Financial Ratio Analysis Report of Ford Motor Company

Only available on StudyMode
  • Download(s): 1560
  • Published: June 13, 2006
Open Document
Text Preview
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 results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future. This is a trend table of Ford's financial ratio for the previous five years:

Ford Motor Co. (DE)

Ratios12/31/200412/31/200312/31/200212/31/200112/31/2000

Return on Equity (%)22.657.95.08-70.0429.07
Return on Assets (%)1.190.290.1-1.971.9
Return on Investment8.135.625.872.2311.24
Gross Margin0.0210.0210.0230.020.026
Operating Margin (%)6.224.945.562.0710.42
Net Profit Margin (%)2.030.3-0.6-3.362.04
Quick Ratio0.290.350.350.220.2
Current Ratio0.470.520.510.370.33
Working Capital/Total Assets-0.22-0.18-0.16-0.23-0.28
Total Debt to Equity8.611325.6718.36.05
Long Term Debt to Assets0.350.380.410.440.35
Interest Coverage1.691.181.110.31.76

This is a trend table of industrial average financial ratio for the previous five years in comparison:

Industry Averages

Ratios12/31/200412/31/200312/31/200212/31/200112/31/2000

Return on Equity (%)17.224.20-90.92-0.3716.89
Return on Assets (%)3.560.71-2.084.184.62
Return on Investment9.424.315.422.1613.39
Gross Margin.018.018.019.019.020
Operating Margin (%)5.424.09-3.027.058.11
Net Profit Margin (%)2.891.43-0.673.793.88
Quick Ratio0.86 0.910.710.710.80
Current Ratio1.361.461.131.571.26
Working Capital/Total Assets0.100.100.010.04.06
Total Debt to Equity7.2611.6719.2314.828.05
Long Term Debt to Assets0.350.490.950.450.21
Interest Coverage8.853.000.13-1.636.48

The analysis of these ratios shows how Ford stands as a company for the past five years. Return on equity (ROE) reveals how much profit a company earned in comparison to the total amount of shareholder equity on the balance sheet. For long-term investing with great rewards, companies that have high return on equity ratios can provide the biggest payoffs. This ratio also tells investors how effectively their capital is being reinvested, so it is a good gauge of management's money handling skills. Ford is showing a considerable turn around in this area this past year, which could easily be due to changes in management. They are also reasonably following the industry in this area. Return on assets (ROA) tells how much profit a company generates for each dollar in assets. It measures the asset intensity of a business. The lower the profit per dollar of assets, the more asset-intensive the business is. Ford is asset-intensive, because it requires big, expensive equipment to generate profit. This means more money must be reinvested into the company to continue to generate earnings. Even though their lower number is described in asset-intensity, Ford is consistently falling a few percentage points below the industry average in this area. This could be a consideration against the company. Return of investments (ROI) ratio measures the combined...
tracking img