Introduction

To be able to create a budget, we need to understand its purpose and nature, along
with budgeting methods. Developing a realistic business budget is an effective way to
help TFH maintain profitability. It is important to know how to create a business
budget that keeps TFH's finances under control and working efficiently. In this
assignment, we will explore how to formulate a business budget that suits TFH,
ensuring feasibility and supporting the company's sustainable growth.
LO3 task 1 2
Có báo cáo tài chính của Honda
Solution task 1 là cho task 1
So sánh nằm trong task 1 luôn
Phải trả lời so sánh ở mỗi phần chi tiết
LO4 task 3 4

Làm ol theo mẫu cô gửi

3. Interpret financial statements

Definition and Explanation

Financial statement analysis involves evaluating the reported financial statements of

an entity to assist stakeholders and users in their decision-making processes. By
establishing relationships between various financial parameters, it aims to provide a
clearer understanding of the entity's financial health and performance. This analysis
benefits both internal stakeholders (like management and existing shareholders) and
external stakeholders (such as potential investors, lenders, and suppliers).

Financial statements typically include the income statement, cash flow statement, and
balance sheet. These documents record detailed financial transactions over a specific
period, revealing both the financial performance and position of the business.
Analyzing these statements provides stakeholders with crucial information essential
for their decision-making.

For management, financial statement analysis identifies areas requiring corrective

actions. For investors, it serves as a tool to gauge financial outlook and assess the
viability of their investment. For vendors and suppliers, it helps evaluate the entity’s
creditworthiness, guiding their decision on whether to provide goods or services on
credit. https://www.accountingformanagement.org/what-is-financial-statement-
analysis/

3.1. Importance and purpose of analysing financial statements

Importance of Financial Statement Analysis

As a business owner or investor, it is essential to comprehend financial statements to

make informed decisions. Analyzing financial statements allows you to evaluate a
company's financial health by reviewing its income statements, balance sheets, and
cash flow statements. Through this analysis, you can detect trends and patterns that
provide significant insights into the company's performance. In this blog post, we will
delve into the significance of financial statement analysis and offer practical advice on
how to perform it effectively. https://oboloo.com/blog/what-is-the-importance-of-
financial-statement-analysis/

Purpose of Financial Statement Analysis

The goal of financial statement analysis is to assess a company's financial

performance and health. By reviewing the information in income statements, balance
sheets, and cash flow statements, you can gain valuable insights into the financial
well-being of a business.
One key reason for conducting financial statement analysis is to identify trends and
patterns that offer important insights into a company’s operations. This information
aids investors and procurement professionals in making informed decisions about
whether to invest in or engage with the company.

Another significant objective of financial statement analysis is to evaluate an

organization’s liquidity, solvency, profitability, and efficiency. The insights obtained
from such analyses help businesses plan for future growth by pinpointing areas where
they may need to reduce costs or boost revenue streams.

Additionally, financial statement analysis allows stakeholders to compare a

company’s performance with that of its competitors or industry standards. This
comparison helps determine how well their investments are doing relative to others in
the same sector.

Understanding the purpose of financial statement analysis is essential for anyone

looking to gain valuable insights into a company’s financial status.
https://oboloo.com/blog/what-is-the-importance-of-financial-statement-analysis/

3.2. Ratio analysis

Ratio analysis involves assessing the relationships between various items in financial
statements, such as the income statement and balance sheet. This is achieved by
calculating different financial ratios and comparing them to established benchmarks.
Based on this comparison, management can implement corrective measures, and other
stakeholders can make informed decisions based on their specific circumstances.

The financial ratios used in analysis are typically grouped as follows:

 Liquidity Ratios: These measure an entity’s ability to meet its short-term debts
and fund requirements. Common liquidity ratios include the current ratio, quick
or liquid ratio, absolute liquid ratio, and current cash debt coverage ratio.

