Question

Compare the two companies based on their ratios. Use the last column in the template to detail how each company is doing in relation to the ratios. Explain the significance of how the company ratios compare to the industry and each other.

RATIOS	S&P 500	Ford Motor Co	General Motors Co	ANALYSIS
Profitability Ratios (%)
Gross Margin		15.01	17.9
EBITDA Margin		8.66	15.55
Operating Margin		2	3
Pre-Tax Margin		2.71	5.81
Effective Tax Rate		14.96	5.54
Financial Strength
Quick Ratio		1.04	0.73
Current Ratio		1.2	0.92
LT Debt to Equity		2.8	1.88
Total Debt to Equity		7.14	5.85
Interest Coverage		4.54	14.05
Valuation Ratios
Price/Earnings Ratio	17.1	4.9	35.6
Price to Sales P/S	1.9	0.2	2.2
Price to Book P/B	3.2	0.9	1.2
Free Cash Flow per Share		2.26	-6.95
Management Effectiveness (%)
Return On Assets		1.43	3.6
Return On Investment		2.18	6.02
Return On Equity		10.38	21.43
Efficiency
Receivable Turnover		2.5	4.74
Inventory Turnover		12.68	11.78
Total Asset Turnover		0.62	0.67
Free Cash Flow/Net Income		1.97	-1.28

Answer 1

Answer:-

When we consider the profitability ratios (income statement ratios) the General motors company (GM) have higher ratios than Ford motors(FM) which shows that the GM is having profitability than FM and particularly the EBITDA margin and operating margins which reflect that GM has an edge over FM.

When we see the liquidity ratios Quick ratio and Current ration the FM is doing better than the GM which shows that FM is in a much better position to meet the short term obligations and daily operating expenses than the GM.

The leverage ratios or sovency ratios (Debt/ Equity) of FM are higher than GM which shows that FM is more levered as compared to GM which shows there is more debt in FM balance sheet than the GM company.

The interest coverage ratio (EBIT/ Interest expense) of GM is much higher than FM which shows that GM is in much better position to service its interest expense on debt than FM.

When we compare the valuation ratios like P/E, P/S, P/B the GM has much higher ratios than FM which shows that the company shares are overvalued ie. more expensive (higher than industry average as well ) and the FM ratios are undervalued ie. cheaper compared to industry average ratios. The Free cash flow per share of GM is negative whereas it is positive for FM.

The management effectiveness measures of ROE, ROI and ROA are higher for GM as compared to FM which shows the returns are more for GM compared to FM, and GM is working at good returns compared to FM.

If we consider the efficiency ratios like Receivables turnover which is higher for GM than FM which shows that the days of sales outstanding (DSO) will be less for GM than FM, whereas if we compare the Inventory turnover ratio which is higher for FM than GM which shows that the Days of inventory in hand will be less for FM as compared to GM.

Note :- GM--- General Motors co , FM -- Ford Motors co