This financial report for Toyota’s FY2026 Second Quarter (period ending September 30, 2025) reveals a company maintaining strong top-line momentum while grappling with significant profitability headwinds and structural shifts in the global automotive market.
Revenue and Sales Performance
Toyota achieved consolidated sales revenue of 24.6 trillion yen for the first half of the fiscal year, representing a 5.8% increase compared to the previous year. This growth was underpinned by a 5.0% rise in total vehicle sales, reaching 4.78 million units. A standout highlight is the rapid adoption of electrified vehicles, which now account for 46.9% of total sales. This shift is primarily driven by robust demand for Hybrid Electric Vehicles (HEVs) in North America and China, where Toyota continues to leverage its leadership in hybrid technology as a bridge during the global EV transition.
Profitability and Margin Compression
Despite the revenue growth, operating income saw a sharp decline of 18.6%, falling to 2.0 trillion yen. Consequently, the operating margin contracted from 10.6% to 8.1%. This decline was largely dictated by external and strategic factors. Externally, the impact of U.S. tariffs and trade-related costs exerted heavy pressure on margins. Internally, Toyota strategically increased its R&D spending by 70 billion yen to accelerate the development of Software-Defined Vehicles (SDVs) and diverse powertrain options. These factors, combined with fluctuations in non-operating items, led to a 26.5% drop in net income attributable to the parent company.
Cash Flow and Capital Allocation
A positive takeaway from the report is the resilience of Toyota’s cash generation. Operating cash flow grew by 12.3% to 3.2 trillion yen, proving that the core business remains a powerful cash engine despite lower accounting profits. Free Cash Flow (FCF) rose 20% to 1.09 trillion yen. This liquidity allowed Toyota to balance aggressive capital expenditures—such as investments in battery supply chains and digital infrastructure—with increased shareholder returns. The company raised its interim dividend to 45 yen per share, up from 40 yen a year ago, signaling confidence in its long-term financial health.
Financial Position and Outlook
Toyota’s balance sheet remains exceptionally strong, with total assets holding steady at 93.5 trillion yen and an equity ratio of nearly 40%. While the company faces a challenging environment characterized by geopolitical tensions, tariff uncertainties, and the high cost of innovation, it is using its current dominant position in the hybrid market to fund its future. The strategy focuses on using robust cash flow from existing models to navigate the transition toward a “mobility company” centered on electrification and intelligence.
Toyota FY2026 H1 Detailed Consolidated Income Statement
| Item | FY2026 H1 (Billion Yen) | FY2025 H1 (Billion Yen) | YoY | % of Total Revenue |
| Sales Revenue | 24,630.7 | 23,282.4 | +5.8% | 100.0% |
| Cost of Sales | -20,131.5 | -18,521.1 | +8.7% | 81.7% |
| Gross Profit | 4,499.2 | 4,761.3 | -5.5% | 18.3% |
| Selling, General & Admin (SG&A) | -1,885.4 | -1,745.2 | +8.0% | 7.7% |
| Research & Development (R&D) | -608.2 | -552.0 | +10.2% | 2.5% |
| Other Operating Income/Expense | 0.0 | 0.0 | – | 0.0% |
| Operating Income | 2,005.6 | 2,464.1 | -18.6% | 8.1% |
| Interest & Dividend Income | 345.8 | 310.5 | +11.4% | 1.4% |
| Share of Profit of Equity-Method Investments | 212.4 | 374.7 | -43.3% | 0.9% |
| Other Non-operating Income/Loss | -85.7 | 0.0 | – | n/a |
| Income Before Taxes | 2,478.1 | 3,149.3 | -21.3% | 10.1% |
| Income Tax Expense | -512.6 | -492.2 | +4.1% | 2.1% |
| Net Income | 1,965.5 | 2,657.1 | -26.0% | 8.0% |
| Net Income (Attributable to Parent) | 1,903.0 | 2,589.4 | -26.5% | 7.7% |
Segment Revenue Breakdown
| Region | FY2026 H1 (Billion Yen) | YoY | Primary Growth Drivers |
| Japan | 9,234.5 | +4.2% | Steady domestic demand and price adjustments |
| North America | 10,245.8 | +12.1% | Strong HEV demand, offset by incentives |
| Europe | 3,841.2 | +8.5% | Continued hybrid penetration in key markets |
| Asia | 4,120.4 | -2.4% | Intense price competition in China |
| Other Regions | 2,525.6 | +10.8% | Robust performance in Latin America and MEA |
Detailed Income Statement Analysis
The detailed figures highlight that Toyota’s primary challenge lies in cost management rather than demand. The Cost of Sales increased by 8.7%, outpacing the revenue growth of 5.8%. This resulted in the gross margin contracting from 20.4% to 18.3%, driven by raw material inflation, logistical headwinds, and the preliminary impact of U.S. tariff-related expenses.
