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Name: Krasen Dimov

ID#:100063777
Class:BUS220f

ANNUAL PROJECT 2011

INDIVIDUAL PAPER

Company: Toshiba Corporation


Data from Annual Report 2011, 2010
Toshiba is $77 billion multinational electric and electronic equipment manufacturer
led by CEO Norio Sasaki. The company has a very wide range of products starting from
digital products and electronic devices to home appliances and social infrastructure. Currently
Toshiba is the fifth largest personal computer vendor with more than 203,000 employees.
With around $4 billion annual investments in research and development, Toshiba Corporation
is one of the most renowned innovators in the technology industry: Committed to people,
committed to the future. This paper discusses the performance and future perspectives of the
company using tools like horizontal and vertical analysis of the financial statements and some
key financial ratios.
Despite the economic uncertainties in many countries and the sluggish recovery of the
global economy, we see a significant improvement in the financial indicators of Toshiba
Corporation. Referring to the horizontal analysis of the income statement, we see a significant
2% (107.3 billion yen) increase in the consolidated net sales for FY2010. This has led to an
impressive 468% or 161.1 billion yen increase of the income from continuing operations
(before non-controlling interest and taxes). We can also notice a significant improvement in
the selling, administrative and general expenses, which have decreased with 53,273 million
yen (4%). Naturally this has led to a 157,588 billion yen increase of the net income
attributable to the shareholders, despite the yen appreciation and the impact of the Great East
Japan Earthquake. Although these statistics sound impressive, we should also note that the net
income attributable to the shareholders of the company merely returned to its recorded levels
in FY 2007.
The management of the company explains the climb in profits mainly with an increase
in sales of TVs, semiconductors and memories. In addition, the company recorded a high
profit level in the home appliances industry and the social infrastructure segment. Toshiba
Corporation managed to cut PC procurement costs and restructure its display operations. We
should also note that the Japanese giant supplies the famous Apple Inc. with smartphone
displays, storage devices and lighting. Thus the increased demand for the iPad and iPhone
was one of the reasons for Toshibas lucrative FY 2010.
Referring to the balance sheet horizontal analysis we see a significant decrease of 25%
in the long-term debt. This is due to the companys endeavor to achieve an asset light business
model. The total liabilities have decreased with 3% to a total of 4,200 billion yen. This has
also affected the assets of the company, which have decreased with 1%. We see a decrease of
9% of the fixed assets, which is due to the above mentioned policy. The increase in the net
profit and the cut of the expenses have also led to an 8% increase in the total equity
attributable to the shareholders of the company (868 billion yen for FY 2010). In general, the
company tries to reduce the long term liabilities and to use its assets more efficiently.
By reviewing the common-size income statement we can clearly see the marks of an
aggressive reorganization of the company, which helps reducing the costs. In the fiscal year
ended March 31, 2011, we can see that the total expense were 98.4% of the net sales,
compared to a 100.9% for FY 2009. We can also notice a significant decrease in the cost of
sales and the selling, general and administrative expenses. At the end of FY 2010 the
company has recorded a net income attributable to shareholders of 2.2% of net sales, which is
an improvement from FY 2009, during which Toshiba recognized a net loss amounting to
0.3% of net sales.
Furthermore, the common-size balance sheet shows us a slight increase of the
proportion of current assets to total assets on account of the fixed assets for the 2010 fiscal
year. For the FY 2010 the current assets are 52% of the total assets, compared to the 50.7%
for the FY 2009. On the other hand, the fixed assets for FY 2010 are just 16.7% of the total
assets, while for FY 2009 they are 18%. Yet again this shows the attempt of the company to
increase its efficiency and flexibility. This policy has affected the liability side of the balance
sheet as well. For FY 2010 the proportion of long-term debt to total assets is 14.3% compared
to 17.6% from the previous year.
The liquidity position of Toshiba Corporation has significantly improved for the FY
2010. There is a clear increase in the net working capital, which means that the company has
become safer in terms of meeting its short term obligations and thus it can safely expand. This
fact is reflected in the increase of the current ratio from 1.11 to 1.12 for FY 2010. Although
relatively low, the current ratio of Toshiba Corporation is considered to be safe.
Whether the company has optimized its usage of assets is ambiguous and hard to tell
from the inventory, total assets and accounts receivable turnover ratios. On one hand, we have
a decrease in the inventory turnover from 8.10 to 7.71. This means that the company has
