Working Capital

Review of General
Motors and Ford

Working Capital Review of General Motors and Ford

Submitted To:
Saad Hossain [Sdf]
Fin 340

Submitted By: Group 6

Ashfeque Us Salaheen
Farhaj Ahmed Rishan

102 0172 030

121 0833 020

Razanul Haque

102 0873 030

Shfiul Alam Khan

102 0022 030

Ataul Bin Gaani

103 0030 030

August 12, 2014

Executive Summary
This report was compiled with the purpose of identifying the implication of working capital
management of Ford and General Motors. General Motors is one of the largest companies in the auto
mobile industry.
This report further compares the ratios of both the company.
In the ratio analysis section General motors and Ford motors ratio compares GM slightly lacks behind
the standard benchmark whereas ford has adequate liquid cash to meet up their short term debts. The
quick ratio of ford is more than GM may be ford is holding more idle cash to meet its current obligation.
NWC of Ford is more than GM in the observation period of five . Cash conversion cycle for GM is
negative for the observation period of five year, GM have managed their suppliers to pay off after
sales, whereas Ford cash conversion cycle is positive which means cash goes out of business. NLB of
GM fluctuates over the five year period whereas the ford has kept consistently positive NLB over the
five year period. DIH for GM is more than Ford, DSO for ford is more than GM which means Ford is
inefficient in managing receivables. DPO of GM is greater than Ford which means that GM also
efficiently manages its payable.
In short Ford is profitable for investors compare to GM because of its high profitability and liquidity and
leverage.

Contents
Industry Review:......................................................................................................... 1
General Motors company information........................................................................3
Financial Ratio of General Motors...............................................................................5
Working Capital management.................................................................................... 6
Ford Company Information:...................................................................................... 13
Financial Ratio of Ford.............................................................................................. 14
Working Capital management..................................................................................15
Fords Recommendations:........................................................................................ 33
General Motors Recommendations:.........................................................................33

Industry Review:
The United States has one of the largest automotive markets in the world and is home to 13 auto
manufacturers. From 2008 to 2012, manufacturers produced an average of over 8 million passenger
vehicles annually in the United States.
Since Honda opened its first U.S. plant in 1982, almost every major European, Japanese, and Korean
automaker has produced vehicles at one or more U.S. assembly plants. In addition to Honda and the
big three U.S. auto companies - General Motors, Ford and Chrysler - Toyota, Nissan, Hyundai-Kia, BMW,
Mercedes-Benz, Mazda, Mitsubishi, and Subaru all have U.S. manufacturing facilities. In May 2011,
Volkswagen opened a new U.S. plant, bringing the manufacturer count to 13. In addition, many
manufacturers also have engine and transmission plants and are conducting research and
development, design, and testing in the United States. The automotive industry, including dealerships
accounts for approximately 3.5 percent of U.S. gross domestic product. Motor vehicles and parts
manufacturers directly employed 786,000 people at the end of 2012.
There is an extensive network of auto parts suppliers serving the industry. Suppliers produced $225.2
billion in industry shipments in 2012, accounting for nearly 4 percent of total U.S. manufacturing.
According to a study by the Motor & Equipment Manufacturers Association in collaboration with
Information Handling Services, the total employment impact of the auto parts industry was estimated
at over 3.62 million jobs directly and indirectly nationwide in 2012 - more jobs and economic wellbeing
than any other manufacturing sector.
Despite challenges within the industry in recent years, the U.S. automotive sector is at the forefront of
innovation. New research and development initiatives are transforming the industry to better respond
to the opportunities of the 21st century.
In 2012, the United States exported approximately 2.6 million vehicles valued at $63 billion to more
than 200 countries around the world, with additional exports of automotive parts valued at
approximately $75 billion. With an open investment policy, a large consumer market, a highly skilled
workforce, available infrastructure, and government incentives, the United States is the premier place
for the future of the auto industry.
Prior to the 1980s, most manufacturing facilities were owned by the Big Three (GM, Ford, Chrysler) and
AMC. Their U.S. market share has dropped steadily as numerous foreign-owned car companies have
built factories in the U.S.
Toyota had 31,000 direct employees in the U.S. in 2012, meaning a total payroll of about $2.1 billion,
compared to Ford's 80,000 U.S. employees supplying their 3,300 dealerships and Chrysler's 71,100
U.S. employees supplying their 2,328 dealerships.
The Obama Administration has followed the general approach adopted by the Bush Administration, but
by April 30, 2009, Chrysler had filed for reorganization under Chapter 11 of the Bankruptcy Code.
General Motors, the iconic century-old symbol of American industry, followed Chrysler into bankruptcy
on June 1, 2009.2 Chrysler's quick trip through bankruptcy ended on June 10, 2009, when Chrysler
Group LLC was sold to Fiat S.p.A.3 GM emerged from bankruptcy in early July 2009 to become the
General Motors Company, with the U.S. government owning 60.8%, the governments of Canada and

Page | 1

Ontario 11.7%, and the UAW, 17.5%.4 All three parties have said that they intend to sell their shares in
the company as rapidly as is feasible.

