mpjbe_hull&avey_feb_1 - 1 _ THE BIG THREE OF THE...

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_____________________________________________________________________________________ THE “BIG THREE” OF THE AUTO INDUSTRY: ANALYZING AND PREDICTING PERFORMANCE Robert M. Hull, Professor of Finance Washburn University School of Business 1010 SW College Avenue Topeka, Kansas 66621 Phone: 785-670-1600 Email: Nicholas Avey, MBA Student Washburn University School of Business 1010 SW College Avenue Topeka, Kansas 66621 Phone: 785-312-9094 Email: ABSTRACT This paper analyzes the financial performance of three leading automobile manufacturers (referred to as the “Big Three”). The analysis incorporates the use of (1) traditional and newer financial ratio methods and (2) prominent finance websites. The end result of the analysis is to assess the future profitability of the “Big Three.” From a pedagogical standpoint, the paper offers instructors a skill that will enable them to impart knowledge of an analytical technique for evaluating firm performance. This technique can be used by business students and practitioners alike. As a byproduct, this paper includes a class exercise that goes beyond just the “X’s and O’s” of financial ratio analysis by requiring students to integrate their financial ratio findings with online sources offering economic and industrial analysis and analysts’ predictions. I. INTRODUCTION This paper analyzes firm performance by using information found in (1) traditional and newer methods of financial ratio analysis and (2) major finance websites. Firms analyzed are the “Big Three” of the auto industry. These three firms are Ford Motor Company (Ford), General Motors Corporation (GM), and DaimlerChrysler Corporation (DC). A major focus of the analysis of firm performance involves financial ratio analysis. This focus is justified because investors make decisions based on what financial ratios indicate. All parties concerned with investment decisions need to know how financial statement data can be used to evaluate firm performance. A key tool used in this paper’s financial ratio analysis is the DuPont Model. By using this model, analysts can focus on how three areas of management (profit margin, asset turnover and leverage) impact a firm’s return on equity separately and interactively. A healthy rate of return is what an investor desires. Even from a book standpoint, if returns are not healthy for long periods of time, then an investor’s asset is underperforming. Mountain Plains Journal of Business and Economics, Pedagogy, Volume 8, 2007 1
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_____________________________________________________________________________________ Within the paper is a pedagogical application designed to provide business students with a professional tool useful in evaluating firm performance. The significance of the application relates to this statement from the National Board for Professional Teaching Standards (1998): “Content pedagogy refers to the pedagogical (teaching) skills teachers use to impart the specialized knowledge/content of their subject area(s). Effective teachers display a wide range of skills and abilities that lead to creating a learning environment where
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This note was uploaded on 03/02/2011 for the course BUS 500 taught by Professor Dr.spitz during the Spring '11 term at Deep Springs.

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mpjbe_hull&avey_feb_1 - 1 _ THE BIG THREE OF THE...

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