inefficiently tied up more of its funds to its inventories. In addition, there is a decrease in the
accounts receivable turnover, which means that the company is worse off in collecting its
accounts receivables and managing its sales on credit. On the other hand, the total asset
turnover shows an increase from 1.15 to 1.18 for FY 2010, which tells us that in general the
corporate resources are better managed compared to the previous year.
The picture looks less bright when we look at the leverage ratios. For FY 2010 the
debt-to-equity ratio has decreased from 1.5 to 1.2. This shows that the company has put a lot
of effort in making itself safer in terms of paying its debts and interests. This statement can be
backed up with the change of the interest coverage ratio from 3.74 to 7.70, which clearly
indicates that Toshiba Corporation has done a lot in decreasing the risk of default on its debts.
These results are partly due to the decrease in the long-term debt of the company and due to
the increase in the equity attributable to the shareholders. Nevertheless, the leverage
indicators of Toshiba Corporation are comparatively high, which means that the company
uses mostly debt to finance its assets. Despite the positive developments, we can still
conclude that Toshiba has relatively high leverage ratios, so it should continue working in the
same direction.
From profitability point of view we can also see a significant change in the ratios. This
is due to the recorded in FY 2010 net income comparable in size to the net income prior to the
2007 financial crisis. We should also note that Toshiba had e very poor performance in FY
2009 with a recorded net loss of 19 billion yen. This explains the net profit margin jump from
-0.31% to 2.12%. We observe a similar change in the return on total assets. More interesting is
the change from -3.2% to 16.6% in the return on equity. This huge change is due to the
simultaneous increase in the equity attributable to shareholders and the net profit, and shows
the overall increase in the profitability of the company.
Furthermore, there are significant increases in the companys common stock ratios,
which indicate an overall improvement in the performance and increase in the companys
value.
All the conclusions drawn in the previous paragraphs are based on data from the
2011/10 annual reports, so it is important to pay attention to the accounting policies used in
creating the reports and any additional notes attached to them. It seems that there are no
significant changes in the accounting policies of the company. Toshiba Corporation prepares
its financial statements according to the generally accepted accounting principles in Japan, but
at the same time maintains the records of its foreign subsidiaries in conformity with the
accounting policies for the different countries. The company also uses some management
estimates in order to comply with U.S. GAAP.
The company has a very ambitious dividend policy for the FY 2010 and FY 2011. It
has set its goals to a 30% payout ratio on a consolidated basis. For the last fiscal year Toshiba
has decided to pay an interim dividend of 2 yen per share and year-end dividend of 3 yen per
share. This amounts to 5 yen per share of annual dividend. It will also seek a continual
increase in the actual dividend payments on consolidated basis in the future. We should also
have in mind that for the FY 2009 Toshiba did not pay any dividends.
Taking a look at the capital structure of the company we would see that Toshiba has, in
a way, potentially problematic debt leverage. Indicators such as the quick ratio show that the
company does not have an adequate amount of liquid assets. Except for the above mentioned
liquidity problem, Toshiba Corporation has also a relatively high leverage ratios. On one
hand, this could be explained by the capital intensive businesses with which Toshiba deals. On
the other hand, this does not change the fact that the company is relatively risky in terms of
maintaining a positive capital and meeting its obligations. Nevertheless, we can see a
tendency of a decreasing long-term debt, which indicates that the company is working on
improving its capital structure and decreasing the risk of insolvency. For FY 2010 the equity
attributable to shareholders has increased with 70.2 billion yen, which lead to an improvement
of the shareholders equity ratio. Furthermore, the total debt of the company has decreased
with 137 billion yen. These developments indicate a significant improvement in the health of
the company.
An article in Bloomberg.com named Toshiba to Buy Meter Maker Landis+Gyr for $2.3
Billion in Smart Grid Boost shows how confident the company feels about its future.
The article discusses that Toshiba is going to acquire the Swiss company Landis+Gyr
for $2.3 billion. This will expand the computer giants business with smart-grid
operations and will provide the Japanese company access to 30 different markets. Smart-
grid is a system that monitors and manages the usage of electricity from renewable
sources such as solar power and wind. This is a big step for Toshibas green oriented
policy, which justifies the motto of the company: Committed to the future.
Furthermore, the Japanese giant expects the smart-grid market to expand sixfold to $71
billion over the next decade.

