Ford Motor Company is the second largest automobile and truck manufacturer in the United States. In addition to manufacturing motor vehicles, Ford also provides vehicle-related financing, insurance, and leasing services. Historically, people have purchased automobiles when the economy was strong and delayed automobile purchases when the economy was faltering. For this reason, Ford is considered a cyclical company. This means that when the economy does well, Ford usually prospers, while when the economy is down, Ford usually suffers.
The following information is available for three recent years (in millions of dollars except per-share amounts):

1. Calculate the following ratios for each year:
a. Rate earned on total assets
b. Rate earned on stockholders€™ equity
c. Earnings per share
d. Dividend yield
e. Price-earnings ratio
2. What is the ratio of average liabilities to average stockholders€™ equity for 2001?
3. Why does Ford have so much leverage?
4. Explain the direction of the dividend yield and price-earnings ratio in light of Ford€™s profitabilitytrend.

Transcribed Image Text:

2002 2001 2000 Net income (loss) Preferred dividends Cash dividend per share Average total assets Average stockholders' equity Average stock price Shares outstanding for computing S (980) (5,453) 15 1.05 279,967 13,198 21.32 3,467 15 15 0.40 285,882 6,668 13.57 277,305 23,107 24.10 earnings per share 1,819 1,820 1,483