Page | 2

Review of General
Motors

Page | 3

General Motors company information

General Motors Company, commonly known as GM, is an American multinational corporation
headquartered in Detroit, Michigan that designs, manufactures, markets and distributes vehicles and
vehicle parts and sells financial services. General Motors produces vehicles in 37 countries. The
company was founded on September 16, 1908, in Flint, Michigan, as a holding company for McLaughlin
Car Company of Canada Limited and Buick, then controlled by William C. Durant. At the beginning of
the 20th century there were fewer than 8,000 automobiles in America and Durant had become a
leading manufacturer of horse-drawn vehicles in Flint before making his foray into the automotive
industry. The company markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Opel,
Holden, and Vauxhall brand names, as well as under the Alpheon, Jiefang, Baojun, and Wuling brand
names. It also sells cars and trucks to dealers for consumer retail sales, as well as to fleet customers,
including daily rental car companies, commercial fleet customers, leasing companies, and
governments. In addition, the company offers connected safety, security and mobility solutions, and
information technology services. The company, through its subsidiary, General Motors Financial
Company, Inc. provides automotive financing services and lease products through GM dealerships in
connection with the sale of used and new automobiles that target customers with sub-prime and prime
credit bureau scores. General Motors holds a 20% stake in IMM, and a 96% stake in GM Korea. It also
has a number of joint-ventures, including Shanghai GM, SAIC-GM-Wuling and FAW-GM in China, GMAvtoVAZ in Russia,Ghandhara Industries in Pakistan, GM Uzbekistan, General Motors India, General
Motors Egypt, and Isuzu Truck South Africa. General Motors employs 212,000 people and does business
in 157 countries. The company operates through five business segments: GM North America, GM
Europe, GM International Operations, and GM South America. General Motors led global vehicle sales
for 77 consecutive years from 1931 through 2007, longer than any other automaker, and is currently
among the world's largest automakers by vehicle unit sales. General Motors acts in most countries
outside
the
U.S.
via
wholly
owned
subsidiaries.
"G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is
dedicated to provide products and services of such quality that our customers will receive superior
value while our employees and business partners will share in our success and our stock-holders will
receive a sustained superior return on their investment."

Vision
"GMs vision is to be the world leader in transportation products and related services. We will earn our
customers enthusiasm through continuous improvement driven by the integrity, teamwork, and
innovation
of
GM
people."

Business Strategy
At GM, they are focused on a single global vision: To design, build and sell the worlds best vehicles.
This powers the development of world-class products that are winning in the marketplace, and is
helping to transform our business and fortify their balance sheet.

This business model also creates a self-sustaining cycle of reinvestment that drives continuous
improvement in vehicle design, manufacturing discipline, brand strength, competitive pricing and
margins. Heres how we bring the insight, drive and vision of our business model to the market every

Page | 4

day

to

yield

positive

results

for

their

investors,

employees

and

customers

worldwide:

Design
focusing on core brands; leveraging global resources to create the most compelling vehicles and
technologies, leading in the research and development of advanced technologies to reinvent the future
of transportation.
Build
optimizing our global footprint to cost-effectively develop best-in-segment vehicles. Maximizing the
efficiencies of operating their facilities in an environmentally and socially-responsible manner.
Sell
maximizing revenues with a focused brand strategy; delivering world-class vehicles to the marketplace
that offer their customers higher residual value, with lower incentives and appropriate pricing.
Financial information
during the year ended December 31, 2012, the Company's total worldwide vehicle sales were 9.3
million. In March 2012, the Company acquired from Ally Financial 100% interest of GMAC South
America LLC. In October 2013, Fiat SpA's Fiat Group Automobiles completes acquisition of 50% stake in
VM Motori SpA Held by the Company. In December 2013, General Motors Co sold its remaining 8.5 % in
Ally Financial Inc. Net revenue in the second quarter of 2014 was $39.6 billion compared to $39.1
billion in the second quarter of 2013. In the first six months of 2014, revenue rose to $77 billion, up
from $76 billion in the same period a year ago.