Nevertheless, this does not mean that Toshiba is a safe harbor for the investors money.
As IndustryWeeks article titled Toshiba returns to black points out, the outlook still
remains uncertain. The Great Japanese Earthquake had an enormous impact on the
performance of the company for the fiscal 2010 year and will have effect on the company in
the future as well. As the article suggests, the nearly doubled revenue for FY 2010 is mainly
due to the strong demand for television sets and memory chips, which are just a small portion
of the companys product range. At the same time, Toshiba had to close a chip-making factory
in Iwate Prefecture, which has resumed its operations only partially. In the long-term the
computer giant has to deal with the paralyzed Japanese economy, which will definitely lead to
a change in the domestic demands.
So the question is: should we invest in Toshiba Corporation? On one hand, the
company is relatively debt leveraged and that means its equity is pretty sensitive to losses.
Currently the economic picture of the world is not very promising: we have a sovereign debt
crisis and Europe and in addition the earthquake stricken economy of Japan. These
uncertainties make Toshiba a relatively risky company to invest in, because the case of big net
losses would wipe out the equity of the company. On the other hand, we should also note that
the company is trying to restructure itself and create a more flexible business model. It has
managed to decrease its long-term debt and cut many operational expenses. Furthermore,
except for the strongly established business in the digital products and electronic devices
segments, Toshiba has been consistent in its annual investments in new technologies and
alternative sources of energy. In the future this may turn out to be a gold mine for the
company and for the stockholders. To conclude, in the short run Toshiba is not the perfect
company to invest in, but for a venturesome investor, the Japanese giant may turn out to be an
easy way to for multiplying money.

Sources:

1. Toshiba to Buy Meter Maker Landis+Gyr for $2.3 Billion in Smart Grid
Boost. www.bloomberg.com.

http://www.bloomberg.com/news/2011-05-19/toshiba-reaches-agreement-
to-purchase-landis-gyr-for-2-3-billion-in-cash.html

May 19, 2011. Web.

2. Toshiba returns to black. www.industryweek.com.


http://www.industryweek.com/articles/toshiba_returns_to_black_24566.
aspx?cid=NLQMN

May 9, 2011. Web.


Consolidated Financial Statements:

Consolidated Balance Sheet


Toshiba Corporation and Subsidiaries
As of March 31 2016, 2015 and 2014

In millions of yen 2014 2015 2016


Assets
Current Assets:
Cash and cash equivalents 159,632 190,182 969,715
Notes and accounts receivable, trade:
Notes 34,216 35,081 33,229
Accounts 1,326,634 1,333,547 1,155,803
Allowance for doubtful notes and accounts (13,472) (34,394) (32,473)
Inventories 808,109 911,009 729,123
Deferred tax assets 154,436 182,421 63,303
Current assets of discontinued operations 257,490 199,615 68,370
Prepaid expenses and other current assets 431,628 520,945 471,515
Total current assets 3,158,673 3,338,406 3,458,585

Long-term receivables and investments:


Long-term receivables 367 9,851 10,039
Investments in and advances to affiliates 380,916 359,445 266,554
Marketable securities and other investments 267,961 262,147 86,953
Total long-term receivables and investments 649,244 631,443 363,546

Property, plant and equipment:


Land 89,242 91,242 91,881
Buildings 890,650 898,270 890,659
Machinery and equipment 1,926,173 1,956,782 1,905,122
Construction in progress 70,937 77,428 64,065
Less-Accumulated depreciation (2,131,620) (2,170,180) (2,157,423)
Total property, plant and equipment 845,382 853,542 794,304

Other assets:
Non-current assets of discontinued operations 142,085 114,817
Deferred tax assets 281,035 160,479 27,921
Other assets 1,096,100 1,236,091 788,985
Total other assets 1,519,220 1,511,387 816,906

