The debt management ability of Honda Atlas Cars ltd, compared to other firms in the industry, is not very good. Honda Atlas Cars ltd heavily relies on creditors to finance company operations. The Debt ratio of the company is a lot higher than the industry average. Honda’s 80.6 % of the assets are financed through debt where an average business with in the same industry has only 45.4% of its assets financed through debt. Moreover, Honda has a higher Debt to equity ratio as well compared to its major competitors. Against each rupee invested by the company’s owners, investors such as banks and suppliers have invested Rs. 4.15 in the company. This means the creditors of Honda have invested more than the owners. On the other hand, Suzuki and Toyota
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Due to this Honda’s Interest cover ratio (56.1 times) is way below than the Industry average (95.8 times). Honda’s interest expense forms 1.7% of its EBIT where for Suzuki and Toyota, its only 1% and 0.7% respectively. Although Toyota’s long-term debt amount is a lot higher than that of Honda’s, Honda still bears an interest expenses closer to that of Toyota’s. The company’s ability to make interest payments is lower than the ability of an average firm in the industry. This indicates that Honda has a lower margin of safety for paying interest expenses compared to Suzuki (99.2 times) and Toyota (132.1 times). This means Honda has more solvency issues compared to …show more content…
However, Honda’s Book value per share falls the below the book value of competitors and average firm in the industry. Honda’s BVPS of RS. 16.8 indicates that after all debts are paid and assets are liquidated, each common share holder will receive a Rs. 16.8 return for each share owned. This is only 12.7% of the BVPS of an average firm in the industry. Compared to Honda, Toyota’s and Suzuki’s BVPS exceed by Rs. 236.6 and Rs. 111.4 respectively. The competitors represent a better value buy than Honda. Honda’s Market to book value ratio tells us that the company’s market price is 3.3 times its book value. This is 0.3 times above the industry average. The PE and MB ratios are conflicting, since the first is lower than industry average where the latter is higher than industry average. It is important to note that Honda has a fairly large amount of outstanding shares compared to Toyota and Suzuki. The higher than Industry average MB ratio might have resulted due to a very low book value (compared to industry avg.) due to a high number of outstanding shares. Although the market value of Honda is lowest, its MB ratio is high due to an even lower book value per share (vs. the
Due to this Honda’s Interest cover ratio (56.1 times) is way below than the Industry average (95.8 times). Honda’s interest expense forms 1.7% of its EBIT where for Suzuki and Toyota, its only 1% and 0.7% respectively. Although Toyota’s long-term debt amount is a lot higher than that of Honda’s, Honda still bears an interest expenses closer to that of Toyota’s. The company’s ability to make interest payments is lower than the ability of an average firm in the industry. This indicates that Honda has a lower margin of safety for paying interest expenses compared to Suzuki (99.2 times) and Toyota (132.1 times). This means Honda has more solvency issues compared to …show more content…
However, Honda’s Book value per share falls the below the book value of competitors and average firm in the industry. Honda’s BVPS of RS. 16.8 indicates that after all debts are paid and assets are liquidated, each common share holder will receive a Rs. 16.8 return for each share owned. This is only 12.7% of the BVPS of an average firm in the industry. Compared to Honda, Toyota’s and Suzuki’s BVPS exceed by Rs. 236.6 and Rs. 111.4 respectively. The competitors represent a better value buy than Honda. Honda’s Market to book value ratio tells us that the company’s market price is 3.3 times its book value. This is 0.3 times above the industry average. The PE and MB ratios are conflicting, since the first is lower than industry average where the latter is higher than industry average. It is important to note that Honda has a fairly large amount of outstanding shares compared to Toyota and Suzuki. The higher than Industry average MB ratio might have resulted due to a very low book value (compared to industry avg.) due to a high number of outstanding shares. Although the market value of Honda is lowest, its MB ratio is high due to an even lower book value per share (vs. the