Financial Statement Analysis Project (PART 2)

please see attached and complete part 2 based off the information you provided in part one as this is a linked assignment. Please provide by Feb 15th.

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Financial Statement Analysis Project
Author name
Institutional affiliation
Course number and name
Instructor name
Assignment due date
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Financial Statement Analysis Project
Financial analysis is a very significant practice within the corporate or business sectors. It
assists in determining an organizational performance level or rate over a given period. Based on
that, an informed decision can be made by interested parties like shareholders or potential
investors and managers in making significant decisions. For this research study, the financial
analysis is on two United States-based companies, FORD Motors and General Motors Co. The
two firms operate in the American automotive industry, whereby they are the major players, or
leading firms, in revenue and market share. In determining a better one for an investment
opportunity, there is a need for financial analysis to be conducted and various ratios and trends to
be determined.
Financial Statements for General Motors for the last five Years
a. Income Statement (USD Millions)
Fiscal Year
2022
2021
2020
2019
2018
Sales/Revenue
156,763 122,485 122,489 137,237 147,049
Sales Growth
27.99%
0.00%
-10.73% -6.66%
–
COGS (incl. D&A) 124,216 100,865 105,786 117,750 122,569
Gross Income
32,547
21,620
16,703
19,487
24,480
SG&A Expense
14,359
11,823
12,680
13,561
13,824
EBIT
18,188
9,797
4,023
5,926
10,656
Pretax Income
18,329
8,225
5,484
7,970
10,463
Net Income
15,306
7,737
6,429
6,732
8,053
EPS (Basic)
10.25
5.11
4.27
4.47
5.34
b. Balance Sheet (USD Millions)
Fiscal Year
2022
2021
2020
2019
2018
Cash & ST Investments 15,836
17,651
21,779
18,892
19,587
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Total Receivables
18,303
16,284
14,434
15,379
16,375
Inventories
12,284
9,550
8,976
9,997
10,592
Total Current Assets
76,530
70,280
68,381
72,963
75,229
Net PPE
30,967
31,618
30,823
29,403
28,346
Total Investments
2,746
1,759
1,845
1,986
2,495
Intangible Assets
17,264
16,655
16,827
16,936
17,207
Other Assets
6,747
6,438
5,462
5,279
5,192
Total Assets
134,254 125,750 123,538 126,947 128,468
c. Changes in Owner’s Equity (USD Millions)
Fiscal Year
2022
2021
2020
2019
2018
Common Equity (Total)
43,690 39,112 38,315 39,267 40,193
Total Shareholders’ Equity
43,690 39,112 38,315 39,267 40,193
Accumulated Minority Interest 1,469
Total Equity
1,640
1,512
1,537
1,571
45,159 40,752 39,827 40,804 41,764
d. Statement of Cash Flows (USD Millions)
Fiscal Year
2022
2021
2020
2019
2018
Net Operating Cash Flow 23,575
14,166 16,643 12,322 13,287
Net Investing Cash Flow
-9,609
-9,371
-7,442
-5,144
-7,339
Net Financing Cash Flow
-10,635 -4,788
-6,904
-7,224
-5,933
Net Change in Cash
3,331
-430
2,297
-2,380
193
Free Cash Flow
13,145
5,243
8,386
7,656
6,978
Financial Statements for Ford Motors for the last five Years
a. Income Statement (USD Millions)
Fiscal Year
Sales/Revenue
2022
2021
2020
2019
2018
158,057 136,341 127,144 155,900 160,338
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Sales Growth
15.93%
7.23%
-18.45% -2.77%
–
COGS (incl. D&A) 132,960 111,793 114,428 136,790 137,582
Gross Income
25,097
24,548
12,716
19,110
22,756
SG&A Expense
18,688
19,515
17,293
18,561
19,603
EBIT
6,409
5,033
-4,577
549
3,153
Pretax Income
-3,016
17,780
-1,116
-640
4,345
Net Income
-1,981
17,937
-1,279
47
3,677
EPS (Basic)
-0.49
4.45
-0.32
0.01
0.92
b. Balance Sheet (USD Millions)
Fiscal Year
2022
2021
2020
2019
2018
Cash & ST Investments 33,659
31,611
31,619
26,595
28,893
Total Receivables
46,956
34,043
34,244
33,398
33,399
Inventories
15,366
12,988
10,235
10,398
9,816
Total Current Assets
100,451 82,103
80,924
74,992
75,293
Net PPE
79,049
80,144
78,451
81,905
82,317
Total Investments
10,616
10,217
8,950
9,084
9,784
Intangible Assets
4,945
5,087
5,230
5,337
5,579
Other Assets
7,846
9,848
5,720
5,724
5,201
Total Assets
264,037 244,718 235,194 228,037 227,339
c. Changes in Owner’s Equity (USD Millions)
Fiscal Year
2022
2021
2020
2019
2018
Common Equity (Total)
67,792 59,744 45,030 41,792 38,860
Total Shareholders’ Equity
67,792 59,744 45,030 41,792 38,860
Accumulated Minority Interest 4,494
Total Equity
6,071
4,647
4,165
3,917
72,286 65,815 49,677 45,957 42,777
d. Statement of Cash Flows (USD Millions)
Fiscal Year
2022
2021
2020
2019
2018
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Net Operating Cash Flow 16,043
15,188
16,670
15,021
15,256
Net Investing Cash Flow
-17,882 -16,355 -21,826 -10,899 -20,763
Net Financing Cash Flow
383
1,744
5,552
-4,677
11,454
Net Change in Cash
-1,594
425
174
-553
5,648
Free Cash Flow
-5,144
-6,923
-3,863
-8,975
-10,241
Financial Statement Analysis: Ford Motors vs. General Motors (2020-2022)
Revenue and Sales Growth:
Based on sales revenue, Ford Motors experienced a constant increase in its sales and
revenue trends for the three years. That was a sales growth of -18.45% in 2020, followed by
7.23% in 2021, and an impressive or good increase of 15.93% in 2022 (WSJ.com). As a result,
that indicates resilience and recovery following the previous COVID-19 pandemic in 2019. On
the other hand, the second firm, General Motors, experienced a slight decrease of -10.73% in its
sales in 2020. However, they rebounded with 27.99% growth in 2021 (WSJ-Markets). However,
in 2022, the trend was constant as it sustained 0.00% growth, showcasing adaptability.
