Ford and GM Financial Analysis (Essay Sample)

Ford and GM Financial Analysis
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Ford and GM Financial Analysis
The General Motors Corporation is the world's largest automobile company whose headquarters are in Detroit, Michigan. Manufacturing automobiles, supplying automobiles, and providing financial services are its primary services (Anbinder, 2018). GM is entirely developed as it has a total of 35 plants, which are at different locations around the world. The most popular brands of the company include Chevrolet, Buick, GMC, and Cadillac. The company's businesses are conducted in countries exceeding 120, which has boosted its profit margin. GM's total number of employees is 181,000, who enjoy a lot their work environments. Since 1908, when it was founded, its name hasn't been tarnished yet, as it keeps manufacturing world-class automobiles.
Another big name in the automotive industry is the Ford Motor Corporation. Formed in the year 1903 by the legendary Henry Ford, the company is not only regarded as the second largest industrial organization in the U.S, but also as one of the leading multinational companies in the world. The headquarters of this company in Dearborn, Michigan. The automotive products of Ford are Lincoln and Ford (Bloomfield, 2017). With plants exceeding 65 globally and about 175,000 employees, the company does manufacture and distribute its products across six continents. Apart from manufacturing automobiles and products such as satellites, radios, televisions, and many other products, Ford also offers financial services via the Ford Motor Credit Company.
In this paper, the 10-K forms for both companies will be looked at, after which the two companies will be compared and contrasted for each company's financial health for 2019 and 2018. The financial analysis will follow the following headings: liquidity ratios, solvency ratios, profitability ratios, Horizontal and Vertical Common-Sized Percentages, and DuPont Analysis.
Liquidity Ratios
These are ratios used to determine a company's ability to pay the obligations of its short-term debts. In this section, the main liquidity ratios for both Ford and Gm will be discussed.
* General Motors’ Current Ratio, Quick Ratio, Average Daily Sales, and Day’s Sales Outstanding (in a million $).
Current Ratio

75,29382,237

0.916

Quick Ratio

(8,609+ 6,000,+ 33,40082,237

0.584

Average Daily Sales

147,049365

$402.87

Days’ Sales Outstanding

28,970.3403.5

71.798 days

Table 1.1: Average Daily Sales, Day's Sales Outstanding, The Current, and Quick ratios of GM.
* Ford Motors’ Current Ratio, Quick Ratio, Average Daily Sales, and Day’s Sales Outstanding.
Current Ratio

114,64995,569

1.199

Quick Ratio

(16,718+17,233+65,548)95,569

1.041

Average Daily Sales

160,338365

$439.28

Days’ Sales Outstanding

61,910428.23

144.57 days

Table 1.2: Average Daily Sales, Day's Sales Outstanding, The Current, and Quick ratios of Ford.
As the above table figures reveal, Ford's liquidity ratios are generally superior to those of General motors. The current ratio of General Motors, for instance, is 0.916, whereas that of Ford is 1.199. When the current ratio is below 1.0 like that of General Motors, it means that the company's total current assets are barely enough to cover the short-term liabilities in that financial year. Further, evidence to prove that Ford had higher liquidity than General motors as of 2018 is the quick ratio. GM's quick ratio is 0.584, and that of Ford is 1.041, as shown in tables 1.1 and 1.2, respectively. This implies that Ford's quick ratio is higher than GM's by 0.457. Whenever a business' quick ratio exceeds 1.0, it means that the company meets its short term obligations perfectly.
Solvency Ratios
Solvency ratios are key metrics used in measuring a business entity's ability to meet its debt obligations. Four of the significant solvency ratios will be looked at under this section. Through them, we will determine whether Ford or GM was the one performing well financially between 2017 and 2019.
Long-Term Debt to Shareholders Equity Ratio
This is a solvency ratio that is obtained by dividing the total debt by total shareholders' equity. The 10-K form data show that Gm's debt to equity ratio declined from 2017 to 2018 but then drastically improved the following year and even surpassed the level reached in 2017. For Ford, things were different. Between 2017 and 2018, the ratio, but then, the ratio declined bigtime the following financial year.
Interest Coverage Ratio
This is a solvency ratio that is computed through diving EBIT, that's is Earnings before Interests and Taxes by Interest Expenses (Kenton, 2017). There was a continuous deterioration of the Interest Coverage Ratio of GM from 2017 up to 2019. Just like in GM, Fords' Interest Coverage Ratio deteriorated continuously as of 2017.
Liabilities to Assets Ratio
In calculating this ratio, total debts are divided by total assets. Between 2017 and 2018, GM's liabilities to assets ratio declined heavily but then showed a slight improvement as of 2018-2019. This display was the same as that of Ford.
Liabilities to Shareholders' Equity Ratio
This is a ratio computed by dividing total debt by shareholders Equity. However, in the computations, the operating lease liability is included. The ratio improved between 2018 and 2019 despite deteriorating the previous year. Things were very similar to Ford as there was also a decline from 2017 to 2018 and an improvement from 2018 to 2019.
Profitability ratios
A profitability ratio is a financial metric used by either business analysts or investors to assess a particular company's financial performance or rather business entity. In other words, the ratios are used to show how well a company is using its assets to boost its profit margin.
Return on Assets
This is the ratio of operating income to total assets, expressed as a percentage. The ROA for GM for 2018 and 2019 was 3.56% and 2.84%, respectively. This is very good for the Auto and Truck Manufacturing Industry, as the average ROA is 2.28%. In contrast, the ROA for Ford in 2018 and 2019 was 1.41% and 0.02%, respectively. This is below the average for this industry, which shows that Ford was underperforming in both financial years.
Profit Margin Percentage
This is the ratio of a company's net income to the net sales, expresses as a percentage (Mulyadi & Sihabudin, 2020). GM's net profit margin in 2018 was 5.38%, while in 2019, the margin was 4.80%. The net profit margins for Ford, on the other hand, were 2.29% in 2018 and 0.03% in 2019. This clearly shows how bad the performance of Ford in 2019 was. The margin depreciated from that of 2018 by 2.26%. General Motors, however, as usual, was having high and good profit margins.
Total Assets Turnover
Asset Turnover or Total Assets Turnover is defined as the sales amount per dollar of assets. This ratio indicates the level at which a certain company carries out the deployment of assets. In the fiscal year that ended in 2018, Ford's asset turnover ratio was 0.64, while in 2019, the ratio was 0.60. In contrast, GM's asset turnover ratio in 2018 was 0.65, while in 2019, it was 0.60. These figures show that both companies' ratios