 Solvency Ratios: These assess the long-term stability of a business by evaluating

its ability to meet long-term fund requirements. Typical solvency ratios include
the debt to equity ratio, fixed assets to equity ratio, current assets to equity ratio,
and capital gearing ratio.

 Profitability Ratios: These evaluate a business’s ability to generate profits for its
shareholders or owners. Examples include the gross profit ratio, net profit ratio,
P/E ratio, EPS ratio, and return on capital employed ratio.

 Activity Ratios: These measure how efficiently a business uses its assets to
generate sales revenue or liquid funds. Common activity ratios include the
inventory turnover ratio, receivables turnover ratio, and fixed assets turnover
ratio.

Benefits of Ratio Analysis:

- Ratio analysis reveals an entity’s financial health and operational efficiency through
various parameters, such as liquidity and solvency, which might not be covered by
other analysis techniques.
- It highlights the entity’s current financial position and identifies necessary remedial
actions, aiding management in financial planning.
- Ratio analysis provides a benchmark for comparing the performance of different
firms.

Drawbacks of Ratio Analysis:

- Ratio analysis can yield inaccurate results if there are inconsistencies in the
accounting presentations of the entities being compared or if different time periods are
included in the analysis.
- The results are often restricted to quantitative data, overlooking qualitative aspects.
For instance, a balance sheet may show a strong current ratio, but it won't indicate the
extent of obsolescence in the inventory used in the calculation.
https://www.accountingformanagement.org/what-is-financial-statement-analysis/

Using calculated ratios to evaluate organisational performance.

Profitability

 Return on capital employed (ROCE)

Profit before interest and tax
Shareholders' equity + debt

This ratio is generally considered the primary profitability ratio because it shows how
well a business has generated profit from its long-term financing. An increase in
ROCE is generally regarded as an improvement.

Movements in return on capital employed are best understood by examining profit

margins and asset turnover in more detail (often referred to as secondary ratios) as
ROCE is composed of these components. For example, an improvement in ROCE
could be due to better profit margins or more efficient use of assets.

 Asset turnover
Revenue
Total assets - current liabilities

This ratio is typically seen as the main profitability ratio because it indicates how
effectively a business generates profit from its long-term financing. An increase in
ROCE is generally viewed as a positive sign.

Changes in return on capital employed should be analyzed by looking more closely at

profit margins and asset turnover, which are often referred to as secondary ratios,
since ROCE is comprised of these elements. For instance, an improvement in ROCE
might result from better profit margins or more efficient asset utilization.

 Profit margins
Gross or Operating profit
Revenue

The gross profit margin assesses the business's performance at the direct trading level.
Typically, changes in this ratio result from fluctuations in selling price, sales volume,
or cost of sales. For instance, the cost of sales might include inventory write-downs
due to damage, obsolescence, exchange rate fluctuations, or import duties.

The operating profit margin (or net profit margin) is usually calculated by comparing
the profit before interest and tax to revenue, though it can sometimes be based on
profit before tax. Analyzing the operating profit margin allows you to evaluate how
well the business has managed its indirect costs during the period. It is advisable to
relate the operating profit margin back to the gross profit margin. For example, if the
gross profit margin has declined over the year, it would be expected that the operating
margin would also decrease.

However, if the operating margin does not fall as much, or at all, it may be due to
effective control of indirect costs or a one-off profit from asset disposal affecting the
operating profit figure.

Liquidity

 Current ratio
Current assets
Current liabilities

The current ratio evaluates a business's ability to meet its current liabilities with its
current assets. It is generally believed that the ideal ratio is between 1.5 and 2,
allowing a business to comfortably cover its current liabilities as they come due.

However, this ideal can vary by industry. For instance, a service industry business
might have little to no inventory and thus could have a current ratio of less than 1.
This does not necessarily indicate liquidity issues, so it is more useful to compare the
ratio to previous years or industry averages.

