Current ratio records the capacity of a company to meet its short-term commitments. A current ratio that is high is an indicator that a company is in a better situation to meet its short-term obligations. The current ratios deemed satisfactory vary from one industry to another with the acceptable range usually falling between 1 and 3 ( gurufocus, 2017). A current ratio that is below 1 is an indicator that a company might have difficulties in paying its obligations. Dividing a company’s total current assets by the total current liabilities gives the current ratio value (gurufocus, 2017). A current ratio that is lower than 1 implies that a company’s financial health is not at its best status. However, it does not mean that the company is on the brink of going bankrupt (gurufocus, 2017). A current ratio that is too high, on the other hand, is an indicator that “a company is not making efficient use of its current assets or short term financing” options (ycharts, 2017).
For Ford, the current ratio as of December 2016 was 1.20. This is an indicator that the company’s short-term financial strength was fairly strong. Analyzed over the last 13 years, the company’s median current ratio is 1.71(gurufocus, 2017). On the other hand, the company’s lowest current ratio over the same period was 0.83 while the highest was 4.32. The industry’s median current stands at 1.56, meaning that Ford’s ratio is slightly lower than the industry’s average. Compared to 1111 global automobile manufacturers, the company’s ratio is lower than 70% of these companies (gurufocus, 2017).
Delegate your assignment to our experts and they will do the rest.
Fig1: Ford Motor Current Ratio (Quarterly) Chart
As of December 2016, Chrysler’s current ratio was 0.80. Being below the standard acceptable value of 1, this current ratio value is an indicator that the company might find it difficult to meet its current obligations (gurufocus, 2017). When historical data for the past 13 years is taken into consideration, the company’s median current ratio value is 1.40. The highest current ratio recorded by the company was 2.2 while the lowest was 0.8. Compared to the industry median of 1.56, Chrysler’s current ratio is significantly lower, a fact that places it below 92% of the 1111 players in the global automobile industry. Despite the lower current ratio value being an indicator of the company’s inability to meet its short-term obligations, it does not imply that there is a critical problem (gurufocus, 2017). With good long-term prospects, Chrysler might still be in a position to borrow from lenders in a bid to cover their short-term obligations. Compared to Ford, Chrysler’s Current ratio is lower. This means that the company’s ability to meet its short-term obligations is slightly lower than that of Ford (gurufocus, 2017).
Fig 2: Chrysler’s Current Ratio (Quarterly) Chart
For Toyota Motor Corp, the company’s current ratio as of the end of the last quarter in December 31 st was 1.01. Being slightly above 1, this current ratio value is an indicator that the company’s short-term financial strength is fairly good (gurufocus, 2017). Taking the last 13 years into consideration, Toyota’s median current was 1.09 while the lowest recorded value of the current ratio was 0.98. On the other hand, the highest recorded current ratio for the company in the last 13 years was 1.51 (gurufocus, 2017). Taking into consideration 1111 other global motor companies, Toyota’s current ratio is below 81% of the said players. Its current ratio of 1.01 is slightly lower than the industry’s average of 1.56. Compared to Chrysler’ and Ford’s current ratio, Toyota’s current ratio was slightly above Chrysler’s but slightly lower than Ford’s (gurufocus, 2017). This implies that among the three company’s Ford is the best position to pay its short-term obligations followed by Toyota and then Chrysler. However, all the three players’ current ratio as of December 31 st were lower than the industry’s average.
Fig 3: Toyota’s Current Ratio (Quarterly) Chart
References
gurufocus,. (2017). Fiat Chrysler Automobiles NV (NYSE:FCAU) Current Ratio . Gurufocus.com . Retrieved from http://www.gurufocus.com/term/current_ratio/NYSE:FCAU/Current-Ratio/Fiat-Chrysler-Automobiles-NV
gurufocus,. (2017). Ford Motor Co (F) Current Ratio . Gurufocus.com . Retrieved from http://www.gurufocus.com/term/current_ratio/F/Current-Ratio/Ford-Motor-Co
gurufocus,. (2017). Toyota Motor Corp (NYSE:TM) Current Ratio . Gurufocus.com . Retrieved from http://www.gurufocus.com/term/current_ratio/NYSE:TM/Current-Ratio/Toyota-Motor-Corp
ycharts (2017). Ford Motor Current Ratio (Quarterly) (F) . Ycharts.com . Retrieved from https://ycharts.com/companies/F/current_ratio
