• How would you describe Ford's comparative performance and financial position? Examine Ford's financial ratios. What does each ratio tell you about Ford's financial status?
• As a current investor in Ford, which elements of financial performance are most important?
• As John Smith in January 2018, would you buy more Ford stock, continue to hold current Ford stock, or sell the Ford stock? If you decide to sell, in which other automotive manufacturers would you invest?

FORD MOTOR COMPANY: BASIC FINANCIAL RATIOS' Xiaojun Zhu, Daniela Zapata, and Tabish Munir wrote this case under the supervision of Professor Zhichuan (Frank) Li solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G ON1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright @ 2019, Ivey Business School Foundation Version: 2019-02-13 On January 16, 2018, John Smith, a portfolio manager at Uria Investment, was made aware of the Ford Motor Company (Ford) safety recall schedule. Ford announced that it would recall more than one million vehicles worldwide as a result of faulty airbags that had failed to deploy upon collision, causing multiple deaths. It turned out that Ford had been aware of these faulty airbags but had not taken proactive measures to mitigate potential damage. This information was uncovered by the U.S. regulators who were investigating the multiple deaths in Ford vehicles. Because of the investigation, Ford's share price dropped from US$13.10 to US$12.18 per share on January 17, 2018.' Smith was trying to anticipate the future of Ford, as the holding of the Ford equity represented a significant portion of his investment portfolios. Investors had already started contacting him about the future of the company and the state of their investments. Smith anticipated that given the recent announcement, Ford's share value would drop drastically, so he needed to act fast to mitigate the loss of value for his investors. Smith wondered whether Ford could recover from this disaster in the long term and whether its product safety would continue to be an issue and negatively affect its shareholders. While exploring different companies as potential places to reinvest the money, Smith wanted to remain in the automotive industry to maintain the portfolios' diversification. He had thus explored other companies such as Toyota Motor Corporation (Toyota), General Motors Company (GM), and Honda Motor Company Ltd. (Honda) as possible alternatives to Ford. FORD MOTOR COMPANY Ford Motor Company, headquartered in Dearborn, Michigan, was an American multinational automobile manufacturer founded by Henry Ford in 1903. It was the second-largest automobile manufacturer based This case has been written based on published sources only. Consequently, the interpretation and perspectives presented n this case are not necessarily those of Ford Motor Company or any of its employees. Ford Motor Company, "Ford Issues Safety Compliance Recall; Expands Safety Recall for Vehicles Containing Certain Takata Airbag Inflator," press release, January 18, 2018, accessed May 7, 2018, https://media.ford.com/content/fordmedia/fna/us/en/ news/2018/01/17/ford-issues-safety-compliance-recall-expands-safety-recall-for-.html. Ford Motor Company, Stock Price Data for January 17, 2018, MarketScreener, accessed May 7, 2018, www.4- traders.com/FORD-MOTOR-COMPANY-12542/company/; All currency amounts are shown in U.S. dollars.in the United States and employed approximately 202,000 workers worldwide." The company had been publicly incorporated since 1956; however, the Ford family continued to retain 40 per cent of its voting rights." Ford sold automobiles under the Ford brand, while its luxury automobiles were sold under the Lincoln