 Quick ratio (sometimes referred to as acid test ratio)

Current assets - inventory
Current liabilities

The quick ratio does not include inventory because it takes longer to convert into
cash, focusing instead on a company's 'quick assets' to determine if they are sufficient
to cover current liabilities. A ratio of 1:1 is often seen as ideal, although this can vary
depending on the industry. When evaluating both the current and quick ratios,
consider the company's year-end financial status, including whether there is an
overdraft. An overdraft suggests potential liquidity issues, as this form of financing is
costly due to higher interest rates and risky because it can be called in at any time.

 Receivables collection period (in days)

 Receivables x 365
Credit sales

Having a short credit period for receivables is advantageous for cash flow in a
business. However, some businesses opt for longer credit periods as part of their
strategy. For instance, a sofa retailer might offer extended credit terms to boost sales
and outperform competitors with shorter terms.

Shorter receivables days compared to the previous period can indicate improved
credit management or the use of settlement discounts to accelerate cash collection.
Conversely, an increase in credit periods may signal weakened credit control or a risk
of bad debts.

 Payables collection period (in days)

Payables x 365
Credit purchases*

An increase in payables days may suggest that a business is experiencing cash flow
challenges and is thus postponing payments, effectively using suppliers as a form of
financing without cost. It's crucial for a business to adhere to agreed credit terms to
maintain good relations with suppliers. Conversely, a decrease in payables days
indicates that suppliers are being paid more promptly. This could be due to stricter
credit terms being imposed or taking advantage of early payment discounts offered by
suppliers.

 Inventory days
Closing (or average) inventory x 365
Cost of sales

Typically, it is preferable to minimize the number of days inventory is held, as

prolonged inventory holding can strain cash flow and elevate risks like theft, damage,
or obsolescence. However, it remains essential for businesses to maintain adequate
inventory levels to satisfy customer demand.

 Gearing
Debt or Debt
Equity Debt + equity

The gearing ratio is crucial for assessing a business's risk level based on its
borrowing. As a company increases its borrowing, it also heightens its risk because it
becomes obligated not only to repay the debt but also to cover interest payments.
Moreover, securing additional debt financing could become more challenging and
costly.

However, having a high gearing ratio doesn't necessarily imply imminent difficulties
for a company. For instance, if the business possesses substantial tangible assets that
can serve as security and if it comfortably manages its interest obligations (as
indicated by a strong interest cover ratio - profit before interest and tax compared to
interest payments), investors need not be unduly worried about the high gearing level.
https://www.accaglobal.com/gb/en/student/exam-support-resources/professional-
exams-study-resources/strategic-business-leader/technical-articles/performance-
appraisal.html

Apply and critique relevant benchmark

The interrelationships between ratios

1. Return on Equity (ROE) and Return on Assets (ROA):

 ROE measures the company’s profitability relative to its shareholders’ equity.

 ROA assesses the company’s profitability in relation to its total assets.

The relationship:

The leverage ratio represents the proportion of debt financing relative to equity
financing.

2. Net Profit Margin and Gross Profit Margin:

 Net profit margin indicates the percentage of net profit relative to total revenue.
 Gross profit margin measures the percentage of gross profit (revenue minus cost
of goods sold) relative to total revenue.
The relationship:

Operating expenses ratio represents the percentage of operating expenses relative to

total revenue.

3. Inventory Turnover and Days Sales of Inventory (DSI):

 Inventory turnover reflects how efficiently a company manages its inventory.

 DSI represents the average number of days it takes to sell inventory.
The relationship:

4. Debt-to-Assets Ratio and Interest Coverage Ratio:

 Debt-to-assets ratio assesses the proportion of debt relative to total assets.

