Financial Health
Hyundai company analysis
Finance is a critical function in any business. It acts as an indicator for the health of a company, as well as determining its growth. When a company realizes new investment opportunities and other future aspirations, finance enables such ventures. Thus, finance reflects the performance of an organization (Gruen & Howarth, 2005). Measurement of performance takes place over a period of time. Organizations practically present their financial performance on a quarterly and yearly basis while others carry out a monthly exercise of tracking their performance. The government requires that all companies present an annual assessment of their performance. The information is featured in the form of financial transactions of sales, investments, savings and others. The information is part of a document called the Annul Report. Investors are informed by the annual report of companies before deciding on whether to invest in the company (Mclean, 2003). The annual report shows the performance of the company every 12 months. The paper looks into the annual reports of Hyundai Motor Finance Company, and how the annual reports inform the judgement of the investors.
Company overview
The Hyundai Motor Finance is a complete service auto finance company offering leasing and financial choices to Hyundai dealers nationwide. The company’s website presents tips on auto financing and other generalized information. The company started in 1989 and is based in Korea. Collaborating with its subsidiaries, the organization operates in financial division, and several other divisions. The financial division provides credit card and financial services to its clients. The other divisions are concerned with manufacturing and sales, for instance, the vehicle division manufactures saloon cars under the brand names of Veloster, Azera, Elantra, Centennial, and others. The other business divisions deal with the construction of railways.
The company collaborates with its sister company in America (Hyundai Motor America) to assist clients in their purchase of Hyundai automobiles. The company is part of the Hyundai Capital United Kingdom Limited, and focuses on meeting the competitive financial services and products to its dealers. The company also offers warranty care. The administration function of the company is in the United Kingdom representing the main finance house of the Hyundai Motor United Kingdom. Other sub-locations include Peking, Tokyo, Detroit, and Frankfurt. The business strategy of the company is effective in ensuring customer satisfaction. Humanism, top quality, and reliability have made the company stand out from its competitors. The qualities have helped compensate for the impact of external competition for sales. One of its major rivals is Tata Motors.
Horizontal analysis
Horizontal analysis is a financial assessment method that reveals changes in the amounts of related financial statement items in a given time (Mclean, 2003). It is useful in evaluating the nature of trends. Over the years, Hyundai Motor Finance Company has grown its revenues and reduced selling, administrative, and general costs from 13.6% to 12.2%. The aim of this analysis is to access the financial health of the company in relation to its financial documents. The horizontal analysis of Hyundai Motor Finance’s financial documents featured the income statement and balance sheets of three periods where the earliest period was the base period. All the entries were compared. The changes in the entries were presented in percentage and dollar terms.
The horizontal analysis of some financial documents involves a two-year format, for instance the income statement and the balance sheet. A variance also features, representing the difference between the years for every line item. An optional format normally entails adding as many years as possible, without presenting a variance. This facilitates noting the accounting changes over multiple years (Zelman & McCue, 2009). The third option entails presenting a vertical analysis of each year in the report. This ensures that each year presents expenses as a percentage of the entire revenue in that year.
The horizontal analysis is for both the income statements and the balance sheets. This is because both apply the same idea. The figures under the “difference” sections are indicated side-by-side. This enables the analyst to compare the two and understand the progress of the company. The horizontal analysis also comprises of two more columns. These are the column for actual numerical change in the two periods and the column for percentage change over the two periods. The initial column shows the difference in the past period and the current one, whereas the other column reflects changes in percentages (Mclean, 2003). The percentage column presents the proportion of the past figure is the figure showing the change.
The horizontal analysis of Hyundai Motor Finance was crucial for informing the judgement of investors. It made the task of improvements and analyzing simple for all the stakeholders. The investors had an opportunity to compare the difference in the percentage changes. The horizontal analysis also enhanced the capacity of the board to forward remedies and recommendations for improvements. The horizontal analysis of the balance sheet for the Hyundai Motor Finance Company was for the financial years 2012, 2011, 2010. There was a negative trend in the total current assets in the three years. The short-term financial instruments also declined significantly for the three years. The decline in the short-term financial instruments exposed the company to limited credit risk and slated maturities (Zelman & McCue, 2009). The financial securities include commercial paper, repurchase agreements, cash and cash equivalents, federal funds, and borrowings.
