From the course: Corporate Financial Statement Analysis
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Example: Ford vs. General Motors
From the course: Corporate Financial Statement Analysis
Example: Ford vs. General Motors
- In the area of financial ratios, the DuPont framework might be the most well known ration there is. Now let's look at a real company. Let's look Ford Motor Company, and then we're going to compare Ford and General Motors. In 2018, Ford's return on equity was 10.2%, again, that was in the good range, barely, but now, let's compare their 2018 performance to their 2017 performance. We see in 2017 their return on equity was 21.7%. Now, what's the obvious question? Why? Why did it drop from 21.7% down to 10.2%? Well, we can start to answer that question by using the DuPont framework. As you can see here, we have the DuPont framework for 2018 and 2017. We've got Ford's performance broken by profitability, efficiency, and leverage. Let's just take a look at these comparisons and see what we can conclude. First of all, let's look at leverage. In 2017, their leverage was 7.26. In other words, they had $7.26 in assets for every dollar's worth of equity. In 2018, that dropped a little down to…
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