Ford Motor Company Case Analysis
The total asset turnover of 74.9% shows that the company is effectively deploying their assets and has been able to generate $74,900 profit for every $100,000 in assets. This is not surprising considering the high return on assets analyzed earlier. Days sales in inventory for Ford in 2011 was only 19 days – meaning the company could convert inventory to sales in less than 3 weeks. Like return on assets, the acceptable level of inventory convertability varies drastically from one industry to another. (Wahlen et al, 2008) In recent years, automotive companies have averaged over 60 days for this inventory ratio. Ford’s 2013 days sales in inventory was almost 90 days and increased by 26% to over 100 days in January of 2014. These increased numbers are likely a result of the slow economic recovery and consequential decrease in car sales. (Young, …show more content…
The fixed asset turnover ratio of 5.62 shows that the company is able to generate significant revenues from fixed assets, i.e. property, plant, and equipment. Ford’s operating performance ratio of 15.06 also shows that the company is performing strongly. Ford’s price-earnings ratio of 3.15 means the company’s stock was trading at 3 times the earnings value as of December 31, 2011. This shows that investors were willing to pay 3 times its worth to own Ford stock, signifying that earnings growth was expected. The market-to-book ratio of 4.23 means that the market value of the stock is 4.23 times the book value of the same stock. In other words, Ford’s stock was overvalued in excess of 4 times its book value.