Financial Risk Management at Toyota
Content
Financial risk management at Toyota
History of Toyota •
Sakichi Toyoda founded Toyota.
•
Kiichiro opened auto department.
•
•
•
•
•
•
He faced competition from Ford and GM. Estb of company Ltd took place in 1937. Second World war
Suffered a lot and financial problems. Company had to be bailed out by consortium of banks. Downsized and restructured.
Cntd… •
•
•
•
•
•
By 1952, Toyota’s financial health restored coz of the Korean Korean war. war. Showed interest in TQM. Launch of Corolla and more than 71,000 cars. Joint Venture with GM. Had a major achievement in US market when it successfully launched the Lexus and even Celica. Appreciation of yen and restrictions put on imports of Japanese cars by western counties, Toyota stepped up its efforts to set up plants abroad.
•
•
•
Toyota had increase in operating income and vehicle sales. Made plans to buy 5% stake in Yamaha. By early 2000s, Analysts considered Toyota to be the strongest of Global auto manufacturers.
CREDIT RISK •
What is credit risk ?
•
Used various financial instruments
•
Executed only with creditworthy FI
•
All foreign currency dominated in US $,Euro………
•
Toyota didn’t face significant losses ……
MARKET RIS •
What is Market Risk?
•
Why was Toyota exposed to market risk
•
What did Toyota do to come out of it –
Derivative
CURRENCY RISK •
What is currency risk?
•
Toyota faced it as because…..
•
Toyota’s financial statement affected both by TRANSLATION and TRANSACTION
•
Weakening in Japanese yen against other currency has +ve impact
•
Foreign currency exposures –
•
Western Europe
Value at Risk Analysis –
Estimated using Monte Carlo Simulation Method
Interest rate risk •
•
What is interest rate risk? Instrument used to reduce interest rate risk –
–
–
•
Future and contract Interest rate caps and floors Other investments
Toyota faced this risk as there was some shortcoming in there present method
Commodity price risk •
•
What is commodity price risk? Change in price of commodity like –
–
–
–
–
•
Aluminum Palladium Platinum Rhodium Steel
Didn’t use derivative to hedge commodity price risk
EQUITY PRICE RISK •
•
Toyota invested in various available for sale securities The fair value of this securities in march 31 2002 was 564.4 billion yen where as in march 31 2003 it went down to 487.6 billion yen
DERIVATIVE FINANCIAL INSTRUMENTS : ACCOUNTING AND VALUATION
•
•
Did not use the derivates for speculation or trading purposes Changes in the fair value of the derivatives were recorded each period in current earning or other
Toyota adopted FAS No 133, amended as on 1st A ril 2001 •
•
Derivative instruments essentially resulted in assets and liabilities Derivatives instrument were classified into four categories under FAS-133.
FAIR VALUE HEDGES
•
•
Gain or loss from re-measuring the hedging instruments at fair fair value value had to be be recognized immediately Toyota used interest rate swaps, currency swaps and
CASH FLOW HEDGES
•
•
Was not used to protect Toyota from variability in cash flow Toyota used interest rate risk, foreign foreign exchange exchange risk and currency swaps
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Thanks you for viewing our presentation.
History of Toyota •
Sakichi Toyoda founded Toyota.
•
Kiichiro opened auto department.
•
•
•
•
•
•
He faced competition from Ford and GM. Estb of company Ltd took place in 1937. Second World war
Suffered a lot and financial problems. Company had to be bailed out by consortium of banks. Downsized and restructured.
Cntd… •
•
•
•
•
•
By 1952, Toyota’s financial health restored coz of the Korean Korean war. war. Showed interest in TQM. Launch of Corolla and more than 71,000 cars. Joint Venture with GM. Had a major achievement in US market when it successfully launched the Lexus and even Celica. Appreciation of yen and restrictions put on imports of Japanese cars by western counties, Toyota stepped up its efforts to set up plants abroad.
•
•
•
Toyota had increase in operating income and vehicle sales. Made plans to buy 5% stake in Yamaha. By early 2000s, Analysts considered Toyota to be the strongest of Global auto manufacturers.
CREDIT RISK •
What is credit risk ?
•
Used various financial instruments
•
Executed only with creditworthy FI
•
All foreign currency dominated in US $,Euro………
•
Toyota didn’t face significant losses ……
MARKET RIS •
What is Market Risk?
•
Why was Toyota exposed to market risk
•
What did Toyota do to come out of it –
Derivative
CURRENCY RISK •
What is currency risk?
•
Toyota faced it as because…..
•
Toyota’s financial statement affected both by TRANSLATION and TRANSACTION
•
Weakening in Japanese yen against other currency has +ve impact
•
Foreign currency exposures –
•
Western Europe
Value at Risk Analysis –
Estimated using Monte Carlo Simulation Method
Interest rate risk •
•
What is interest rate risk? Instrument used to reduce interest rate risk –
–
–
•
Future and contract Interest rate caps and floors Other investments
Toyota faced this risk as there was some shortcoming in there present method
Commodity price risk •
•
What is commodity price risk? Change in price of commodity like –
–
–
–
–
•
Aluminum Palladium Platinum Rhodium Steel
Didn’t use derivative to hedge commodity price risk
EQUITY PRICE RISK •
•
Toyota invested in various available for sale securities The fair value of this securities in march 31 2002 was 564.4 billion yen where as in march 31 2003 it went down to 487.6 billion yen
DERIVATIVE FINANCIAL INSTRUMENTS : ACCOUNTING AND VALUATION
•
•
Did not use the derivates for speculation or trading purposes Changes in the fair value of the derivatives were recorded each period in current earning or other
Toyota adopted FAS No 133, amended as on 1st A ril 2001 •
•
Derivative instruments essentially resulted in assets and liabilities Derivatives instrument were classified into four categories under FAS-133.
FAIR VALUE HEDGES
•
•
Gain or loss from re-measuring the hedging instruments at fair fair value value had to be be recognized immediately Toyota used interest rate swaps, currency swaps and
CASH FLOW HEDGES
•
•
Was not used to protect Toyota from variability in cash flow Toyota used interest rate risk, foreign foreign exchange exchange risk and currency swaps
Text area
Thanks you for viewing our presentation.
