Question

Based on the ratio analysis below, in which company would you be willing to invest and why?

RATIOS	S&P 500	Ford Motor Co	General Motors Co	ANALYSIS
Profitability Ratios (%)
Gross Margin		15.01	17.9	General Motors Company (GM) has higher ratios than Ford Motors(FM) which indicates GM has higher profitability than FM. Particularly the EBITDA margin and operating margins reflect GM has an edge over FM.
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	Quick and Current ratios show that FM is in a much better position to meet short term obligations and daily operating expenses. The Debt/ Equity of FM is higher than GM. FM is more leveraged compared to GM which shows there's more debt in FM balance sheet. Lastly, the interest coverage ratio of GM is much higher showing GM is in a better position to service its interest expense on debt.
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	When comparing valuation ratios, GM has much higher ratios than FM signifying company shares are overvalued ie. more expensive and the FM ratios are undervalued ie. cheaper compared to industry average ratios.
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	Management effectiveness measures are higher for GM which shows returns are more for GM compared to FM, and GM is working at good returns compared to FM.
Return On Investment		2.18	6.02
Return On Equity		10.38	21.43
Efficiency
Receivable Turnover		2.5	4.74	Receivables turnover is higher for GM which shows that the days of sales outstanding will be less for GM than FM. Inventory turnover is higher for FM indicating the Days of inventory in hand will be less for FM.
Inventory Turnover		12.68	11.78
Total Asset Turnover		0.62	0.67
Free Cash Flow/Net Income		1.97	-1.28

Answer 1

1. On the profitability ratios, GM has good ratio both pre-tax (5.81) as well as post tax (5.81 x .5.54%)

2. Higher the Price Earning ratio, better the company is. Here also GM has a good ratio of 35.6 which will be preferred for investment.