Question: Briefly summarize the following reports (its a accounting class) and connet a little bit of current politics.
Liquidity: For the liquidity ratios the first one stands out is that GM has a negative working capital of average -8562 in last two years. On the other hand, Ford's working capital is 18180 in 2016 and 21302 in 2017. this ratio indicate whether a company has enough short term assets to cover its short term debt. Which means that GM has a huge problem with paying their short-term debts. The problem is also showed for GM with a 0.89 current ratio. this is not a good sign for a company with a long history like GM and this is also a dangerous signal for a company in the automobile industry. However, Ford has a relatively high average collection period compering to ford. The number is 139.9 ion 2017 which is almost a third of a year. This will have some effect on Ford's cash flow. over all, Ford is more efficient but less liquid than GM based on the ratios.
Profitability: In terms of profitability, it is important to note that General Motors posted a net loss of $3.9 Billion in 2017, these losses were mainly related to the business conducted in Europe with Opel. To have a better insight on Ford and GM's profitability, we looked at the Earnings Per Share for each company in order to find the company's profit on a per share basis. GM had an EPS of -2.93 which was substantially lower than its EPS for the previous year. Ford, however, had an EPS of 1.92 which is a good indication as it grew by 60% from the previous year. Then we looked at the Asset turnover for each company, in order to have a better idea of how efficiently each company is using their respective assets. Our findings were that both GM and Ford have a relatively close asset turnover, as they were 0.67 and 0.63 respectively. However, GM's asset turnover ratio declined by 16% from the previous year. The last ratio we looked at was the Gross Profit Margin, as it shows the percentage of revenue left after adjusting for the Costs of goods sold. GM had a Gross profit margin of 0.21, which surprisingly grew from the previous year despite having a net loss. While Ford, had a Gross profit margin of 0.16. We can see that GM has a lot of ground to make up for after the recorded losses in comparison to Ford. However, GM is still in better shape than Ford when it comes to its Gross Profit Margin, which is mainly due to GM focusing on reducing its overall costs during that period.
Solvency: We analyzed the solvency ratios of two companies to evaluate company's' ability to keep operation for a long time period. First, GM had a debt to assets ratio of 83% in 2016 and increased 3 percentage point in 2017. Ford's 2017 ratio of 86% was lower than 2016 ratio of 88%. Ford relied more on debt than GM, but the decreasing trend of Ford's ratio suggested Ford would improve its solvency ability. Secondly, GM generated 6,670 million free cash flow in 2017 and the grow rate of free cash flow was 43%. Ford generated 8,463 free cash flow in 2017, but 2017 free cash flow declined 10% when it compared to 2016. Even though Ford experienced a declining free cash flow, the amount of free cash flow generated by Ford was much larger than free cash flow generated by GM. As a result, Large amount of free cash flow of Ford would give investor more confident about company‘s solvency ability. In conclusion, both company's solvency were undesirable when they had too much liability and few net cash provided the operating activities. However, the Ford should have a better solvency while it generated larger amount of free cash flow and improved the capital structure in the past year. Big concerns for GM's solvency were that worse capital financing structure and net loss generated in 2017. Since the net loss incurred for GM was not a usual event, we still could give GM a good expectation about its solvency when its free cash flow was able to grow 42% compared to the past year. We suggested both company should adjust their capital financing structure to rely less on debt, so they could have less risk of repaying the debt when debt was due.