 Interest coverage ratio evaluates the company’s ability to cover interest payments.
The relationship:
3.3. Importance and purpose of analysis of financial statements:

Financial statements in the business environment:

Financial statements play a crucial role in the business environment, providing
valuable information to various stakeholders, including managers, investors, creditors,
regulators, and analysts. These statements serve as a communication tool, offering
insights into a company's financial performance, position, and cash flows.
Understanding and analyzing financial statements is essential for making informed
business decisions and assessing a company's financial health and prospects.

1. Role of Financial Statements in the Business Environment:

a. Managerial Decision-Making: Financial statements provide managers with
essential information for making strategic decisions regarding resource allocation,
operational efficiency, profitability, and growth opportunities.
b. Investment Analysis: Investors rely on financial statements to evaluate a
company's financial performance, assess potential risks, and make informed
investment decisions.
c. Credit Analysis: Creditors and lenders use financial statements to assess a
company's creditworthiness, ability to repay debts, and overall financial risk.
d. Regulatory Compliance: Financial statements are required for compliance with
accounting standards, tax regulations, and other legal requirements imposed by
regulatory bodies.
e. Benchmarking and Competitor Analysis: Financial statements enable companies
to benchmark their performance against industry peers and competitors, identify
strengths and weaknesses, and develop competitive strategies.

2. Interpretation of Financial Statements:

a. Profitability Analysis: Financial statements provide insights into a company's
profitability through measures such as revenue, gross profit, operating profit, and net
income. This information helps assess the company's ability to generate profits and its
overall financial performance.
b. Liquidity Analysis: The balance sheet and cash flow statement offer insights into
a company's liquidity position, indicating its ability to meet short-term obligations and
manage working capital effectively.
c. Solvency and Financial Leverage Analysis: Financial statements reveal a
company's level of debt, equity, and financial leverage, which are crucial for assessing
its long-term solvency and financial risk.
d. Efficiency Analysis: Financial statements can be used to evaluate a company's
efficiency in utilizing its assets and managing its operations, through measures such
as asset turnover ratios and operating margins.
e. Cash Flow Analysis: The cash flow statement provides valuable information
about a company's ability to generate cash from operations, invest in growth
opportunities, and meet its financial obligations.
3. Stakeholder Communication and Value Presentation:
a. Investor Relations: Financial statements are vital for communicating a company's
financial performance and prospects to current and potential investors, facilitating
informed investment decisions.
b. Creditor and Lender Relations: Creditors and lenders rely on financial statements
to assess a company's creditworthiness and ability to repay debts, influencing their
lending decisions and terms.
c. Regulatory Reporting: Companies are required to prepare and disclose financial
statements in compliance with accounting standards and regulations, ensuring
transparency and accountability to regulatory bodies and the public.
d. Stakeholder Value Presentation: Financial statements provide a comprehensive
picture of a company's financial condition, enabling stakeholders to assess the
company's value and make informed decisions aligned with their respective interests.

In the dynamic business environment, financial statements serve as a crucial source of

information for various stakeholders. By interpreting and analyzing these statements
effectively, companies can gain valuable insights into their financial performance,
identify areas for improvement, and make informed decisions to enhance their
competitiveness and long-term sustainability.

The relationship between the elements of the financial statements:

The elements of the financial statements, which include the balance sheet, income
statement, and cash flow statement, are interconnected and have important
relationships with one another. Understanding these relationships is crucial for
accurately interpreting and analyzing a company's financial performance and position.
Here are some key relationships between the elements of the financial statements:

1. Balance Sheet and Income Statement:

- The income statement reports a company's revenues, expenses, and resulting net
income or loss over a specific period.
- The net income or loss from the income statement is then carried over to the
balance sheet, where it impacts the retained earnings component of shareholders'
equity.
- Changes in assets and liabilities on the balance sheet can also affect expenses and
revenues on the income statement (e.g., depreciation expense, interest expense, and
revenue recognition).

