Finance discussions1 Essay Example | Topics and Well Written Essays - 1000 words

Finance discussions1 - Essay Example Ford, on the other hand is healthy enough to withstand short term payments without liquidating its inventories. General Motors again has a problem with a large amount of inventory and slow processes that take almost double the time to convert inventory into sales. Low inventory figures for Ford facilitate a high inventory turnover. Ford has the worst accounts receivable with only 0.62 days of sales outstanding, well below General Motors 23 days. This means that receivables are not being collected on time. Ford, with relatively lower sales and higher fixed assets, also utilizes its assets efficiently. Both companies seem to be generating a sufficient volume of business given their total assets. Ford has a slightly higher profit margin on sales than General Motors’ even though both have approximately the same net income. This is attributed to higher sales of General Motors. In terms of the overall return on the investment earned by both companies, they are neck to neck with General Motors out performing Ford due to large asset holdings of the latter. Ford’s negative equity results from the large amount of retained earning deficit and accumulated comprehensive loss over the years. This has resulted in a negative return of 974% to common stockholders. The recent years of more than 100% debt ratio, have eaten into the equity of the company. General Motors is doing well in this regard with a decent return to its common stockholders of 18%. Ford is highly leveraged with almost 100% debt. It has however, brought this figure down from previous years. Compared to that, General Motors even though highly leveraged itself, seems to be in a safer position with 78% debt. This high amount of debt is affecting Ford’s performance as it lowers its ability to cover its fixed financial charges and bogs down its income, adversely affecting the equity. Overall, Ford has taken more debt than it can