Question

can someone explain to me what the ratio means and how it is calculated please? How would you describe Ford's comparative performance and financial positions? Examine Ford's financial ratios. What does each ratio tell you about Ford's financial status? (demonstrate an excellent understanding of the ratios i.e. calculated and interpreted all the results accurately) I am very lost by this table. any explanation will be appreciated. Thank you!

EXHIBIT 4: COMPARATIVE FINANCIAL RATIOS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA, 2016-2017 Ford 2017 2016 Toyota 2017 2016 General Motors 2017 2016 Honda 2017 2016 0.43 0.41 1.08 0.34 0.34 0.55 0.31 0.81 0.68 0.76 0.29 0.39 0.31 0.42 0.89 1.23 1.20 0.89 1.21 1.03 112 1.13 127 Liquidity ratios Cash ratio Acid test ratio (Quick ratio) Current ratio Efficiency Days receivables Days payables Days of inventory Financial leverage Debt to total assets Leverage ratio Long-term leverage ratio Total debt to EBITDA Interest coverage ratio Profitability 146 61 27 27 57 24 92 37 94 36 76 34 7167 33 45 33 0.86 6.38 2.94 16.80 4.25 0.88 7.14 3.19 14.44 6.42 0.63 1.73 0.55 8.41 68.08 0.64 1.81 0.57 7.43 80.65 0.84 5.07 1.92 7.97 17.42 0.80 4.06 1.17 8.99 17.69 0.62 1.60 0.56 7.48 67.63 0.63 1.70 0.56 10.50 27.70

Answer 1

Financial ratios establish the relationship among different numbers on a company financial statement. There are formulas to calculate all types of ratios for example,

cash ratio =Cash and cash equivalent/ Current liability

Quick ratio = (Current assets- Inventory and prepaid assets)/Current liability

Current ratio = Current assets/Current liability

These numbers can be found from the company financial statement. These ratios mean different things for example Liquidity ratios measures the ability of a firm to pay its short-term debt, efficiency and activity ratio measures a company ability to use its assets to generate sales and income, financial leverage is a measure of how much of total capital is funded by the equity and how much consist of debt. Profitability ratio measures the percentage of return or profits being generated. Growth and valuation ratios help in valuing the share price of a company.

The liquidity ratio of Ford seems to better than other; hence we can say that company ability to pay back its short-term debt is slightly better than others. Here the days of receivables plus days of inventory minus days of payables measures cash conversion cycle of the company. Ford is taking 146 days to collect its receivable which is higher than its other competitors. The financial leverage ratio of Ford seems to high comparative to other that means that if the economic scenario were to deteriorate then the Ford ability to payback its long-term debt is questionable. Its profitability ratio is higher than other, it can be said to be the result of high leverage. Leverage magnifies the return. Its growth and valuation ratio tell us that Ford is doing slightly better than others in terms of operating income growth. Some activity ratio of Ford is slightly higher than others showing it is able to use its assets efficiently.