Please do financial analysis for ford company comparing to the other companies data attached on excel file only

Please read the attached Ford case study and answer the following questions:

1- As a current investor, what is your overall assessment of Ford?

2- How would you describe Ford’s comparative performance? and financial position?

3- As a current investor in Ford, which elements of financial performance are most important?

4- As John Smith in January 2018, would you buy more Ford stocks, continue to hold Ford stocks, or sell the Ford stocks? If you decide to sell, in which other automobil company would you invest?

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W18824
FORD MOTOR COMPANY: BASIC FINANCIAL RATIOS 1
Xiaojun Zhu, Daniela Zapata, and Tabish Munir wrote this case under the supervision of Professor Zhichuan (Frank) Li solely to
provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial
situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
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This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2019, Ivey Business School Foundation
Version: 2019-02-13
On January 16, 2018, John Smith, a portfolio manager at Uria Investment, was made aware of the Ford
Motor Company (Ford) safety recall schedule. Ford announced that it would recall more than one million
vehicles worldwide as a result of faulty airbags that had failed to deploy upon collision, causing multiple
deaths. It turned out that Ford had been aware of these faulty airbags but had not taken proactive
measures to mitigate potential damage. This information was uncovered by the U.S. regulators who were
investigating the multiple deaths in Ford vehicles.2
No
tC
Because of the investigation, Ford’s share price dropped from US$13.10 to US$12.18 per share on
January 17, 2018. 3 Smith was trying to anticipate the future of Ford, as the holding of the Ford equity
represented a significant portion of his investment portfolios. Investors had already started contacting him
about the future of the company and the state of their investments. Smith anticipated that given the recent
announcement, Ford’s share value would drop drastically, so he needed to act fast to mitigate the loss of
value for his investors. Smith wondered whether Ford could recover from this disaster in the long term
and whether its product safety would continue to be an issue and negatively affect its shareholders. While
exploring different companies as potential places to reinvest the money, Smith wanted to remain in the
automotive industry to maintain the portfolios’ diversification. He had thus explored other companies
such as Toyota Motor Corporation (Toyota), General Motors Company (GM), and Honda Motor
Company Ltd. (Honda) as possible alternatives to Ford.
FORD MOTOR COMPANY
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Ford Motor Company, headquartered in Dearborn, Michigan, was an American multinational automobile
manufacturer founded by Henry Ford in 1903. It was the second-largest automobile manufacturer based
1
This case has been written based on published sources only. Consequently, the interpretation and perspectives presented
in this case are not necessarily those of Ford Motor Company or any of its employees.
2
Ford Motor Company, “Ford Issues Safety Compliance Recall; Expands Safety Recall for Vehicles Containing Certain Takata
Airbag Inflator,” press release, January 18, 2018, accessed May 7, 2018, https://media.ford.com/content/fordmedia/fna/us/en/
news/2018/01/17/ford-issues-safety-compliance-recall–expands-safety-recall-for-.html.
3
Ford Motor Company, Stock Price Data for January 17, 2018, MarketScreener, accessed May 7, 2018, www.4traders.com/FORD-MOTOR-COMPANY-12542/company/; All currency amounts are shown in U.S. dollars.
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9B18N027
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INDUSTRY AND ECONOMIC CONDITIONS
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in the United States and employed approximately 202,000 workers worldwide.4 The company had been
publicly incorporated since 1956; however, the Ford family continued to retain 40 per cent of its voting
rights. 5 Ford sold automobiles under the Ford brand, while its luxury automobiles were sold under the
Lincoln brand. Ford specialized in large-scale manufacturing by using an industrial workforce. It had
incorporated moving assembly lines into its plant operations and used modern economic and social
systems to facilitate mass production. This method of production became known as Fordism and was
widely applied to improve productivity within the industry. In addition, Ford aimed to maintain a lean
inventory by adopting just-in-time inventory management.
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Global automotive sales had increased by 5.6 per cent in 2016. Asian-Pacific markets had seen the highest
growth and volume of automotive sales in 2016. The key contributor to the increase in sales was the
Chinese market, given its high double-digit growth. 6 In North America, the United States had seen a
growth rate of 0.4 per cent in 2016, with 17.55 million cars sold—a record number. 7 It was good news for
the shrinking industry in the United States. The slowly improving economy and the increasing demand
for trucks and SUVs seemed to finally turn the business around, at least for the time being. Global
automotive unit sales continued to grow and reached 86.05 million units in 2017. 8 The growth rate of the
global automotive industry was expected to be about 3 per cent annually in 2017 and 2018. 9 Sales of
electric cars were expected to take up a larger share of the overall market, with most of the growth
coming from China and Europe. 10
4
No
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Overall, the 2017 year-end conditions were positive, with both global and domestic conditions showing
improvements. Analysts and consumers expected these positive trends to continue into the near future.
