Financial Ratio Analysis Report of Ford Motor Company Essays

1925 Words Jun 27th, 2006 8 Pages
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their …show more content…
If assets are used effectively, ROI will be high. According to Ford's numbers, this has been an area of gradual improvement over the past few years, after a drastic drop from 2000 to 2001. This is the norm for the industry, as well. Employee pricing promotions will be a big consideration in this area for this year.
Gross margin tends to remain stable over time. However, this ratio is still crucial to evaluate, because fluctuations can be a sign of fraud or irregular financials. A higher gross margin than other companies in the industry also shows more efficiency. Ford's consistency in this ratio speaks well of the company's stability. The fact that the company is consistently ahead of the industry also speaks highly of Ford's efficiency rate.
Operating margin also measures management's efficiency. It does so by comparing the quality of a company's operations to others in the industry. A higher operating margin tends to mean lower fixed costs and better gross margin. This gives management more flexibility when setting prices, which is particularly important during times of financial hardship. This is another area where Ford is slowing turning things around. It is no surprise, though, that the company is also fairing above industry averages in this area.
Net profit margin is how much profit a company makes for every dollar it generates in revenue. Usually, the higher the company's net profit margin,

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