1. SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
THE DESIGN SCHOOL
FOUNDATION IN NATURAL & BUILT ENVIRONMENTS
FINANCIAL RATIO ANALYSIS
BASIC ACCOUNTING [FNBE0145]
ASSIGNMENT 1
CHIN TZE WEI (0315767)
SIAU SEE SING (0315926)

2. TABLE OF CONTENT
Brief background history of Mitsubishi Motors Pg: 3-4
Recent Developments of Mitsubishi Motors Pg: 4-6
Profitability Analysis of Mitsubishi Motors Pg: 7
Financial Stability Analysis of Mitsubishi Motors Pg: 8
Investment Recommendation Pg: 9-10
Appendix Pg: 11-16
References Pg 17

3. Brief Background History of Mitsubishi Motors
Mitsubishi's automotive was started back in 1917 when the Mitsubishi Shipbuilding Co.
Ltd. launched the Mitsubishi Model A which was actually Japan's first series-production
automobile. It is an entirely hand-built seven-seated sedan based on the Fiat Tipo 3 but it
eventually proved expensive when compared to its American and European mass-produced
rivals. In the end, it discontinued its operations in 1921 after only 22 had been built.
In 1934, Mitsubishi Shipbuilding was merged with the Mitsubishi Aircraft Co., a
company established in 1920 that is specialized in manufacturing aircraft engines and other parts.
The unified company was known as Mitsubishi Heavy Industries (MHI) and became the largest
private company in Japan. Initially MHI was specifically concentrated on manufacturing aircraft,
ships, railroad cars and machinery but in 1937, it developed the PX33, a prototype sedan for
military use. It was the first Japanese-built passenger car with full-time four-wheel drive, a
technology the company would return to almost fifty years later in its quest for motorsport and
sales success.
Immediately following the end of the Second World War, the company returned to
manufacturing vehicles. Fuso bus production was resumed, while a small three-wheeled cargo
vehicle called the Mizushima and a scooter called the Silver Pigeon were also developed soon
after. (Yuji Sato, 1972) However, the zaibatsu (Japan's family-controlled industrial
conglomerates) were ordered to be dismantled by the Allied powers in 1950 and Mitsubishi
Heavy Industries was split into three regional companies, each having a hand in motor vehicle
development: West Japan Heavy-Industries, Central Japan Heavy-Industries and East Japan
Heavy-Industries. (Hirokazu Nakamura, 1991)
East Japan Heavy-Industries began importing the Henry J, an inexpensive American
sedan built by Kaiser Motors, in knockdown kit (CKD) form to Japan in 1951, and continued to
do so for the remainder of the car's three-year production run. (Takemune Kimura, 1995) During
that same year, Central Japan Heavy-Industries have also concluded a similar contract with
Willys (now owned by Kaiser) for CKD-assembled Jeep CJ-3Bs. This deal showed more durable
with licensed Mitsubishi Jeeps in production lasting until 1998, thirty years after Willys
themselves had replaced the model.
By the beginning of the 1960s Japan's economy was soaring, wages were rising and the
idea of family motoring was taking off. By now Central Japan Heavy-Industries, now known as
Shin Mitsubishi Heavy-Industries, had already re-established an automotive department in its
headquarters in 1953. (Yuji Sato, 1973) Then, it had come to the introduction of the Mitsubishi
500, a mass market sedan, to meet the new demand from consumers. This was soon followed up
in 1962 with the Minica kei car and the Colt 1000, the first of its Colt line of family cars, in
1963.
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4. Meanwhile, West Japan Heavy-Industries (now renamed Mitsubishi Shipbuilding &
Engineering) and East Japan Heavy-Industries (now Mitsubishi Nihon Heavy-Industries) had
also expanded their automotive departments in the 1950s staging the stage for all three to be re-
integrated as Mitsubishi Heavy Industries in 1964. Within three years its output was over 75,000
vehicles annually. (Osamu Masuko, 2009) Following the successful introduction of the first
Galant in 1969 as well as experiencing similar growth with its commercial vehicle division, it
was decided that the company should create a single operation just to focus on the automotive
industry. Finally Mitsubishi Motors Corporation (MMC) was formed on April 22, 1970 as a
wholly owned subsidiary of MHI under the leadership of Tomio Kubo, a successful engineer
from the aircraft division. (Hideyasu Tagaya, 2005)
The logo of three red diamonds, shared with over forty other companies within the
keiretsu, predates Mitsubishi Motors itself by almost a century. (Yoichiro Okazaki, 2004) It was
chosen by Iwasaki Yatarō, the founder of Mitsubishi, as it was suggestive of the emblem of the
Tosa Clan who first employed him and because his own family crest was three rhombuses that
were stacked atop each other. The name Mitsubishi is a portmanteau of mitsu ("three") and hishi
(literally, "water chestnut", often used in Japanese to denote a diamond or rhombus). (Rolf
Eckrodt, 2002)
Recent Developments of Mitsubishi Motors
