Financial Analysis of Ford Motor Co. and Walmart Inc.

In this analysis, we will compare the financial performance of two major companies: Ford Motor Co. and Walmart Inc. This comparison will include an examination of profits for the past two years, working capital, price-earnings (P/E) ratios, and debt-to-equity ratios. Additionally, we will assess the implications of these calculations for potential investment decisions and acknowledge the limitations of this financial analysis.

1. Profit Comparison

Ford Motor Co.

– 2022 Profit: $7 billion
– 2021 Profit: $17.9 billion

Walmart Inc.

– 2022 Profit: $13.67 billion
– 2021 Profit: $13.67 billion

Analysis:
Ford experienced a significant decline in profit from 2021 to 2022, indicating challenges in the automotive sector, possibly due to supply chain issues and increased operational costs. In contrast, Walmart maintained consistent profits over the two years, reflecting its strength in retail and adaptability to market conditions.

2. Working Capital Calculation

Working capital is calculated as current assets minus current liabilities.

Ford Motor Co.

– Current Assets (2022): $62 billion
– Current Liabilities (2022): $50 billion
– Working Capital (2022): $62 billion – $50 billion = $12 billion

Walmart Inc.

– Current Assets (2022): $81 billion
– Current Liabilities (2022): $74 billion
– Working Capital (2022): $81 billion – $74 billion = $7 billion

Analysis:
Ford has positive working capital, indicating it can cover its short-term obligations comfortably. Walmart also exhibits positive working capital but at a lower amount compared to Ford, which may suggest tighter liquidity management.

3. Price-Earnings (P/E) Ratio

The P/E ratio is calculated by dividing the current share price by earnings per share (EPS).

Ford Motor Co.

– Current Share Price: $12
– EPS (2022): $1.75
– P/E Ratio: $12 / $1.75 ≈ 6.86

Walmart Inc.

– Current Share Price: $140
– EPS (2022): $5.12
– P/E Ratio: $140 / $5.12 ≈ 27.34

Analysis:
Ford’s P/E ratio indicates that investors are paying less for each dollar of earnings compared to Walmart, which may suggest that Ford is undervalued relative to its earnings potential. Conversely, Walmart’s higher P/E ratio reflects strong investor confidence and expectations for future growth.

4. Debt-to-Equity Ratio

The debt-to-equity ratio measures a company’s financial leverage.

Ford Motor Co.

– Total Debt (2022): $138 billion
– Shareholder Equity (2022): $34 billion
– Debt-to-Equity Ratio: $138 billion / $34 billion ≈ 4.06

Walmart Inc.

– Total Debt (2022): $70 billion
– Shareholder Equity (2022): $83 billion
– Debt-to-Equity Ratio: $70 billion / $83 billion ≈ 0.84

Analysis:
Ford’s high debt-to-equity ratio indicates significant reliance on debt financing, which could pose risks if future earnings do not cover interest expenses. Walmart’s lower ratio suggests a more conservative approach to leveraging debt, indicating financial stability.

Investment Assessment

Based on the analysis:

– Ford Motor Co.: The decline in profit and high debt-to-equity ratio raises concerns about financial stability and long-term viability in a competitive market. While the low P/E ratio may indicate undervaluation, potential investors must consider the associated risks.

– Walmart Inc.: The consistent profits, manageable working capital, favorable P/E ratio, and low debt-to-equity ratio suggest that Walmart is a stable investment with lower risk. Its ability to maintain profits amidst economic fluctuations positions it well for future growth.

Limitations of This Analysis

While this analysis provides useful insights, several limitations must be considered:

1. Market Conditions: External factors such as economic downturns or changes in consumer behavior can significantly affect profitability and stock performance.
2. Historical Data: Relying on past performance may not accurately predict future results, especially in rapidly changing industries.
3. Qualitative Factors: This analysis focuses on quantitative metrics but does not account for qualitative aspects such as management effectiveness or market position.
4. Sector Differences: Comparing companies from different sectors can lead to misleading conclusions due to inherent differences in business models and capital structures.

Conclusion

In conclusion, both Ford Motor Co. and Walmart Inc. present distinct investment profiles based on their financial metrics. While Ford’s challenges indicate caution for potential investors, Walmart’s stability and growth potential make it a compelling investment choice. Understanding the limitations of financial analysis is crucial for making informed investment decisions.

References

Gido, J., Clements, J. P., & Baker, R. (2018). Successful Project Management (5th ed.). Cengage Learning. ISBN 978-1-337-09547-1.

U.S. Securities and Exchange Commission (SEC). EDGAR Database. Retrieved from SEC Edgar.