SECTION A

Ford and GM motors

Introduction
Ford and GM Motors are both American companies that specialize and pursue in the
automobile industry. Both of these companies a major car companies with a global presence
and are visible worldwide. GM Motors, a company founded in 1908, has multiple well-known
brands that are common to be found within the US and other nations. Brands such as GMC,
Cadillac, Buick, and the most common one Chevloret.GM Motors being a big car company
provides multiple types of vehicles for all occasions that range in price from being quite
affordable to luxury end prices. While GM Motors is a major and powerful company there lies a
competitor named Ford. Ford a company founded in 1903 is rich with history and also a major
car producer despite being a singular name for a company it also produces a variety of vehicles
that a notable and direct competitor to GM Motors, in most aspect both of these companies are
similar as they have a huge global presence around the world and strong presence in the US
that ranges in price the same way GM Motors price their vehicles. The current CEO of Ford is
Jim Farley and is currently focusing on pushing Ford's route to a more sustainable way.

The purpose of this comparison is to do a financial analysis for better understanding of Ford and
GM Motors for their current financial state, by comparing ratios that determine profit, liquidity,
efficiency, gearing, and investment. This comparison will also determine which company is best
to invest in for potential investors.

Comparison

Ford and GM Motors, both have different takes on strategy. Both show different takes on what
position is perfect for them to gain an advantage within the competitive market this way will
show what innovation and creativity of their strategy will provide. GM Motors uses a strategy
called cost leadership, which focuses on having to have better affordability factor and maximum
efficiency, this way they could gain a higher market share by attracting customers with low
prices. This does not mean that the quality of the product is horrid in comparison to others. In
comparison to GM Motors, Ford utilizes a different strategy that has a different take than cost
leadership, they use a differentiation strategy which focuses on having more unique and
innovative products in order to grab a higher market share. This way the products are mostly
priced on a premium price scale and have their unique quirks, which makes Ford a great
product image for their brand.

Both of these companies prove to be a threat to the automobile market and has adaptability in
changing demands from the customer. GM Motors' strategy in having a competitive price and
efficient productivity while Ford focuses on the overall uniqueness and innovative products
shows what each of their company brand is about and their efforts in meeting demands.
Rates Ford GM Motors
2022 2023 2022 2023
Profitability 158,057,000−140,893,000 171,842,000−152,704,00
158,057,000 176,191,000−160,031,000
156,735,000−135,754,000 171,842,000
=0.1086 x 100 176,191,000 156,735,000 =0.1114 x 100
Gross profit =10.86% =0.0917 x 100 =0.1339 x 100 =11.14%
margin ratio =9.17% =13.39%

6,276,000 5,458,000 10,314,000 9,298,000

Net profit 158,057,000 176,191,000 156,735,000 171,842,000
margin =0.03971 x 100 =0.03097 x 100 =0.0658 x 100 =0.0541 x 100
=3.971% =3.097% =6.58% =5.41%

Return on −1,981,000 4,347,000 9,934,000 10,127,000

equity 43,242,000 42,773,000 67,792,000 64,286,000

= 0.0458 x 100 =0.1016 x 100 =0.147 x 100 =0.158 x 100

=-4.58% = 10.16% =14.7% =15.8%

Liquidity 116,476,000 121,481,000 100,451,000 101,618,000

96,866,000 101,531,000 91,173,000 94,445,000
Current Ratio =1.2024 = 1.1965 =1.102 =1.076

Quick Ratio 116,476,000−14,080,000

121,481,000−15,651,000
100,451,000−15,366,000
96,866 , 00 101,531,000 91,173,000 101,618,000−16,461,000
94,445,000
=1.0571 = 1.0423 =0.9332
=0.9017
Cash Ratio 25,134,000 24,862,000 19,153,000 18,853,000
96,866,000 101,531,000 91,173,000 94,445,000

= 0.2595 =0.2449 =0.21 =0.1996

Efficiency 140,893,000 160,031,000 135,754,000 152,704,000

14,080,000 15,651,000 15,366 , 00 16,461 ,00
-Inventory
= 10.007 = 10.225 =8.835 =9.282
turnover ratio