Total assets 6,172,519 6,334,778 5,433,341

Liabilities and equity


Current liabilities:
Short-term borrowings 93,541 61,987 410,983
Current portion of long-term debt 54,092 205,988 208,629
Notes and accounts payable, trade 1,116,232 1,161,946 877,061
Accounts payable, other and accrued exp. 451,081 488,891 520,030
Accrued income and other taxes 65,453 62,662 108,152
Advance payments received 317,228 386,763 486,225
Other current liabilities 366,610 376,983 365,623
Discontinued operations current liabilities 269,273 165,648 95,306
Total current liabilities 2,733,510 2,910,868 3,072,009

Long-term liabilities:
Long-term debt 1,182,668 1,043,021 831,300
Accrued pension and severance costs 538,183 515,446 629,402
Other liabilities 182,049 208,120 228,372
Non-current liabilities of discontinued operations 90,115 91,966
Total long-term liabilities 1,993,015 1,858,553 1,689,074

Total liabilities 3,986,030 3,717,106 3,378,148

Equity attributable to shareholders of the


Company
Common stock: 439,901 439,901 439,901
Additional paid-in capital 401,830 402,008 399,470
Retained earnings 454,931 383,231 (76,782)
Accumulated other comprehensive loss (267,786) (139,323) (431,828)
Treasury stock, at cost: (1,687) (1,821) (1,887)

Equity attributable to noncontrolling interests 418,805 481,361 343,384


Total equity 587,288 644,095 -111,027

Total liabilities and equity 6,172,519 6,334,778 5,433,341

Horizontal Analysis:

Consolidated Balance Sheet


Toshiba Corporation and Subsidiaries
As of March 31, 2014 and 2015
Increase (Decrease)
In millions of yen 2014 2015 Amount Percent
Assets
Current Assets:
Cash and cash equivalents 159,632 190,182 30,550
Notes and accounts receivable, trade:
Notes 34,216 35,081 865 2.53
Accounts 1,326,634 1,333,547 6913 0.52
Allowance for doubtful notes and accounts (13,472) (34,394) -20,922 155.3
Inventories 808,109 911,009 102,900 12.73
Deferred tax assets 154,436 182,421 27,985 18.12
Current assets of discontinued operations 257,490 199,615 -57.875 -22.48
Prepaid expenses and other current assets 431,628 520,945 89.317 20.69
Total current assets 3,158,673 3,338,406 179,733 5.69

Long-term receivables and investments:


Long-term receivables 367 9,851 9,484 2584.19
Investments in and advances to affiliates 380,916 359,445 -21,471 -5.64
Marketable securities and other investments 267,961 262,147 -5,814 -2.16
Total long-term receivables and investments 649,244 631,443 -17,801 -2.74

Property, plant and equipment:


Land 89,242 91,242 2,000 2.241097
Buildings 890,650 898,270 7,620 0.855555
Machinery and equipment 1,926,173 1,956,782 30,609 1.58911
Construction in progress 70,937 77,428 6,491 9.150373
Less-Accumulated depreciation (2,131,620) (2,170,180) -38,560 1.808953
Total property, plant and equipment 845,382 853,542 8,160 0.965244

Other assets:
Non-current assets of discontinued 142,085 114,817
operations -27,268 -19.1913
Deferred tax assets 281,035 160,479 -120,556 -42.8971
Other assets 1,096,100 1,236,091 139,991 12.77174
Total other assets 1,519,220 1,511,387 -7,833 -0.51559

Total assets 6,172,519 6,334,778 162,259 2.628732

Liabilities and equity


Current liabilities:
Short-term borrowings 93,541 61,987 -31,554 -33.7328
Current portion of long-term debt 54,092 205,988 151,896 280.8105
Notes and accounts payable, trade 1,116,232 1,161,946 45,714 4.095385
Accounts payable, other and accrued exp. 451,081 488,891 37,810 8.382087
Accrued income and other taxes 65,453 62,662 -2,791 -4.26413
Advance payments received 317,228 386,763 69,535 21.91957
Other current liabilities 366,610 376,983 10,373 2.829437
Discontinued operations current 269,273 165,648
liabilities -103,625 -38.4832
Total current liabilities 2,733,510 2,910,868 177,358 6.488288

Long-term liabilities:
Long-term debt 1,182,668 1,043,021 -139,647 -11.8078
Accrued pension and severance costs 538,183 515,446 -22,737 -4.22477
Other liabilities 182,049 208,120 26,071 14.32087
Non-current liabilities of discontinued 90,115 91,966
operations 1,851 2.054042
Total long-term liabilities 1,993,015 1,858,553 -134,462 -6.74666