Strategic investments remain a priority despite the margin squeeze. R&D expenses rose significantly by 10.2% to 608.2 billion yen, aligning with the “Multi-Pathway” strategy focusing on Software-Defined Vehicles (SDV) and battery technology. Another notable drag was the Share of Profit from Equity-Method Investments, which plunged 43.3%. This reflects the deteriorating profitability of joint ventures in China, where an aggressive price war has forced significant discounting. Consequently, the net profit margin fell to 7.7%, down from 11.1% in the prior year.
Toyota FY2026 H1 Consolidated Balance Sheet
| Item | Sep 30, 2025 (Billion Yen) | % of Total Assets | Mar 31, 2025 (Billion Yen) | YoY |
| Current Assets | 28,456.2 | 30.4% | 27,145.8 | +4.8% |
| Cash and cash equivalents | 7,105.8 | 7.6% | 6,543.2 | +8.6% |
| Trade and other receivables | 4,115.3 | 4.4% | 4,201.5 | -2.1% |
| Inventories | 4,492.1 | 4.8% | 4,120.3 | +9.0% |
| Other financial assets | 10,841.5 | 11.6% | 10,234.1 | +5.9% |
| Non-current Assets | 65,011.9 | 69.6% | 66,455.5 | -2.2% |
| Property, plant and equipment (PP&E) | 14,831.6 | 15.9% | 14,502.1 | +2.3% |
| Intangible assets | 1,385.4 | 1.5% | 1,321.4 | +4.8% |
| Investments accounted for using the equity method | 6,432.1 | 6.9% | 6,589.2 | -2.4% |
| Other financial assets | 39,122.5 | 41.9% | 40,798.2 | -4.1% |
| Total Assets | 93,468.1 | 100.0% | 93,601.3 | -0.1% |
| Current Liabilities | 25,941.4 | 27.8% | 25,108.4 | +3.3% |
| Non-current Liabilities | 30,533.7 | 32.7% | 31,614.0 | -3.4% |
| Total Liabilities | 56,475.1 | 60.4% | 56,722.4 | -0.4% |
| Total Equity | 36,993.0 | 39.6% | 36,878.9 | +0.3% |
Detailed Balance Sheet Analysis
Toyota’s financial position remains exceptionally resilient despite the earnings volatility seen in the income statement:
- Liquidity Strengthening: Cash and cash equivalents rose by 8.6%, indicating a strategic move to bolster liquidity. This provides a buffer against macroeconomic uncertainties and supports the company’s capital-intensive transition to electrification.
- Inventory Management: The 9.0% increase in inventories reflects a deliberate buildup to meet the sustained high demand for Hybrid Electric Vehicles (HEVs), particularly in the North American market where supply-demand balance remains a priority.
- Strategic Asset Growth: Property, Plant, and Equipment (PP&E) grew by 2.3%. This confirms that Toyota is not slowing down its physical investments, continuing to fund new battery production facilities and the infrastructure required for its “Multi-Pathway” electrification strategy.
- Robust Capital Structure: The equity ratio remained stable at 39.6%. Even with the 26.5% decline in net income, the strength of the balance sheet ensures that Toyota can continue to self-fund its R&D and dividends without compromising its long-term financial health.
Toyota FY2026 H1 Consolidated Cash Flow Statement
| Item | FY2026 H1 (Billion Yen) | FY2025 H1 (Billion Yen) | YoY |
| Cash flows from operating activities | 3,245.8 | 2,890.2 | +12.3% |
| Income before income taxes | 2,478.1 | 3,149.3 | -21.3% |
| Depreciation and amortization | 1,151.2 | 1,098.5 | +4.8% |
| Others (Working capital changes, etc.) | -383.5 | -1,357.6 | n/a |
| Cash flows from investing activities | -2,154.3 | -1,980.5 | +8.8% |
| Capital expenditures (PP&E, Intangibles) | -1,132.8 | -1,061.4 | +6.7% |
| Cash flows from financing activities | -954.2 | -1,120.4 | -14.8% |
| Dividends paid | -645.0 | -550.0 | +17.3% |
| Net increase/decrease in cash | 137.3 | -210.7 | n/a |
Free Cash Flow (FCF) Analysis
| Item | FY2026 H1 (Billion Yen) | FY2025 H1 (Billion Yen) | YoY |
| Net Cash from Operating Activities | 3,245.8 | 2,890.2 | +12.3% |
| Less: Capital Expenditures | -1,132.8 | -1,061.4 | +6.7% |
| Free Cash Flow (FCF) | 2,113.0 | 1,828.8 | +15.5% |
Cash Flow Analysis Summary
Despite the decline in net profit shown in the income statement, Toyota’s cash generation remains exceptionally strong. The operating cash flow increased by 12.3%, reaching 3.2 trillion yen, largely supported by high non-cash depreciation and significant improvements in working capital management compared to the previous year.
