Why does ford have so much leverage

Reference no: EM13900733

Ford Motor Company is the second largest automobile and truck manufacturer in the United States. In addition to manufacturing motor vehicles, Ford also provides vehicle-related financing, insurance, and leasing services. Historically, people purchase automobiles when the economy is strong and delay automobile purchases when the economy is faltering. For this reason, Ford is considered a cyclical company. This means that when the economy does well, Ford usu- ally prospers, and when the economy is down, Ford usually suffers.

The following information is available for three recent years (in millions except per-share amounts):

	2004	2003	2002
Net income (loss)	$3,487	$495	$(980)
Preferred dividends	$0	$0	$15
Shares outstanding for computing earnings
per share	1,830	1,832	1,819
Cash dividend per share	$0.40	$0.40	$0.40
Average total assets	$308,032	$293,678	$277,037
Average stockholders' equity	$13,848	$8,532	$6,511
Average stock price per share	$14.98	$11.95	$12.56

1. Calculate the following ratios for each year, rounding to one decimal place.

a. Rate earned on total assets

b. Rate earned on stockholders' equity

c. Earnings per share

d. Dividend yield (use average stock price)

e. Price-earnings ratio (use average stock price)

2. Calculate the leverage formula for 2004.

3. Why does Ford have so much leverage?

4. Explain the direction of the dividend yield and price-earnings ratio in light of Ford's profitability trend.

Reference no: EM13900733

Questions Cloud

What is the appropriate fiscal and monetary policy mix : Consider an open economy with flexible exchange rates. Suppose output is at the natural level, but there is a trade deficit. What is the appropriate fiscal and monetary policy mix?

What the responsibilities of an operations manager are : Go to a popular job website (such as Monster.com) and find out what the responsibilities of an operations manager are. Share your findings with the other students.

What was the purpose of this symbolic gesture : What was the purpose of this symbolic gesture? How can the Fed's decision to use expansionary monetary policy in the future affect the short-run response of the economy?

Explaining robert anthony hierarchy of management activity : Explaining robert anthony hierarchy of management activity

Why does ford have so much leverage : Calculate the leverage formula for 2004. Why does Ford have so much leverage? Explain the direction of the dividend yield and price-earnings ratio in light of Ford's profitability trend.

Who determines the sex of the baby genetically speaking : Who determines the sex of the baby, genetically speaking? Make sure you know the male secondary sex organs and their homologous female secondary sex organs and Make sure you know the difference between primary and secondary sex organs

Calculation of fin efficiency and fin effectiveness : Calculation of fin efficiency and fin effectiveness by creating an interface - Calculation of fin efficiency and effectiveness.

What is the long-run equilibrium market price and quantity? : What is the long-run equilibrium market price and quantity?

Advantages of free trade vs. protectionism : advantages of free trade vs. protectionism

User Account

All Pages