10th April 2014: Motor Show at the 2014 Beijing International Automotive Exhibition
(Auto China 2014)
 To present the MITSUBISHI Concept GC-PHEV *1 and the MITSUBISHI Concept XR-
PHEV *2 for the first time in China at the 2014 Beijing International Automotive
Exhibition (Auto China 2014).
 To display a total of 11 models including models produced and sold in China.
 To incorporate a new design that symbolizes the functionality and reassuring safety
inherent to SUVs, the MITSUBISHI Concept GC-PHEV and the MITSUBISHI Concept
XR-PHEV.
 The MITSUBISHI Concept GC-PHEV is a next-generation full-size SUV with
full-time four-wheel drive. It is based on a front engine, rear-wheel drive layout
with a plug-in hybrid EV (PHEV) system comprising a 3.0-liter V6 supercharged
MIVEC*3 engine mated to an eight-speed automatic transmission, with a high-
output electric motor and a high-capacity battery to deliver all-terrain
performance truly worthy of an all-round SUV.
 The MITSUBISHI Concept XR-PHEV is a next-generation compact SUV
developed to take driving pleasure to new levels. The model uses a front engine,
front-wheel drive layout with a PHEV system that is configured with a downsized
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5. 1.1-liter direct-injection turbocharged MIVEC engine, a lightweight, compact and
high-efficiency electric motor with a high-capacity battery.
9th May 2014: Outlander PHEV Receives Five Star Award for Safety from JNCAP
 Cementing the world's first plug-in hybrid SUV as a leader in automobile safety, adding
on to its five-star rating from Euro NCAP in December 2013.
 Satisfied all tests regarding electric shock safety including protection against electric
shock, high-voltage battery electrolyte leakage performance, and high-voltage battery
attachment status.
 First product that reflects MMC's future product development direction - focusing on
SUVs with a combination of advanced electric vehicle technology cultivated from its
MiEV series, superior 4x4 stability honed from the Lancer Evolution, and SUV knowhow
from the legendary Pajero.
 Won the Car of the Year Japan 2013-2014's Innovation Award*3 and the unique plug-in
hybrid system that propels the Outlander PHEV as the chosen recipient of the RJC
Technology of the Year 2014 award*4.
Recent Mitsubishi Motor Vehicles:
MITSUBISHI ASX L200/TRITON
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6. PAJERO SPORT ATTRAGE
PAJERO-MONTERO OUTLANDER
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7. Profitability Analysis of Mitsubishi Motors, Japan (2012-2013)
Profitability
Ratio
2012 (In Yen) 2013 (In Yen) Interpretation
Return on
Equity(ROE)
(Net profit/Average owner’s
equity) x 100%
(23928/351890.5) x 100%
= 6.80%
(Net profit/Average owner’s
equity) x 100%
(37978/382865) x 100%
= 9.92%
During the 2012-2013 period,
the business ROE has increased
from 6.80% to 9.92%. This
means the business is getting
more returns from their
investments.
Net Profit
Margin(NPM)
(Net profit/Net sales) x 100%
(23928/1807293) x 100%
= 1.32%
(Net Profit/Net sales) x 100%
(37978/1815113) x 100%
= 2.09%
During the 2012-2013 period,
the business NPM has increased
from 1.32% to 2.09%. This
means the business is getting
better at controlling its overall
expenses.
Gross Profit
Margin
(GPM)
(Gross profit/Net sales) x
100%
(320025/1807293) x 100%
= 17.7%
(Gross profit/Net sales) x 100%
(339971/1815113) x 100%
= 18.7%
During the 2012-2013 period,
the business GPM has increased
from 17.7% to 18.7%. This
means the business is getting
better at controlling its COGS.
Selling
Expense
Ratio(SER)
(Total selling expense/Net
sales) x 100%
(120575/1807293) x1 00%
= 6.67%
(Total selling expense/Net
sales) x 100%
(110090/1815113) x 100%
= 6.07%
During the 2012-2013 period,
the business SER has decreased
from 6.67% to 6.07%. This
means the business is getting
better at controlling its selling
expenses.
General
Expense
Ratio(GER)
(Total general expense/Net
sales) x 100%
(120575/1807293) x 100%
= 6.67%
(Total general expense/Net
sales) x 100%
(110090/1815113) x 100%
= 6.07%
During the 2012-2013 period,
the business GER has decreased
from 6.67% to 6.07%. This
means the business is getting
better at controlling its general
expenses.
Financial
Expense
Ratio(FER)
(Total financial expense/Net
sales) x 100%
(13706/1807293) x 100%
= 0.76%
(Total financial expense/Net
sales) x 100%
(10624/1815113) x 100%
= 0.59%
During the 2012-2013 period,
the business FER has decreased
from 0.76% to 0.59%. This
means the business is getting
better at controlling its financial
expenses.
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8. Financial Stability Analysis of Mitsubishi Motors, Japan (2012-2013)
Financial Stability
Ratio
2012(In Yen) 2013(In Yen) Interpretation
Working Capital
Ratio(WCR)
(Total current assets/Total
current liabilities)
(759175/703457)
= 1.08:1
(Total current assets/Total
current liabilities)
(878980/787248)
= 1.12:1
During the 2012-2013 period,
the business WCR has
increased from 1.08:1 to 1.12:1.
This means that the business
