Debt Equity Ratio for 2015 Total Debt $132,854 Million Total Equity $28,657 Mill

Question

Debt Equity Ratio for 2015

Total Debt $132,854 Million             
Total Equity $28,657 Million
Debt to Equity Ratio $132,854M / $28,657M = 4.64

Debt Equity Ratio for 2014
Total Debt $119,171 Million
Total Equity $24,465 Million
Debt to Equity Ratio $119,171M / $24,465M = 4.87

This is my analsysis...   When considering the debt ratio, .40 and below is better. No matter what the company’s profitability is, the debt from interest has to be paid. If a company has too much debt and the cash flow goes away then they will have to declare bankruptcy or sell off enough assets to pay the debt. Since Ford has a debt ratio of 4.67 (2014) and 4.87 (2015) they are to high (above .40). There is a good chance that Ford is running out of funds, that is why their debt is so high. In turn this will cause more interest to be owed putting them further in debt. Borrowing money to finance increased operations could in the end generate more income, but it is a gamble, if it does not work out then they could end up going bankrupt. This is my analsysis

Question: How does this analysis compare to your review of the statement of cash flows, and Ford's ability to liquidate debt with cash from operations?

Copy and Paste link it needed. http://corporate.ford.com/content/dam/corporate/en/investors/reports-and-filings/Annual%20Reports/2015-Annual-Report.pdf

Explanation / Answer

In 2014

Cashflow from operations =14.51 B

Total Debt=119.17 B

Debt to Cahflow =8.21

In 2015

Cash flow from Operations =16.17B

Total Debt =$131 B

Debt to Cashflow =8.10

Total Debt to cashflows has gone down therfore firms debt paying capacity has increased. As it has generated more cashflow to reduce debt its paying capacit has incresed

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