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Financial Model Analysis Case Study Solution

Background

Ford Motors and General Motors both are well-known automobile seller brands in the United States. Ford Motor Company was founded in 1903 and has been in operation for over a century. General Motors was founded in 1908 and has also been in operation for over a century. Both companies have a long history and have faced many challenges over the years. Both organizations are market leaders in the overall global automobile industry. There is a high level of competition raise between both organizations for many years.

The largest brand of Ford is its (namesake) and General Motors' largest and most well-known brand is (Chevrolet). Both of the organizations are in similar nature of business including their potential investors. There is a need to analyze and examine the financial performances of both organizations by calculating financial ratios and after preparing a comparative analysis finalize which organization performs better in its last year 2022 (GM Income Statement & Balance Sheet, 2022).

Financial Ratios Analysis

To examine and analyze the financial performances of both organizations there is a need to calculate various financial ratios that help to identify the current and previous time performances of both organizations during their operations. There are four main ratios calculated for both organizations, which include profitability, liquidity, leverage, and solvency ratios. All these ratios help to understand the performance and position of the organization. For the calculation of financial ratios use the financial statements of the year 2022 to get the values for accurate and appropriate calculations for each organization.

General Motors

Using the financial statements of General Motors for the calculation of financial ratios presents that the gross profit margin and profit margin of the organization is 13.39% and 5.03% respectively, which presents that ratio of generating income by the organization is good. The ROA and ROE under the profitability ratio present 2.99% and 10.96% respectively. ROE ratio presents the percentage of income generated under the investment and ROA presents the number of assets used to generate income for the business.

Under the leverage ratio, two main ratios are calculated one is a debt-to-asset ratio and the second is an asset-to-equity ratio by using assets, liabilities, and equity from the balance sheet. The debt to Asset ratio of GM is about 0.73 and the Asset to Equity ratio is about 3.67. Moving forward toward the liquidity ratio there are also two main ratios calculated under this category current ratio and quick ratio by using current assets and current liabilities. The current ratio of the organization is about 1.10 and the quick ratio is about 0.9. The last financial ratio is the solvency ratio in which financial leverage and interest coverage, which is about 2.67 and 10.45 respectively.

Ford Motors

Now looking over the calculation of financial ratios of Ford Motors by using its financial statements for the year 2022. All the ratios for Ford Motors are calculated by using the same method. Under the profitability ratio the gross profit margin and profit margin ratio of Ford Motors is 14.97% and -7.38% respectively. The ROA is about -4.56% and ROE is about -27.01% all these values indicates that the performance of the organization is not good because it generates negative ratios or percentage.

The leverage ratio presents a debt-to-asset ratio and an asset-to-equity ratio for Ford Motors in which the ratios present 0.83 and 5.93 values respectively. Under the liquidity ratio, the current ratio is about 1.20 and the quick ratio is 1.06 for Ford Motors. The last solvency ratio for the organization presents that financial leverage is about 4.93 and the interest coverage rate is 0.81.

Financial Comparative Analysis

After analyzing and calculating General Motors and Ford's financial ratios there is a need to compare the performances of both organizations under the various calculated ratios. These ratios will provide insight into the organization’s profitability, leverage, liquidity, and solvency.

The first ratio is profitability used to identify the organization’s capability to generate profits. The gross profit margin is calculated by using gross profit and total revenue. The ROE is calculated by using net income and shareholders' equity. For Ford, the gross profit margin is 14.97% and the ROE is -27.01%. For General Motors, the gross profit margin is 13.39% and the ROE is 10.96%. These ratios indicate that Ford Motors are generating losses and General Motors appears to be more profitable than Ford because of its positive ratios...............

Financial Model Analysis Case Study Solution