2. Balance Sheet and Cash Flow Statement:

- The cash flow statement explains the sources and uses of cash during the
accounting period, which affect the cash and cash equivalents balance on the balance
sheet.
- Changes in balance sheet accounts, such as accounts receivable, inventory, and
accounts payable, can impact the operating cash flows on the cash flow statement.
- Financing activities on the cash flow statement, such as issuing or repaying debt or
equity, affect the corresponding liability and equity accounts on the balance sheet.
- Investing activities on the cash flow statement, such as purchasing or selling fixed
assets, affect the corresponding asset accounts on the balance sheet.

3. Income Statement and Cash Flow Statement:

 - The net income or loss from the income statement is a starting point for calculating
cash flows from operating activities on the cash flow statement, after adjusting for
non-cash items like depreciation and changes in working capital accounts.
- Certain expenses on the income statement, such as interest and taxes, are also
reflected as cash outflows in the operating activities section of the cash flow
statement.

4. Profitability, Liquidity, and Financial Position:

- The income statement provides information about a company's profitability
through measures like revenue, gross profit, operating income, and net income.
- The balance sheet reflects a company's liquidity and financial position through
measures like current assets, current liabilities, and debt-to-equity ratios.
- The cash flow statement provides insights into a company's ability to generate
cash flows from its operations, which is essential for meeting its obligations and
funding growth opportunities. The Three Major Financial Statements: How
They're Interconnected (investopedia.com)

By understanding the relationships between the elements of the financial statements,

analysts and stakeholders can gain a comprehensive understanding of a company's
financial performance, liquidity, and overall financial health. These relationships also
highlight the importance of analyzing all three financial statements together, as they
provide complementary information and insights into a company's financial condition.

Financial statements for meeting key performance indicators (KPIs) and

sustainable performance:
Financial statements play a vital role in evaluating a company's performance against
key performance indicators (KPIs) and assessing its ability to achieve sustainable
growth and profitability. KPIs are quantifiable measures that companies use to track
and monitor their progress towards specific strategic objectives. Financial statements
provide the necessary data and insights to measure and analyze financial KPIs, which
are essential for assessing a company's overall performance and long-term
sustainability.

1. Financial KPIs and Their Relationship to Financial Statements:

a. Profitability KPIs: Financial statements, particularly the income statement,
provide information to calculate profitability KPIs such as gross profit margin,
operating profit margin, net profit margin, return on assets (ROA), and return on
equity (ROE).
b. Liquidity KPIs: The balance sheet and cash flow statement offer insights into
liquidity KPIs like the current ratio, quick ratio, cash ratio, and cash conversion cycle,
which measure a company's ability to meet short-term obligations.
c. Solvency and Leverage KPIs: Financial statements reveal information about a
company's debt levels, equity position, and financial leverage, which are essential for
calculating solvency and leverage KPIs like the debt-to-equity ratio, interest coverage
ratio, and debt service coverage ratio.
d. Efficiency KPIs: Financial statements enable the calculation of efficiency KPIs
such as asset turnover ratios, inventory turnover, and accounts receivable turnover,
which measure how effectively a company utilizes its resources.
 e. Cash Flow KPIs: The cash flow statement provides data to analyze cash flow
KPIs like operating cash flow ratio, free cash flow, and cash flow adequacy ratio,
which assess a company's ability to generate and manage cash flows.

2. Evaluating Sustainable Performance:

a. Profitability and Growth: Financial statements reveal a company's profitability
trends, revenue growth, and ability to generate consistent returns, which are essential
for sustainable performance.
b. Financial Stability: The balance sheet and liquidity ratios provide insights into a
company's financial stability, indicating its ability to withstand economic downturns
and maintain operations.
c. Efficient Resource Utilization: Efficiency ratios calculated from financial
statements help assess a company's ability to optimize resource utilization, minimize
waste, and maximize productivity, contributing to sustainable performance.
d. Cash Flow Management: The cash flow statement highlights a company's ability
to generate positive cash flows from operations, fund investments, and service debt
obligations, which are crucial for long-term sustainability.
e. Risk Management: Financial statements offer insights into a company's risk
exposure, such as leverage levels, credit risk, and operational risks, enabling effective
risk management strategies for sustainable performance.

