Analysis of Mitsubishi Motors

Analysis

Net operating working capital

Net Operating Working Capital is a traditional measure of a company's liquidity and potential for growth. Net operating working capital is defined as non-interest bearing current assets minus non-interest charging liabilities:

Net operating working capital = current assets - current liabilities

Generally, net operating working capital is equal to cash, accounts receivables, and inventories less accounts payable and accruals.

The net operating working capital is 2518.3 in 2010. It rose to 2836.9 in 2011 and then decreased to 2654.7 in 2012.The net operating working capital is positive for all the years which means that the firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. An increase in working capital indicates that the business has either increased current assets (that it has increased its receivables or other current assets) or has decreased current liabilities. Changes in working capital will impact a business' cash flow. When working capital increases, the effect on cash flow is negative. This is often caused by the liquidation of inventory or the drawing of money from accounts that are due to be paid by the business. On the other hand, a decrease in working capital translates into less money to settle short-term debts.

Total operating capital (toc)

Mitsubishi Motors increased its operating capital to USD 7117.5 from USD 7074.2 or by USD 43.3 during 2011. Furthermore, most of this increase went into working capital, which rose from USD 2836.9 to USD 2518.3 or by USD 318.6. This shows an increase of approximately 0.61% increase versus a total revenue increase of 26.49%. Hence, the company is doing well and has shown an increase in the capital invested resulted in to a large increase in total revenue generated from operating capital. However, the operating capital shows a decrease by USD 258.4 which is a decrease of 3.6%. The total revenue also decreased by 1.16% which shows that due to decrease in operating capital resulted in a decrease in total revenue. The receivables show an increase of USD 400.8, Mitsubishi motors should focus on collecting its receivables.

Net operating profit after taxes (NOPAT)

In 2011 Mitsubishi Motors generated an after-tax operating profit of USD 283.6 which is 193% increase than last year's NOPAT. The operating profit has increased to USD 153.2 from USD 48.3 and the interest expense declined by USD 2.Debt increased as shown in balance sheet, due to increase in investment in operating capital. However, interest expense rose to USD 150.8 in 2012, and long term debt decreased to USD 1801.1 which also affects the operating capital to decline.

Free Cash Flow (fcf)

Free cash flow is an important measurement of the unconstrained cash flow of the company. It measures a company's ability to generate internal growth and to return profits to shareholders.

In 2010 the FCF is negative which is probably because of the increase in Long-term investments from 2009 to 2010; they have used up their cash to do so hence the decline in the cash flow in addition to this the NOPAT for 2010