Even though manufacturing and construction and service organizations conform to generally accepted accounting principles, revenue, and cost reporting in both organizations have several differences (Subhani & Osman, 2020). Since income statements reflect both the revenues earned by an organization and the cost incurred in earning the revenue, industries like manufacturing and construction, in the case of Toyota Motor Corporation that incur more cost, must provide more details in their statements than those in service organizations with general expenses. Toyota Motor Company's automobile production generates higher revenues than its other business lines since the cost incurred to earn the revenues in manufacturing and construction is usually high. The high cost incurred is enhanced by producing tangible goods, unlike service organizations that produce intangible products such as ideas and information. In this case, reporting of revenues and costs is more detailed when dealing with a manufacturing and construction organization than a service organization.
On the other hand, offering services will have low overhead costs than manufacturing and construction automobile (Shoffner, Shelly & Cooke, 2011). The low overhead results from keeping everything low, if any, inventory and having a relatively small number of workers. In this case, offering services usually have a larger percentage of revenue earned, converting to profit than manufacturing and construction though the revenues might be lower. The manufacturing and construction subsection of Toyota Motor Company handles automobile production. Another subdivision of services deals with non-automotive activities like financial services, agricultural biotechnology, robotics, communications, sewing machine technology, and philanthropy. Since the manufacturing and construction sector deal with tangible goods, unlike the service sector, reporting revenues and cost in manufacturing and construction must include the cost of raw materials used in production. This is the cost incurred in the purchase of raw materials used in the production of tangible goods. The services section produces intangible goods; hence this sector does not incur manufacturing and construction raw materials costs to derive revenues. Hence reporting of revenues and cost in providing services does not accommodate the cost of raw materials used in the production and generation of revenues, unlike manufacturing and construction. Toyota Motor Company is the largest and most reputable automaker company distributing motor vehicles and automobile spare parts. The company produces and distributes different models of cars around the world. With total sales of 10.74 million cars compared to the average number of cars standing at 3.1 million worldwide in 2019, the company has a market share of 10.24%, making it the largest automobile company globally. The company's market cap stands at 202.3 billion dollars in 2019, giving it a competitive advantage. Most of the company's revenues result from the company's automobiles compared to spare parts sold by the company. The reason for selecting this organization is that the number of cars sold and revenues earned by the company have been on a steady rise and market share over recent years. Compared to other organizations in the automobile, Toyota has a significant market share, which results in a significant amount of income earned annually by the organization. In the last four years, the company's financial statements in the last four years starting 2017 to 2020 indicate a favorable profitability trend increasing over the years. In 2017, the organization reported 256.7 billion dollars in revenue. In 2018 the company earned 264.4 Billion dollars in revenues. The company earned revenues amounting to 272.03 billion dollars in 2019. Finally, the Toyota Motor Company's income was 275 billion U.S. dollars in 2020 (Macrotrends, 2020). From the above analysis, it can be seen that the company has had a favorable financial performance, with income increasing over the years. Over the past four years, the company's current ratios have been greater than one, meaning that it is not expected to be liquidated within one year. Inventory turnover indicates how many times the company's inventory is sold and replaced in a specific period. The inventory turnover of the company fluctuates between 10 and 11. Although the percentage increase in revenues earned in 2020 decreased. This can be attributed to the COVID-19 pandemic experienced during the year. Most of the revenues above three-quarters of the company's revenue are attributed to automobile sales compared to parts sales, hence being necessary to the company.
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References
Macrotrends, (2020) Toyota Revenue 2006-2020 TM [Online] Available from https://www.macrotrends.net/stocks/charts/TM/toyota/revenue [Accessed 4th October 2020].
Shoffner, H. G., Shelly, S., & Cooke, R. A. (2011). The McGraw-Hill 36-Hour Course: Finance for Non-Financial Managers 3/E. McGraw Hill Professional.
Subhani, M. I., & Osman, A. (2020). Volatilities in Market Shares through Financial Fundamentals for Global Automobile Industry.