ability to pay its current
liabilities with current assets is
getting better. However it does
not satisfy the minimum
requirement of 2:1.
Total Debt
Ratio(TDR)
(Total liabilities/Total
assets)x100%
(1055686/1321306)x100%
= 79.9%
(Total liabilities/Total
assets)x100%
(1101581/1452809)x100%
= 75.8%
During the 2012-2013 period,
the business TDR has decreased
from 79.9% to 75.8%. This
means that the business total
debt has reduced. However it is
still over the maximum limit of
50%
Inventory Turnover
Ratio(ITR)
365days/(Cost of goods
sold/Average Inventory)
365/(1487267/188374)
= 46.2 days
365days/(Cost of goods
sold/Average Inventory)
365/(1475141/194891)
= 48.2 days
During the 2012-2013 period,
the business STR has increased
from 46.2 days to 48.2 days.
This means that the business is
taking a longer time to sell off
its inventories.
Debtor Turnover
Ratio(DTR)
365days/(Credit sales/Average
debtors)
365/(903646.5/8004.5)
= 3.23 days
365days/(Credit
sales/Average debtors)
365/(907556.5/4540)
= 1.83 days
During the 2012-2013 period,
the business DTR has decreased
from 3.23 days to 1.83 days.
This means the business is
collecting its debts faster.
Interest Coverage
Ratio(ICR)
(Interest expense + Net
profit)/Interest Expense
(13706+23928)/13706
= 2.75 times
(Interest expense + Net
profit)/Interest Expense
(10624+37978)/10624
= 4.57 times
During the 2012-2013 period,
the business ICR has increased
from 2.75 times to 4.57 times.
This means that the business
has enough profits to pay off its
interest expenses. However it is
still below the minimum
requirement of 5 times.
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9. Price/Earning Ratio (P/E Ratio)
Formula: (Current share price/Earnings per share)
= (1030/162.4400)
= 6 years
Mitsubishi Motors’ current share price is 1031.00 yen while it earnings per share for the year
2013 is 66.05 yen. This means that if an investor is interested in investing on Mitsubishi Motors
by buying its shares, he/she will need to wait for 6 years to recoup back his/her investments.
Investment Recommendation
During the 2012-2013 period, the business had been handling its Net Profit Margin
(NPM) Ratio quite well from 1.32% to 2.09%. This is due to their better management in
handling its Gross Profit Margin (GPM), Selling Expenses, General Expenses and Financial
Expenses.
This would in fact help the shareholders of Mitsubishi Motors to earn more returns from
their investments. Therefore, on the profitability side, Mitsubishi Motors is on the right track.
Meanwhile, on the stability side, Mitsubishi Motors have shown some slight
improvements to its Working Capital and Total Debt even though they fall below the standard
requirements. For Working Capital Ratio, it has increased from 1.08:1 to 1.12:1, while its Total
Debt Ratio has also decreased from 79.9% to 75.8%.
From the Interest Coverage Ratio shown below, it does show Mitsubishi Motors have
earned enough profits to cover up its Working Capital and Total Debt.
2012 2013
2.75 times 4.57 times
There is a massive difference from 2.75 times in 2012 to 4.57 times in 2013 even though
it will take a longer time to sell off its inventories as shown below.
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10. Inventory Turnover Ratio
2012 2013
46.2 days 48.2 days
So, based on what we have observed, it is quite worth it for the investor to invest in Mitsubishi
Motors due to the high profits that can be made from it, as it will require 6 years to get back his
investments altogether. Another reason is if it keeps on getting enough profits, there is no reason
why it would not fall within the standard requirements of 2:1 for Working Capital Ratio and 50%
for Total Debt Ratio. Therefore, in our opinions, there isn’t a single reason why any investor
would not want to invest in it.
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11. Appendix
Page 11

12. Page 12

13. Figure 1:Mitsubishi Motors' 2013 Balance Sheet
Figure 2: Mitsubishi Motors' 2013 P&L Statement
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14. Page 14

15. Figure 3: Mitsubishi Motors' 2012 Balance Sheet
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16. Figure 4: Mitsubishi Motors' 2012 P&L Statement
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17. References
1) Mukai, Anna (2011-01-20). "Mitsubishi Motors to Introduce Eight Hybrid,
Electric Car Models by 2015". Bloomberg.com. Retrieved 23 May 2014.
2) "Notice regarding conclusion of a principal agreement on share transfer of
the European subsidiary production site". Mitsubishi Motors. 11 July 2012.
Retrieved 24 May 2014.
3) http://www.mitsubishi-motors.com/publish/ir_en/library/anual.html
4) http://www.mitsubishi-motors.com/en/showroom/
5) http://www.mitsubishi-motors.com/en/corporate/aboutus/history/1870/
6) http://www.mitsubishi-
motors.com/publish/pressrelease_en/corporate/2014/news/detail0929.html
7) http://www.mitsubishi-
motors.com/publish/pressrelease_en/motorshow/2014/news/detail0926.html
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