brand. Ford specialized in large-scale manufacturing by using an industrial workforce. It had incorporated moving assembly lines into its plant operations and used modern economic and social systems to facilitate mass production. This method of production became known as Fordism and was widely applied to improve productivity within the industry. In addition, Ford aimed to maintain a lean inventory by adopting just-in-time inventory management. INDUSTRY AND ECONOMIC CONDITIONS Global automotive sales had increased by 5.6 per cent in 2016. Asian-Pacific markets had seen the highest growth and volume of automotive sales in 2016. The key contributor to the increase in sales was the Chinese market, given its high double-digit growth." In North America, the United States had seen a growth rate of 0.4 per cent in 2016, with 17.55 million cars sold-a record number. 'It was good news for the shrinking industry in the United States. The slowly improving economy and the increasing demand for trucks and SUVs seemed to finally turn the business around, at least for the time being. Global automotive unit sales continued to grow and reached 86.05 million units in 2017. The growth rate of the global automotive industry was expected to be about 3 per cent annually in 2017 and 2018." Sales of electric cars were expected to take up a larger share of the overall market, with most of the growth coming from China and Europe." Overall, the 2017 year-end conditions were positive, with both global and domestic conditions showing improvements. Analysts and consumers expected these positive trends to continue into the near future. The World Bank forecasted global economic growth to increase to 3. 1 per cent, with advanced economies expected to grow at a more conservative 2.9 per cent. " Overall, consumer confidence increased; however, this consumer confidence was accompanied with the risk of overinflated asset prices and heightened equity prices. " The auto manufacturing industry had seen a trend toward electrification and digitalization solutions. In addition, autonomous driving was just becoming another key trend expected to continue into the long-term future. In both technologies, Tesla Inc. had been a market leader, but other major players were also ramping up their investments by partnering with non-traditional technology companies to introduce new car models powered by new technologies. In January 2018, Ford pledged to * Ford Motor Company, Stock Price Data for January 17, 2018, MarketScreener, accessed May 7, 2018, www.4- traders.com/FORD-MOTOR-COMPANY-12542/company/. Joann Muller, "Ford Family's Stake Is Smaller, but They're Richer and Still Firmly in Control," Forbes, December 2, 2010, accessed May 7, 2018, www.forbes.com/sites/joannmuller/2010/12/02/ford-familys-stake-is-smaller-but-theyre-richer-and- remain-firmly-in-control/#135f71f62174. "Global Car sales up by 5.6% in 2016 due to soaring demand in China, India and Europe," JATO, accessed November 19, 2018, www.jato.com/global-car-sales-5-6-2016-due-soaring-demand-china-india-europe/. Vlasic Bill, "Record 2016 for U.S. Auto Industry; Long Road Back May Be at End," The New York Times, accessed November 19, 2018, www.nytimes.com/2017/01/04/business/2016-record-united-states-auto-sales.html. "Global car sales up by 2.4% in 2017 due to soaring demand in Europe, Asia-Pacific and Latin America," JATO, accessed November 19, 2018, www.jato.com/global-car-sales-2-4-2017-due-soaring-demand-europe-asia-pacific-latin-america/. "Global car market to break through 100 million in sales by 2020," Consultancy.uk, accessed November 19, 2018, www.consultancy.ukews/13900/global-car-market-to-break-through-100-million-in-sales-by-2020. "Electric