The World Bank forecasted global economic growth to increase to 3.1 per cent, with advanced economies
expected to grow at a more conservative 2.9 per cent. 11 Overall, consumer confidence increased;
however, this consumer confidence was accompanied with the risk of overinflated asset prices and
heightened equity prices. 12 The auto manufacturing industry had seen a trend toward electrification and
digitalization solutions. In addition, autonomous driving was just becoming another key trend expected to
continue into the long-term future. In both technologies, Tesla Inc. had been a market leader, but other
major players were also ramping up their investments by partnering with non-traditional technology
companies to introduce new car models powered by new technologies. In January 2018, Ford pledged to
Do
Ford Motor Company, Stock Price Data for January 17, 2018, MarketScreener, accessed May 7, 2018, www.4traders.com/FORD-MOTOR-COMPANY-12542/company/.
5
Joann Muller, “Ford Family’s Stake Is Smaller, but They’re Richer and Still Firmly in Control,” Forbes, December 2, 2010,
accessed May 7, 2018, www.forbes.com/sites/joannmuller/2010/12/02/ford-familys-stake-is-smaller-but-theyre-richer-andremain-firmly-in-control/#135f71f62174.
6
“Global Car sales up by 5.6% in 2016 due to soaring demand in China, India and Europe,” JATO, accessed November 19,
2018, www.jato.com/global-car-sales-5-6-2016-due-soaring-demand-china-india-europe/.
7
Vlasic Bill, “Record 2016 for U.S. Auto Industry; Long Road Back May Be at End,” The New York Times, accessed
November 19, 2018, www.nytimes.com/2017/01/04/business/2016-record-united-states-auto-sales.html.
8
“Global car sales up by 2.4% in 2017 due to soaring demand in Europe, Asia-Pacific and Latin America,” JATO, accessed
November 19, 2018, www.jato.com/global-car-sales-2-4-2017-due-soaring-demand-europe-asia-pacific-latin-america/.
9
“Global car market to break through 100 million in sales by 2020,” Consultancy.uk, accessed November 19, 2018,
www.consultancy.uk/news/13900/global-car-market-to-break-through-100-million-in-sales-by-2020.
10
“Electric vehicle outlook 2018,” Bloomberg NEF, accessed November 19, 2018, https://bnef.turtl.co/story/evo2018?teaser=true.
11
“Global
Economic
Prospects,”
World
Bank
Group,
accessed
November
19,
2018,
http://pubdocs.worldbank.org/en/331521526414101557/Global-Economic-Prospects-June-2018-Highlights-Chapter-1.pdf.
12
Sven Smit, “Economic Conditions Snapshot, December 2017: McKinsey Global Survey Results,” McKinsey & Company,
December 2017, accessed April 22, 2018, www.mckinsey.com/business-functions/strategy-and-corporate-finance/ourinsights/economic-conditions-snapshot-december-2017-mckinsey-global-survey-results
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9B18N027
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spend $11 billion on electric cars by 2022, which doubled its original investment estimate.13 Regional
start-ups were also entering the electric vehicle market, spurred by the $2 billion that had been invested in
these start-up companies. 14 The share of diesel engines in Europe was declining and expected to continue
shrinking due to tightening regulations.15 Besides Europe, countries across the world, including major
markets such as China and India, were planning to introduce bans and regulations on diesel cars. 16 As a
result, automotive companies saw a rise in environmental regulations, increasing their overall costs, while
the increasing cost of fuel had reduced the demand for fuel-engine cars.
THE ALTERNATIVES
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Smith and his team identified Ford’s main competitors to be GM, Toyota, and Honda. These companies
competed directly with Ford, and thus represented viable alternatives to the Ford stock.
