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Attempting to understand a company's financials is not an easy process. Unfortunately, many investors tend to grab onto one ratio
and use that as a sign of whether to invest. For example, I've heard people say that when the P/E ratio is above 50, it makes the stock
overvalued, and as a result they won't consider putting money into the company.
I, on the other hand, believe that it's impossible to make a sound investment decision just based on looking at one financial ratio.
Therefore, in this series, I'll examine five metrics: profit margin, total debt to assets, current ratio, inventory turnover, and revenue per
employee. If you're familiar with all of them, you can skip this next section and jump right into the super ranking system for the focus
of today's article: automakers.
Total Debt to Assets: This is exactly what the title implies. To get this number, divide the debt of a company by all the assets. It shows
to what degree a corporation's assets are paid for through debt. Generally speaking, when it's low, creditors are more willing to give
out additional loans at a lower cost.
Current Ratio: This liquidity ratio takes current assets and divides them by current liabilities. It is a measure of the extent to which
current assets are able to cover current liabilities. By and large, the higher it is, the better off the company is in the short run.
https://www.fool.com/investing/general/2011/10/25/how-do-the-7-largest-auto-companies-stack-up-again.aspx 1/24
10/15/2017 How Do the 7 Largest Auto Companies Stack Up Against Each Other?
Inventory Turnover: In the automobile industry, inventory accounts for a significant part of the business. To get at this figure, divide
revenue by the total amount of inventory. This metric determines how many times a year a product goes through the cycle of being
sold and restocked. Generally for car companies, the larger the number, the better it is for the corporation.
Revenue Per Employee: This is self-explanatory. It tells you how efficiently the employees are working by stating how much money
the average worker makes for the company. Management wants this figure to be as high as possible to maximize efficiency.
Total
Revenue
Market Profit Debt Current Inventory
Company Per
Cap Margin to Ratio Turnover
Employee
Assets
PM D/A CR IT RPE
Company Total
Points Points Points Points Points
Toyota 0 1 0 5 3 9
Volkswagen 6 5 2 1 0 14
Daimler 3 2 1 0 1 7
Honda 2 4 5 2 2 15
Ford 4 0 4 6 6 20
Nissan 1 3 6 3 5 18
General Motors 5 6 3 4 4 22
Fool contributor Igor Meyerson and The Motley Fool own shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford
and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that
considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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