Financial Ratio Analysis Report of Ford Motor Company

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Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their…show more content…
This is the first definite sign of Ford's numbers returning to the profitability of 2000. While the company is fairing slightly lower than the industry average in this area, it is hardly significant enough to warrant much of a warning.
Quick ratio is the hardest measuring stick of a company's liquidity and strength. It looks at a company's assets, finds what can be immediately converted to cash, and divides that by the company's liabilities. This tells how much cash a company can come up with in a matter of hours or days.
Current ratio is a similar test to quick ratio, but it calculates how many dollars in assets are likely to be converted to cash within one year in order to pay debts that come due during that same year. Too high a number, like a 3 or 4, means that there is too much cash on hand that is not being reinvested. A number below 1, like that of Ford's, means that there is a negative working capital. This is acceptable if the inventory can immediately be converted to cash. However, in both quick and current ratios, Ford is falling enough below industry averages for it to issue some concern.
The working capital ratio reveals more about the financial condition of a business than other calculations. It makes it easy to foresee any financial difficulties that may arise. In Ford's case, the turn over is not quick enough not to keep some sort of working capital reserve in case of financial hardship. The industry average

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