Financial Analysis Of Ford Motor Company And General Motors (GM)

One cannot think about the automobile industry without several key names coming to mind, chief among these being Ford Motor Company and General Motors (GM). As part of the American Big Three (Farlex, 2009), Ford and GM have been staples in the automotive industry since the early 1900s (CarBrandsHQ, n.d.). Each organization has developed similar, yet unique, product lines that can be seen en masse on streets and highways across our nation. However, despite functioning within the same industry, the financial statements of both organizations prove they manage their finances quite differently. Liquidity ratios, also known as solvency ratios (Averkamp, n.d.), look at whether an organization’s current assets are able to cover their current liabilities,

53) . The total asset turnover ratio (calculated by dividing sales by total assets) specifically looks at how much revenue is earned per dollar of total assets. This ratio is used as a sign of the business’s efficiency in using its assets to generate revenue (Investopedia, n.d.). Below are the total asset turnover ratios for Ford and GM for the past three years:
Total Asset Turnover 2012 2013 2014
Ford 0.71 0.73 0.69
General Motors 1.02 0.93 0.88
GM, across all three years, posted higher total asset turnover ratios than Ford. This means that GM generates more in revenue per dollar of assets, and therefore, is more efficiently managed in utilizing its assets to produce products and sales (Asset Turnover Ratio, n.d.). The capital intensity ratio is another asset management ratio closely related to total asset turnover; however, this ratio measures how many dollars of assets are needed to produce a dollar of sales. (Cornett et al., 2015, p. 56). The following are the figures calculated for Ford and GM:
Capital Intensity 2012 2013 2014
Ford 1.41 1.37 1.45
General Motors 0.98 1.08 1.14
Based on the figures, not only in GM more efficient at generating sales, it takes them less investment in assets per each dollar of sales. GM has found a way to effectively manage the use of its assets to generate its sales

This shows investors that each dollar invested in GM is more efficiently used in profit generation. Market value ratios look at the correlation between a company’s stock prices compared to its revenues (Cornett et al., 2015, p. 61). These figures are calculations of a company’s future performance, by market analysts. If a company’s other financial ratios are good, this will most likely reflect in its market value ratios. The price-earning ratio (calculated by dividing market price per share by earnings per share) is indicative of how much investors will pay for each earned dollar of revenue earned by an organization, i.e. how much an investor can expect to spend to earn a dollar of the company’s earnings (Investopedia, Price-Earnings Ratio - P/E Ratio, n.d.). The following are the P/E ratios for both Ford and GM:
P/E Ratio 2012 2013 2014
Ford 2.94 10.88