3. Integrating Non-Financial KPIs:

While financial statements and KPIs are essential, sustainable performance also
depends on non-financial factors. Companies should integrate non-financial KPIs
related to customer satisfaction, employee engagement, innovation, environmental
impact, and corporate governance to obtain a comprehensive view of their overall
performance and long-term sustainability.

By analyzing financial statements in conjunction with relevant KPIs, companies can

effectively monitor their progress towards strategic objectives, identify areas for
improvement, and make informed decisions to enhance their financial performance,
operational efficiency, and long-term sustainability. Regular monitoring and
adjustments based on these insights enable companies to adapt to changing market
conditions and maintain a competitive advantage while pursuing sustainable growth
and profitability.

Application of financial statements in different business contexts and value of

presenting to end user of the financial statements:
Financial statements are versatile documents that serve various purposes and hold
significant value for different stakeholders in diverse business contexts.
Understanding these contexts and presenting financial statements effectively to end-
users are crucial for informed decision-making and effective communication of a
company's financial performance and position.

1. Business Contexts and Applications of Financial Statements:

a. Investment Analysis: Investors, including individual investors, institutional
investors, and venture capitalists, rely on financial statements to evaluate a company's
financial performance, assess potential risks, and make informed investment
decisions.
 b. Credit Analysis and Lending: Financial institutions, such as banks and other
lenders, use financial statements to assess a company's creditworthiness, ability to
repay debts, and overall financial risk, which influences their lending decisions and
terms.
c. Mergers and Acquisitions: During mergers and acquisitions, financial statements
play a crucial role in valuing companies, conducting due diligence, and assessing the
financial implications of the proposed transaction.
d. Strategic Planning and Decision-Making: Management and executives within
companies use financial statements to develop strategic plans, allocate resources,
assess operational efficiency, identify growth opportunities, and make informed
business decisions.
e. Regulatory Compliance and Reporting: Companies are required to prepare and
disclose financial statements in compliance with accounting standards, tax
regulations, and other legal requirements imposed by regulatory bodies and
government agencies.

2. Value of Presenting Financial Statements to End-Users:

a. Transparency and Accountability: Presenting financial statements to end-users,
such as investors, creditors, and regulators, promotes transparency and accountability,
fostering trust and confidence in the company's financial reporting.
b. Communication of Financial Performance: Financial statements effectively
communicate a company's financial performance, position, and cash flows to end-
users, enabling them to make informed decisions aligned with their respective
interests.
c. Benchmarking and Comparative Analysis: By presenting financial statements,
end-users can benchmark a company's performance against industry peers,
competitors, and historical trends, facilitating comparative analysis and strategic
decision-making.
d. Stakeholder Engagement: Effective presentation of financial statements allows
companies to engage with various stakeholders, address their concerns, and
demonstrate their commitment to responsible financial management and sustainable
growth.
e. Compliance and Regulatory Requirements: Presenting financial statements to
regulatory bodies and authorities ensures compliance with reporting requirements,
avoiding potential penalties and maintaining a company's credibility and reputation.

3. Effective Presentation Strategies:

To maximize the value of financial statements for end-users, companies should
consider the following presentation strategies:
a. Clear and Concise Formatting: Present financial statements in a clear and concise
format, using appropriate headings, subheadings, and visual aids to facilitate
understanding and highlight key information.
b. Narrative Explanations: Accompany financial statements with narrative
explanations, notes, and management discussions to provide context, clarify
assumptions, and address complex or significant items.
c. Comparative Analysis: Include comparative figures from previous periods or
industry benchmarks to enable trend analysis and performance evaluation over time.
d. Tailored Presentations: Tailor the presentation of financial statements to the
specific needs and interests of different end-user groups, such as investors, creditors,
or regulators, ensuring relevance and focus.
 e. Digital and Interactive Platforms: Leverage digital platforms and interactive tools
to enhance the accessibility, usability, and engagement with financial statements for
end-users.

