Why have excess liquidity that earns nothing for the company

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Liquidity and Leverage.

1. Liquidity Risk

Discuss and Evaluate:

Current Ratio, Sales/WC ... (don't need to spend a lot of time on liquidity)Interpret and evaluate; compare with industry average (or other competitors)

By the way, the higher the current ratio the better is not really true. Why have excess liquidity that earns nothing for the company (e.g., Apple? MSFT?) that can be better used elsewhere (paying dividends according to some) In other words you want to have enough cash on hand, but not tie up too much in cash. By the way, if you sell on shorter terms than you pay your suppliers do you really need to have a current ratio over 1?

2. Leverage

Discuss and Evaluate:

LT Debt/TNW, trends in debt, Liabilities/Equity, Interest Coverage Ratio

Interpret and evaluate; compare with industry average

Is Ford borrowing more? More leveraged? Why? Is it paying it too safe, perhaps, borrowing too little given the cheap interest rates and the fact that it can "juice" ROE. Is it borrowing simply to buy back stock or pay out dividends rather than invest in the company (in other words to push up earnings per share and the stock price)? Can you tell from the financials?

Reference no: EM131037598

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