GM was an American multinational corporation headquartered in Detroit’s Renaissance Center. The
company designed, manufactured, and distributed vehicles and vehicle parts, and was the second-largest
automobile manufacturer in the world and the largest in the United States. GM had a strong position in
the U.S. automotive market. The company’s best-known auto brands were Cadillac, Chevrolet, GMC,
Holden, and Wuling. 17
Toyota, the biggest automotive manufacturer in the world, was a Japanese multinational automotive
manufacturer headquartered in Toyota, Japan. Toyota was by far the world’s leader in the sales of hybrid
electric vehicles, having successfully applied its mass-production strategy to its line of hybrid electric
vehicles. According to Toyota, 80 per cent of Toyota cars sold in 1998 were still on the road. 18
No
THE ANALYSIS
tC
Honda was a Japanese public multinational conglomerate corporation primarily known as a manufacturer
of automobiles, aircraft, motorcycles, and power equipment. Since 1959, Honda had been the world’s
largest motorcycle manufacturer. Furthermore, Honda was the world’s largest manufacturer of internal
combustion engines measured by volume. In 2013, Honda became the first Japanese automaker to be a
net exporter to the United States.19
The team at Uria Investment had all of the information available to make their decision. They had the
comparative financial information—balance sheets (see Exhibit 1), income statements (see Exhibit 2), and
statements of cash flow (see Exhibit 3)—for the four companies, as well as the financial ratios (see
Exhibits 4 and 5). Smith had also reviewed Ford’s stock price and was taking into consideration analyst
forecasts for the stock price, as compared with its competitors (see Exhibits 6 and 7). Ford’s stock had
13
Do
Reuters, “Ford Plans to Invest $11 Billion to Electrify Its ‘Most Iconic’ Vehicles,” Fortune, accessed November 19, 2018,
http://fortune.com/2018/01/14/ford-11-billion-electric-car-investment/.
14
Jonathan Shieber, “Upstarts emerge to chase Tesla’s lead in electric vehicles,” TechCrunch, accessed November 19,
2018, https://techcrunch.com/2018/05/23/upstarts-emerge-to-chase-teslas-lead-in-electric-vehicles/.
15
“European Vehicle Market Statistics,” The International Council on Clean Transportation, accessed November 19, 2018,
www.theicct.org/sites/default/files/publications/ICCT_Pocketbook_2017_Web.pdf.
16
Alanna Petroff, “These Countries Want to Ban Gas and Diesel Cars,” CNN Business, accessed November 19, 2018,
https://money.cnn.com/2017/09/11/autos/countries-banning-diesel-gas-cars/index.html.
17
“About GM,” General Motors, accessed April 20, 2018, www.gm.com/company/about-gm.html.
18
Toyota Motor Sales U.S.A., “World’s Most Popular Car Model Hits 1.22M Global Sales in 2013,” news release, April 15, 2014,
accessed November 20, 2018, https://pressroom.toyota.com/releases/world+most++popular+model+global+sales+2013.htm.
19
“About Honda,” Honda, accessed April 25, 2018, http://world.honda.com/about/.
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9B18N027
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fluctuated slightly during 2017, but the closing stock price was within the same range as at the beginning
of the year. When Smith initially invested in Ford, he believed it would translate into long-term growth
and profits for his clients. However, as he analyzed the situation, Smith was unsure whether Ford could
recover from the numerous safety scandals while simultaneously catching up to competitors in terms of
innovation. Smith and his team wondered what this information would uncover and how it would lead to
the final decision.