By understanding the diverse business contexts and effectively presenting financial

statements to end-users, companies can foster transparency, enhance stakeholder
engagement, and facilitate informed decision-making. This ultimately contributes to
the company's credibility, accountability, and long-term success in the dynamic
business environment.

4. Prepare budgets for planning, control and decision

making using spreadsheets

Nature and purpose of budgeting:

Budgets as a key management accounting tool.
Definitions and reasons organisations use budgets.
Stages in the budgeting process, master and functional budgets.
Corrective action to inform resource allocation and decision making.
Budget preparation and budgetary control:
Importance, role and limitations of budgets in controlling activity.
The principal budget factor and budget types, including fixed, flexible, zero based,
incremental, rolling, activity based, value proposition.
Variance analysis.
The steps for the preparation of a cash budget.
Producing a spreadsheet:
The numerical and other information requirements for a spreadsheet and how it
should be structured to meet user needs.
Using a spreadsheet and techniques to enter, edit and organise numerical and other
data.
How to format spreadsheet cells, rows, columns and worksheets effectively using
appropriate tools and techniques
Use of formulas and filters to enter, edit and present numerical data.
Visual representation of data and data analysis using pie charts, bar charts and graphs.
TASK 1

The provided table shows a comparison of various financial ratios for Honda Motor
Co. Ltd. between the years 2012 and 2011, along with the change (+/-) in these ratios
from 2011 to 2012.

1. Current Ratio: This ratio slightly improved from 1.31 in 2011 to 1.32 in 2012,
indicating a slight improvement in the company's ability to meet its short-term
obligations.

2. Net Profit Margin: This ratio decreased significantly from 5.98% in 2011 to 2.66%
in 2012, a decline of 3.3%. This suggests that Honda's profitability deteriorated during
this period.

3. Asset Turnover: This ratio declined from 0.77 in 2011 to 0.67 in 2012, a decrease
of 0.1. This indicates that Honda was less efficient in utilizing its assets to generate
sales in 2012 compared to 2011.

4. Debt to Equity: This ratio increased slightly from 0.92 in 2011 to 0.93 in 2012, an
increase of 0.01. This suggests a marginal increase in the company's financial
leverage.
5. Financial Leverage: This ratio increased from 2.60 in 2011 to 2.68 in 2012, an
increase of 0.08. This indicates that Honda's level of financial leverage increased
during this period.

6. Interest Coverage: This ratio decreased significantly from 91.00 in 2011 to 35.48 in
2012, a decline of 56.42. This suggests that Honda's ability to cover its interest
expenses with its operating profits deteriorated substantially in 2012.

7. Average Age: This ratio decreased slightly from 56.63% in 2011 to 56.23% in
2012, a decrease of 0.4%. This indicates a marginal improvement in the age of
Honda's depreciable assets.

8. ROE (Return on Equity): This ratio decreased significantly from 12.00% in 2011 to
4.80% in 2012, a decline of 7.2%. This suggests that Honda's profitability in terms of
returns to shareholders deteriorated during this period.

9. ROA (Return on Assets): This ratio decreased from 4.62% in 2011 to 1.80% in
2012, a decline of 2.8%. This indicates that Honda's profitability in terms of returns
on its assets deteriorated significantly in 2012.

10. Dividend Yield: This ratio increased from 1.60% in 2011 to 2.30% in 2012, an
increase of 0.7%. This suggests that Honda's dividend yield for shareholders
improved during this period.

Overall, while some ratios like the current ratio and dividend yield improved, most of
the profitability, asset utilization, and solvency ratios deteriorated from 2011 to 2012,
indicating a decline in Honda's financial performance during this period.

Conclusion