Page | 5

Financial Ratio of General Motors

General Motors
Ratio

2009

2010

2011

2012

2013

Current Ratio

1.129913

1.125029

1.219761

1.296414

1.305792

Net Working Capital

49140

40928

50599

55282

67462

Quick Ratio

0.93716

0.867909

0.950644

1.023892

1.080862

DIH

32.88074

37.25524

40.09832

38.29694

37.9784

DSO

26.2367

23.41683

24.2012

24.91971

20.04333

DPO

60.91738

66.05163

68.72759

65.50094

63.89969

Operating Cycle

59.11744

60.67208

64.29953

63.21665

58.02173

Cash Conversion Period

-1.79993

-5.37955

-4.42806

-2.28429

-5.87796

Net Liquid Balance

34060

56604

49262

49904

49037

Times Interest Earned

-3.43401

4.630237

10.47407

-62.092

15.36228

Long Term Debt to Capital

Total Liabilities to Total
Assets

2.500569

1.270836

1.343541

1.579189

1.407282

0.787556

0.73754

0.730358

0.752379

0.740454

Roe

4.773922

0.166097

0.238183

0.165838

0.123477

Net Profit Margin

1.002218

0.045519

0.0618

0.040301

0.034299

ROA

0.769074

0.048232

0.064224

0.041065

0.032048

Current Liquidity Index

5.702629

37.02537

12.60155

14.60692

6.648609

Page | 6

Working Capital management

Current Ratio

2009
1.12991
323

Current Ratio

2010
1.12502
916

2011
1.21976
102

2012
1.29641
428

2013
1.30579
188

Current Ratio
1.35
1.3
1.25
Current Ratio

1.2
1.15
1.1
1.05
1
2009

2010

2011

2012

2013

The current ratio was 1.130 in 2009 which decreases to 1.125 in the year 2010. Later in the year 2011
the ratio increases to 1.220 due to increase in current asset, which eventually increased further to
1.296 in year2012. In the year 2013 the ratio increased further to 1.306 because of further increase in
the current assets, while the current liabilities continue to increase.

Quick Ratio

Quick Ratio

2009
0.93716
029

2010
0.86790
932

2011
0.95064
442

2012
1.02389
243

2013
1.08086
197

Page | 7

Quick Ratio
1.5
Quick Ratio

1
0.5
0
2009

2010

2011

2012

2013

The quick ratio was 0.94 in the year 2009 which decrease to 0.87 in the year 2010. Later in the year
2011 the ratio increases to 0.95 due to increase in inventory, which eventually increased further to
1.02 in year2012. In the year 2013 the ratio increased further to 1.08 because of further increase in
the current assets and decrease in the inventory level.

Net Working Capital

2009
49140

Net Working Capital

2010
40928

2011
50599

2012
55282

2013
67462

Net Working Capital

80000
60000

Net Working Capital

40000
20000
0
2009

2010

2011

2012

2013

The net working capital was 49140 in the year 2009 which decrease to 40928 in the year 2010. Later
in the year 2011 the ratio increases to 50599 and continues to increase to 67462 in 2013.which was to
to due to increase in current assets.

Return on Assets interpretation

ROA

2009
0.76907
443

2010
0.04823
156

2011
0.06422
412

2012
0.04106
49

2013
0.03204
805

Page | 8

ROA
1
0.8
ROA

0.6
0.4
0.2
0
2009

2010

2011

2012

2013

ROA in 2009 was 7.7% which was in fact highest among 2013. Then it fluctuates over years. In 2010
4.8%, 2011 6.4% then 4.1% then 2013 3.2%.

Return on Equity interpretation

2009
4.77392
176

Roe

2010
0.16609
704

2011
0.23818
317

2012
0.16583
784

2013
0.12347
709

ROE
6
Roe

4
2
0
2009

2010

2011

2012

2013

ROE in 2009 was 4.77 which was infact the higest return for the investors from 2009 to 2013. Then it
falls below 1. This was because investors was willing to invest more on GM so equity was rising, but on
the other hand profit was falling. In 2010 ROE was 0.17 thne it increases to 0.24 in 2011 to 0.24. in
2012 ROE was 0.16 it decreases because net income and equity of the company decreases. In 2013
the Roe was lowest of all time but equity increases with the expectation of more return from the
company it was only 0.12.

DIH

DIH

2009
32.8807
433

2010
37.2552
445

2011
40.0983
234

2012
38.2969
423

2013
37.9783
954
Page | 9

DIH
50
40
30
20
10
0
2009

DIH

2010

2011

2012

2013

The Days Inventory Held (DIH) was 32.88 in 2009 which increases to 37.25 in the year 2010. Later in
the year 2011 the ratio furthur increases to 40.10. then in year 2012 the ratio was 38.30, due to
increase in Sales. Then further decreases to 37.98 in 2013 for further increase in the sales and
inventories.

DSO

2009
26.2366
979

DSO

2010
23.4168
314

2011
24.2012
031

2012
24.9197
076

2013
20.0433
322

DSO
30
25
20
15
10
5
0
2009

DSO

2010

2011

2012

2013

Days Sales Oustanding (DSO The Days Sales Oustanding (DSO) was 26.2 days in 2009 which
decreases to 23.4 in the year 2010. Later in the year 2011 the ratio increases to 24.2 due to increase
in sales in greater magnitude then account receivables, which eventually increased further to 24.9 in
year2012. In the year 2013 the ratio decreases to 20.0 because there was a decrease in account
receivable and an further increase in Sales.

Page | 10

DPO

2009
60.9173
76

DPO

2010
66.0516
281

2011
68.7275
858

2012
65.5009
413

2013
63.8996
85

DPO
70
DPO

65
60
55
2009

2010

2011

2012

2013

In case of this company the operating cycle increases from 2009 to 2011, from 59.11 days in 2009 to
60.67 days in 2010 to 64.30 days in 2011, this means the companys cash is usually tied up for longer
period. The increase in inventory level might be the reason behind it.

