Student Name: NGUYEN Khanh Diep

ID Number: 52115613

Midterm Report
Canon Corporation Management Reform and Financial Policy
Since 1995
1. Overview
Canon Inc. ( ) is a Japanese multinational corporation
specialized in the manufacture of imaging and optical products,
including cameras, camcorders, photocopiers, steppers, computer
printers and medical equipment. Its headquarters are located in ta,
Tokyo, Japan
Canon has a primary listing on the Tokyo Stock Exchange and is a
constituent of the TOPIX index. It has a secondary listing on the New
York Stock Exchange. At the beginning of 2015, Canon was the tenth
largest public company in Japan when measured by market
capitalization.
2. Lessons from the case of Canon Corporation Case
a. The importance of leadership
Leadership is an important factor for making an organization
successful. Leadership transforms potential into reality. Leaders are
a key human resource in any organization. We generally think of
companies competing by means of their products, but they probably
compete more by means of their leaders than their products. Mitarai
Fujio is one of great leaders like that.
With the deep understanding about finance analyzing, he is able to
control the cost and remove redundancies. He also emphasized on
the importance of profit. Because business is of no value if it
cannot realize a profit more than an interest income. His
philosophy was business is means to achieve profit, with strong
money position, you can make a necessary investment and profit
will support you in pursuing your favorite work. Besides, he is the
one who introduced the principle of consolidated evaluation system
to Canon.
Mitarai Fujio is also has good vision. He is the person who brings
thinking into action. He reform the company when seeing that

decentralization is no longer effective at that time. He changes the

Conveyor Production System to Cell System
b. The importance and influence of organizational reform
Within the framework of the continuous developments in the
economic, technological and social factors, it is absolutely
necessary for companies to change the way they are organized. For
example, one company structure could be seen as good in one time
but it could be not suitable in another time. The CEO needs to have
a good vision to analyze and evaluate the companys situation in
order to change and reform the organization when the current
structure is no longer good for the company.
In case of Canon, the decentralization structure of Canon did work
well during the period of pursuing diversification. However, in the
era of rapid globalization and technology innovation, that system is
no longer ideal for company. Through changing from
decentralization system to consolidation system, Canon can avoid
the dispersion of human resources and capital. Furthermore, it can
control the companys financial condition better.
c. The importance of consolidation system policy
The company is termed a parent, and the parent, together with all
its subsidiaries, becomes a group. In simple words, consolidation is
the line-by-line summing up of the revenues, expenses, assets and
liabilities of the parent and all its subsidiaries, in tune with the
parent's reporting period and accounting policies.
When evaluation of business performances only covers the parents
company and the evaluation of subsidiaries were out of this
evaluation, this situation could happen: When the parent company
cannot meet the sales target, it may force the subsidiaries to
purchase their goods on account, to make its business performance
better. However, in reality, the goods is not sold and they create a
pressure on the subsidiaries. If the subsidiaries cannot sell, they
may offer discounts to the customers. Therefore, in overall, this
situation creates a bad effect to the company.
In a nutshell, it is very important for a company to prepare the
consolidated financial statement and evaluate a company and its
subsidiaries as a group.
Canon introduced consolidated evaluation system in 1997. This
made the walls which were the obstacle in the past disappeared
gradually by this new measure. It also helps the company to avoid

unnecessary bank borrowings through flexible liquidity allocation

among group companies.
d. The importance of analyzing Cash Flow Statement and
manage the cash flow
CGS = Beginning Inventories + Purchase Ending Inventories.
By evaluating the Ending Inventory, a company could manipulate
the profit. Therefore, the profit figures in the income statement are
not necessarily reliable. Instead of emphasizing the result in the
income statement with less attention on the efficient utilization of
overall assets, we should closely monitor and evaluate the cash
flow.
In order to improve the cash position of a company, we can
withdraw from unprofitable businesses.
In case of Canon, as part of the effort to emphasize cash flow,
Mitarai decided to withdraw from computer business in 1996
because since 1975, after investing in Americas company for years,
Mitarai felt that Canon had not acquired unique technology
compared with the leading companies and investment had been
continuing without profit.
e. Supply chain management, technology and the innovation
Canon moved ahead with such growth strategies as enhancing
existing businesses and expanding into new areas. Through the
thorough implementation of supply chain management and IT
reforms, the company targeted the realization of "real-time
management" to respond quickly to changes. Instead of 8 months,
with the implementation of barcode system, Canon can
manufacture orders received during the past 1 week, and ship them
to dealers after 4 weeks. New system also helps the company to be
easier to track inventories and monitor the inventories level.
f. Cell Production System
The comparison between Conveyor System and Cell Production System
is shown is below table

Conveyor System
Centralized
Have to meet the speed of the

Cell Production System

Decentralized
Multi-jobs (with several

lowest production process so

whole factorys efficiency can
be affected
Conveyor belts are expensive
Cannot vary the products

people)
Autonomous
Increasing teamwork
No
breakdown
that
affect
the
whole
production line
Can produce a variety
of products which is
preferable
because
market wants less unit
of a product but more
products offered. And
due to the rapid growth
of technology, life cycle
of a product become
very short.

g. Lessons from financial analyzing

-

When analyzing a company, we have to analyze both Strategy

Management and Financial Performance, because these two
factors have close relationship with each other. When a company
changes its strategy management, the financial performance is
affected and it will be reflected to the financial statement. On
other hand, the current financial position of a company can have
a strong influence in the strategy of that company in next period.
If you want to understand about the company, you have to
closely look to the companys nature.
From the Cash Flow Statement, we can see that the Free Cash
Flow of Canon is always positive. It tells us that Canon has not
much investment opportunities during the past years. That could
be the reason for the increase in dividend payment. We can learn
that Dividend Amount do not reflect the investment/growth of a
company. Because if you invest in high-growth business, you will
expect less dividend. If the company grows, then you can earn
money from capital gain. If the company does not expand much,
then you will expect dividend more. This can be clearly seen in
the case of Canon.
Looking at the Treasury Stock, we can infer that the company has
bought back a lot in the period of 2006~2009. This can happen
because of the three reasons: 1. To increase the ownership and
protect the company from foreign acquisition, 2. To avoid
dividend reduction, and 3. To increase the stock price. In this

case, Canon buy their treasury stock to increase their stocks

market price.
When analyzing the Canons Stock Price Chart, we can see that
the Canons stock is very favorable. But it is not true. Because
when analyzing one companys stock price, we have to compare
it with the market index. If we divided the Canons Stock Price to
Nikkei 225 Average, we can draw a chart which show the relative
increase/decrease of Canon to the overall market. As can be
seen, the Canons stock price is only preferable until 2003, not
2007. The lesson to be leant here is we should use the relative
chart in order to compare and make right investment decision.

3. Conclusion
Canon Corporation Management Reform and Financial Policy since
1995 is an interesting case for a MBA student to study about how to
efficiently manage a company and control its resource. It also helps us
to broaden our knowledge about financial analyzing, how to
understand a nature of a company through its strategy management
and financial statements. It also points out some common mistakes of
students in financial analyzing and helps us to avoid these mistakes in
the future.