Finance and accounting al affiliation Introduction In order to analyses two companies’ performance, thereare various techniques used. One such technique is vertical analysis. It results into a common size financial statement making it easy to compare its performance to that of other firms irrespective of its size. Another technique is the use of accounting ratio analysis. For compressive analysis of General Motors Company (GM) and Ford Motor Co. (F) I’m going to use accounting ratio analysis. Financial statements Total stockholders’ equity for General Motors Company (GM) and Ford Motor Co.
(F) fluctuate annually in the same trend. The similarity on trend is an indication of an industrial factor that is causing the fluctuation, such factors or beyond manager’s control. Net income of Ford Motor Co. (F) indicates a fluctuating trend while net income of General Motors Company (GM) is declining continually. All the above factors can be analyzed using ratio analysis as followers; Graham, J. R., Smart, S. B., & Megginson, W. L. (2012). Ratio analysis Ford Motor Co. (F) General Motors Company (GM) 31-Dec-14 31-Dec-13 31-Dec-12 31-Dec-14 31-Dec-13 31-Dec-12 Liquidity Analysis Ratios current ratio=current asset /current liability current ratio 6.58023459 6.7372382 6.4830122 1.2734966 1.3058546 1.2409172 net working capital = net working capital/total assets Net Working Capital Ratio=( 0.5361416 0.5542316 0.5589369 0.10113296 0.1147562 0.8705394 Profitability Analysis Ratios Return on Assets (ROA)= Net Income/average total assets Return on Assets (ROA) 0.01551962 0.0366817 0.0229579 0.0589786 profit margin=net income/sales profit margin 0.02212012 0.0488847 0.0420264 0.02532563 0.0343956 0.0406421 Debt Management ratios Debt to Equity Ratio=total liability/total shareholders’ equity Debt to Equity Ratio 7.39286434 6.7300858 10.857026 4.01105565 2.9041472 3.1226686 Market Value ratios Price Earnings Ratio=total earnings/total market value of shares Price Earnings Ratio 0.12848216 0.275046 0.3519784 0.07908171 0.0884831 0.1340636 Asset Management ratios return on assets =Profit Margin X Assets Turnover Ratio return on assets 0.01551962 0.0366817 0.0229579 0.0589786 Current ratio and net working capital ratio, for both companies are fluctuating thus an indication of unstable economy.
This has affected both firms ability to pay for their debt in 2013.
These ratios indicate that Ford Motor Co. (F) is more efficient than General Gilbertson, C. B., & Lehman, M. W. (2013). Motors Company (GM) in terms of ability to pay debt. Overall performance of management is assessed by market value of the firm. Brigham, E. F., & Ehrhardt, M. C. (2010). Price earnings ratio of Ford motor co. is better than that of general motors. This is an indicator that ford motor co is performing better. Conclusion Preparation of this report has improved my understanding in units covered like accounting ratios, preparation and of financial statement analysis. References Brigham, E.
F., & Ehrhardt, M. C. (2010). Financial management: Theory and practice. Mason, Ohio: South-Western. Top of Form Gilbertson, C. B., & Lehman, M. W. (2013). Century 21 accounting. Mason, Ohio: South-Western. Graham, J. R., Smart, S. B., & Megginson, W. L. (2012). Introduction to corporate finance. Australia: South-Western/Cengage Learning. Bottom of Form Warren, C. S., Reeve, J. M., & Duchac, J. (2012). Financial accounting. Mason, OH: South-Western Cengage Learning.