Net Liquid Balance

Net Liquid Balance

2009
34060

2010
56604

2011
49262

2012
49904

2013
49037

Net Liquid Balance

60000
Net Liquid Balance

40000
20000
0
2009

2010

2011

2012

2013

NLB is the ability of non-spontaneous current assets to cover non-spontaneous debts. It shows the
financial flexibility of the company. The positive value indicates the company has enough nonspontaneous current assets to cover their non-spontaneous debts. The NLB in 2009 was 34060 then it

Page | 11

increases to 56604 in 2010. Then it decreases to 49262 in 2011then it increases to 49904 in 2012.
Then it picks up to 49037 in 2013.

Time Interest Earned

Times Interest Earned

2009
3.43400
85

2010

2011

4.63023
679

10.4740
741

2012
62.0920
25

2013
15.3622
754

Times Interest Earned

50
0
2009
-50

Times Interest Earned

2010

2011

2012

2013

-100

In 2009 TIE was negative because of negative income. In the year 2010 and 2011 TIE was positive 4.6
times and 10.5 times respectively, it was due to more income was earned by the company then to pay
off its interest expenses. In year 2012 the EBIT was negative so TIE was -62.1. then it gets back to
15.4 in 2013, makin an EBIT of 5131.

Long Term Debt to Capital

Long Term Debt to

Capital

2009
2.50056
929

2010
1.27083
614

2011
1.34354
082

2012
1.57918
919

2013
1.40728
216

Page | 12

Long Term Debt to Capital

3
Long Term Debt to Capital

2
1
0
2009

2010

2011

2012

2013

In 2009 long term debt to capital was 2.50, it decreases to 1.27 in 2010 because debt decreases and
equity increases. Then in 2011 it increases to 1.34 and in 2012 it further increases to 1.58 because
debts increase more than equity. Finally in the year 2013 it decreases to to1.41 because of an increase
in the equity.

Total liabilities to Total Asset

Total Liabilities to Total

Assets

2009
0.78755
64

2010
0.73753
966

2011
0.73035
829

2012
0.75237
917

2013
0.74045
352

Total Liabilities to Total Assets

0.8
0.78

Total Liabilities to Total

Assets

0.76
0.74
0.72
0.7
2009

2010

2011

2012

2013

In 2009 the total debt to total asset was 0.78 an in the following year it decreases because total assets
decreases form 2009 and 2010 and a rise in total asset in 2011, but in 2011 liabilities also increases. In
the year 2012 it increases to 0.75, which is bad for the companys reputation. Finally it decreases to
0.74 by 2013.

Page | 13

Review of Ford

Page | 14

Ford Company Information:

The Ford Motor Company (also known as simply Ford) is an American multinational automaker
headquartered in Dearborn, Michigan, a suburb of Detroit. It was founded by Henry Ford and
incorporated on June 16, 1903. Ford Motor Co. is engaged in the manufacturing and distribution of
automobiles across six continents. The company through its subsidiaries also engages in other
businesses, including financing vehicles. The company operates through two business sectors:
Automotive and Financial Services. The Automotive sector operates through four business segments:
Ford North America, Ford South America, Ford Europe and Ford Asia Pacific Africa. The Ford North
America segment is engaged in the sale of Ford and Lincoln brand vehicles, service parts and
accessories in North America. The Ford South America segment is engaged in the sale of Ford brand
vehicles and related service parts and accessories in South America. The Ford Europe segment is
engaged in the sale of Ford brand vehicles and related service parts and accessories in Europe, Turkey
and Russia. The Ford Asia Pacific Africa segment includes primarily the sale of Ford brand vehicles and
related service parts and accessories in the Asia Pacific region and South Africa. The Financial Services
sector operates through two segments: Ford Credit and Other Financial Services. The Ford Credit
segment provides vehicle related financing, leasing, and insurance through the company's wholly
owned subsidiary Ford Motor Credit Co. LLC. The Other Financial Services segment includes a variety of
businesses, including holding companies and real estate. Ford Motor began a manufacturing revolution
with mass production assembly lines in the early 20th century, but today it is one of the world's largest
automakers. Brands include Ford and the luxury brand Lincoln. The Company sells vehicles to its
dealerships for sale to fleet customers, including commercial fleet customers, daily rental car
companies, and governments. Ford also sells parts and accessories, primarily to its dealerships (which
in turn sells these products to retail customers) and to authorized parts distributors (which in turn
primarily
sells
these
products
to
retailers)..
Mission

Page | 15

Vision
To become the world's leading Consumer Company for automotive products and services.
Business Strategy

Aggressively restructure to operate profitably at the current demand and changing model mix.

