Does Ford have too much cash?
For this question, we need some measurement of liquidity to compare the turnover rate and reservation of cash for Ford, GM, Chrysler and compare those measurements in different years to see if Ford have too much liquidity which means too much cash. Quick ratio is liquidity measurement which is a variant of the current ratio. It focuses on quick assets, which are those assets likely to be converted to cash within a relatively short period of time. Quick ratio= (cash+ marketable securities+ accounts receivables)/current liabilities For this question we use quick ratio as our measurement for the solvency ability to know the solvency condition in the industry. We see that in 1999 Ford has quick ratio of 0.13 which is the highest value among the three. And compared with the previous years, Ford still has relatively high quick ratio. Both horizontally and vertically, Ford has relatively high quick ratio, leading to our point that Ford does have too much cash. On the other hand, Ford seems to have a good amount of money in reserve, comparing its cash reserve with GM’s and DaimlerChrysler’s cash and equivalents. In year 1999, Ford had $25,173 of cash and equivalents while GM had $12,140 and DaimlerChrysler $9,163.
As a shareholder, how would you approve the VEP? Would you elect cash or shares?
Ford Family Member
As a Ford family member, my choice would be to go for receiving a mixture of shares and cash. The additional shares would give further ownership and control to the Ford family without disturbing their Class B share portfolio. Since it has been mentioned that liquidity for the family members was a major concern due to real estate disputes, divorce settlements etc., the cash would also be welcome as they could be used to settle current settlements due. The share price would be expected to rise, yielding a higher return post the VEP being implemented; hence those could be liquidated when required as...
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