Ford Motor Company Case Study
50). In the case of Ford Motor Company the ROE is 35.5%. According to Yahoo Finance, the average ROE for the automotive industry is 8.6% (Yahoo Finance), which means Ford Motor Company is significantly higher than the industry average.
Return on Equity Ratio Calcualtion: Net Income = $5,665,000 = 35.5%
Average Stockholder’s Equity $15,947,000 To understand why Ford Motor Company is higher than the industry average, the DuPont analysis can help dig deeper into the details by looking at the component parts. When the primary ratios for profitability, activity and solvency are multiplied the resulting product will equal the ROE calculation as follows, (Callahan, Stetz & Brooks 2007):
Net Profit Margin:
Net Income 5,665,000 / Sales 134,252,000 = 4.22
Total Asset Turnover Ratio:
Sales 134,252,000 / Average Total Assets 190,554,000 =