Accelerate development of new products our customers want and value

Financial Ratio of Ford

Ratio
Current Ratio
Quick Ratio
Net Working Capital
Cash Flow from
Operation

DIH
DSO
DPO
Operaing Cycle
Cash Conversion
Period
Net Liquid Balance

Times interest earned

Long term debt to
capital
Total liabilities to total
assets
Roe

Ford
2009
2010
2.8226 2.4280
46
16
2.7184 2.3180
77
29

2011
2.6421
08
2.5249
23

2012
2.9068
18
2.7562
14

95359

76823

82690

93211

2013
2.9810
01
2.8294
03
10072
4

15477

11477

9784

9045

10444

16.616
55
260.79
81
41.190
6
277.41
47
236.22
41
32662

17.659
65
231.17
82
57.176
38
248.83
79
191.66
15
19848

16.817
48
221.67
68
57.075
83
238.49
43
181.41
84
25466

21.046
15
225.01
94
62.370
96
246.06
56
183.69
46
27177

19.885
92
216.91
01
56.923
96
236.79
6
179.87
21
37581

1.3827 2.1620 2.9591

69
61
51
10.672
- 4.6446
3 111.69
15
1.0405 1.0038 0.9154
23
98
97

3.0167
19

2.8978
04

4.5692
04
0.9138
83

3.1803
07
0.8676
06

- 1.3411
0.3491 10.219
85

0.3543
06

0.2708
59
Page | 16

ROA

4
8.5283
75
0.0135
97

6
19.581
71
0.0396
85

57.049
86
0.1237
96

15.481
73
0.0327
28

17.775
85
0.0408
21

Current Liquidity
Index

5.9467
49

5.1865
9

6.1729
62

6.2794
05

8.5400
35

Net Profit Margin

Page | 17

Working Capital management

Information about liquidation of a company describe about the financial health of that company
.liquidation has several parts analysis of net working capital and cash conversion cycle is one of them.
In this part we will be interpretation the financial ratios of the ford company.

Current Ratio

Current Ratio

2009

2010

2011

2012

2013

2.8226
46

2.4280
16

2.6421
08

2.9068
18

2.98100
1

Current Ratio
3.5
3 2.82
2.5
2
1.5
1
0.5
0
2009

2.91

2.64

2.43

2010

2011

2.98
Current Ratio

2012

2013

Current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations. It
shows that if the company has enough current assets to pay its debt. From ration we can see that the
current ratio was dropping from 2009 to 2011 but take a lift in 2012 and in 2013.

Quick ratio

Quick Ratio

2009

2010

2011

2012

2013

2.7184
77

2.3180
29

2.5249
23

2.7562
14

2.82940
3

Page | 18

Quick Ratio
3
2.72
2.5
2
1.5
1
0.5
0
2009

2.83

2.76

2.52

2.32

Quick Ratio

2010

2011

2012

2013

The quick ratio measures a companys ability to meet its short-term obligations with its most liquid
assets. It include the inventory of the company from the ratio we can see that quck ratio was dropping
from 2009 to 2011 but take a lift in 2012 and in 2013.

Cash Flow from Operation

Cash Flow from Operation

20000
15000

15477

10000

11477

9784

9045

10444

Cash Flow from Operation

5000
0
2009

2010

2011

2012

2013

From the ratio we can also saw that the net working capital and cash flow from the operation also drop
from 2009 to 2011 but it take a lift in 2012 and in 2013.

Days Inventory Held

DIH

2009

2010

2011

2012

2013

16.6165
5

17.6596
5

16.8174
8

21.0461
5

19.8859
2

Page | 19

DIH
25
21.05

20
15

16.62

17.66

19.89

16.82

DIH

10
5
0
2009

2010

2011

2012

2013

Days inventory held is the ratio that measures the average number of days the company holds
its inventory before selling it. From the data we can see that the ratio was sort of constant from 2009
to 2011 but increasing from 2012 to 2013 means they are holding their inventory more than before
which is not favorable for the company.

Days Sale Outstanding

DSO

2009

2010

2011

2012

2013

260.798
1

231.178
2

221.676
8

225.019
4

216.910
1

DSO
300
250 260.8
200
150
100
50
0
2009

231.18

2010

221.68

2011

225.02

216.91

2012

DSO

2013

Days sale outstanding it measure of the average number of days that a company takes to collect
revenue after a sale has been made. From the ratio we can see that the Days sale outstanding was
decreasing from 2009 to 2013 and it is good for the company.

Operating Cycle

Operating Cycle

2009

2010

2011

2012

2013

277.414
7

248.837
9

238.494
3

246.065
6

236.796

Page | 20

Operaing Cycle
300
280
Operaing Cycle

260
240
220
200
2009

2010

2011

2012

2013

The operating cycle is the number of days it takes a company to generate revenues with assets and
it was decreasing from 2009 to 2013 which is quite favorable for the company because they are
earning their revenue earlier than before.

Cash Conversion Cycle

Cash Conversion Period

2009

2010

2011

2012

2013

236.224
1

191.661
5

181.418
4

183.694
6

179.872
1

Cash Conversion Period

250

236.22

200

191.66

181.42

183.69

179.87

150

Cash Conversion Period

100
50
0
2009

2010

2011

2012

2013

Cash conversion cycle expresses the length of time, in days, that it takes for a company to convert
resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time
each net input dollar is tied up in the production and sales process before it is converted into cash
through sales to customer. In ideal cash conversion cycle account payable period should exceed the
account receivable period and days sale outstanding. from the data we can see that the ccc is
decreasing from 2009 to 2013 which is good for the company because they taking less time than
before to convert their inputs to cash flows.