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9B18N027
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Page 5
Ford
2016
Toyota
2017
2016
General Motors
2017
2016
Honda
2017
2016
38,927
62,809
10,277
3,889
38,827
11,102
8,898
49,634
26,879
78,520
21,436
33,209
26,153
83,027
18,342
34,492
23,825
8,164
10,663
26,092
24,415
8,700
11,040
32,048
18,919
23,744
12,255
3,974
15,126
24,468
11,673
4,211
115,902
35,327
31,320
10,973
64,286
141,906
257,808
108,461
32,072
32,133
9,705
55,580
129,490
237,951
160,044
91,511
175,563
0
12,912
279,986
440,030
162,014
86,662
166,799
8,601
6,497
268,559
430,573
68,744
36,253
9,073
23,544
74,868
143,738
212,482
76,203
32,603
8,996
33,172
70,716
145,487
221,690
58,892
65,627
27,586
1,091
17,120
111,424
170,316
55,478
60,601
27,396
1,607
16,953
106,557
162,035
48,265
46,984
91,368
85,069
26,965
23,797
10,440
9,846
23,282
23,053
94,600
102,666
25,611
222,877
21,296
22,001
90,281
93,301
25,131
208,713
53,197
10,860
155,425
88,949
33,939
278,313
48,570
9,823
143,462
86,944
47,041
277,447
23,929
25,996
76,890
67,254
33,337
177,481
23,333
38,051
85,181
51,326
41,347
177,854
9,103
29,228
48,771
36,758
19,247
104,776
8,547
30,231
48,624
33,829
19,480
101,933
41
21,218
13,672
41
15,634
13,563
3,567
158,127
23
3,529
149,282
315
14
17,627
17,360
15
26,168
17,653
773
60,308
4,459
765
55,060
4,277
34,931
257,808
29,238
237,951
161,717
440,030
153,126
430,573
35,001
212,482
43,836
221,690
65,540
170,316
60,102
162,035
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2017
tC
In millions of US$
(except per share)
Assets
Cash & marketable securities
Accounts receivable
Inventories
Prepaid expenses & other current
assets
Total current assets
Net plant, property & equipment
Investments
Deferred income taxes
Other assets
Total long-term assets
Total assets
Liabilities
Short-term borrowings & notes
payable
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Shareholders’ equity
Common equity
Retained earnings
Treasure stock, reserves & other
equity
Total equity
Total liabilities and equity
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EXHIBIT 1: BALANCE SHEETS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA, 2016–2017
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No
Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.
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9B18N027
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Ford
2017
2016
156,776
151,800
140,436
135,087
16,340
16,713
11,527
10,927
Toyota
2017
2016
255,286
236,786
210,302
188,453
44,984
48,333
26,535
24,540
11,527
10,972
16,937
15,740
0
0
9,597
8,800
4,813
–3,335
5,786
–1,055
18,449
–1,845
23,793
–1,079
608
271
894
286
–1,663
1,133
110
–4,358
8,148
520
7,628
13,266
4,813
3,901
1.91
Honda
2017
2016
129,498 121,724
100,513
94,474
28,985
27,250
21,208
23,054
10,354
14,812
17,580
11,128
8,369
6,396
5,474
10,016
–1,847
9,962
–2,046
7,777
–1,538
4,196
–1,101
295
309
381
–184
–86
271
0
–2,116
295
0
–1,374
575
266
–2,156
563
182
–2,427
115
299
–1,354
151
237
–1,015
6,841
2,189
4,652
20,294
3,358
16,936
24,872
5,592
19,280
11,863
15,727
–3,864
12,008
2,581
9,427
9,315
3,612
5,703
5,297
2,425
2,872
14,458
5,741
3,902
33,350
18,449
3,263
37,346
23,793
3,338
22,277
10,016
1,420
19,781
9,962
1,524
14,014
7,777
1,811
9,704
4,197
1,811
1.16
5.60
6.18
-2.65
6.12
3.16
1.59
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1,023
General Motors
2017
2016
145,588
149,184
114,869
120,499
30,719
28,685
20,703
18,723
9,575
tC
In millions of US$
(except per share)
Revenue
–Cost of goods sold
Gross profit
–Operating
expenses
++Selling, general &
administrative
++Other operating
expenses
Operating income
–Non-operating
(income) loss
++Interest expense,
net
+++Interest expense
–––Interest income
++Other nonoperating (income)
loss
Pre-tax income
Income tax
Net income
Reference items
EBITDA
EBIT
Common shares
outstanding
Earnings per share
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EXHIBIT 2: INCOME STATEMENTS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA, 2016–
2017
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Note: EBITDA = earnings before interest, taxes, depreciation, and amortization; EBIT = earnings before interest and taxes.
Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.
