The first goal of a corporation is to survive. Unfortunately many do not. The purpose of the solvency ratios is to determine which corporations will potentially have financial problems in the future. Both General Motors and Ford have tens of billions of dollars in cash, they are among the largest corporations in the world, have well recognized brand names, have established distribution networks, etc. However, both had their debt downgraded to junk status recently.
The rating organizations came to these based upon FUTURE corporate financial prospects as compared to current financial positions. If you get hired by a corporation that experiences financial problems, you could lose a 30 year pension, all your health care benefits and your job. It is critically important to understand a corporation’s long-term financial solvency and we will be looking at that this week. You can find the ratios through each company's 10-k.
After reading 10-K filings from GM and Ford, compare, contrast and comment on their differences.
Give original comparative comments and make a relevant substantive response to at least two other students’ comments.
Give your opinion as to the reason for the difference in results and identify which company would be better to work for and invest in.
Comment on:Five C’s of Credit
Character (Credit History, Bankruptcy Filings, etc.)
Capital (Debt Ratio, Debt to Equity Ratio, Debt to Tangible Net Worth Ratio)
Capacity (Times Interest Earned, Fixed Coverage Ratio,
Conditions (Shorter term loans, restrictions on corporate activities, etc.)
Collateral (Demanding secured loans on A/R, Inventory and other assets