Exploring Financial Performance Trends of Leading Japanese Corporations

The Nikkei 225 functions as the principal index in Japan. It is constituted of prominent corporations within the nation, which collectively generated JPY 596 trillion in revenue during the fiscal year 2023. These companies have demonstrated exceptional financial performance last year, and indeed, over the past five years. The article highlights some interesting insights on their performance over the last fiscal year and preceding five-year period.

Japan’s economy exhibited strong signs of recovery, with GDP posting third straight quarter of expansion, as per data released by the government in mid-August 2023. Healthy export activity contributed to GDP growing 6% on an annualized basis (1.5% QoQ), surpassing analyst expectations. The economic headwinds have also been reflected in the performance of the Nikkei 225, its benchmark index, which reached its 30-year mark in June 2023.

The constituents of the Nikkei 225 include some of the largest Japanese companies from major sectors, including giants such as Ajinomoto, Softbank, Toyota, Mitsubishi, and Sumitomo. For FY’23, the revenues of the constituents of the Nikkei 225 accounted for 62% of the revenues of all the companies listed in the Japanese stock exchange. The combined revenues of the index constituents in FY’23 were JPY 596 trillion.

91% of Nikkei 225 constituents show positive revenue growth in FY’23

An analysis of the one-year performance of the constituents of the Nikkei 225 for FY’23 showed that 91% of the companies exhibited positive revenue growth, with 174 companies (77% of the index) growing by more than 5%.

Companies in the index fall under 36 industries, 34 of which demonstrated positive growth rates in FY’23.

The top 15 companies in the index in terms of revenue growth for FY’23 are shown below.

Combined net income of Nikkei 225 constituents in FY’23 reach JPY 35 trillion, with average annual growth of 4.7%

From a profitability perspective, the results are more modest, with 60% of the companies showing an increase in net income in FY’23 compared to the previous year. Sectors that recorded exhibited significant growth in net income include retail and railways & bus, whereas companies in the insurance and pulp & paper sectors witnessed a decline in net income.

The top 15 companies in the index in terms of net income growth for FY’23 are shown below.

Five-year average revenue growth of index at 4.7%; 87% of companies record positive revenue growth

If we extend our analysis further into the past to assess the performance of the constituents of the Nikkei 225, it becomes evident that 195 companies, accounting for 87% of the index's companies, have exhibited positive revenue growth over the preceding five years when measured in CAGR. The only sector that struggled over the analysis period is railway & bus, with all companies in the sector showing a decline in revenue during this period.

Companies that demonstrated the highest revenue growth in the last five years cover a diverse set of sectors.

The top 15 companies in the index in terms of revenue growth over the last five years are shown below.

Average net income CAGR of 5.5%; 77% of companies in positive territory

From a net income perspective, notably, a large number of companies (77% of the index constituents) have posted growth in net incomes in CAGR terms over the five-year period (compared to 60% over the last one year). Sectors in which companies performed strongly include food, nonferrous metals, and retail.

The top 15 companies in the index in terms of net income growth over the last five years are shown below.

Considering the importance and contribution of the constituents of the Nikkei 225 to the overall Japanese economy, it would be interesting to see whether they can sustain the level of performance exhibited over last year.