Based on the ratio analysis below, in which company would you be willing to invest and why? RATIOS Ford Motor Co General Motors Co ANALYSIS Profitability Ratios (%) Gross Margin 15.01 17.9 General Motors Company (GM) has higher ratios than Ford Motors(FM) which indicates GM has higher profitability than FM. Particularly the EBITDA margin and operating margins reflect GM has an edge over FM. EBITDA Margin 8.66 15.55 Operating Margin 2 3 Pre-Tax Margin 2.71 5.81 Effective Tax Rate 14.96 5.54 Financial Strength Quick Ratio 1.04 0.73 Quick and Current ratios show that FM is in a much better position to meet short term obligations and daily operating expenses. The Debt/ Equity of FM is higher than GM. FM is more leveraged compared to GM which shows there's more debt in FM balance sheet. Lastly, the interest coverage ratio of GM is much higher showing GM is in a better position to service its interest expense on debt. Current Ratio 1.2 0.92 LT Debt to Equity 2.8 1.88 Total Debt to Equity 7.14 5.85 Interest Coverage 4.54 14.05 Valuation Ratios Price/Earnings Ratio 4.9 35.6 When comparing valuation ratios, GM has much higher ratios than FM signifying company shares are overvalued ie. more expensive and the FM ratios are undervalued ie. cheaper compared to industry average ratios. Price to Sales P/S 0.2 2.2 Price to Book P/B 0.9 1.2 Free Cash Flow per Share 2.26 -6.95 Management Effectiveness (%) Return On Assets 1.43 3.6 Management effectiveness measures are higher for GM which shows returns are more for GM compared to FM, and GM is working at good returns compared to FM. Return On Investment 2.18 6.02 Return On Equity 10.38 21.43 Efficiency Receivable Turnover 2.5 4.74 Receivables turnover is higher for GM which shows that the days of sales outstanding will be less for GM than FM. Inventory turnover is higher for FM indicating the Days of inventory in hand will be less for FM. Inventory Turnover 12.68 11.78 Total Asset Turnover 0.62 0.67 Free Cash Flow/Net Income 1.97 -1.28

Based on the ratio analysis below, in which company would you be willing to invest and why? RATIOS Ford Motor Co General Motors Co ANALYSIS Profitability Ratios (%) Gross Margin 15.01 17.9 General Motors Company (GM) has higher ratios than Ford Motors(FM) which indicates GM has higher profitability than FM. Particularly the EBITDA margin and operating margins reflect GM has an edge over FM. EBITDA Margin 8.66 15.55 Operating Margin 2 3 Pre-Tax Margin 2.71 5.81 Effective Tax Rate 14.96 5.54 Financial Strength Quick Ratio 1.04 0.73 Quick and Current ratios show that FM is in a much better position to meet short term obligations and daily operating expenses. The Debt/ Equity of FM is higher than GM. FM is more leveraged compared to GM which shows there's more debt in FM balance sheet. Lastly, the interest coverage ratio of GM is much higher showing GM is in a better position to service its interest expense on debt. Current Ratio 1.2 0.92 LT Debt to Equity 2.8 1.88 Total Debt to Equity 7.14 5.85 Interest Coverage 4.54 14.05 Valuation Ratios Price/Earnings Ratio 4.9 35.6 When comparing valuation ratios, GM has much higher ratios than FM signifying company shares are overvalued ie. more expensive and the FM ratios are undervalued ie. cheaper compared to industry average ratios. Price to Sales P/S 0.2 2.2 Price to Book P/B 0.9 1.2 Free Cash Flow per Share 2.26 -6.95 Management Effectiveness (%) Return On Assets 1.43 3.6 Management effectiveness measures are higher for GM which shows returns are more for GM compared to FM, and GM is working at good returns compared to FM. Return On Investment 2.18 6.02 Return On Equity 10.38 21.43 Efficiency Receivable Turnover 2.5 4.74 Receivables turnover is higher for GM which shows that the days of sales outstanding will be less for GM than FM. Inventory turnover is higher for FM indicating the Days of inventory in hand will be less for FM. Inventory Turnover 12.68 11.78 Total Asset Turnover 0.62 0.67 Free Cash Flow/Net Income 1.97 -1.28

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 91PSA: A Comparing Financial Ratios Presented below are selected ratios the four firms, Badgley is a heavy...

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Based on the ratio analysis below, in which company would you be willing to invest and why?

RATIOS	Ford Motor Co	General Motors Co	ANALYSIS
Profitability Ratios (%)
Gross Margin	15.01	17.9	General Motors Company (GM) has higher ratios than Ford Motors(FM) which indicates GM has higher profitability than FM. Particularly the EBITDA margin and operating margins reflect GM has an edge over FM.
EBITDA Margin	8.66	15.55
Operating Margin	2	3
Pre-Tax Margin	2.71	5.81
Effective Tax Rate	14.96	5.54
Financial Strength
Quick Ratio	1.04	0.73	Quick and Current ratios show that FM is in a much better position to meet short term obligations and daily operating expenses. The Debt/ Equity of FM is higher than GM. FM is more leveraged compared to GM which shows there's more debt in FM balance sheet. Lastly, the interest coverage ratio of GM is much higher showing GM is in a better position to service its interest expense on debt.
Current Ratio	1.2	0.92
LT Debt to Equity	2.8	1.88
Total Debt to Equity	7.14	5.85
Interest Coverage	4.54	14.05
Valuation Ratios
Price/Earnings Ratio	4.9	35.6	When comparing valuation ratios, GM has much higher ratios than FM signifying company shares are overvalued ie. more expensive and the FM ratios are undervalued ie. cheaper compared to industry average ratios.
Price to Sales P/S	0.2	2.2
Price to Book P/B	0.9	1.2
Free Cash Flow per Share	2.26	-6.95
Management Effectiveness (%)
Return On Assets	1.43	3.6	Management effectiveness measures are higher for GM which shows returns are more for GM compared to FM, and GM is working at good returns compared to FM.
Return On Investment	2.18	6.02
Return On Equity	10.38	21.43
Efficiency
Receivable Turnover	2.5	4.74	Receivables turnover is higher for GM which shows that the days of sales outstanding will be less for GM than FM. Inventory turnover is higher for FM indicating the Days of inventory in hand will be less for FM.
Inventory Turnover	12.68	11.78
Total Asset Turnover	0.62	0.67
Free Cash Flow/Net Income	1.97	-1.28

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