Asset turnover 158,057,000 176,191,000 156,735,000 171,842,000

ratio 255,884,000 273,310,000 264,037,000 273,064,000

= 0.6177 = 0.6447 =0.5936 =0.6293

Receivable 158,057,000 176,191,000 156,735,000 171,842,000

Turnover ratio 54,449,000 62,026,000 46,956,000 51,454,000

= 2.903 = 2.841 =3.338 =3.340

Gearing 140,474,000 151,107,000 115,666,000 122,648,000

42,798,000 43,167,000 64,286,000 67,792,000
Debt to equity
= 3.282 = 3.501 =1.799 =1.809
ratio

Equity Ratio 42,798,000 43,167,000 42,798,000 43,167,000

255,884,000 273,310 , 00 255,884,000 273,310,000

= 0.1673 = 0.1579 = 0.1673 = 0.1579

 Debt Ratio 140,474,000 151,107,000 115,666,000 122,648,000
255,884,000 273,310,000 264,037,000 273,064,000

=0.549 =0.553 =0.438 =0.449

Investment 10.13 11.73 33.19 35.81

−.049 1.09 6.17 7.35
Price-to-
=-20.67 =10.76 =5.38 =5,28
earning ratio

Dividend yield 0.15 0.15 0.09 0.09

10.13 11.73 33.19 35.81

=0.0148 x 100 =0.0128 x 100 =0.0027 x 100 =0.0025 x 100

=1.48% =1.28% =0.27% =0.25%

EPS −1.981,000 4,347,000 9,934,000 10,127,000

3,999,960 3,999,960 1,400,000 1,200,000

=-0.495 =1.087 =7.096 =8.439

In 2022, the Ford company will have a gross profit margin ratio of 10.86%, while in 2023 it will
decrease to 9.17%. Then in 2022 Ford's net profit margin will be 3.971%, which means it will
have greater income than in 2023 which is only 3.09%. ROE appears to have decreased
drastically by -4.58% and will start to increase again in 2023, namely 10.16%. In the Liquidity
section, Ford has a current ratio of 1.2 in 2022 and will decrease in 2023 to 1.19 which cannot
maintain its current obligations. The quick ratio, which was initially around 1.57, will actually
decrease in 2023 by 1.04. The cash ratio from 0.25 in 2022 has actually decreased quite
significantly, namely 0.24. For the efficiency of this company, seen from the inventory turnover
ratio, it has a smaller value, namely 10.07 in 2022 and will increase again to 10.22. Ford's asset
turnover ratio ranges from 0.61 to 0.64 from 2022 to 2023. Then there is the receivable turnover
ratio which is unstable because it fell from 2.90 to 2.84. Moving to the debt to equity ratio in
2022, it will be 3.28 to 3.50 in 2023. The equity ratio, from 0.16, has dropped to 0.15. The debt
ratio also shows that in 2022 0.54 will be the smallest value compared to 2023, namely 0.53.
Continuing to Ford's price to earnings ratio, it was -20.67, up 10.76. Then for the dividend yield
the percentage is 1.48%, decreasing to 1.28% in 2023. Finally, EPS is -0.49, increasing to 1.08
in 2023.

The GM Motors company in 2022 will have a gross profit margin ratio of 13.39%, while in 2023 it
will decrease to 11.14%. Then in 2022 Ford's net profit margin will be 6.58%, which means it will
have greater income than in 2023 which was only 5.41%. ROE appears to have decreased
drastically by 14.7% and will start to increase again in 2023, namely 15.8%. In the Liquidity
section, Ford has a current ratio of 1.1 in 2022 and will decrease in 2023 to 1.0 which cannot
maintain its current obligations. The quick ratio, which was initially around 0.93, will actually
decrease in 2023 by 0.90. The cash ratio from 0.21 in 2022 actually decreased quite
significantly, namely 0.19. For the efficiency of this company, seen from the inventory turnover
ratio, it has a smaller value, namely 8.8 in 2022 and will increase again to 9.2. Ford's asset
turnover ratio ranges from 0.59 to 0.62 from 2022 to 2023. Then there is the receivable turnover
ratio which is stable because it increased from 3.33 to 3.34. Moving to the debt to equity ratio in
2022, it will be 1.79 to 1.80 in 2023. The equity ratio, from initially 0.16, has dropped to 0.15.
The debt ratio also shows that in 2022 0.43 will be the smallest value compared to 2023,
namely 0.44. Continuing to Ford's price to earnings ratio of 5.3, decreased by 5.2. Then for
dividend yield the percentage is 0.27%, decreasing to 0.25% in 2023. Finally, EPS is 7.09,
increasing to 8.4 in 2023.