Time Interest Earned

Times interest earned

2009

2010

2011

2012

2013

1.3827

2.1620

2.9591

3.0167

2.89780

Page | 21

69

61

51

19

Times interest earned

4
3

2.9

Times interest earned

2.16

2
1

3.02

2.96
1.38

0
2009

2010

2011

2012

2013

Time interest earned is the ratio that is used to measure a company's ability to meet its debt
obligations. It is calculated by taking a company's earnings before interest and taxes (EBIT) and
dividing it by the total interest payable on bonds and other contractual debt. From the ratio we can see
that time interest earned has a increasing rate means that they are becoming more capable to pay
their debt than before.

Long Term Debt to Capital

Long term debt to capital

2009

2010

2011

2012

2013

10.672
3

-111.69

4.6446
15

4.5692
04

3.18030
7

Long term debt to capital

50
0 -10.67
2009
2010
-50
-100

4.64
2011

4.57
2012

3.18
2013

Long term debt to capital

-111.69

-150

Page | 22

Long term debt to capital is the measurement of a company's financial leverage, calculated as the
company's debt divided by its total capital. Debt includes all short-term and long-term obligations.
Total capital includes the company's debt and shareholders' equity, which includes common stock,
preferred stock, minority interest and net debt. Debt to capital ratio was negative in 2009 and in 2011
but was positive in 2010,2012 and in 2013 . Negative figures because they have negative figure of
total capital

Return on Equity

Roe

2009

2010

2011

2012

2013

-0.34914

-10.2196

1.3411
85

0.35430
6

0.27085
9

ROE
5
0 -0.35
2009
-5
-10

1.34
2010

0.35
2012

2011

0.27
2013

Roe

-10.22

-15
Return on equity is amount of net income returned as a percentage of shareholders equity. Return on
equity measures a corporation's profitability by revealing how much profit a company generates with
the money shareholders have invested. The company has a fluctuating ROE rate over the years which
also include negative values.

Return on Asset

ROA

2009

2010

2011

2012

2013

0.0135
97

0.0396
85

0.1237
96

0.0327
28

0.04082
1

Page | 23

ROA
0.15
0.12
0.1

ROA

0.05

0.04

0.01
0
2009

0.04

0.03

2010

2011

2012

2013

Return on asset is an indicator of how profitable a company is relative to its total assets. ROA gives an
idea as to how efficient management is at using its assets to generate earnings. The roa has a
fluctuating rate over year from 2009 to 2013.

Profit Margin

Net Profit Margin

2009

2010

2011

2012

2013

8.5283
75

19.581
71

57.049
86

15.481
73

17.7758
5

Net Profit Margin

60

57.05

50
40

Net Profit Margin

30
20

19.58

8.53
0
2009

2010

17.78

15.48

10

2011

2012

2013

Profit margin is a ratio of profitability calculated as net income divided by revenues, or net profits
divided by sales. It measures how much out of every dollar of sales a company actually keeps in
earnings. From the ratio we can see that the profit margin was increasing from 2009 to 2011 but again
decreased from 2012 to 2013 means in those years they do not have the enogh revenues like before.

Current Liquidity Index

2009

2010

2011

2012

2013

Page | 24

5.9467
49

Current Liquidity Index

5.1865
9

6.1729
62

6.2794
05

8.54003
5

Current Liquidity Index

9

8.54

8
7
6

6.17

5.95

6.28
Current Liquidity Index

5.19

4
3
2
1
0
2009

2010

2011

2012

2013

The liquidity index calculates the days required to convert a company's trade receivables and
inventory into cash. The index is used to estimate the ability of a business to generate the cash
needed to meet current liabilities. The liquidity ratio of the company has a increasing rate which not
favorable for the company because they taking more time to convert receivables and inventory to
cash.

Page | 25

Comparative
Analysis of General
Motors and Ford

Page | 26

Current asset and Quick Ratio

Current Ratio

2009

2010

2011

2012

2013

GM

1.129913226

1.12502915
8

1.21976101
9

1.29641428
4

1.30579187
7

FORD

2.822645693

2.42801643
2

2.64210819

2.90681832
1

2.98100108
2

Current Ratio
3.5
3
2.5
2

GM

1.5

FORD

1
0.5
0
2009

2010

2011

2012

2013

Quick Ratio
Quick Ratio

2009

2010

2011

2012

2013

GM

0.937160294

0.86790932
4

0.95064442
2

1.02389242
9

1.08086197
2

FORD

2.718477035

2.31802888
6

2.52492255
1

2.75621381
7

2.82940308
8

3
2.5
2
GM
FORD

1.5
1
0.5
0
2009

2010

2011

2012

2013

Page | 27

Average current ratio for Ford was 2.7561 and the acid test ratio was 2.6294. These averages
are better in comparison to General Motors current ratio of 1.2138 and acid test ratio of 0.9721 which
tells that ford has more current assets to cover its short term liabilities and makes Ford a safer and
more financially strong company. By comparing this, Ford assets are more than twice as compared to
its liabilities and it has a significant amount of working capital that seems to be a satisfying position in
terms of liquidity. On the other hand General Motors seems to be a moderate liquid company as its
assets are more than require to the liabilities and there is some working capital for the company.
Ford haw too much current assets that is left un-invested. The extra assets are wasted by the
companies. For instance, Ford has a current ratio of 2.938 in 2013, which is too high rather than
General Motors have 1.305 respectively. Quick ratio does not include the current assets like inventories
as they are not believed to be easily liquid able. Ford has the maximum ratio of 2.829 in 2013 while
comparing to General motors has 1.080 in that year.
Net working capital:

Net Working Capital

2009

2010

2011

2012

2013

GM

49140

40928

50599

55282

67462

FORD

95359

76823

82690

93211

100724

120000
100000
80000
GM
FORD

60000
40000
20000
0
2009

2010

2011

2012

2013

Compare the amount of the Ford and General Motors net working capital Ford has more net working
capital compare to GM meaning that Ford has more flexibility to spend on growing its business. In this
example, In 2013 Ford has $100724 net working capital, on the other hand GM has $67462 working
capital which is much less compare to Ford. Ford has more net working capital and a potential
competitive advantage with the ability to spend more money.

DIH:
DIH

2009

2010

2011

2012

2013

GM

32.88074335

37.25524446

40.09832344

38.2969423

37.9783954

Page | 28

FORD

16.61654763

17.65965363

16.81747909

21.04614734

19.88591866

50
40
30

GM
FORD

20
10
0
2009

2010

2011

2012

2013

Fords inventory holding period was much shorter than GM. with Ford having days to holding
Inventory ratio of 18.39days on average and GM having an average ratio of 37.29days. Ford operates
in a slightly leaner production manner than HP and is able to quickly move inventory through its
distribution networks. The quicker a company is able to sell its inventories, the quicker the clock begins
to receive payment to be able to pay back money owed on inventories acquired and sold,

DSO:
DSO

2009

2010

2011

2012

2013

GM

26.23669793

23.41683138

24.20120312

24.9197076

20.04333224

FORD

260.798139

231.178207

221.6767965

225.0194296

216.9101261

300
250
200

GM
FORD

150
100
50
0
2009

2010

2011

2012

2013

Page | 29

Account receivable turnover ratio is a very important ratio. General Motors collects cash from the
sales on average in just 23.76 days which is below the normal business benchmark of 30 days, While
Ford needs 231.116 days in average to collect its receivables. As there is no productivity of account
receivables it is better to get them collected as soon as possible and re-invest the collected asset into
the business. Compare to both companies general motors is much better to collect their receivables
from customers.
DPO:
DPO

2009

2010

2011

2012

2013

GM

60.917376

66.0516280
6

68.7275857
8

65.5009412
7

63.8996850
1

FORD

41.19060323

57.1763793
5

57.0758304
3

62.3709643
2

56.9239583
5

80
70
60
50
40

GM

30

FORD

20
10
0
2009

2010

2011

2012

2013

General Motors Pay their cash to creditors on an average in 65.01 days, on the other hand Ford pay
their cash on an average in 54.94 days which is less then Genaral Motors. As GM DPO ratio is higher
they get better credit terms from their suppliers compare to Ford. it is more favorable for a company to
have a high DPO as long as it is eventually able to pay off its accounts payable.
Operating Cycle:
Operating Cycle

2009

2010

2011

2012

2013

GM

59.11744128

60.67207584

64.29952656

63.2166499

58.02172764

FORD

277.4146867

248.8378606

238.4942756

246.065577

236.7960448

Page | 30

300
250
200
150

GM

100

FORD

50
0
2009

2010

2011

2012

2013

Operating cycle is a measure of the operating efficiency and working capital management of a
company. On an average General Motors Operating cycle is 61.06days. comparing on the other hand
Ford has a large operating cycle of 207.51days which is large then GM. A short cycle allows a business
to quickly acquire cash that can be used for additional purchases or debt repayment. The lower the
cash conversion cycle, the more healthy a company generally is.
Cash Conversion period:
Cash Conversion Period

2009

2010

2011

2012

2013

GM

-1.799934717

-5.37955221

-4.42805922

-2.28429137

-5.87795736

FORD

236.2240834

191.6614812

181.4184452

183.6946126

179.8720864

300
250
200
150

GM

100

FORD

50
0
2009
-50

2010

2011

2012

2013

On an average Ford has an cash conversion period of 194.57 days which is so higher, on the other
hand General motor has an average cash conversion period of - 3.94days. The greater the cash
conversion period, the less liquid it is, like Ford. In this comparison, GM has better liquidity then Ford.
Net liquid balance:
By comparing both company General motor has been more net liquid balance or more solvent then
Ford. Clearly, having the cash in hand to pay off debts is an advantage to borrowers.
Time Interest Earned:
Times
Earned
GM