vehicle outlook 2018," Bloomberg NEF, accessed November 19, 2018, https://bnef.turtleo/story/evo2018?teaser=true. 11 "Global Economic Prospects," World Bank Group, accessed November 2018, http://pubdocs.worldbank.org/en/331521526414101557/Global-Economic-Prospects-June-2018-Highlights-Chapter-1.pdf 19, " Sven Smit, "Economic Conditions Snapshot, December 2017: Mckinsey Global Survey Results," Mckinsey & Company December 2017, accessed April 22, 2018, www.mckinsey.com/business-functions/strategy-and-corporate-finance/our- insights/economic-conditions-snapshot-december-2017-mckinsey-global-survey-resultsspend $11 billion on electric cars by 2022, which doubled its original investment estimate." Regional start-ups were also entering the electric vehicle market, spurred by the $2 billion that had been invested in these start-up companies. " The share of diesel engines in Europe was declining and expected to continue shrinking due to tightening regulations." Besides Europe, countries across the world, including major markets such as China and India, were planning to introduce bans and regulations on diesel cars. " As a result, automotive companies saw a rise in environmental regulations, increasing their overall costs, while the increasing cost of fuel had reduced the demand for fuel-engine cars. THE ALTERNATIVES Smith and his team identified Ford's main competitors to be GM, Toyota, and Honda. These companies competed directly with Ford, and thus represented viable alternatives to the Ford stock. GM was an American multinational corporation headquartered in Detroit's Renaissance Center. The company designed, manufactured, and distributed vehicles and vehicle parts, and was the second-largest automobile manufacturer in the world and the largest in the United States. GM had a strong position in the U.S. automotive market. The company's best-known auto brands were Cadillac, Chevrolet, GMC, Holden, and Wuling. Toyota, the biggest automotive manufacturer in the world, was a Japanese multinational automotive manufacturer headquartered in Toyota, Japan. Toyota was by far the world's leader in the sales of hybrid electric vehicles, having successfully applied its mass-production strategy to its line of hybrid electric vehicles. According to Toyota, 80 per cent of Toyota cars sold in 1998 were still on the road. Honda was a Japanese public multinational conglomerate corporation primarily known as a manufacturer of automobiles, aircraft, motorcycles, and power equipment. Since 1959, Honda had been the world's largest motorcycle manufacturer. Furthermore, Honda was the world's largest manufacturer of internal combustion engines measured by volume. In 2013, Honda became the first Japanese automaker to be a net exporter to the United States." THE ANALYSIS The team at Uria Investment had all of the information available to make their decision. They had the comparative financial information-balance sheets (see Exhibit 1), income statements (see Exhibit 2), and statements of cash flow (see Exhibit 3)-for the four companies, as well as the financial ratios (see Exhibits 4 and 5). Smith had also reviewed Ford's stock price and was taking into consideration analyst forecasts for the stock price, as compared with its competitors (see Exhibits 6 and 7). Ford's stock had Reuters, "Ford Plans to Invest $11 Billion to Electrify Its 'Most Iconic' Vehicles," Fortune, accessed November 19, 2018, http://fortune.com/2018/01/14/ford-11-billion-electric-car-investment/. 4 Jonathan Shieber, "Upstarts emerge to chase Tesla's lead in electric vehicles," TechCrunch, accessed November 19, 2018, https://techcrunch.com/2018/05/23/upstarts-emerge-to-chase-teslas-lead-in-electric-vehicles/. 