M1-Discussion 1

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Finance

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Jan 9, 2024

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Discussion Post #1 Kendall Lynn 10/26/23 Toyota Motors is a well-known company who sales millions of vehicles a year. One would think they were a company in the lead, they are but not in the area you would think. Toyota Motors is the most indebted corporation with a total liability for the end of the June 2023 quarter was $356.655 Billion, a 6.17% increase year-over-year. (Marcotrends, 2023) Rising interest rates ultimately make debt more expensive, meaning more cash is needed to cover interest costs. Toyota having a poor debt to equity ratio, 0.58 at the end of June 2023 quarter (Marcotrends, 2023), gives the company less flexibility to invest in long-term growth. High interest rates make long-term loans more of a burden and short-term loans less accessible. With high interest rates, a higher credit is needed to be approved for a loan, and if you do get approved the interest rate may be too high, further sinking the company into debt. Not only do high interest rates affect a company’s finances, but they also affect the consumers’ finances. High interest rates make the cost of living to be high along with the amount of debt increase, with tight finances, consumers stop spending freely and cut out unnecessary spending. Finally, high interest rates make it difficult to financially plan for growth. A business’s finances are the foundation of its operation, so it is important for the company to understand its expenses, cash flow, and profits. Changes in interest rates, like we have seen, make planning hard and finances confusing. (Smith, 2023) Toyota Motors has a current ratio of 1.11. (Marcotrends, 2023) A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to cover its debts. (FreshBooks, 2023) Toyota is not doing poorly in reference to their current ratio. I think that Toyota Motors is in trouble with the amount of debt they have collected over the past few years, but I do think they have the ability to recover and profit. With the more technology driven trends, the focus of “what can my car do for me”, and the importance of comfort our world is experiencing Toyota has the ability to deliver exactly what consumers want in a car. I think they just have to be careful about their money and how they spend it. Smith, P. (2023, October 9). How rising interest rates affect your business-and what to do about it . Funding Circle. https://www.fundingcircle.com/us/resources/how-rising-interest-rates- affect-your-business-and-what-to-do-about-it/ Toyota total liabilities 2010-2023: TM . Macrotrends. (2023). https://www.macrotrends.net/stocks/charts/TM/toyota/total-liabilities What is a good liquidity ratio? . FreshBooks. (2023, April 13). https://www.freshbooks.com/hub/accounting/good-liquidity-ratio#:~:text=Current %20Ratio,-The%20current%20ratio&text=The%20current%20liabilities%20refer %20to,liabilities%20to%20covers%20its%20debts.) REPLY TO PEER POST

Hi ---, I also used an auto manufacturer as my company to write about for this discussion. I was shocked to learn the large amounts of debt that these companies keep on their balance sheets. I found myself falling into the Research and Development rabbit hole when trying to understand this large amount of debt. I feel that the easiest way for these companies to reduce their long-term debt is to not use all of their resources on fully electric vehicles. They may be “in trend” at the moment but I think the amount of fully electric vehicles that will continue to sell will decline over the next decade or so.

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