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 purchase automobiles when the economy is strong and delay automobile purchases when the economy is faltering. For this reason, Ford is considered a cyclical company. This means that when the economy does well, Ford usually prospers, and when the economy is down, Ford usually suffers.

The following information is available for three recent years (in millions 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 2005?
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.

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2005 2004 2003 Net income (loss) Preferred dividends Shares outstanding for computing earnings $2,024 50 $3,487 S0 $495 S0 per share Cash dividend per share Average total assets Average stockholders' equity Average stock price per share 1,832 0.40 S287,669 $308,032 $293,678 $8,532 $11.95 1,846 $0.40 1,830 $0.40 $14,501 11.22 $13,848 $14.98