E4-25.Compute and I nterpret Solvency Ratios for Business Segme nts Se lected balance sheet and income statement information from Ford Motor Company and its two principal business segments, Automotive and Financial Services, for 2018 follows.

$millions Automotive . . .. .. .. .. ..... .

Financial services .......... .

Other .................... .

Ford Motor, Consolidated .... .

Required Pretax Income

$5,422 2,627

(3,704)

$4,345 Interest Expense

$1,228 3,929

$5,157 Net Income

$4,717 2,224

(3,246)

$3,695 Total Liabilities

$ 79,572 146,703

(5,801)

$220,474 Equity

$20,991 14,975

$35,966

a. Compute return on equity (ROE), times interest earned ratio and total liabilities-to-equity for the company's two business segments and the company as a whole. (Use year-end equity for the return on equity calculation.)

b. What is your overall assessment of the company's credit risk? Explain. What differences do you observe between the two business segments? Do these differences correspond to your prior expectations given each company's business mode l?

c. Discuss the implications of the analysis of consolidated financial statements and the additional insight that can be gained from a more in-depth analysis of primary business segments.