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9B18N027
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Page 7
Toyota
2017
2016
General Motors
2017
2016
Honda
2017
2016
16,938
293
14,902
19,280
1,451
13,554
–3,864
11,956
12,261
9,427
−2,833
9,819
5,703
−4,127
6,237
2,872
2,252
5,508
−551
2,903
−3,015
580
373
963
31,582
37,188
17,338
16,993
8,186
11,595
−10,940
−10,341
−8,453
−8,384
−5,724
−7,055
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In millions of US$
Ford
(except per share)
2017
2016
Cash flows from operating activities
Net income
7,602
4,596
Non-cash Items
−792
3,612
Depreciation &
8,453
8,717
amortization
Change in net working
2,833
2,925
capital
Cash used for operating
18,096
19,850
Cash from investing activities
Investments in property,
−7,049
-6,992
plant, and equipment
Net change in long-term
−14,713
−17,173
Investment
Other investing activities
2,370
−1,187
Cash used for Investing
−19,392
−25,352
Cash flows from financing activities
Dividends paid
−2,584
−3,376
Share repurchase
−131
−145
Increase (decrease) in
6,260
11,028
debt
Other financing activities
−151
−107
Cash from financing
3,394
7,400
Effects of exchange rate
489
−265
changes
Net change in cash
2,587
1,633
Reference items
Cash & cash equivalents
38,927
38,827
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EXHIBIT 3: CASH FLOW STATEMENTS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA,
2016–2017
−7,337
0
0
0
0
5,290
−27,883
−8,854
−26,532
−15,619
−24,072
−26,635
−35,019
−413
−6,137
−239
−7,294
−5,869
−6,512
9,536
−5,875
−2,528
5,492
−2,233
−3,507
18,455
−2,368
−2,500
21,027
−1,500
−0.1
3,312
−1,322
−0.1
1,280
−626
−3,471
−125
−620
−3,531
−1,666
-305
12,410
348
−163
15,996
−213
−744
1,068
−12
−752
−794
−1,124
103
5,459
6,024
−2,243
3,105
2,383
52,999
48,736
23,825
24,415
18,919
15,126
tC
−22,233
Do
No
Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.
This document is authorized for educator review use only by Ruba Hamed, Alfaisal University until Sep 2023. Copying or posting is an infringement of copyright.
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9B18N027
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Page 8
Ford
2016
No
Toyota
2017
2016
General Motors
2017
2016
Honda
2017
2016
0.43
0.55
0.34
0.68
0.34
0.76
0.31
0.42
0.29
0.39
0.39
0.87
0.31
0.81
1.23
1.20
1.03
1.13
0.89
0.89
1.21
1.14
146
61
27
27
57
24
112
92
37
127
94
36
21
76
34
21
71
33
67
33
45
73
33
45
0.86
6.38
2.94
16.80
4.25
0.88
7.14
3.19
14.44
6.42
0.63
1.73
0.55
8.41
68.08
0.64
1.81
0.57
7.43
80.65
0.84
5.07
1.92
7.97
17.42
0.80
4.06
1.17
8.99
17.69
0.62
1.60
0.56
7.48
67.63
0.63
1.70
0.56
10.50
27.70
21.8%
3.1%
1.4%
10.4%
8.5%
3.1%
5.2%
4.9%
15.9%
1.9%
3.3%
11.0%
9.5%
3.8%
4.5%
3.1%
10.5%
3.8%
6.8%
17.6%
13.1%
7.2%
7.9%
6.6%
12.6%
4.8%
5.3%
20.4%
15.8%
10.1%
10.5%
8.1%
−11.0%
−1.8%
−1.5%
21.1%
15.3%
6.9%
8.1%
–2.7%
21.5%
4.5%
7.8%
19.2%
13.3%
6.7%
8.0%
6.3%
8.7%
3.3%
3.4%
22.4%
10.8%
6.0%
7.2%
4.4%
4.8%
1.9%
1.8%
22.4%
8.0%
3.5%
4.4%
2.4%
3.3%
−16.8%
0.7%
–17.8%
7.8%
–22.5%
5.1%
–5.4%
–2.4%
0.5%
–12.9%
79.9%
6.4%
85.3%
11.7%
–31.5%
op
yo
0.41
1.08
tC
Liquidity ratios
Cash ratio
Acid test ratio
(Quick ratio)
Current ratio
Efficiency
Days receivables
Days payables
Days of inventory
Financial leverage
Debt to total assets
Leverage ratio
Long-term leverage ratio
Total debt to EBITDA
Interest coverage ratio
Profitability
Return on common equity
Return on assets
Return on invested capital
Gross margin
EBITDA margin
Operating margin
Pre–tax margin
Net income margin
Growth and valuation
One-year sales growth
One-year operating income
growth
One-year net income growth
Enterprise multiples
Enterprise value-to-sales
Price earnings ratio (P/E)
Activity ratio
Asset turnover
Accounts receivable turnover
Inventory turnover
Accounts payable turnover
Cash conversion cycle (days)
2017
rP
os
EXHIBIT 4: COMPARATIVE FINANCIAL RATIOS OF FORD, TOYOTA, GENERAL MOTORS, AND
HONDA, 2016–2017
64.0%
2.95
0.25
7.85
–37.7%
2.54
0.24
6.92
–12.1%
8.99
1.17
5.60
–3.0%
7.19
1.13
6.18
–141.0%
2.36
0.36
5.80
–2.7%
2.10
0.28
5.51
98.6%
7.32
0.79
9.82
–38.3%
9.17
0.73
16.11
0.61
2.50
13.67
6.36
108
0.64
13.67
15.18
6.57
104
0.58
3.25
9.81
9.31
104
0.55
2.85
10.27
9.39
100
0.69
17.83
10.77
4.84
26
0.67
17.15
10.91
4.97
27
0.76
5.45
8.20
11.06
82
0.75
4.97
8.09
10.52
82
Do
Note: EBITDA = earnings before interest, taxes, depreciation, and amortization.
Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.
This document is authorized for educator review use only by Ruba Hamed, Alfaisal University until Sep 2023. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
9B18N027
Liquidity ratios
Cash ratio
Acid test ratio (Quick ratio)
(Cash equivalents + cash) ÷ Current liabilities
(Cash + marketable securities + Accounts receivables) ÷
Current liabilities
Current assets ÷ Current liabilities
Accounts receivable ÷ Sales × 365
Accounts payable ÷ Cost of sales × 365
Inventory ÷ Cost of Sales × 365
Total debt ÷ Total assets
Total liabilities ÷ Shareholders’ equity
Long-term debt ÷ Shareholders’ equity
Total debt ÷ EBITDA
EBIT ÷ interest
op
yo
Current ratio
Efficiency
Days receivables
Days payables
Days of inventory
Financial leverage
Debt to total assets
Leverage ratio
Long-term leverage ratio
Total debt to EBITDA
Interest cover ratio
Profitability
Return on common equity (ROE)
Return on assets
Return on invested capital
Gross margin
EBITDA margin
Operating margin
Pre-tax margin
Net income margin
Growth and valuation
One-year sales growth
One-year operating income
growth
One-year net income growth
Enterprise multiple
Enterprise value-to-sales
P/E ratio
Activity ratio
Asset turnover
Accounts receivable turnover
Inventory turnover
Accounts payable turnover
Cash conversion cycle (days)
rP
os
EXHIBIT 5: FINANCIAL RATIO FORMULAS
t
Page 9
Net income ÷ Shareholders’ equity
(Net income + Interest ÷ (1 − tax rate)) ÷ Total assets
(Net income – Dividends) ÷ Total capital
(Sales – Cost of sales) ÷ Sales
EBITDA ÷ Total revenue
Operating profit before taxes ÷ Sales
(Net income + Income tax) ÷ Sales
Net income ÷ Sales
No
tC
(Sales t – Sales t−1 ) ÷ Sales t
(Operating income t – Operating income t-1 ) ÷ Operating
income t
(Income t – Income -1 ) ÷ Income t
EV ÷ EBITDA
EV ÷ Sales
Market price of common share ÷ Earnings per share
Sales ÷ Total assets
Sales ÷ Accounts receivable
Cost of goods sold (COGS) ÷ Inventory
Purchases ÷ Accounts payable
Days inventory + Days receivable outstanding – Days
payable outstanding
Do
Note: EBITDA = earnings before interest, taxes, depreciation, and amortization; EBIT = earnings before interest and taxes;
“t” represents year t; “t − 1” represents the year before year t; EV = enterprise value = (market capitalization) + (value of
debt) + (minority interest) + (preferred shares) − (cash and cash equivalents).
Source: Created by the case authors.
This document is authorized for educator review use only by Ruba Hamed, Alfaisal University until Sep 2023. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
9B18N027
t
Page 10
op
yo
rP
os
EXHIBIT 6: STOCK PERFORMANCE OF FORD, GENERAL MOTORS, TOYOTA, AND HONDA, 2016–
2018
tC
Source: Created by the case authors using data from Yahoo Finance, finance.yahoo.com, accessed October 30, 2018,
https://ca.finance.yahoo.com/quote/F/.
Do
No
EXHIBIT 7: FORD STOCK PRICES, 2016–2018
Source: Created by the case authors using data from Yahoo Finance, finance.yahoo.com, accessed October 30, 2018,
https://ca.finance.yahoo.com/quote/F/.