Interest
2009

2010

2011

2012

2013

-3.434008494

4.630236794

10.4740740
7

-62.09202454

15.36227545

Page | 31

FORD

1.382768778

2.95915143
3

2.162061118

3.016718913

2.897804283

60000
50000
40000
GM

30000

FORD

20000
10000
0
2009

2010

2011

2012

2013

In that ratio Ford has performed more or less same in all over the time period than General Motors. In
all the time period the time interest earned ratio stays between 1.38 to 3.02 compare to them General
Motors ratio was between -62.09 to 15.36. So in the given time period Ford had performed more
consistently than General motors.
Long Term Debt to Capital:
Long Term
Capital

Debt

to
2009

2010

2011

2012

2013

GM

2.50056929
5

1.2708361
37

1.343540
817

1.579189
189

1.40728216
1

FORD

10.6723207
4

111.69003
12

4.644615
487

4.569203
828

3.18030738
9

20
10
0
2009
-10
-20
-30

2010

2011

2012

2013
GM
FORD

-40
-50
-60
-70

Page | 32

In this ratio General Motors are performed more consistently than Ford. Here General Motors had
performed more or less same compare to Ford. Here ford had performed either very good or very bad
on the other hand General Motors is consistent.

Total Liabilities to Total Assets:

Total Liabilities to Total Assets

2009

2010

2011

2012

2013

GM

0.78755640
3

0.737539659

0.730358291

0.752379168

0.740453518

FORD

1.04052280
8

1.003898304

0.915496669

0.913883404

0.86760615

1.2
1
0.8
GM

0.6

FORD

0.4
0.2
0
2009

2010

2011

2012

2013

Here both the organization preformed more or less consistent. Here general Motors performed better
than Ford. Their total assets were always increasing more than the assets of Ford.
ROE
Roe

2009

2010

2011

2012

2013

GM

4.773921756

0.166097042

0.23818317

0.165837838

0.123477093

FORD

-0.349139039

10.21962617

1.34118505
7

0.354306085

0.270858571

Page | 33

6
4
2
0
2009
-2

2010

2011

2012

2013
GM
FORD

-4
-6
-8
-10
-12

Here in the year 2009 General Motors are performed very well where in the first two years fords ROE
was negative. But in the later years Fords ROE had increased moderately. In the other hand initially
General motors ROE was good in the first year but gradually it was started to decrease.
Net Profit Margin:
Net Profit Margin

2009

2010

2011

2012

2013

GM

1.002218207

0.04551891

0.06179962
2

0.04030054
6

0.03429906

FORD

8.528374741

19.5817115
9

57.0498604
2

15.4817346
6

17.7758530
3

60
50
40
30

GM

20

FORD

10
0
2009

2010

2011

2012

2013

In this ratio Ford had performed way better than General Motors though Fords values fluctuate lots
but they performed really well. On the other hand General Motors had underperformed compare to
Ford. General Motors Net Profit Margin was really very low.
ROA
ROA

2009

2010

2011

2012

2013

Page | 34

GM

0.769074434

0.048231562

0.064224117

0.041064903

0.032048045

FORD

0.013597101

0.039684508

0.123795758

0.032727693

0.040820635

0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2009

GM
FORD

2010

2011

2012

2013

In this ratio both of the organization had performed more or less same but if we consider the whole
time period then Ford performed better than General Motors. Here General performance decrease
consistently. On the other hand Ford was in an increasing trend for last two years.
Current Liquidity Index
Current Liquidity Index

2009

2010

2011

2012

2013

GM

5.702628593

37.02537129

12.60155172

14.6069228

6.648608561

FORD

5.946748797

5.186589773

6.172962227

6.27940504
4

8.54003479

40
35
30
25
GM

20

FORD

15
10
5
0
2009

2010

2011

2012

2013

Here General Motors performance is fluctuating where Ford is increasing consistently. So here condition
of General Motors is better because they increase investment when there was excess cash in hand. On
the other hand Ford increased their cash in hand which can lead them to threat.

Page | 35

Page | 36

Recommendations

Page | 37

Fords Recommendations:

Ford should focus on their days sales outstanding. They should focus on their collection of

receivables. Because it is very much high. This can hold a lot of cash.
They should also focus on their DPO. They should take proper steps to increase this. They can

negotiate with their creditors to increase the payment time.

For above reasons Ford have a huge cash conversion period. They should focus on shorten this.
Focuses in reduces long term debts, and then use any idle cash or create a reserve fund for

emergency use or investments.

They should focus on improving their return on assets.
They should use their current assets properly. They might have a lot of idle current assets,
which should be use properly.

General Motors Recommendations:

General Motors should increase their current assets. Or they can focus on reduce

their current liabilities.

They should focus on their inventory. It is relatively high. They should reduce their

inventory.
They should focus on their quick ratio. They should increase their quick ratio.
They can invest in short term financial assets for gaining better liquid position.

Conclusion
General Motors and Ford are the two big players of US automobile industry. After the total
overview of these two companies it can be said that General Motors has better liquid
position over the Ford Motors. So Ford as well as General Motors can follow the
recommendation to improve their working capital position.

Page | 38