The conclusion is that GM Motor is stronger than Ford. Because first, of all the ratios, the
receivable turnover ratio has only decreased, all average ratios always increase drastically from
2022 to 2023.
Meanwhile, Ford has weaknesses where three of the 15 ratios are negative, namely price to
earnings ratio, EPS and REO. So, GM Motor is superior and must be maintained based on the
scale of its financial reports.

SECTION B
a) The major factors which a bank should take into account are as follows:
Purpose
What is the purpose of the overdraft? Is it to help finance a temporary cash shortage?
Will the purpose ensure that the overdraft is self-liquidating, if not, how will the overdraft
be repaid?
Repayment period
When will the overdraft be repaid? Has a cash flow forecast been prepared clearly
showing the repayment period and financing requirements? Are the underlying
assumptions of the forecast valid and reliable?
 Security
What assets can be offered as security for the overdraft? Are the assets readily
realisable?
Financial strength
What is the financial position and performance of the company? What are the risks
involved in the business in which it is engaged? Can the company cope with a downturn
in sales?
Directors
What is the ability and character of the directors? Can they manage the company
efficiently? Would they make every effort to repay the overdraft when required?
Track record
Has the company taken out loans before and, if so, did the company comply with the
terms of these loans?
b) A number of points can be made concerning the company’s request for an
overdraft:
Ability to repay
The information available does not indicate how the proposed increase in overdraft might
be repaid. In order to reduce the average credit period taken from three months to one
month, the finance required will be $108,000 (i.e. 2/3 x $162,000). This is more than
three times the current net profit after taxation of the company. It does not seem likely,
therefore, that the overdraft, which is meant to be a short-term form of borrowing, could
be repaid out of short-term future profits. As the purpose of the overdraft is to repay
accounts payable, the overdraft will not generate further cash flows for the business and
so will not be self-liquidating.
Risk
The purpose of the overdraft is to replace one form of short-term borrowing with another.
This will mean that the financing risks will be transferred from the accounts payable to
the bank. These financing risks are quite high. If the overdraft is granted for one year,
the annual interest payments would increase by approximately $13,000 (i.e. $108,000 @
12%). Assuming profits remain constant, this would reduce the interest cover ratio of the
company from 7.6 times to 2.1 times. The total debt to total asset ratio would remain
unchanged by the new financing arrangements. However, the ratio is already high at
85.1% and the new arrangements would increase the bank’s exposure.
Security
The statement of financial position of the company does not reveal any assets which the
bank is likely to find particularly attractive as security for the loan. Although it is possible
that the directors may be able to provide personal guarantees, it should be noted that
they already offer personal guarantees in respect of the debentures outstanding.
Undercapitalisation
The main problem with the company appears to be one of undercapitalisation. The
company really requires an injection of long-term finance in order to provide a sounder
financial base
Given the high level of gearing of the company, lenders are likely to expect a significant
proportion of any new long-term finance to be raised through the issue of equity shares.
At present, the return to equity shareholders is very high at 56.1% and so raising
additional equity finance may not be a problem. An issue of equity shares to raise all the
necessary finance would mean that, if profits remain constant, the return to equity would
still be 15.4% which may well prove attractive to investors.

Overall the request for an overdraft is unlikely to prove successful. Instead, the company
should attempt to improve the long-term financial structure of the business. It should also
review its current asset management (e.g. average inventory turnover period, average
settlement period for payables etc.) to see if there is scope for improvement.
REFERENCE

https://www.sunsetchevrolet.com/model-research/cheap-chevy-cars/

Indeed. (2023, March 17). What Is Ratio Analysis in Accounting? Definition and How it Works.
Indeed Career Guide. https://www.indeed.com/career-advice/career-development/what-is-ratio-
analysis

‌https://finance.yahoo.com/quote/F/financials/

https://finance.yahoo.com/quote/GM/financials/

Wang, P., & Chen, R. (2023). Share repurchase and the cost of capital: Discussion on the
nature of share repurchase of Chinese listed companies. PLOS ONE, 18(9), e0292171–
e0292171. https://doi.org/10.1371/journal.pone.0292171