15 "European Vehicle Market Statistics," The International Council on Clean Transportation, accessed November 19, 2018, www.theicct.org/sites/default/files/publications/ICCT_Pocketbook_2017_Web.pdf. 16 Alanna Petroff, "These Count e Countries Want to Ban Gas and Diesel Cars," CNN Business, accessed November 19, 2018, https://money.cnn.com/2017/09/11/autos/countries-banning-diesel-gas-cars/index.html. 17"About GM," General Motors, accessed April 20, 2018, www.gm.com/company/about-gm.html. 18 Toyota Motor Sales U.S.A., "World's Most Popular Car Model Hits 1.22M Global Sales in 2013," news release, April 15, 2014, accessed November 20, 2018, https://pressroom.toyota.com/releases/world+most+ +popular+model+global+sales+2013.htm. 19 "About Honda," Honda, accessed April 25, 2018, http://world.honda.com/about/.fluctuated slightly during 2017, but the closing stock price was within the same range as at the beginning of the year. When Smith initially invested in Ford, he believed it would translate into long-term growth and profits for his clients. However, as he analyzed the situation, Smith was unsure whether Ford could recover from the numerous safety scandals while simultaneously catching up to competitors in terms of innovation. Smith and his team wondered what this information would uncover and how it would lead to the final decision.fluctuated slightly during 2017, but the closing stock price was within the same range as at the beginning of the year. When Smith initially invested in Ford, he believed it would translate into long-term growth and profits for his clients. However, as he analyzed the situation, Smith was unsure whether Ford could recover from the numerous safety scandals while simultaneously catching up to competitors in terms of innovation. Smith and his team wondered what this information would uncover and how it would lead to the final decision.EXHIBIT 1: BALANCE SHEETS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA, 2016-2017 In millions of US$ Ford Toyota General Motors Honda (except per share 2017 2016 2017 2016 2017 2016 2017 2016 Assets Cash & marketable securities 38,927 38,827 26,879 26, 153 23,825 24,415 18,919 15, 126 Accounts receivable 62,809 11, 102 78,520 83,027 8,164 8,700 23,744 24,468 Inventories 10,277 8,898 21,436 18,342 10,663 11,040 12,255 11,673 Prepaid expenses & other current 3,889 49,634 33,209 34,492 26,092 32,048 3,974 4,211 assets Total current assets 115,902 108,461 160,044 162,014 68,744 76,203 58,892 55,478 Net plant, property & equipment 35,327 32,072 91,511 86,662 36,253 32,603 65,627 60,601 Investments 31,320 32,133 175,563 166,799 9,073 8,996 27,586 27,396 Deferred income taxes 10,973 9,705 8.601 23,544 33,172 1,091 1,607 Other assets 64,286 65.580 12,912 6.497 74.868 70,716 17,120 16.953 Total long-term assets 141,906 129,490 279,986 268,559 143,738 145,487 111,424 106,557 Total assets 257,808 237,951 440,030 430,573 212,482 221,690 170,316 162,035 Liabilities Short-term borrowings & notes 48,265 46,984 91,368 85,069 26,965 23,797 10,440 9,846 payable Accounts payable 23,282 21,296 53, 197 48,570 23,929 23,333 9, 103 8,547 Other current liabilities 23,053 22,001 10,860 9,823 25,996 38,051 29,228 30,231 Total current liabilities 94,600 90,281 155,425 143,462 76,890 85, 181 48,771 48,624 Long-term debt 102,666 93,301 88,949 86,944 67,254 51,326 36,758 33,829 Other liabilities 25,611 25,131 33.939 47,041 33,337 41,347 19,247 19,480 Total liabilities 222,877 208,713 278,313 277,447 177,481 177,854 104,776 101,933 Shareholders' equity Common equity 41 41 3,567 3,529 14 15 773 765 Retained earnings 21,218 15,634 158, 127 149,282 17,627 26, 168 60.308 55,060 Treasure stock, reserves & other 