Ratio Analysis and Statement of Cash Flows for Ford and GM

Essay by dom5858University, Bachelor's May 2005

download word file, 4 pages 4.4


General Motors and the Ford Motor Company are the number one and number two, automotive manufacturers in the United States, respectively. Both companies strive for success each and every year. The success of these two automotive giants, as well as other corporations, can be measured by analyzing a few important goals of management, the company's solvency, liquidity, and profitability. To enable investors and creditors to analyze these goals, each company distributes annual financial statements. With these financial statements, each company can be measured by analyzing factors such as return on sales, current ratio, earnings per share (EPS) debt ratio, and their price-earning ratio.


Liquidity can be defined as having enough money on hand to pay bills when they are due and to take care of unexpected needs for cash, while profitability refers to the ability of business to earn a satisfactory income.

Moody's Investor Service a provider of independent credit ratings and financial research information, and is a standard in the financial world reported that Ford's liquidity remains very strong, with $23 billion in cash, securities, and short-term voluntary employee beneficiary association balances.

That report is of March 31, 2005.

GM's liquidity is positioned at $32 billion in balance sheet debt, $3 billion in present value of leases, and about $9 billion in un-funded pension liabilities (mostly international). Moody's Investor Services estimated that GM's balance sheet debt should mature within 19 years with only about $3 billion maturing over the next five years.


The profit margin, which is net income, divided by net sales, is a measure of how many dollars of net income is produced by each dollar of sales. The Ford Motor Company is claiming the higher prices for gasoline, raw materials and health care, among other things, when describing why its 2005 earnings will...