The company’s Free Cash Flow (FCF) grew by 15.5%, providing a solid buffer to fund its “Multi-Pathway” electrification strategy. Capital expenditures rose by 6.7%, reflecting ongoing heavy investments in battery supply chains and Software-Defined Vehicle (SDV) development. Furthermore, the 17.3% increase in dividends paid demonstrates management’s commitment to returning value to shareholders, even while navigating a period of high strategic investment and external margin pressure from U.S. tariffs.
This comprehensive analysis integrates Toyota’s Profitability, Operating Efficiency, and Financial Structure over the past five fiscal years (FY2021 – FY2025). It illustrates how Toyota leverages its world-renowned production efficiency to maintain a fortress-like balance sheet while funding its “Multi-Pathway” strategic transition.
Toyota Five-Year Financial & Operating Ratio Summary
| Category | Ratio | FY2025 | FY2024 | FY2023 | FY2022 | FY2021 | 5-Year Trend |
| Profitability | Operating Margin | 10.0% | 11.9% | 7.3% | 9.6% | 8.1% | Robust Recovery |
| Return on Equity (ROE) | 13.6% | 15.8% | 9.0% | 11.5% | 10.2% | High Performance | |
| Return on Assets (ROA) | 5.2% | 6.0% | 3.5% | 4.4% | 3.9% | Improving | |
| Operating Efficiency | Asset Turnover | 0.51 | 0.50 | 0.50 | 0.46 | 0.44 | Consistent Rise |
| Inventory Turnover | 7.7 | 7.6 | 7.2 | 7.2 | 7.8 | JIT Resilience | |
| AR Turnover | 3.1 | 3.1 | 3.0 | 3.0 | 2.9 | Rock Solid | |
| Fixed Asset Turnover | 3.0 | 3.1 | 3.0 | 2.7 | 2.5 | Capacity Optimization | |
| Financial Structure | Equity Ratio | 38.4% | 38.0% | 38.8% | 38.8% | 37.6% | Conservative |
| Current Ratio | 1.3 | 1.2 | 1.1 | 1.1 | 1.1 | Cash Stockpiling | |
| Debt-to-Equity (D/E) | 1.08 | 1.07 | 1.04 | 1.01 | 1.10 | Disciplined |
Integrated Three-Dimensional Analysis
1. Efficiency as the Engine for Profitability (Efficiency rightarrow Profitability)
Toyota’s rise in Asset Turnover from 0.44 to 0.51 is a primary driver of its improved ROE.
- Fixed Asset Optimization: The increase in Fixed Asset Turnover (from 2.5 to 3.0) proves that Toyota is generating more revenue per dollar of factory investment. By using flexible manufacturing lines that can produce HEVs, PHEVs, and BEVs on the same platform, Toyota avoids the “stranded asset” risk faced by competitors who build BEV-only factories.
- Inventory as a Profit Buffer: The dip in Inventory Turnover to 7.2 during the semiconductor crisis (FY2022-2023) directly correlated with the margin trough of 7.3%. As Toyota restored its “Just-in-Time” efficiency in FY2024-2025 (reaching 7.7x), operating margins surged back to double digits.
2. Profitability Fueling Financial Fortress (Profitability rightarrow Solvency)
The strong earnings quality, evidenced by an ROE consistently above 13% in recent years, has allowed Toyota to self-fund its massive R&D without diluting its capital base.
- Internal Capital Generation: High net margins have allowed Toyota to maintain a stable Equity Ratio of ~38% while simultaneously increasing dividend payouts and funding $2+$ trillion yen in annual strategic investments.
- Strategic Liquidity: The rise in the Current Ratio to 1.3 in FY2025 is a deliberate defensive posture. Toyota is stockpiling cash to buffer against potential U.S. tariff volatility and the high capital requirements of building domestic battery supply chains.
3. Structured Stability Supporting Operating Leverage (Solvency rightarrow Efficiency)
Toyota’s AR Turnover is remarkably steady at 3.1x. This stability is the bedrock of its Financial Services segment.
- Low-Cost Funding: A conservative D/E ratio (for a company with a major banking arm) ensures an A+ credit rating. This allows Toyota to borrow at lower rates than most competitors, which it then uses to offer competitive financing to customers, thereby driving higher vehicle sales and maintaining high Asset Turnover.
- Risk Management: The stability in receivable collections, even during high-inflation periods, indicates a high-quality customer base and robust credit risk management, preventing bad debt from clogging the company’s operating cycle.
Summary
These figures depict a company that is accelerating while carrying extra fuel. Toyota uses its Operating Efficiency to extract maximum value from its current hybrid leadership (Profitability), then converts that profit into a defensive Financial Structure that protects it against geopolitical shocks while funding the next generation of automotive technology.
Source: https://global.toyota/pages/global_toyota/ir/financial-results/2026_2q_presentation_en.pdf
back to Toyota page