Toyota Motor Corporation (NYSE: TM) reports a return on equity (ROE) of 14.2% for the 12 months ending in December 2015. The company's fiscal year runs from April 1 to March 31. Compared to its industry peers, Toyota maintains a strong ROE. The company's ROE has also recovered strongly from the 2008 financial crisis, which hit automakers especially hard. Net margin is the primary factor that has pushed Toyota's ROE up and down over the past decade.

ROE Analysis

ROE is one of the best measures of management efficiency. A high ROE indicates a company is able to parlay its assets into profits. Toyota's trailing 12-month ROE is 14.2% on net income of $19 billion and shareholders' equity of $138.3 billion. The company's ROE hovered around 14% from 2006 to 2008 before bottoming out and falling into negative numbers amid the financial crisis in 2009. It began recovering in 2010 and saw its most substantial growth between 2012 and 2014. The company's ROE has continued to climb, albeit at a much slower rate, from 2014 until the end of 2015.

Toyota's ROE stands higher than most of its peers in the industry. Between Honda, Ford and General Motors, only Ford reports a higher ROE in 2015.

DuPont Analysis

ROE is commonly calculated by comparing net income to shareholders' equity, but it can also be arrived at by multiplying a company's net margin, asset turnover ratio and equity multiplier. DuPont analysis evaluates ROE by examining each of these components individually and studying the components' influence on ROE over time.

Toyota's net margin for the 12 months ending in December 2015 is 8.1%. This is the highest net margin Toyota has seen in over a decade; prior to the financial crisis, net margin hovered between 6 and 7% before plunging into negative numbers in 2009. From 2010 onward, the net margin has steadily improved, with the ROE improving in concert. Toyota's net margin is significantly higher than that of Honda, Ford or GM. As the broader economy has recovered from the financial crisis, demand for automobiles has increased, putting upward pressure on prices and offering automakers stronger margins.

Toyota's trailing 12-month asset turnover ratio is 0.67. This figure measures how efficiently a company generates sales revenue with its assets. Toyota's asset turnover ratio, while trending slightly downward in the last three years, has remained very steady, between 0.6 and 0.7, since 2009. Toyota lags behind its competitors here, with Ford reporting an asset turnover of 0.68, Honda 0.82 and GM 0.83.

Toyota's equity multiplier for the 12 months ending in December 2015 is 2.84. The equity multiplier divides total assets by shareholders' equity and measures to what extent a company is using debt to finance asset purchases. Toyota's equity multiplier has remained fairly steady since 2011. As for its industry peers, Honda's equity multiplier is similar to Toyota's. American automakers GM and Ford, however, have much higher equity multipliers: above 5 and 8, respectively.


Toyota's profit margins have driven its ROE up and down over the past decade. When the financial crisis hit and auto sales were decimated, Toyota's profit margin was wiped away entirely and fell into the negative; its ROE went negative as well. As the economic recovery found its footing and demand for automobiles began to push prices upward, Toyota's margin recovered, as did its ROE.

Earnings forecasts indicate that 2016 should be even better than 2015 for Toyota. Profit margins should rise moderately. If the company's asset turnover and debt management also remain constant, another increase in ROE should result from Toyota's expanding profit margins.