Toyota is a Japanese brand.
China has become the world’s largest tech and industrial economy of the world. Whenever any
political event or rumor happens, it instigates the old rivalry and conflict. It negatively impacts
the businesses in both countries. That’s how the political relationship among different countries
is also important.
4. DEMONETIZATION IN INDIA
When the Indian government declared the demonetization of currency notes back in 2016 and
2017, it created a shortage of cash in the local market. It decreased the sale of many businesses.
The sale of Toyota’s automobiles also declined. The automotive market is growing very slowly
since then.

ECONOMICAL FACTORS AFFECTING TOYOTA 

1. COMPETITORS
The automotive market has become very competitive in recent years; Tesla, Ford, BMW are
some of the major competitors. The high level of competition is financially impacting the sale of
the automotive brand. It also puts pressure on the company to increase the research and
development budget in terms of innovation. The brand has to perform better in order to satisfy
the needs of customers.

2. ECONOMIC RECESSION
According to a financial estimate, Toyota’s annual revenue was 241.196 billion dollars by the
end of 2020 and it has declined 13.59%. Out of which the company’s net profit
was 13.280 billion dollars and it has declined by 23.47%.
The decline in annual revenue and net profitability of Toyota is because of the pandemic
of covid-19. Millions of people across the world lost their jobs during the pandemic months. It
created an environment of financial insecurity and uncertainty and dropped the buying power of
people. Ultimately, the economic recession impacts the sale of the automobile company.

3. ELECTRIC VEHICLES & OIL PRICE

The economic recession and increasing oil prices have shifted the interest of the people towards
fuel-efficient cars. Toyota is already manufacturing hybrid and electric vehicles. Now, the
company has to increase the process and make the products available to the customers at a mass
scale.

Some countries are even providing the tax exemption on the sale and trade of electric vehicles.
Toyota should speed up the process to capitalize on this opportunity.

4. ECONOMICAL INDIAN MARKET

The “Innova” model of Toyota became so popular in the Indian market that many families
started buying the vehicle for their family tours. The brand kept in mind the conditions of the
Indian market. It turned out to be perfect because the company offered them the low priced
vehicle to the price-conscious market.

TECHNOLOGICAL FACTORS IMPACTING TOYOTA 

1. HYDROGEN CARS
Toyota allocates billions of dollars annually for research and development in order to develop
something to gain a competitive. The brand first introduced the hydrogen car in the market.
The object was to meet the demands of the market. Hydrogen and electric cars are the current
and future trends toward clean energy. Automotive companies like Toyota are working on it to
be more efficient.

2. ACCEPTING TECHNOLOGY
Toyota has always accepted the latest technological trends. It has helped the company to stay on
top of the global market. Most importantly, the brand follows the simple formula of continuous
improvement, and technology helped the company to achieve it.

LEGAL FACTORS AFFECTING TOYOTA 

1. RECALL SETTLEMENT
When Toyota recalled the faulty vehicles, the outraged customers filed a class-action lawsuit
against the company. The automotive brand had no choice but to settle the case for 1.2 billion
dollars plus fixing the faulty damages.
2. LAWSUITS
Prius Auto Industry, an Indian automotive company, filed a lawsuit against Toyota on the
trademark. The company lost the legal battle and the Delhi court permitted the opponent to use
the trademark “Prius.”