Conducting Financial Ratio Analysis on Ford Motor Company

Overview

In Chapter 2, we took a look at Starbucks' financial statements. Now we use Thomson Analytics to analyze Ford Motor Company.

Accessing Ford's Financial Statements

Enter Ford's ticker symbol (F) and select "GO." Once again if we select the tab at the top labeled "Financials," we can find all of Ford's key financial statements for the past several years. At the "Financials" screen on the second line of tabs, we can select the tab marked "Fundamental Ratios." If you then select the SEC Database Ratios from the pull-down menu, you can select either annual or quarterly ratios.

If you select annual ratios, you will see an in-depth summary of Ford's various ratios over the past three years. This information will enable you to evaluate Ford's performance over time for each of the ratio categories that we mention in the text (liquidity, asset management, debt management, profitability, and market-based ratios).

In the text, we mention that financial statement analysis has two majors components: a trend analysis where we evaluate changes in the key ratios over time, and a peer analysis where we compare financial ratios to firms that are in the same industry and/or line of business. We have already seen how we use Thomson Analytics to conduct a trend analysis - next we can demonstrate how this tool can be used to conduct a peer analysis. If we click on the tab labeled "Peers" (on the first line of tabs) near the top of the screen, you will see some summary financial information for Ford and a few of its peers. If you click on "Peer Sets" on the second line of tabs, you can modify the list of peer firms. The default setup is "Peers set by SIC Code." To obtain a comparison of many of the key ratios presented in the text, just click on "Financials" (on the second line of tabs) and then click on "Key Financial Ratios" that appears on the drop-down menu. Additionally, clicking on "Performance" allows you to access a tool to run peer comparisons regarding performance, profitability, liquidity, and growth. A "peer" DuPont analysis can be obtained by clicking on the "More" tab, located on the second line of tabs.

Discussion Questions

1. What has happened to Ford's liquidity position over the past three years? How does Ford's liquidity compare to its peers? (Hint: You may use both the peer key financial ratios and liquidity comparison to answer this question.)

2. Take a look at Ford's inventory turnover ratio. How does this ratio compare to its peers? Have there been any interesting changes over time in this measure? Do you consider Ford's inventory management to be a strength or a weakness?

3. Construct a simple DuPont analysis for Ford and its peers. What are Ford's strengths and weaknesses relative to its competitors?

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