Question

Excerpts from the 2019 financial statements for Goodyear are as follows (dollars in millions):

INSTRUCTIONS:
Assume that you have some capital to invest and that you are considering an equity investment in Goodyear. Review the financial statements and comment on Goodyear as an investment. Support your recommendation the following financial ratios: ROE, return on sales, current ratio, and debt/equity ratio.

Answer 1

Its ROE increased in 2019. A rising ROE suggests that a company is increasing its profit generation without needing as much capital. It also indicates how well a company\'s management deploys shareholder capital. A higher ROE is usually better while a falling ROE may indicate a less efficient usage of equity capital.

Its return on sales in 2019 is increased as compared to 2018 and 2017 which indicates that a company is improving efficiency, while a decreasing ROS could signal impending financial troubles.

A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to cover its debts. A current ratio below 1 means that the company doesn\'t have enough liquid assets to cover its short-term liabilities. Hence the company has a good current ratio in 2019 as compared to other years.

Goodyear may be a good investment. Although their debt-equity increased from 2018 to 2019, it drastically decreased from 2018 to 2019. This means that Goodyear has made great strides at reducing its debt and financing through alternative means.

Goodyear\'s return on equity has improved greatly from 2017 when it was in the negative. Their current ratio is also low which is a good sign of their ability to pay off long-term debts.

Goodyear\'s return on equity has improved greatly from 2017 when it was in the negative. Their current ratio is also low which is a good sign of their ability to pay off long-term debts.