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The term capital structure is referred to the percentage of
the capital at work in a business by type. Capital structure is also become
firm using different sources of funds to finances overall business operations
and growth. In general, there are two forms of capital which are equity capital
and debt capital. Each type of capital has its own advantages and
disadvantages. Capital structure is also an important part of wise corporate
stewardship and management is trying to find a good capital structure from
shareholders’ return on risk and reward.

Equity

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Equity is representing a shareholders’ ownership of a company.
The sum of common stock, capital surplus, retained earnings and other
components of equity and minus treasury stock is the total equity which had
been invested in a company. Equity means giving one party benefits as it is
given to another. However, equity is crucial to ensure that the extent and
costs of funds, goods, and services are equitably distributed among recipients.
In accounting, ownership interest or claim of a holder of common stock and some
types of preferred stock of a company. According to an annual report of Honda
Motor Co., Ltd. in the year ended March of 2017, the total equity of Honda
Motor Co., Ltd. in 2016 and 2017 show as the following:

Common share issued by the Company is classified as equity,
and the proceeds from the issuance of common share are included in common stock
and capital surplus. From the year 2016 to 2017, the common stock and capital surplus
of Honda Motor Co., Ltd are consistent unchanged. Purchases and sales of
treasury stock were increased 11 million yen under cash flows from financing
activities. Treasury stock acquired by Honda is
recognized at cost and deducted from equity. In 2017, the total Honda
Motor Co., Ltd. shareholder’s equity is ¥7,295,296 million.

Honda Motor Co., Ltd can be breakdown shares following by
shareholder type. The main shareholders are foreign investors and financial
institutions which are 40.1% and 41.4% in year 2017. Other shareholder included
individuals have 8.8%, treasury stock have 0.5%, securities companies have 1.7%
and other domestic corporations have 7.8%. The total number of shareholders
have 194,661 people.

Besides that, total capital expenditures are divided into four business segments which
are motorcycle business, automobile business, financial services business and
power product and other business. It shows as the following:

From the table above, Honda Motor Co., Ltd.’s capital
expenditures were ¥2,572.7 billion in the year ended March 31, 2017. Capital
expenditures in the fiscal year ended March 31, 2017, were applied to the
introduction of new models, as well as the improvement, streamlining and
modernization of production facilities, and improvement of sales and R&D
facilities.

Debt

The long-term debt also called financing liabilities as
non-current liabilities. The sum of the loans, medium-term notes, corporate
bonds and asset-backed securities and minus the reclassification to current
liabilities as a current portion is the total long-term debt. According to the annual
report of Honda Motor Co., Ltd. in year ended March of 2017, the total long-term
debt of Honda Motor Co., Ltd. in 2016 and 2017 show as the following:

 

Honda Motor Co., Ltd.’s short- and long-term debt securities
are rated by credit rating agencies, such as Moody’s Investors Service, Inc.,
Standard & Poor’s Rating Services, and Rating and Investment Information,
Inc. The following table shows the ratings of Honda’s unsecured debt securities
by Moody’s, Standard & Poor’s and Rating and Investment Information as of
March 31, 2017.

 The above ratings are
based on information provided by Honda Motor Co., Ltd.  and other information deemed credible by the
rating agencies. They are also based on the agencies’ assessment of credit risk
associated with designated securities issued by Honda Motor Co., Ltd. Each
rating agency may use different standards for calculating Honda Motor Co., Ltd.’s
credit rating, and also makes its own assessment. Ratings can be revised or
nullified by agencies at any time. These ratings are not meant to serve as a
recommendation for trading in or holding Honda’s unsecured debt securities.

Currency Used

Honda Motor Co., Ltd. has manufacturing operations throughout
the world, including Japan, and exports products and components to different
regions such as North America, Europe and Asia. Honda Motor Co., Ltd. have
rapidly developed and expanded overseas bases and currently possess 57 bases in
21 countries. Honda Motor Co., Ltd. purchases materials and components and
sells its products and components in foreign currencies. Therefore, currency
fluctuations could affect Honda Motor Co., Ltd.’s pricing of materials
purchased and products sold. Accordingly, currency fluctuations have an effect
on Honda’s results and financial condition, as well as Honda Motor Co., Ltd.’s
competitiveness, which will over time affect its results.

The consolidated financial statements are presented in
Japanese yen, which is the functional currency of the Company. All financial
information presented in Japanese yen has been rounded to the nearest million
Japanese yen, except when otherwise indicated. Foreign currency transactions
are translated into the respective functional currencies at the exchange rates
prevailing when such transactions occur.

Honda Motor Co., Ltd. has entered into foreign exchange contract
to manage currency rate exposures. This contract includes foreign currency
forward contracts, currency option contracts, currency swap agreements and
interest rate swap agreements. All foreign currency receivables and payables
are translated into the respective functional currencies at the applicable
exchange rates at the end of the reporting period. Gains or losses on exchange
differences arising on settlement of foreign currency receivables and payables
or on their translations at the end of the reporting date are recognized in
profit or loss and they are included in finance income and finance costs-other,
net in the consolidated statements of income.

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