Question

Directions: Answer the following questions on a separate document. Explain how you reached the answer, or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above. A. In your own words, please identify two different stock exchanges in the United States. Describe the similarities and differences between the two stock exchanges. Identify one stock from each of the two stock exchanges. B. Using the two stocks you identified, determine the free cash flow from 2013 & 2014. What inference can you draw from the companies’ free cash flow? C. Using the most recent financial statements for both stocks, prepare two financial ratios for each of the following categories: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock, per year. What challenges, strengths, or weaknesses do you see? Please be articulate.

Answer 1

Answer

A.

Two different stock exchanges in the United States include the New York Stock Exchange(NYSE) and theNational Association of Securities Dealer Automated Quotation (NASDAQ).

Both are public stock exchanges located in New York City, however the NASDAQ exchangeoperates mainly through automated trading as dealer’s market while the NYSE has specializedfloor traders in an auction market that complete stock exchanges.Both were launched within ayear from one another with the NASDAQ launching in ’71 and the NYSE launching in ’72.Thetwo are the largest stock exchanges in the world with a total of approximately 4700 listedcompanies between the them.Fees are a bit higher with the NYSE in comparison to theNASDAQ and you will see more well-established companies listed on the NYSE such as FordMotor Company, while “high-tech stocks that are more growth oriented and potentially volatile”are listed on the NASDAQ such as Apple Inc. (Diffen, 2017)

B.

(NYSE) Ford Motor Company Free Cash Flow: 2013 (in millions)

Cash Flow from Operations - Capital Expenditures = Free Cash Flow

10,444 – 6,597 = 3,847(2013annualreport.ford.com, p.70)

Ford Motor Company Free Cash Flow: 2014 (in millions)

14,507 – 7,463 = 7,044(2014annualreport.ford.com, p. FS-6)

The free cash flow tells us that Ford had more money coming in from operations and couldspend more on capital expenditures such as buildings, office equipment, patents, land, machineryetcetera, while still increasing the amount of cash necessary to both maintain their business aswell as expand.The increase in free cash flow is a small indicator of Ford’s financialperformance and with the increase in free cash flow Ford can “pursue opportunities that enhanceshareholder value” (Investopedia, 2017)

C.

Ford

Liquidity Ratios:Current Ratio = Current Assets / Current Liabilities

2013:42,457 /37,003 = 1.1473

2014:40,442 / 40,108 = 1.0083

The current ratio tells us Ford’s ability to pay back their debts with their assets.Any ratiounder one would describe a company that may not be able to pack back their debts.Ford’scurrent ratio decreased from 2013 to 2014 showing that they have increased their debts incomparison with their assets or cash.However, they remain above one so I do not see thecompany as having any difficulties in paying off their debts.

Quick Ratio = (Current Assets – Inventories) / Current Liabilities

2013:(42,457 – 7,708) / 37,003 = .9390

2014:(40,442 – 7,866) / 40,108 = .8122

The quick ratio tells us how much liquid assets Ford has available for each dollar worth ofcurrent liabilities they have.In this case for both years Ford does not have the amount ofinventory to cover their current liabilities instead they had .93 cents for every dollar of debt in2013 and only .81 cents for every dollar of debt in 2014.The higher the quick ratio of acompany, the more liquid the company.Ford is not a very liquid company according to theirquick ratios.

Management Ratios:Debt Ratio = Total Debt / Total Assets

2013:177,429 / 203,905 = .8701 = 87%

2014:185,269 / 210,443 = .8803 = 88%

The debt ratio for Ford tells us that the company is dependent on money borrowed from orowed to others.If the percentages were low, we could assume Ford is more independent.

Debt-to-Equity Ratio = Total Debt / Total Common Equity

2013:177,429 / 26,112 = 6.7949

2014:185,269 / 24,805 = 7.4690

Ford’s debt-to-equity ratio is a bit high, meaning that they have “been aggressive in financingtheir growth with debt” (Folger, 2017).