Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. NEW YORK ( TheStreet) -- Honda Motor (NYSE: HMC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and poor profit margins.
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- HONDA MOTOR CO LTD has improved earnings per share by 13.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HONDA MOTOR CO LTD increased its bottom line by earning $2.17 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($3.45 versus $2.17).
- Net operating cash flow has significantly increased by 113.34% to $3,765.72 million when compared to the same quarter last year. In addition, HONDA MOTOR CO LTD has also vastly surpassed the industry average cash flow growth rate of 32.59%.
- The debt-to-equity ratio is somewhat low, currently at 0.98, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.82 is somewhat weak and could be cause for future problems.
- The gross profit margin for HONDA MOTOR CO LTD is currently lower than what is desirable, coming in at 32.23%. Regardless of HMC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 4.16% trails the industry average.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Automobiles industry and the overall market, HONDA MOTOR CO LTD's return on equity is below that of both the industry average and the S&P 500.