Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 14, Question 6

### Company Analysis

Given the financial data displayed in the popup window, compare General Motors (GM) and Ford Motor Company (F) using specific financial ratios: times interest earned ratio, current ratio, total asset turnover, financial leverage, profit margin, and return on equity. Decide which company you would invest in, either as a bondholder or as a stockholder.

#### Data Table

|                      | General Motors | Ford Motor Company |
|----------------------|----------------|--------------------|
| **Sales**            | $155,463       | $146,936           |
| **EBIT**             | $7,785         | $7,757             |
| **Interest Expense** | $321           | $799               |
| **Net Income**       | $5,381         | $7,093             |
| **Current Assets**   | $81,533        | $131,536           |
| **Total Assets**     | $166,315       | $201,943           |
| **Current Liabilities** | $62,402     | $19,523            |
| **Equity**           | $42,558        | $26,391            |

*Values are expressed in millions of dollars.*

### Analysis Steps

1. **Times Interest Earned Ratio**:
   - Calculate by dividing EBIT by Interest Expense.
   - GM: \( \frac{7,785}{321} \)
   - Ford: \( \frac{7,757}{799} \)

2. **Current Ratio**:
   - Determine by dividing Current Assets by Current Liabilities.
   - GM: \( \frac{81,533}{62,402} \)
   - Ford: \( \frac{131,536}{19,523} \)

3. **Total Asset Turnover**:
   - Evaluate by dividing Sales by Total Assets.
   - GM: \( \frac{155,463}{166,315} \)
   - Ford: \( \frac{146,936}{201,943} \)

4. **Financial Leverage**:
   - Assess by dividing Total Assets by Equity.
   - GM: \( \frac{166,315}{42,558} \)
   - Ford: \( \frac{201,943}{26,391} \)

5. **Profit Margin**:
   - Calculate by dividing Net Income by Sales.
   - GM: \( \frac{5,381
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Transcribed Image Text:### Company Analysis Given the financial data displayed in the popup window, compare General Motors (GM) and Ford Motor Company (F) using specific financial ratios: times interest earned ratio, current ratio, total asset turnover, financial leverage, profit margin, and return on equity. Decide which company you would invest in, either as a bondholder or as a stockholder. #### Data Table | | General Motors | Ford Motor Company | |----------------------|----------------|--------------------| | **Sales** | $155,463 | $146,936 | | **EBIT** | $7,785 | $7,757 | | **Interest Expense** | $321 | $799 | | **Net Income** | $5,381 | $7,093 | | **Current Assets** | $81,533 | $131,536 | | **Total Assets** | $166,315 | $201,943 | | **Current Liabilities** | $62,402 | $19,523 | | **Equity** | $42,558 | $26,391 | *Values are expressed in millions of dollars.* ### Analysis Steps 1. **Times Interest Earned Ratio**: - Calculate by dividing EBIT by Interest Expense. - GM: \( \frac{7,785}{321} \) - Ford: \( \frac{7,757}{799} \) 2. **Current Ratio**: - Determine by dividing Current Assets by Current Liabilities. - GM: \( \frac{81,533}{62,402} \) - Ford: \( \frac{131,536}{19,523} \) 3. **Total Asset Turnover**: - Evaluate by dividing Sales by Total Assets. - GM: \( \frac{155,463}{166,315} \) - Ford: \( \frac{146,936}{201,943} \) 4. **Financial Leverage**: - Assess by dividing Total Assets by Equity. - GM: \( \frac{166,315}{42,558} \) - Ford: \( \frac{201,943}{26,391} \) 5. **Profit Margin**: - Calculate by dividing Net Income by Sales. - GM: \( \frac{5,381
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