Financial Analysis of General Motors and Ford

Running head: FINANCIAL ANALYSIS
Financial Analysis
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FINANCIAL ANALYSIS1
Introduction
The financial analysis has been done for the two Automotive Company that is operating
in the US which are General Motors and Ford (Ford Motor Company - Financials . 2020). The
analysed companies are American Multinational Automaker that are operating as an American
Multinational Corporation and is primarily engaged in designing, manufacturing, marketing of
various automobiles (General Motors Company. 2020). The key competitor of the General
Motor Company and the key competitor of the company are primarily Ford Motors, Chevrolet,
Cadillac and General Electric.
Discussion and Analysis
Ratio Analysis
Liquidity Ratio: When evaluated from an liquidity perspective the Ford Company on a
comparative basis has performed better which had a ratio of 1.20 times, while General Motors
had 0.92 times. However, on the other hand side the collection period and inventory turnover has
been better for General Motors Company (Zainudin & Hashim, 2016).
Capital Structure: In terms of solvency the General Motor Company was having comparatively
lesser amount of debt and had a better interest coverage ratio than the Ford Company.
Return on Investment: The return generated on total asset was greater for General Motor
Company and was comparatively less for Ford Company. However, the return generated on
equity has been volatile for the General Motors due to change and variability in the net profit
reported.

FINANCIAL ANALYSIS2
Operating Performance: The operating perspective of the General Motors has been
comparatively better and higher than the Ford Company, due to higher amount of profitability
and revenue reported (Delen, Kuzey & Uyar, 2013).
Asset Utilization: In terms of utilization of assets, the Ford Company on a comparative basis has
done much better thereby effectively using assets and resources deployed.
Market Measures: In terms of valuation and earnings yield the Ford Company is slightly better
than General Motors.
Method of Accounting
 Leases: Both the companies intends to follow ASU 2016-02, "Leases" which is issued by
FASB but the same has not been adopted yet and the same allows the lessee to recognize
most leases on the balance sheet and listed as operating leases.
 Inventory: The inventory of both the companies is valued atat the lower of cost or net
realizable value as per the condition. The net realizable value is estimated on the basis of the
selling price of the business.
 Capitalization of Long term Assets: The assets of the business are capitalised on the basis
of whether any improvements are made considering whether the same are for long term
benefits or not.
 Depreciation: The depreciation charges are done on the basis of straight lien considering the
nature of the asset which is used by the business.
 Intangibles: The intangible assets of both the company are amortized on a straight-line or an
accelerated method of amortization over their estimated useful lives. Indefinite lives
intangible assets are not amortized which also includes goodwill.