13,672 13,563 23 315 17,360 17,653 4,459 4,277 equity Total equity 34,931 29,238 161,717 153, 126 35,001 43,836 65,540 60, 102 Total liabilities and equity 257,808 237,951 440,030 430,573 212,482 221,690 170,316 162,035 Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.EXHIBIT 1: BALANCE SHEETS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA, 2016-2017 In millions of US$ Ford Toyota General Motors Honda (except per share 2017 2016 2017 2016 2017 2016 2017 2016 Assets Cash & marketable securities 38,927 38,827 26,879 26, 153 23,825 24,415 18,919 15, 126 Accounts receivable 62,809 11, 102 78,520 83,027 8,164 8,700 23,744 24,468 Inventories 10,277 8,898 21,436 18,342 10,663 11,040 12,255 11,673 Prepaid expenses & other current 3,889 49,634 33,209 34,492 26,092 32,048 3,974 4,211 assets Total current assets 115,902 108,461 160,044 162,014 68,744 76,203 58,892 55,478 Net plant, property & equipment 35,327 32,072 91,511 86,662 36,253 32,603 65,627 60,601 Investments 31,320 32,133 175,563 166,799 9,073 8,996 27,586 27,396 Deferred income taxes 10,973 9,705 8.601 23,544 33,172 1,091 1,607 Other assets 64,286 65.580 12,912 6.497 74.868 70,716 17,120 16.953 Total long-term assets 141,906 129,490 279,986 268,559 143,738 145,487 111,424 106,557 Total assets 257,808 237,951 440,030 430,573 212,482 221,690 170,316 162,035 Liabilities Short-term borrowings & notes 48,265 46,984 91,368 85,069 26,965 23,797 10,440 9,846 payable Accounts payable 23,282 21,296 53, 197 48,570 23,929 23,333 9, 103 8,547 Other current liabilities 23,053 22,001 10,860 9,823 25,996 38,051 29,228 30,231 Total current liabilities 94,600 90,281 155,425 143,462 76,890 85, 181 48,771 48,624 Long-term debt 102,666 93,301 88,949 86,944 67,254 51,326 36,758 33,829 Other liabilities 25,611 25,131 33.939 47,041 33,337 41,347 19,247 19,480 Total liabilities 222,877 208,713 278,313 277,447 177,481 177,854 104,776 101,933 Shareholders' equity Common equity 41 41 3,567 3,529 14 15 773 765 Retained earnings 21,218 15,634 158, 127 149,282 17,627 26, 168 60.308 55,060 Treasure stock, reserves & other 13,672 13,563 23 315 17,360 17,653 4,459 4,277 equity Total equity 34,931 29,238 161,717 153, 126 35,001 43,836 65,540 60, 102 Total liabilities and equity 257,808 237,951 440,030 430,573 212,482 221,690 170,316 162,035 Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.EXHIBIT 2: INCOME STATEMENTS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA, 2016- 2017 In millions of US$ Ford Toyota (except per share) 2017 General Motors Honda 2016 2017 2016 2016 2017 Revenue 156,776 151,800 255,286 236,786 2017 2016 -Cost of goods sold 140,436 135,087 210,302 145,588 149, 184 129,498 121,724 188,453 14,869 120,499 100,513 94,474 Gross profit 16,340 16,713 44,984 48,333 30,719 28,685 28,985 -Operating 11,527 10,927 26,535 24,540 20,703 18,723 21,208 27,250 23,054 expenses ++Selling, general & 11,527 10,972 16,937 15,740 9,575 10,354 14,812 17,580 administrative ++Other operating 9,597 8,800 expenses 11, 128 8,369 6,396 5,474 Operating income 4,813 5,786 18,449 23,793 10,016 9,962 7,777 4, 196 -Non-operating -3,335 -1,055 -1,845 (income ) loss -1,079 -1,847 -2,046 -1,538 -1, 101 ++Interest expense, 1,023 608 271 295 309 381 -184 -86 net +++Interest expense 1, 133 894 271 295 575 563 151 -Interest income 286 115 110 0 0 266 182 299 237 ++Other non- 4,358 -1,663 -2, 116 -1,374 operating (income) -2,156 -2,427 -1,354 -1,015 loss Pre-tax income 8,148 6,841 20,294 24,872 11,863 12,008 Income tax 2, 189 3,358 9,315 5,297 520 5,592 15,727 2,581 2,425 Net income 7,628 4,652 16,936 9,280 -3,864 9,427 3,612 5,703 Reference items 2,872 EBITDA 13,266 14,458 33,350 37,346 19,781 EBIT 4,813 14,014 9,704 5,741 22,277 18,449 23,793 10,016 9,962 4, 197 Common shares 3,901 3,902 7,777 3,263 3,338 1,420 1,524 1,81 1,811 outstanding Earnings per share 1.91 1.16 5.60 6.18 -2.65 6.12 3.16 1.59 Note: EBITDA = earnings before interest, taxes, depreciation, and amortization; EBIT = earnings before interest and taxes. Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.EXHIBIT 3: CASH FLOW STATEMENTS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA, 2016-2017 In millions of US$ Ford Toyota General Motors (except per share) Honda 2017 2016 2017 2016 2017 2016 2017 2016 Cash flows from operating activities Net income 7,602 4,596 16,938 19,280 -3,864 9,427 5,703 2,872 Non-cash Items -792 3,612 293 1,451 11,956 -2.833 2,252 Depreciation & -4,127 8.453 8,717 14,902 13,554 12,261 9,819 6,237 5.508 amortization Change in net working 2,833 2,925 -551 2,903 -3,015 580 373 963 capital Cash used for operating 18,096 19,850 31,582 37,188 17,338 16,993 8,186 11,595 Cash from investing activities Investments in property, -7,049 -6,992 -10,940 -10,341 -8,453 -8,384 plant, and equipment -5,724 -7,055 Net change in long-term -14,713 -17,173 -22,233 -7,337 Investment Other investing activities 2,370 -1,187 5,290 -8,854 -15,619 -26,635 -413 -239 Cash used for Investing -19,392 -25,352 -27,883 -26,532 -24,072 -35,019 Cash flows from financing activities -6,137 -7,294 Dividends paid -2,584 -3,376 -5,869 -5,875 -2,233 -2,368 -1,500 Share repurchase -131 -145 -6,512 -2,528 -3,507 -1,322 -2,500 -0.1 -0.1 Increase (decrease) in 6,260 11,028 9,536 5,492 18,455 21,027 3,312 1,280 debt Other financing activities -151 -107 -626 -620 -305 -163 -744 -752 Cash from financing 3,394 7,400 -3,471 -3,531 12,410 15,996 1,068 -794 Effects of exchange rate 489 -265 -125 -1,666 348 -213 -12 changes -1,124 Net change in cash 2,587 1,633 103 5,459 6,024 -2,243 3,105 2,383 Reference items Cash & cash equivalents 38,927 38,827 52,999 48,736 23,825 24,415 18,919 15, 126 Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.EXHIBIT 4: COMPARATIVE FINANCIAL RATIOS OF FORD, TOYOTA, GENERAL MOTORS, AND HONDA, 2016-2017 Ford Toyota General Motors Honda 2017 2016 2017 2016 2017 2016 2017 2016 Liquidity ratios Cash ratio 0.41 0.43 0.34 0.34 0.31 0.29 0.39 0.31 Acid test ratio 1.08 0.55 0.68 0.76 0.42 0.39 0.87 0.81 (Quick ratio Current ratio 1.23 1.20 1.03 1.13 0.89 0.89 1.21 1.14 Efficiency Days receivables 146 27 112 127 92 94 21 21 67 73 Days payables 61 57 76 24 37 36 71 33 33 33 Days of inventory 27 34 45 45 Financial leverag Debt to total assets 0.86 0.88 0.63 0.64 0.84 0.80 0.62 0.63 Leverage ratio 6.38 7.14 1.73 1.81 5.07 4.06 1.60 1.70 Long-term leverage ratio 2.94 3.19 0.55 0.57 1.92 1.17 0.56 0.56 Total debt to EBITDA 6.80 4.44 8.41 7.43 7.97 7.48 Interest coverage ratio 4.25 68.08 80.65 17.42 8.99 10.50 6.42 17.69 67.63 27.70 Profitability Return on common equity 21.8% 15.9% 1.9% 10.5% 12.6% 3.8% -11.0% 21.5% 8.7% 4.8% Return on assets 3.1% 4.8% 4.5% 3.3% 5.3% -1.8% -1.5% 3.3% 1.9% Return on invested capital 1.4% 6.8% 7.8% 3.4% 1.8% Gross margin 10.4% 11.0% 17.6% 20.4% 21.1% 19.2% 22.4% 22.4% EBITDA margin 8.5% 9.5% 13.1% 15.8% 15.3% 13.3% 10.8% 8.0% Operating margin 3.1% 3.8% 7.2% 10.1% 6.9% 6.7% 6.0% 3.5% Pre-tax margin 5.2% 4.5% 7.9% 10.5% 8.1% 8.0% 7.2% 4.4% Net income margin 4.9% 3.1% 6.6% 8.1% -2.7% 6.3% 4.4% 2.4% Growth and valuation One-year sales growth 3.3% 0.7% 7.8% 5.1% -2.4% -12.9% 6.4% 11.7% One-year operating income -16.8% -17.8% -22.5% -5.4% 0.5% 79.9% 85.3% -31.5% growth One-year net income growth 64.0% -37.7% -12.1% -3.0% -141.0% -2.7% 98.6% -38.3% Enterprise multiples 2.95 2.54 8.99 7.19 2.36 2.10 7.32 9.17 Enterprise value-to-sales 0.25 0.24 1.17 1.13 0.36 0.28 0.79 0.73 Price earnings ratio (P/E) 7.85 6.92 5.60 6.18 5.80 5.51 9.82 16.11 Activity ratio Asset turnover 0.61 0.64 0.58 0.55 0.69 0.67 0.76 0.75 Accounts receivable turnover 2.50 13.67 3.25 2.85 17.83 17.15 5.45 4.97 Inventory turnover 13.67 15.18 9.81 10.27 10.77 10.91 8.20 8.09 unts payable turnover 6.36 6.57 9.31 9.39 4.84 4.97 11.06 10.52 Cash conversion cycle (days) 108 104 104 100 26 27 82 82 Note: EBITDA = earnings before interest, taxes, depreciation, and amortization. Source: Created by the case authors using data from Bloomberg, Bloomberg Professional, accessed March 9, 2018.EXHIBIT 5: FINANCIAL RATIO FORMULAS Liquidity ratios Cash ratio (Cash equivalents + cash) + Current liabilities Acid test ratio (Quick ratio) (Cash + marketable securities + Accounts receivables) + Current liabilities Current ratio Current assets + Current liabilities Efficiency Days receivables Accounts receivable : Sales x 365 Days payables Accounts payable + Cost of sales x 365 Days of inventory Inventory + Cost of Sales x 365 Financial leverage Debt to total assets Total debt + Total assets Leverage ratio Total liabilities + Shareholders' equity Long-term leverage ratio Long-term debt + Shareholders' equity Total debt to EBITDA Total debt + EBITDA Interest cover ratio EBIT + interest Profitability Return on common equity (ROE) Net income + Shareholders' equity Return on assets Net income + Interest + (1 - tax rate)) + Total assets Return on invested capital (Net income - Dividends) + Total capital Gross margin (Sales - Cost of sales) + Sales EBITDA margin EBITDA + Total revenue Operating margin Operating profit before taxes + Sales Pre-tax margin (Net income + Income tax) + Sales Net income margin Net income + Sales Growth and valuation One-year sales growth (Sales, - Salest-1) + Salest One-year operating income Operating income, - Operating incomet-1) + Operating growth incomet One-year net income growth (Income, - Income.1) : Income Enterprise multiple EV + EBITDA Enterprise value-to-sales EV + Sales P/E ratio Market price of common share + Earnings per share Activity ratio Asset turnover Sales + Total assets Accounts receivable turnover Sales * Accounts receivable Inventory turnover Cost of goods sold (COGS) + Inventory Accounts payable turnover Purchases + Accounts payable Cash conversion cycle (days) Days inventory + Days receivable outstanding - Days payable outstanding Note: EBITDA = earnings before interest, taxes, depreciation, and amortization; EBIT = earnings before interest and taxes; 't" represents year t; "t - 1" represents the year before year t; EV = enterprise value = (market capitalization) + (value of debt) + (minority interest) + (preferred shares) - (cash and cash equivalents). Source: Created by the case authors.EXHIBIT 6: STOCK PERFORMANCE OF FORD, GENERAL MOTORS, TOYOTA, AND HONDA, 2016- 2018 $50.00 $45.00 $160.00 $40.00 u $140.00 $35.00 GM $120.00 $30.00 $100.00 $25.00 $80.00 $20.00 $60.00 $15.00 $40.00 $10.00 $20.00 USD $5.00 December 2015 March 2016 June 2016 $0.00 September 2016 December 2016 March 2017 June 2017 September 2017 December 2017 FORD ."HONDA TOYOTA Source: Created by the case authors using data from Yahoo Finance, finance.yahoo.com, accessed October 30, 2018, https://ca.finance.yahoo.com/quote/F/. EXHIBIT 7: FORD STOCK PRICES, 2016-2018 $16.00 $15.00 $14.00 US$13.83 $13.00 JS$13.17 US$13.22 $12.00 $11.00 US$11.44 US$12.00 $10.00 US$10.55 $9.00 $8.00 December 2015 February 2016 April 2016 June 2016 August 2016 October 2016 December 2016 February 2017 April 2017 June 2017 August 2017 October 2017 December 2017 Source: Created by the case authors using data from Yahoo Finance, finance.yahoo.com, accessed October 30, 2018, https://ca.finance.yahoo.com/quote/F/