Total liabilities 3,986,030 3,717,106 -268,924 -6.74666

Equity attributable to shareholders of the


Company
Common stock: 439,901 439,901 0 0
Additional paid-in capital 401,830 402,008 178 0.044297
Retained earnings 454,931 383,231 -71,700 -15.7606
Accumulated other comprehensive loss (267,786) (139,323) 128,463 -47.9723
Treasury stock, at cost: (1,687) (1,821) -134 7.943094
Equity attributable to noncontrolling
interests 418,805 481,361 62,556 14.93678
Total equity 587,288 644,095 56,807 9.672767

Total liabilities and equity 6,172,519 6,334,778 162,259 2.628732

Consolidated Statements of Income


Toshiba Corporation and Subsidiaries
For the years ended March 31, 2015 and 2016
Increase (Decrease)
In millions of yen 2015 2016 Amount Percent
Sales and other income:
6,114,682 5,668,688
Net sales (445,994.00) -7%
Interest and dividends 10,267 6,600 (3,667.00) -36%
Equity in earnings of affiliates 20,656 (20,656.00) -100%
Other income 116,224 228,067 111,843.00 96%
6,261,829 5,903,355
Total revenue (358,474.00) -6%
Costs and expenses:
4,703,207 4,813,702
Cost of sales 110,495.00 2%
Selling, general and administrative 1,223,066 1,268,752 45,686.00 4%
Interest 23,214 20,753 (2,461.00) -11%
Other expense 155,727 138,321 (17,406.00) -11%
Total expense 6,105,214 6,241,528 136,314.00 2%

Income from continuing operations, before 156,615 (633,145)


income taxes and noncontrolling interests (789,760.00) -504%

Income taxes 143,016 253,748 110,732.00 77%

Income from continuing operations, before


noncontrolling interest 13,599 (886,893) (900,492.00) -6622%

Loss from discounted operations, before


noncontrolling interests (32,614) 370,858 403,472.00 -1237%

Net income (loss) before noncontrolling (19,015) (516,035)


interests (497,020.00) 2614%

Less: Net income attributable to 18,810 (56,022)


noncontrolling interest (74,832.00) 398%

Net income (loss) attributable to (37,825) (460,013)


shareholders (422,188.00) 1116%

Vertical Analysis:

Consolidated Balance Sheet (Vertical analysis)


Toshiba Corporation and Subsidiaries
As of March 31, 2015 and 2016
Percent of total
Amounts on March 31 assets
In millions of yen 2015 2016 2015 2016
Assets
Current Assets:
Cash and cash equivalents 190,182 969,715 3,0% 17,8%
Notes and accounts receivable, trade:
Notes 35,081 33,229 0,6% 0,6%
Accounts 1,333,547 1,155,803 21,1% 21,3%
Allowance for doubtful notes and (34,394) (32,473)
accounts -0,5% -0,6%
Inventories 911,009 729,123 14,4% 13,4%
Deferred tax assets 182,421 63,303 2,9% 1,2%
Current assets of discontinued 199,615 68,370
operations 3,2% 1,6%
Prepaid expenses and other current 520,945 471,515
assets 8,2% 8,7%
Total current assets 3,338,406 3,458,585 52,7% 63,7%

Long-term receivables and investments:


Long-term receivables 9,851 10,039 0,2% 0,2%
Investments in and advances to affiliates 359,445 266,554 5,7% 4,9%
Marketable securities and other 262,147 86,953
investments 4,1% 1,6%
Total long-term receivables and 631,443 363,546
investments 10,0% 6,7%

Property, plant and equipment:


Land 91,242 91,881 1,4% 1,7%
Buildings 898,270 890,659 14,2% 16,4%
Machinery and equipment 1,956,782 1,905,122 30,9% 35,1%
Construction in progress 77,428 64,065 1,2% 1,2%
Less-Accumulated depreciation (2,170,180) (2,157,423) -34,3% -40,0%
Total property, plant and equipment 853,542 794,304 13,5% 14,6%

Other assets:
Non-current assets of discontinued 114,817
operations 1,8% -
Deferred tax assets 160,479 27,921 2,5% 0,5%
Other assets 1,236,091 788,985 19,5% 14,5%
Total other assets 1,511,387 816,906 23,9% 15,0%

