Table of contents

Executive Summary. 2

Introduction. 3

Body of proposal 6

Activity ratios. 6

Debt ratio. 7

Liquidity ratios. 7

Profitability ratios. 8

Investment decision. 9

Summary and conclusion. 9

References. 10

Executive Summary of Financial ratios Nissan company

Financial ratios are those evaluations in business that helps to find out the real internal progress of the companies. The financial management, the debts, the competitor's workings, the investor's investment all these things are analyzed by the internal management of the companies so that they can keep their workings and results balanced and this allows them to get an idea about what should they do next. Financial ratios are basic tools for the organization to explain its financial position most accurately and simply and generate better results for the investors and shareholders. So company Nissan and GM both are performing very well in their industry and they have tough competition in the market. By using financial ratios, we can observe how better these two companies are performing with each other and what is the actual condition of their financial affairs. when the financial condition explains in a better way than the accurate decision about the progress and future can be taken related to the company and also generate better investment opportunities according to its performance.

Introduction of Financial ratios Nissan company

Financial ratios are business potential problems and their performance evaluation way. Different factors are involved in your business such as debt load, efficiency, solvency, earning power and these factors are analyzed and evaluated through financial ratios analysis in business. There are different kinds of Ratios are there that are used in the business some common ones are Liquidity Ratio which provides a broad overview of your financial health and also measures your amount of easily converted cash and assets called the amount of liquidity which you utilize to cover the debts of your organization. Leverage Ratios are the ones that are used to indicate the long term debts of your organization and their solvency and usage of these long term debts in your organization.

The debt to asset ratio is that kind of financial ratio that shows the creditor's financed company assets percentage that helps you to get an idea about your credits and how you should pay it back to your financer. Debt to equity ratio analyses the amount of investment by owners as compared to the amount that your business is owning by its working. Quick Ratios are those ratios that work by utilizing the quick assets of the organization. Now the question is what are the quick assets of any organization. Liquid assets are the assets that are converted into cash conveniently for your business working. These ratios using liquid assets can meet the demands of creditors on an immediate basis (Bdc.ca, 2019).

 Current Ratios are that kind of ratios that can attract favourable credit Terms and make advantages situations as it carries the flow of sufficient cash that is helpful for the organizations to meet their needs. Profitability Ratios are those ratios in an organization that helps to have a comparison of your business to your competitors in your industry.  It also can analyze and evaluate the financial viability of your organization. Net profit Margin of your company measures or calculates the sales revenue obtained from operating expenses, interests, and tax payment after. This margin is very much important to consider as if it is not considered properly then this will not be able to manage the working of your organization properly and efficiently.

A company has generated profit and how to generate this profit the comparison is very important and this measured by return on investment Ratio analysis.

Nissan group of companies is a renowned name in Motors companies and they have a very vast and efficient working network with their organization. Their company is worth trustworthy towards the making of motors as they have a high customer satisfaction vote. Nissan's group of companies is a big brand name and they have a very big working atmosphere at the organization. Their overall working is great and they use to be in heavy profit all the year (Stock-analysis-on.net, 2019).

Their performance always remains up to the mark and they use to do the best motor manufacturing for the customers to attract them and satisfy them. As the working network is large the use to have a strong and consistent financial analysis of their organization with its competitors in the market so that they can keep up the high level of the working for the customers and this makes them motivated to work harder in the manufacturing of the best designed and best-featured cars for the customers. The financial ratio analysis helps them to have an idea about the investment, profit, sales, debt, creditors' conditions about their organization and this makes them able to become more efficient in their work to satisfy customers.

GM Motors is also a renowned name in making Motor vehicles for the customers. They are a good and famous name in the motors vehicle manufacturing market and they use to have a lasting impact on people with their extra efficient working on designing and manufacturing of motor vehicles for their customers. Their customers rely on their quality as they always provide the best working to the clients and the designing and manufacturing of motor vehicles. The best part is that GM motors are the strong competitor of Nissan motors as they are not only in the same industry but also providing the same level of quality to their customers with a slight difference in designs and internal vehicle features.

GM motors financial analysis is the most important initiative they take consistently to keep an eye on the overall working progress of the company. The profit earning, maintaining sales revenue, and the analysis of creditor's investment with that of the company's investment is the most important and most necessary step of GM motors. This makes their business performance evaluation productive and they use to manage the working efficiency in the more demanding and trending way for more attraction of customers towards them. (Investing.com, 2019)

Body of proposal of Financial ratios Nissan company

Basic financial ratios that help the organization to explain their financial positions are; activity ratios, debt ratio, liquidity ratios, and profitability ratios. Every ratio has a different purpose and explains a different portion of the business.

