Question

For this project, you will use the provided financial statements for Ford Motor Company. Take the two years given and perform the required financial ratios listed below. First compare the ratios of each company for the past two years to each other, then compare the two companies to each other. In comparing the ratios you will need to discuss which year and which company has a better ratio and why you think that. Justify your rationale and explain your findings in detail in your analysis. Write at least one paragraph discussing your results. Look at 2015 and 2016 financial statements for  Ford Motor Company and General Motors.

1. What is the ratio used for, what is it’s purpose
2. Write out formula
3. Fill out formula using the two years financial statement information for both companies
4. Your interpretation of ratio in at least one paragraph

2016 2015

Profitability

• Earnings Per Share

1)

2)

3)

4)

• Return on Sales

1)

2)

3)

4)

• Return on Equity

1)

2)

3)

4)

Leverage

• Debt Ratio

1)

2)

3)

4)

• Debt to Equity Ratio

1)

2)

3)

4)

Liquidity

• Current Ratio

1)

2)

3)

4)

• Acid-Test Ratio

1)

2)

3)

4)

Activity

• Asset Turnover

1)

2)

3)

4)

• Inventory Turnover

1)

2)

3)

4)

Answer 1

1- EPS ( EARNINGS PER SHARE) = Net Proceed available for Share Holders / No. of Equity holders

EPS show the return per share reciveable for the share holders per share

2- RETURN ON SALES = NET SALES / CAPITAL EMPLOYED

It shows the percentge of return from sales to the capital employed

3- RETURN ON EQUITY = PROFIT AFTER TAX / CAPITAL EMPLOYED

It show the ratio of return on capital employed

4 -DEBT RATIO = CREDIT SALES / AVERAGE ACCOUNTS RECEIVABLE

this ratio indicates the spped with which money is collected from the debor

5- DEBT TO EQUITY RATIO = TOTAL LONG TERM DEBT / SHARE HOLDERS FUNDS

This ratio is detemined to ascertain the proportion between the outsiders , funds and share holders funds in the capital structure of an enterprise.

6- CURRENT RATIO = CURRENT ASSESTS / CURRENT LIABALITIES

It shows the firms commitment to meet its short term liabalities

the ideal current ratio is 2

7-ACID TEST RATIO = LIQUID ASSETS / CURRENT LIABALITIES

LIQUID ASSETS = CURRENT ASSETS - INVENTORY - PREPAID EXPENSES

The ideal ratio is 1

8- ASSETS TURNOVER RATIO = NET SALES / NET FIXED ASSETS

This ratio indicates whether the investments in fixed assets has been judicious or not. The Ratio indicates the extend of contribution of fixed assets on sales

9- INVENTORY TURNOVER RATIO = COST OF GOODS SOLD DURING THE YEAR / AVERAGE INVENTORY

this ratio indicates whether the investment in inventory is efficiently used and whether it is within proper limits . The ratio signifies the liqidity of inventory