SLP- LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY

Introduction

Toyota Company is an organization which operates globally as discussed in the previous assignment. It deals with the manufacture and sells of vehicles and their spare parts. To evaluate an organization means going through some steps which a company use to conduct an assessment of the economic value in a market. The process is mostly used by that individual who takes part in the financial market which assists them to determine the price to pay or take while transacting business. Determining the financial status of an organization assist investors to be in a position to determine whether they should invest in that organization or what. Price-earnings ratio is one of the commonly used tools more so when selecting stock (Ahmad et al., 2016).Decision making in an organization can be challenging. Hence it requires a person conduct appropriate analysis to avoid losses in an organization. Also, it is important that each organization ensures that they have the up to date financial report. With this, it enables an organization to determine whether it is working as per the goals and strategies which the organization has set.

PE Ratio

It is a kind of ration which in modern-day business play a major role more so while selecting the kind of stock to work with. The formula for getting the price earning ration is:

Price-earnings ratio=determine the current market worth per share/current earning worth in each share

PE ration gives the stakeholder, employee management and investor’s idea of what price the current market is willing to pay for the company earning. It explains the value of a product in the market. Research indicates that the recent price earning ration for Toyota Company is 10.72 as per 13th December 2017 (Buchman et al., 2016).An organization with a high PE ratio indicate that there is the great hope for it to perform well in future and also investors may wish to invest in this business. It is the case with Toyota which currently is doing well and hence it an encouragement to the investor to invest there.

Comparison with Other Organization

From the current valuation of General Motor, it is indicated that the current price earnings ratio is 8.6 as per 13th December 2017 showing that it is lower than that of the Toyota Company. However, by this, it indicates that Toyota is in a better position compared to General Motors and most investors would prefer investing in Toyota (Ahmad et al., 2016). For the GM there was a decrease in sales because of the high competition in the market which lead to a decline in the ratio.

Whether the Organization Is Undervalued or Overvalued

To determine whether an organization is undervalued or overvalued there are some factors to consider one of them being the price-earnings ratio. Investor analyzes the ratio to determine the amount given out to the investors. Toyota Company over the last one year that is twelve months has been having an average ratio of 10.02.

From the chart, it indicates that Toyota company is undervalued because over the last twelve months the Price earning (PE) ranged at around 10.35 (Buchman et al., 2016).The indicating is that the stock was somehow undervalued comparing the fact that it is the one leading in the market more so in this industry.

Book Value of Share in Toyota Company

Book value =total assets –total liability

For 2017 the book value was:

$60,000-$40,000

=$20,000

The outstanding shares are four which means that:

$20,000/4

=5000

Its number is higher than the current price of shares. In this case, would say that the stock is overvalued meaning that there have estimated a price which more than expected price and which is hard to achieve in the current market.

Opinions from the Analyst

Despite the fact that the company might be a good choice for the investors there are some factors to consider according to the most analyst. For the last few years, its earnings have been good encouraging investors to invest. Its an inspiration to other firms in this industry to set the price earning which is achievable and avoid over or underestimating the prices. The company remains a benchmark to others despite the tough competition in the market. It would be important to have a continuous analysis of the organization finances to enable the organization to know its stand in the current economy (Ahmad et al., 2016). Most of them suggest that the organization should consider selling a stock because with this it can yield more profit. The reason for this is that buying stock can be risky because consumer changes their fashion, need and wants often. A list of analyst who participated in this include the wall street journal, the United States news by Brian who is an analyst and lastly Christopher who is a financial analyst in united states

References

Ahmad, B., & Anees, M. (2016). Investment Decisions Stock Buybacks Or Stock Prices?. Journal of Business Strategies, 10(2), 51.

Buchman, T. A., Harris, P., & Liu, M. (2016). GAAP vs. IFRS Treatment of Leases and the Impact on Financial Ratios.