Activity ratios of Financial ratios Nissan company

These ratios help in determine the operating efficiency of the business through analyzing the accounts receivables, inventories, and fixed assets. It indicates the utilization of the balance sheet components and also explains the financial health of the business. Some basic types of activity ratios include inventory turnover ratio, total assets turnover ratio, fixed assets turnover ratio, and accounts receivable ratios. So the activity ratios of GM and Nissan are given below:

Table 1 Activity Ratios

1.      Inventory Turnover Ratio of Financial ratios Nissan company

The above stated formula is used to calculate inventory turnover ratio for GM and Nissan Company. According to the results, the higher inventory turnover ratio of Nissan (30.84) is better than the ratio of GM motors (14.52). Higher ratio is favourable as it indicates the higher frequency of sales for the company. 

2.      Asset Turnover Ratio

Using the following formula we can calculate asset turnover ratio:

The calculated asset turnover ratio for GM motors and Nissan are almost the same. However, GM motor’s ratio (0.646) is a little bit better as it is higher than the ratio of Nissan Company (0.605). The higher asset turnover ratio is favourable.

3.      Fixed Assets Turnover Ratio

By the use of the above-presented formula, we have calculated the ratio of fixed asset turnover for GM motors and Nissan Company. Following results stated in the table, it is clear that Nissan Company has a better "fixed assets turnover ratio"  (1.69) than the ratio of GM motors (0.967). The analysis shows that a higher fixed asset turnover ratio is favourable as it indicates the efficiency of fixed asset utilization by the company's management.

4.      Accounts Receivable Turnover Ratio

Accounts receivable turnover ratio is calculated by dividing the sales (revenue) by the accounts receivables. Following results accounts, the receivable turnover ratio for GM motors is better as compared to Nissan as GM has a higher likelihood to collect its accounts receivables than Nissan Company. In general, a higher ratio is Favorable for both companies.

 According to give information, it can observe that Nissan sells more inventory as compared to GM. The higher asset turnover ratio of GM considers that its performance is better as compared to Nissan. Fixed asset turnover explains the Nissan put more investment in the fixed assets as compared to GM and the accounts receivable turnover explain that more amount collected by the GM cables as compared to the Nissan group.

Debt ratio of Financial ratios Nissan company

Debt ratios are the solvency ratio of the organization that measures the ratio of liabilities over its assets. So it also explains how much the company can pay off its all liabilities through its assets. Debt ratios include debt to assets ratio, debt to equity ratio, debt to capital ratio, and an asset to equity ratio. The debt ratio of GM and Nisan is given below:

Table 2 Debt Ratio of GM and Nissan

1)      Debt To Asset of Nissan company

The debt to assets ratio is calculated by dividing the total debt by the total assets. According to the calculated ratios presented in the above table, the debt to assets ratio of Nissan Company (0.69) is better than GM motors (0.811). A ratio lower than “1” is favourable as it indicates the company is not highly relying on debt to finance its operations.

2)      Debt To Equity of Nissan company

The following formula is used to calculate the debt to equity ratio.

Calculated debt to equity ratio of Nissan Company (2.1) is many times better than the ratio of GM motors (4.31). A lower debt to equity ratio indicates, the company is capable to generate enough cash to meet its long term debt and short term liabilities during the fiscal year. Thus, the lower ratio for Nissan favourable. While a higher ratio for GM motors is unfavourable.

3)      Debt To Capital Ratio of Nissan company

Using the above stated formula it is concluded that debt to capital ratio for GM motor and Nissan Company are 0.811 and 0.69 respectively. However, ratios lower than 1 are unfavourable for both companies. Still, the ratio of GM motors is relatively better than the Nissan Company. 

4)      Debt To EBITDA of Nissan company

Considering the above formula for calculating it can be said that Nissan’s ratio (22.71) is better than GM motors ratio (41.52). Analysis show, lower debt to EBITDA is favourable for Nissan. While higher is unfavourable for GM motors.

5)      Asset To Equity of Nissan company

The calculated ratio of 5.31 for GM is better than 3.02 for Nissan. The higher ratio is favourable. of Nissan company

These ratios explain that GM Company has enough debt to manage its all requirements and they can cover their all debts through their assets according to give information as compared to Nissan.

Liquidity ratios of Nissan company

Liquidity ratios help to explain how much the company can pay off its all expenses and liabilities according to its assets and without involving any additional capital. The measurements of liquidity rations manage the ability of a company to pay debts obligations and keep its margin of safety. Liquidity ratios include the current ratio, quick ratio, and cash ratio. The ratios of the GM and Nissan Company are given below:

Table 3 Liquidity Ratio of GM and Nissan

        i.            Current Ratio of Nissan company

The current ratio of GM is 0.91 which is less than 1 therefore it is unfavourable for the company. However, the ratio greater than 1 for Nissan (1.71) is favourable as it enables the company to meet its short term obligations easily.

      ii.            Quick Ratio of Nissan company

The quick ratio of Nissan Company higher than 1 (1.68) is favourable as it represents higher liquidity. While lower than 1 (0.79) for GM motors is unfavourable as it predicts challenges for the company regarding liquidity. 

    iii.            Cash Ratio of Nissan company

The cash ratio for both companies is lower than 0.5. Therefore the cash ratio is unfavourable for both companies.

