A recent Reuters article stated, “Facing weak market share, Ford to exit Japan, Indonesia this year.”
First paragraph read, “Ford Motor Co. said on Monday it will close all operations in Japan and Indonesia this year as it sees 'no reasonable path to profitability' in the two countries where it has struggled to gain market share.”
These words were enough to make me wonder about comparing financial ratios and performances of not only Ford (F, Financial) but also leading Japanese car manufacturers, such as Toyota (TM, Financial) and other peers.
Such enticing cars to look at, but who among these car manufacturers serve their shareholders best?
Market share
Market capitalization in USD millions (as of Jan. 25):
Toyota appears to have a very huge capitalization with 159% greater than the runner-up Daimler AG (DAI, Financial). This just shows that not only is Toyota winning car buyers but also shareholders.
*General Motors financial data only started in 2008.
Market share in terms of TTM Revenue (Foreign exchange rates used were 1 JPY = 0.00855 USD and 1 EUR = 1.08 USD)
Toyota appears to be the current global market leader in selling cars. Interesting to see how its current valuations stand. (I only have these companies to consider; one may seek further accurate data by including all other car manufacturers’ data. I chose not to do so.)
Valuations
The classic P/E ratio revealed that all of these companies had been selling at less than the market. Nissan Motor (NSANY, Financial) appears to be the "cheapest."
Price-to-book and price-to-sales ratio revealed otherwise whereby Volkswagen AG (VOW, Financial) is the most valuable. Volkswagen may have earned this spot secondary to its recent series of blunders.
Wikipedia gave a succinct timeline in that recent Volkswagen AG scandal here.
Graham multiplier valuation
Benjamin Graham, father of value investing, had a simple metric called Graham Multiplier to determine whether there is value in a stock; the P/E ratio must be <15 and at the same time P/B must be <1.5. This equation (15 multiplied by 1.5) yields into 22.5; any company that has <22.5 Graham Multiplier, given sound financials, must have some value in it.
It appears that Mr. Market is currently neglecting this group. Volkswagen AG, Nissan Motor and Honda Motor (HMC, Financial) are of good value in this chart.
*I had to remove Tesla (TSLA, Financial) from the group due to lack of profits and high valuations. Anyway, here are Tesla’s current valuations compared with the Standard & Poor's 500’s:
Tesla, in my opinion, is one of Mr. Market’s darlings. Not to discount anything from the favorite FANG economy – Facebook (FB, Financial), Amazon (AMZN, Financial), Netflix (NFLX, Financial) and Google now Alphabet (GOOG, Financial)(GOOGL).
Growth
Revenue Growth (2007-2015)
One thing I can conclude here accurately is no one company was able to consistently beat the group average for the past decade. Further, only Honda Motor (violet) was able to rise above the revenue growth average (pink) for the past three years (2013-2015); other than that, this data just shows how cyclical the car manufacturing business is.
Debt
Total debt in USD millions (2007-2014)
Group average total debt had been rising (pink).
Isolating the Japanese, U.S. and EU car manufacturers' numbers revealed the following:
Ford reduced its debt since the Great Recession while General Motors had an average six-year growth of 17% in total debt.
Japan’s Toyota had been increasing its debt from $104 billion in 2007 to $160 billion in 2014, a 6% CAGR increase. Both Honda and Nissan Motor had stable debt.
European car manufacturers Daimler AG and Volkswagen AG have contributed to the increasing total debt of group average for the past half decade.
D/E ratio from 2007-2014.
Ford has the highest D/E ratio among the group. Ford had negative shareholder equity between 2008 and 2010.
Daimler AG and Nissan Motor were consistent in surpassing the group’s D/E ratio average for the past half decade.
Volkswagen AG and Toyota Motor were on par with the group’s D/E ratio average. General Motor, on the other hand, had increased it substantially in 2013 onwards. The best performer in the group was Honda (purple), which had been consistently lower than the group’s average except in 2009.
Free cash flow in USD millions
Let us see how the companies support their dividends and share repurchases (if either are present upon any company’s discretion).
2010 was the only year when all of the companies being compared had a solid and positive free cash flow.
To give tidiness to the graph, I separated those companies that were producing positive free cash flow for their shareholders from those who were unable.
Daimler AG, Volkswagen AG, Honda and Nissan Motor are the companies that have been struggling to produce positive cash flow for their shareholders since 2013. Just look at Daimler AG (Mercedes Benz; blue).
Other than those two severe years (Great Recession) that contributed to General Motors' poor performance, the company was able to return to positive cash flow territory consistently since 2010.
Toyota, on the other hand, leads Ford in terms of more cash flow availability for dividends and buybacks.
Current dividend yield
Conclusion
Given the cyclical numbers above, it is not surprising that most investors (or Mr. Market) had given the car manufacturers lower valuation despite the recent ‘"record U.S. car sales." During this time, there was no rising tide to lift all the boats.
See the "record U.S. car sales" article here.
As for my title/question above, it appears that Toyota, indeed, reigns above other major car manufacturers.
Disclosure: I have no shares in any of the companies mentioned above nor plan to initiate any purchase within the next 24 hours. I am not a professional financial analyst. This is just a hobby. My work is not error-free, but I strive for it to be. Do not consider this buy or sell advice. Invest at your own risk.
*All images were from Google Images except for "record U.S. car sales."
Happy investing!