This document is authorized for educator review use only by Ruba Hamed, Alfaisal University until Sep 2023. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
Amazon — Income Statement (in thousands)
Total Revenue (Net Sales)
Cost of Revenue
Gross Profit
2018
232,887,000
202,020,000
30,867,000
2019
280,522,000
241,699,000
38,823,000
General & Admin. Expense
Selling & Marketing Expense
R&D
Operating Income
4,336,000
13,814,000
28,837,000
12,421,000
5,203,000
18,878,000
35,931,000
14,541,000
EBIT
Interest Expense
Pretax Income
Net Income
12,678,000
(1,417,000)
11,261,000
10,073,000
15,576,000
(1,600,000)
13,976,000
11,588,000
2018
162,648,000
321,195,000
16,677,000
31,750,000
119,099,000
68,391,000
43,549,000
2019
225,248,000
96,334,000
20,816,000
36,092,000
163,188,000
87,812,000
62,060,000
Amazon — Balance Sheet
Total Assets
Current Assets
Account Receivable
Cash and Cash Equivalents
Total Liabilities
Current Liabilities
Stockholders Equity
Amazon — Common Size Income Statement
2018
Total Revenue (Sales)
Cost of Sales Margin
Gross Profit Margin
100%
87%
13%
2019
0.20
100%
86%
14%
General & Admin. Expense Margin
Selling & Marketing Expense Margin
R&D Margin
Operating Income Margin
1.86%
5.93%
12.38%
5.33%
1.85%
6.73%
12.81%
5.18%
Sales growth
EBIT Margin
Interest Expense Margin
Pretax Income Margin
Net Income Margin
5.44%
0.61%
4.84%
4.33%
5.55%
0.57%
4.98%
4.13%
Interest Covarge Ratio
Basic EPS
Diluted EPS
8.95
1.03
1.01
9.74
1.17
1.15
Current Ratio
Debt to Assets
Return On Equity
Return On Assets
4.696
0.732
0.231
0.062
1.097
0.724
0.187
0.051
Amazon — Other Ratios
Ebay — Income Statement (in thousands)
2020
386,064,000
334,564,000
51,500,000
Total Revenue (Net Sales)
Cost of Revenue
Gross Profit
2018
10,746,000
2,382,000
8,364,000
6,668,000
22,008,000
42,740,000
22,899,000
General & Admin. Expense
Selling & Marketing Expese
R&D
Operating Income
1,131,000
3,391,000
1,285,000
2,222,000
25,825,000
(1,647,000)
24,178,000
21,331,000
EBIT
Interest Expense
Pretax Income
Net Income
3,044,000
326,000
2,718,000
2,530,000
Ebay — Balance Sheet
2020
321,195,000
132,733,000
24,542,000
42,122,000
227,791,000
126,385,000
93,404,000
Total Assets
Current Assets
Account Receivable
Cash and Cash Equivalents
Total Liabilities
Current Liabilities
Stockholders Equity
2018
22,819,000
7,126,000
1,382,000
4,915,000
16,538,000
4,454,000
6,281,000
Ebay — Common Size Income Statement
2020
0.38
100%
87%
13%
1.73%
5.70%
11.07%
5.93%
2018
Sales growth
Total Revenue (Sales)
Cost of Revenue Margin
Gross Profit Margin
General & Admin. Expense Margin
Selling & Marketing Expese Margin
R&D Margin
Operating Income Margin
100%
22%
78%
10.52%
31.56%
11.96%
20.68%
6.69%
0.43%
6.26%
5.53%
EBIT Margin
Interest Expense Margin
Pretax Income Margin
Net Income Margin
28.33%
3.03%
25.29%
23.54%
Ebay — Other Ratios
15.68
2.13
2.09
Interest Coverage Ratio
Basic EPS
Diluted EPS
9.34
2.58
2.55
1.050
0.709
0.228
0.066
Current Ratio
Debt to Assets
Return On Equity
Return On Assets
1.60
0.725
0.403
0.111
ands)
2019
10,800,000
2,508,000
8,292,000
2020
10,271,000
2,473,000
7,798,000
1,189,000
3,194,000
1,240,000
2,321,000
1,003,000
2,639,000
1,087,000
2,711,000
2,518,000
311,000
2,207,000
1,786,000
3,757,000
337,000
3,420,000
5,667,000
2019
18,174,000
4,706,000
1,332,000
2,825,000
15,304,000
4,066,000
2,870,000
2020
19,310,000
7,190,000
1,351,000
3,826,000
15,749,000
4,002,000
3,561,000
Speaking purely about the operating income margin, Ebay has a much h
higher net income compared to operating income. (Net Income Margin
activties.