Total assets 6,334,778 5,433,341 100% 100%

Liabilities and equity


Current liabilities:
Short-term borrowings 61,987 410,983 1,0% 7,6%
Current portion of long-term debt 205,988 208,629 3,3% 3,8%
Notes and accounts payable, trade 1,161,946 877,061 18,3% 16,1%
Accounts payable, other and accrued 488,891 520,030
expenses 7,7% 9,6%
Accrued income and other taxes 62,662 108,152 1,0% 2,0%
Advance payments received 386,763 486,225 6,1% 8,9%
Other current liabilities 542,631 460,929 8,6% 8,5%
Total current liabilities 2,910,868 3,072,009 46,0% 56,5%

Long-term liabilities:
Long-term debt 1,043,021 831,300 16,4% 15,3%
Accrued pension and severance costs 515,446 629,402 8,1% 11,6%
Other liabilities 300,086 228,372 4,7% 4,2%
Total long-term liabilities 1,858,553 1,689,074 29,3% 31,1%

Total liabilities 4,769,421 4,761,083 75,3% 87,6%

Equity attributable to shareholders of the


Company
Common stock 439,901 439,901 6,9% 8,1%
Additional paid-in capital 402,008 399,470 6,3% 7,4%
Retained earnings 383,231 (76,782) 6,0% -1,4%
Accumulated other comprehensive loss (139,323) (431,828) -2,2% -7,9%
Treasury stock, at cost (1,821) (1,887) -0,02% -0,03%
Total equity attributable to shareholders of 1,083,996 328,874
the Company 17,1% 6,1%
Equity attributable to noncontrolling 481,361 343,384
interests 7,6% 6,3%
Total equity 1,565,357 672,258 24,7% 12,4%
Commitments and contingent liabilities
Total liabilities and equity 6,334,778 5,433,341 100% 100%

Common-size Income Statement:

Consolidated Statements of Income


Toshiba Corporation and Subsidiaries
For the years ended March 31, 2015 and 2016
Percentage
In millions of yen 2015 2016 2015 2016
Sales and other income:
Net sales 6,114,682 5,668,688 100,0% 100,0%
Interest and dividends 10,267 6,600 0,2% 0,1%
Equity in earnings of affiliates 20,656 0,3% -
Other income 116,224 228,067 1,9% 4,0%
Total revenue 6,261,829 5,903,355 102,4% 104,1%
Costs and expenses:
Cost of sales 4,703,207 4,813,702 76,9% 84,9%
Selling, general and administrative 1,223,066 1,268,752 20,0% 22,4%
Interest 23,214 20,753 0,4% 0,4%
Other expense 155,727 433,293 2,5% 7,6%
Total expense 6,105,214 6,536,500 99,8% 115,3%
Income from continuing operations, before
income taxes and noncontrolling interests 156,615 (633,145) 2,6% -11,2%

Income taxes 143,016 253,748 2,3% 4,5%

Income from continuing operations, before


noncontrolling interest 13,599 (886,893) 0,2% -15,6%
Loss from discounted operations, before
noncontrolling interests (32,614) 370,858 -0,5% 6,5%
Net Income (Loss) before (19,015) (516,035)
Noncontrolling Interests -0,3% -9,1%

Less: Net income attributable to


noncontrolling interest 18,810 (56,022) 0,3% -1,0%

Net income (loss) attributable to (37,825) (460,013)


shareholders -0,6% -8,1%

Key Financial Ratios:

2011 2010

Working Capital 301,359 273,161


Current Ratio/Working Capital Ratio 1,12 1,11
Quick Ratio 0,62 0,66
Accounts Receivable Turnover 5,68 5,72
Inventory Turnover 7,71 8,10
Total Asset
Turnover 1,18 1,15
Debt-Equity Ratio 4,84 5,42
Interest Coverage Ratio 7,70 3,74
Net Profit Margin 2,12% -0,31%
Return on Total Assets 2,55% -0,36%
Return on Equity 16,55% -3,17%
Earning per share (basic) 32,5 -4,93
Earning per share (diluted) 31,2 -4,93
Price-to-earning ratio (P/E) 12,51 -
Annual dividends per share 5 0
Book Value per Share 204,98 188,28
Price-to-book value 2,6 2