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Honda's Declining Profit Analysis

The accounting analysis of Honda shows that over time its gross profit, net profit, and earnings per share have decreased. This is likely due to increases in raw material costs and failure to control operating expenses. Additionally, the company's non-current liabilities and capital employed have increased as it has had to take on more long-term debt and borrowing due to a lack of available cash and declining shareholder confidence. Several of Honda's financial ratios have also worsened over time, such as the quick ratio, indicating the company may struggle to meet short-term obligations.

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12 views1 page

Honda's Declining Profit Analysis

The accounting analysis of Honda shows that over time its gross profit, net profit, and earnings per share have decreased. This is likely due to increases in raw material costs and failure to control operating expenses. Additionally, the company's non-current liabilities and capital employed have increased as it has had to take on more long-term debt and borrowing due to a lack of available cash and declining shareholder confidence. Several of Honda's financial ratios have also worsened over time, such as the quick ratio, indicating the company may struggle to meet short-term obligations.

Uploaded by

Sinpao
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Accounting Analysis

 Gross Profit over time has decreased. Gross profit is the profit a company makes after
deducting the costs associated with making and selling its products. Possible reason why
gross profit decreased could be due to increase in raw material costs
 Net Profit of Honda has also decreased and possible reason could be that the company
did not controlled its operating expenses
 Non Current Liabilities of the company have increased. This includes long term loans,
debentures etc. Company started borrowing because it was running out of cash
 Capital employed has also increased over time and the reason for this decrease could
be lack of shareholders confidence in the company
 The quick ratio of the company is 1 for the first two then it has decreased to 0. Quick
ratio measures a company’s ability to meet its short term obligations with its most liquid
assets. This shows that now Honda would not be able to meet its short term liabilities

 The fixed asset turnover ratio compares net sales to net fixed assets. A low fixed asset
ratio shows that the business is overinvested in fixed assets which is in last 2 years
whereas a high ratio tells us that the company is doing an effective job of generating sales
with a relatively small amount of fixed assets
 Earnings per share (EPS) is the portion of a company's profit
allocated to each outstanding shareholder. It is decreasing over
time which tells us that shareholders are earning less

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