2019
0.01
100%
23%
77%
2020
-0.05
100%
24%
76%
In conclusion, I would choose to invest in Ebay based on the numbers &
amounts, making them useful for comparisons. Altough there are some
shareholders
Amazon did not decrease its cost of revenue (COGS) throughout 2018-20
generated. On the other hand, Ebay kept the COGS low, of every $1 gen
behind the low COGS compared to amazon. Moreover, we can notice th
Consequently for Amazon, as a result of the high COGS, the gross profit
is low for Amazon. However, Ebay had a relatively high gross profit marg
Amazon allocates a small portion towards general, admin, selling, and m
a total of 34% of net sales in 2020. (Ebay decreased the operating expen
salaries…). Amazon is more effecient in controlling the SG&A exp. than e
Amazon & Ebay both invested a consistent portion towards R&D. This in
ment
11.01%
29.57%
11.48%
21.49%
9.77%
25.69%
10.58%
26.39%
23.31%
2.88%
20.44%
16.54%
36.58%
3.28%
33.30%
55.17%
Both companies have a high pretax income margin. Amazon: almost 5 c
from revenue before reducing tax. This also translates in a high interest
8.10
2.1
2.1
11.15
7.98
7.89
1.16
0.842
0.622
0.098
1.80
0.816
1.591
0.293
Since both companies have preferred shares, the diluted EPS is a more a
for-profit organization is to maximize shareholder wealth, and Ebay has
S) throughout 2018-2020, although it’s taking up almost 87% of its net sales/total revenue. Based on the cost of sales margin,
S low, of every $1 generated, only about 23 cents is attributed to cost. ebay mainly is an Auction website rather than manufac
over, we can notice that Amazon use the pandamic in the best way to increase their sales but ebay witnessed a decrease in the
COGS, the gross profit margin remained low from 2018 till 2020. For every dollar generated, 13 cents only were profit (2018 &
high gross profit margin, and 78 cents of every $1 generated were going to profit.
, admin, selling, and marketing expenses totalling upto 8% of net sales. Relatively, Ebay allocates a higher portion to general,
d the operating expenses from 2018 till 2020, probably due to COVID-19 where less costs were allocated towards operations l
the SG&A exp. than ebay.
n towards R&D. This investment towards R&D materialized in a low cost and high gross profit for Ebay, but Amazon has yet to
in, Ebay has a much higher operating income margin compared to Amazon, meaning Ebay generates higher revenue from its
. (Net Income Margin > Operating Income Margin). This signals at the quality of the earnings. Probably most of the profit is at
sed on the numbers & analyses provided. We must account for size when comparing different companies, thus providing ratio
tough there are some similar aspects between Amazon and Ebay, Ebay has higher profit, lower costs, and better performance
n. Amazon: almost 5 cents of profit is generated for every $1 of revenue before deducting tax. Ebay: almost 25 cents are going
ates in a high interest coverage ratio for both companies.
diluted EPS is a more accurate representation, measure of the earnings per share. Amazon’s diluted EPS < Ebay's diluted EPS. wealth, and Ebay has achieved that more closely that Amazon. Therefore, as a shareholder, I would invest in Ebay. al revenue. Based on the cost of sales margin, Amazon paid 87 cents for every 1 dollar nly is an Auction website rather than manufacturing, this would explain the reason heir sales but ebay witnessed a decrease in the sales growth. generated, 13 cents only were profit (2018 & 2020). Therefore, COGS is high and profit it. ely, Ebay allocates a higher portion to general, admin, selling, & marketing expenses with less costs were allocated towards operations like utilities, factory bills, employee h gross profit for Ebay, but Amazon has yet to showcase return on the investment. aning Ebay generates higher revenue from its ordinary, business operations. Ebay has a the earnings. Probably most of the profit is attributed to non-business, non-operating aring different companies, thus providing ratios, margins standardizes the dollar er profit, lower costs, and better performance all throughout wiht respect to deducting tax. Ebay: almost 25 cents are going towards profit for every $1 generated e. Amazon's diluted EPS < Ebay's diluted EPS. In broader terms, the main purpose of any hareholder, I would invest in Ebay.