Ford vs General Motors, Essay Example

The evaluation of the financial condition of GM in comparison to Ford Motor Company will be reviewed.  The reason that Ford has been effective and GM has not been effective will be explored.  The senior management team which is more effective in the comparison between GM and Ford was demonstrated. The information derived from the financial statements was tabulated and compared.  The debt to equity ratio, current ratio, quick ratio, return on equity (ROE) and net profit margin was explored.  The importance of these figures with regards to the financial condition of both organizations will be reviewed.  The perspectives of Holstrom (2013), NASDAQ (2015) and Zacks Investment Research were accessed.

Almost sixty years ago, Ford Motor Company initiated its initial public offering in the United States.  The automobiles which were manufactured by Ford and GM represented the top of the automotive pyramids.  As GM is well into its second time around, there is a question with regards to the stability of the American automotive industry.  The changing definition of products that are “Made in America” has caused a specter to be cast with regards to Ford Motor Company and GM.

A quick review will be made with regards to the calculation of the important financial formulas for GM and Ford.  An evaluation of the effective characteristics of GM and Ford will be explored.

Table 1: Financial Information for Ford and GM 2012- 2014

(NASDAQ, 2015)

In the second time around, GM was required to apply its best endeavors in order to attain the following restricting objectives:

1. Reduce its debt by 66.6%.
2. Enact labor amendments in order to attain a wage which was on par with the U.S. based foreign automakers
3. Modification of specific healthcare responsibilities for retirees.

The U.S. government was able to make these demands upon GM due to the financial assistance that had been delegated to GM by the United States government.  In reviewing the estimate, it can be observed that although GM is the larger company, Ford has greater liquidity.  In addition, Ford Motor Company has quick ratios and current ratios which are on the average four times that of GM (Holstrom, 2013).

In accordance with Yahoo Finance, GM is anticipated to grow by 10.45% over the next three years and GM is anticipated to grow by 11.92 % over the same time period.  Notwithstanding, GM has designs of repayment of the loans in order to ensure that the organization continues to move in an effective direction.  The review of the balance sheet which is manifested by GM does not encourage investor confidence (Holstrom, 2013).

The proceeds which are generated by GM production of stock must be applied in order to repay its creditors which include the Canadian and United States government.  Although Ford Motor Company Could have received funding from the United States and the Canadian governments, it refused.  This demonstrates an admirable quality with regards to the senior management team at Ford Motor Company (Holstrom, 2013).

In the evaluation of Ford Motor Company by means of the DCF, the lending endeavors have not been distinguished from the automotive manufacturing functions.  In the assessment of GM, it can be observed that a lending concern can be valued in a similar method as a bank by means of the approach which applies free cash flow.  The net earnings of the operations was explored which was subtracted from the cost of equity (Holstrom, 2013).

It can be assessed that the revenues will increase by 5% annually for Ford Motor Company It can be observed that although Ford Motor Company is the smaller of the two operations, it has proved to be the more profitable of the two.  Ford Motor Company is able to maintain a positive debt, whereas GM must use its earnings in order to repay its debt.  The present stock value of Ford motor company is $16.57, this represents an increase of 0.55%.  The present stock price of GM is assessed at $38.59 which represents an increase of 0.72% (NASDAQ, 2015).  It can be observed that in avoiding the substantial debt which GM has incurred, the senior management at Ford Motor Company appear to be operating an organization which is more efficient.

Ford Motor Company has received complaints with regards to the heat shields of its automobiles.  It has been determined by the NHTSA that the problems which caused the malfunctions in the heat shield of Ford automobiles occurs in extreme circumstances and the number of complaints is negligible in relation to its automobile production.  There have also been a number of incidents which have been correlated to GM.  In the circumstances of the two automakers.  There have been no recalls (Zacks Investment Research, 2014.

 Conclusion

It can be observed from the current ratio, quick ratio and current ratio that Ford Motor Company management have been more effective administrators.  However, GM continues and has been able to repay the funds which were borrowed from the United States and Canadian governments.  Although Ford Motor Company is the smaller operation, it has demonstrated a greater level of profitability.  Consequently, the senior management team at Ford Motor Company have performed a more effective job of corporate governance.

References

Holstrom, M. (19 August 2012). Ford vs General Motors: An investment analysis. Seeking Alpha.

NASDAQ (23 March 2015). GM Company Financials. NASDAQ.

NASDAQ (23 March 2015). Ford Motor Company Financials. NASDAQ.

Zacks Investment Research (28 November 2014). Auto stocks: Honda, Ford, GM, Toyota, BMW, Tesla. Investing.com.