Toyota’s Weakening Financials

January 22nd, 2009 at 11:17am

Toyota used to be in such a strong financial position that it earned the nickname the Bank of Toyota. That description no longer replies. Also, many industry observers are under the mistaken impression that Toyota has no corporate debt. That doesn’t apply anymore, either.As part of its ambitious global expansion efforts, Toyota’s borrowing and have debt load more than doubled over the last decade. In 2000 Toyota’s current liabilities* totaled ¥5.5 trillion, right now that stands at ¥12.4 trillion.

Although the company still has a solid balance sheet, it’s not as solid as it used to be. Moreover, the company is projecting it will lose money in the current fiscal year, something that has never happened before in its history.

This helps explain why Toyota is taking drastic action in the face of the current economic downturn, such as temporarily shutting down all of its manufacturing facilities in Japan. Now, even Toyota has to worry about how much cash it has on hand.

In its most recent financial report, Toyota states that it has ¥1.8 trillion in cash, which is roughly $18.5 billion, or about the same level of cash Ford reported in its most recent financial statement.

More tellingly, Toyotas total current liabilities (short term) now match its total current assets. In the past, Toyota’s current assets always exceeded its current liabilities. When a company’s liabilities exceed its assets, it has to dip into its cash reserves to make up the difference-unless its operations are generating positive cash flow. But right now Toyota is not generating positive cash flow.

This is the same situation that the Big Three found themselves in some years back, but failed to address. Toyota is obviously attacking the problem head-on. But it’s surprising to see how close the company has come to the edge of the cliff.

* current liabilities include: borrowing, long-term debt payments, accounts payable and accrued expenses.

5 Comments to “Toyota’s Weakening Financials”

  1. Episode 65 - Trouble for GM, Toyota Debt Soars, Carbon Motors Cop Car - Autoline Daily Says:

    [...] this year, something that has never happened before in its history. You can read more about this on John’s Journal at our website [...]

  2. Andy B Says:

    I am very excited to hear, could not happen to a better company. Nice to see they are hurting just as bad.

  3. brode smith Says:

    While I enjoy John’s program and writings, he is way off base on this and I am shocked at how other journalist pick this up and run with it. According to Toyota’s latest financials. “After taking into account the effect of changes in exchange rates, cash and cash equivalents increased by 222.1 billion yen, or 13.6%, to 1,850.6 billion yen at the end of FY2009 first half compared with the end
    of FY2008.”
    This is that LARGEST cash reserve Toyota has ever published. I think John is confused with currest assets and Cash equivalents.
    Shame on all of you that ran with this….

    The fiscal results of the first quarter of 2007 showed the liability matching assests. This is not uncommon and in no way the sign of a company in trouble.
    Unless John has some inside information I believe Toyta has yet to report a NET loss. While the had an operating loss they still MADE money due to other investments.

  4. kyle Says:

    brode smith buddy. by your math john is only off by 2 billion. 1 850.6 billion Japanese yen = 20.7285706 billion U.S. dollars so toyota has about 21 billion in cash and equivalents. so you are saying he is way off base over a couple billion??

  5. Trevor D. Says:

    Regardless of Toyota’s financial position, all this goes to show is how widespread and deep this recession is and that even ‘blue chip’ companies such as Toyota are not immune from its reach. That they will likely have a loss for the first time in their history (after 70+ yrs in biz) shows what protectionism as well as building a quality product can do for the bottom line for all tha time.