According to given rations, we can say that Nissan has more ability to pay off its debts as compare to GM Company. Although it has fewer ratios of cash it's all assets that can cover all liabilities according to the company’s requirement.

Profitability ratios of Nissan company

Profitability ratios determine the ability of a company to manage its profit earn according to its revenue of sales, shareholder’s equity, balance sheet assets, and operating costs. These values help to explain how the company is going to utilize its assets to generate a profit of the company and give value to its shareholders. The profitability ratios of the GM and Nisan are given below:

Table 4  Profitability Ratio of GM and Nissan

1.      Gross Profit Margin of Nissan company

The calculated gross profit margin ratio for Nissan (17%) is better than the ratio of GM Motors (3%). A higher ratio of gross profit margin is favourable. Thus, the ratio for GM is unfavourable.

2.      Operating Profit of Nissan company

The operating profit margin of GM motors (6%) is better than Nissan motors (5%). Overall ratio for both companies is favourable. 

3.      Net Profit Margin of Nissan company

The net profit margin is almost the same for both companies 5% and 6% for GM motors and Nissan Company respectively.

4.      Return On Asset of Nissan company

Return on asset ratio of 40% for Nissan is favourable as it indicates that the company is efficiently utilizing its assets to generate profit. While the ratio of GM motors 4% only is unfavourable comparatively. 

5.      Return On Equity of Nissan company

A recommended Return on equity ratio is between 15% and 20%. Thus, the ratio of GM motors (18%) is favourable. While the ratio of 12% for Nissan Company is unfavourable.    

 According to give ratios, we can say that the profitability condition of Nissan is more strong and reliable as compared to GM Company. Nissan has enough profit to manage its operations and also satisfied with its shareholders. (Appendix1 & 2)

According to these financial ratios, it can simply observe that no doubt the performance of GM and Nissan Company is very well as compare to others. But the GM is more rely on its debts and its follow more debts pattern as compared to Nissan. According to give information, Nissan is more rely on its profit and utilizes maximum profit to cover its expenses as compared to GM. Nissan also covers its all liabilities more than GM. so it can say that Nissan is performing better as compared to GM companies.

Investment decision of Nissan company

According to given ratios, if we have AED 500000 amount of investment then the investor must select the Nissan Company to enhance the profitability and secure its investment. Although the performance of GM Company is also very attractive according to different financial ratios, it can be observed that Nissan is more reply to its assets and profit to cover its all liabilities and try to manage all expenses in its given range. So it’s better to invest in the Nisan Company as compare to GM according to performance analysis.

Summary and conclusion of Nissan company

At the end of the discussion, we can say that financial analysis is very compulsory for every organization as its help to explain its all the performance according to every area and manage all the areas according to company’s requirement. Ratio analysis help to explain deeply the financial terms of the business and explain what is the ratio going to utilize asset, liabilities, income, and its shareholders. Through basic statements, we can only observe the general condition of the company but with the help of financial ratios, we can manage and observe every little area of the business and understand and also explain in a better way than what is the condition of the company, how it's going to perform, how much it can manage its debts and how much it can expand in future. Normally ratio analysis help to make a better decision about the investment and provide a better way to get complete and detail information about the company and its financial performance. So financial ratios are a very effective tool in the organization to explain their financial condition more quickly and easily without creating any problem and explain most simply and easily.

References of Financial ratios of Nissan company

Bdc.ca. (2019). How to use financial ratios to improve your business. Retrieved from https://www.bdc.ca/en/articles-tools/money-finance/manage-finances/pages/financial-ratios-what-are-how-use.aspx

General Motors. (2018). GM Annual Report 2018. Retrieved May 4, 2020, from http://www.annualreports.com/HostedData/AnnualReportArchive/g/NYSE_GM_2018.pdf

Investing.com. (2019). General Motors Company (GM). Retrieved from https://www.investing.com/equities/gen-motors-ratios

Nissan Motor Corporation. (2018). Nissan Annual Report 2018. Retrieved May 4, 2020, from https://www.nissan-global.com/EN/DOCUMENT/PDF/AR/2018/AR18_E_All.pdf

Stock-analysis-on.net. (2019). General Motors Co. (NYSE:GM). Retrieved from https://www.stock-analysis-on.net/NYSE/Company/General-Motors-Co

Appendix

Figure 1 Nissan Company Income Statement

Figure 2 Nissan Company Statement of Financial Position

Figure 3 GM motors Income Statement

Figure 4 GM motors Statement of Financial Position

Figure 5 GM motors  Statement of Financial Position