There was also a significant decline in inventories. Inventories is the difference in the units produced and those sold. This undermined the company’s ability to acquire complete visibility into demand, costs, supply, and fulfillment trends and measures. Thus, the company’s potential to manage prices is weak because of decreased production revealed in the decreased inventory. There was a positive trend in the accounts (trade) receivables. This represented money that clients owed the business. The objective of setting up Hyundai Motor Finance Company was to handle the payment of cash by its clients. The payment process lasted as per the paying ability of a customer. The trend in the balance sheet insinuated that there has been a rise in both demand and supply of Hyundai products. More clients owed the company money as the years progressed. The trend also presented the effectiveness of sales and marketing department in their campaign (Zelman & McCue, 2009). The company also invested in maintaining their long-term financial instruments, for there was a positive trend. This provided more security for the company in the face of economic challenges. It also offered enough source of security for the firm in case it needed to access loans from financial institutions.
The decrease in the company’s real estate venture showed a slight decrease over the three years. The value decreased from 282,832 million dollars in the initial year, to 267,116 million dollars in the third year. The company’s ability to invest in property was constant. This may be attributed to the negative pattern shown in the production and inventory over the three years. The company made major improvements in decreasing its total current liabilities. The difference presented in the balance sheet showed that the company reduced its total current liabilities by 1 million dollars per year. The decrease in long-term borrowing seems to reveal the superior financial management strategies of the company. Long-term borrowing decreased by almost 1 million dollars between the base year and the next, and 2 million dollars between the middle and end year. The company showed steadfastness in honoring its tax obligations to the government. This took precedence over other liabilities of the Hyundai Motor Finance Company.
Hyundai Motor finance Company’s total assets summed to 21,537,814 million dollars for the base years, 109,479,975 million dollars for the middle year, and 94,714,131 million dollars for the third year. The total liabilities for the base year was 73,620,239 million dollars, 89,152,273 million dollars for the middle year, and 81,826,158 million dollars for the third year. The company showed great ability and potential because of the increase in the capacity of its assets over the first two years but disrupted the fall in its total assets in the third year. The liabilities section did show irregularities in its trend as well. It rose in between the first two years, but fell in the third year. This demonstrated that there were policy attempts to manage the liabilities of the company.
Ratio analysis
Current ratio analysis is a measure of a company’s ability to honor short-term obligation. The measure result from dividing the current assets with current liabilities in the balance sheet of a company (Mclean, 2003). The ratio reflects a company’s ability to pay its short-term liabilities that include payables and debts. The current ratio for the company was 1.67, representing a healthy company.
Quick ratio analysis indicates a company’s short-term liquidity. It reflects the ability of a company to honor short-term obligations using its most immediate liquid assets. A high quick ratio insinuates that the company is in a good position. Quick ratio result from dividing the difference between the current assets and inventories with the current liabilities (Cleverly, Cleverly, & Song, 2011). A calculation of the ratio for the company gave a figure of 1.65, a range falling between the threshold for healthy companies of 1.5-3.
Cash to current liabilities is a measure of a company’s ability to satisfy short-term obligations in the next 12 months. The measure results from dividing the marketable securities and the company’s cash by its current liabilities. The tabulations resulted to 0.58, reflecting a healthy company.
Recommendation and conclusion
The organizational analysis applied to Hyundai Motor Finance Company suggested that the health of the company in relation to finances. Based on the analysis, I highly recommend that investors consider placing their resources in the company. Major risks could be observed in the external environment of the firm. Pressures in demand brought about by competition is likely to affect the sales outcome. The company is a ripe investment opportunity as per the information from the horizontal analysis of its balance sheet and income statement.
References
Cleverly, W.O., Cleverly, J., & Song, P. (2011). Essentials of health care finance. Sudbury:
Jones & Bartlett Learning.
Gruen, R., & Howarth, A. (2005). Financial management in health services. New York: Open
Mclean, R. (2003). Financial management in health care organizations. Clifton Park: Delmar
Learning.
Zelman, W., & McCue, M. (2009). Financial management of health care organizations: an introduction to fundamental tools, concepts, and applications. San Francisco: Jossey-
Bass.
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