Finance Comparison

Ford Motor Company and General Motors are multinational corporations that have established themselves highly within the automotive industry. Although both companies reflected a healthy financial position, General Motors has been subjected to a period of net income loss. This may be attributed to the company’s rising goodwill impairment costs, which increased by 26,000 between 2011 and 2012; they account for a staggering 64% of expenses after the deduction of costs of sales from the revenue. These goodwill impairment charges imply that General Motors has experienced a decrease in brand value and, therefore needs to adjust the accounting value of its goodwill. This often results in an operating loss and has a negative effect on the company’s equity. In general goodwill is an intangible assets that possesses a great deal of risk due to potential devaluation of the brand (e.g. negative market information). The balance sheet of General Motors illustrates the steep decline of company’s goodwill by 92%.

In addition, General Motors demonstrates a decrease in gross profit (from 18,480 to 12,020) despite the increase in sales. This may be attributed to an increase in production costs. The fall in gross profit may have resulted in a poorer stock performance caused by a decrease in gross margin (from 12% to 8%). One of the reasons for a falling gross margin despite the rising sales is the increase in the company’s variable costs of production. Ford Motor Company has also experienced a fall in gross margin from 17% to 16%. Nevertheless, the company is still able to cover its costs and function at a profit.

Ratios | General Motors | Ford Motors |

Operating cash flow | 0.2 | 0.1 |

Working capital | 1.3 | 2.1 |

FCF | 0.2 | 0.4 |

Debt Ratio | 7% | 55% |

Equity Ratio | 3.0 | 10.9 |

Gross margin | 8% | 16% |

ROS | -20% | 5% |

ROCE | -32% | 4% |

ROE | 17% | 35% |

Financial leverage | 4.0 | 11.9 |

Operating cash flow is a good indicator of the company’s...