Ford Motor Financial Ratio Analysis

2536 WordsMar 7, 201211 Pages
A well formulated financial ratio analysis report helps investors to quantify a company’s financial strengths and weaknesses and potential risks and opportunities and identify the company’s financial position. Using financial ratio analysis as a tool in conjunction with other business evaluation processes, and other company factors, is beneficial for the investors (Brealey, Meyers & Marcus, 2009). The following report will provide the investor with a clear picture of the company’s current status as well as future projection in order to demonstrate investment opportunities. Specifically, this report examined xxx Company's financial ratios and other factors using a trend table over the past five years. Return on assets (ROA) measures…show more content…
For example, a ratio under 1 indicates that the company is not in good financial health and would be unable to pay debts. Too high of a number, like a 3 or 4, means that there is too much cash on hand that is not being reinvested (Brealey et al., 2009). In 2009, Ford has a current ratio of 0.8, which means that there was negative working capital. However, compared to the industry norm, Ford fell slightly below industry average, issuing some concern. The working capital ratio indicates whether a company has enough short-term assets to cover its short-term debts. This ratio reveals the financial condition of a business more so than other calculations because it results in information that may project financial difficulties. In Ford's case, turnover was not quick enough not to keep working capital reserves in the event of financial hardship (Brealey et al., 2009).. The debt/equity ratio depends on the industry in which the company operates. Capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, other industries such as personal computer companies have a debt/equity ratio of under 0.5. However, any company over 40% of its debt to equity ratio warrants observation because the debt to equity ratio measures the amount a company is able to borrow over long periods. Ford’s debt/equity ratio was approximately 6.5% in 2009, which as good in comparison to the previous four years. Long-term
Open Document