Profitability
Profitability trends are significant as they indicate the company’s general performance for
a given period in terms of profit generation. For this case, Ford Motors significantly increased its
gross profit margin from 7.93% in 2020 to 15.88% in 2022 (WSJ.com). In addition to that, it also
recorded a steady improvement, or increase in its net margin from negative values in 2020 to 1.25% in 2022. On the other hand, General Motors also recorded a significant increase in its
gross profit margin of around 13-14%, with a net margin ranging from 4.27% in 2020 to 10.25%
in the year 2022. As a result, that indicates a healthy bottom line for the firm.
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Operational Efficiency
As the above financial statements indicated, Ford Motors’ EBITDA margin increased
significantly from 2.31% in 2020 to 8.16% in 2022 (WSJ.com). As a result, that reflected an
increased efficiency in its operations and a positive growth in its EBITDA. The same trend is
also experienced or evidenced in the case of General Motors, which demonstrates a stable
EBITDA margin and positive growth that has been on an increasing trend for three years (WSJMarkets). As a result, that shows a sign of effective management of its operating expenses.
Liquidity and Solvency
Liquidity and solvency are some of the most important factors in analysing or determining
the performance of an organization within financial statements (Palepu et al., 2020). For this case,
Ford Motors, through its financial statements, recorded an improvement in its current ratio from
1.01 in 2020 to 1.10 in 2022; as a result, that signalled or indicated a strengthened short-term
liquidity. Furthermore, the company also experienced a decreasing debt-to-equity ratio.
According to the other firm, General Motors, it maintained a strong current ratio of around 1.10
for those three years, and that showed or was evidence of a healthy balance. In addition, the
company maintained a stable debt-to-equity ratio for those three years, suggesting a conservative
financing approach.
Cash Flow Analysis
As indicated in their cash flow statements for the three years, 2020 to 2023, Ford Motors’
net operating cash flow increased significantly from $16.6 billion in 2020 to $23.6 billion in
2022. That included a positive free cash flow and reduced capital expenditures over that period.
The same trend is also evidenced in the case of General Motors, which showed a consistent
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positive net operating cash flow. That was $14.2 billion in 2021 and $23.6 billion in 2022. That
indicates a strong cash flow generation and positive free cash flow for the three years.
Investment Recommendation
Looking at the financial analysis trends for three years, 2020 to 2022, General Motors
should be considered as a better investment option for any potential investor. That is indicated by
some of its financial figures, such as the consistent gross profit margins, improved net margins,
and even, though its strong cash flow generation, which are better than FORD Motors (Palepu et
al., 2020). Furthermore, the firm’s resilience after 2020 clearly demonstrates its capability to
adjust itself in response to differing market situations after the pandemic. However, there is need
for potential investors to consider the general economic environment, trends in the industry, and
individual company’s strategic initiatives before making any investment decisions in this case.
The risks of investing in the automotive industry can be rightly or effectively managed with
diversification and a long-term perspective.
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References
Palepu, K. G., Healy, P. M., Wright, S., Bradbury, M., & Coulton, J. (2020). Business analysis
and valuation: Using financial statements. Cengage AU.
WSJ.com. (n.d.). FORD Motors CO. Financial Statement. https://www.wsj.com/marketdata/quotes/F/financials/annual/income-statement
WSJ-Markets (n.d.). The Wall Street Journal – Breaking News, Business, Financial & Economic News,
World News and Video. https://www.wsj.com/marketdata/quotes/GM/financials/annual/income-statement