reports for two compines

What were your company’s sales during the last year?

For Ford Automotive, they were $137.0 billion worldwide in 1999, an all-time high. For Gateway, they were $8.6 billion in 1999, the highest ever, and $1.2 billion more than the previous year.

Is the company growing? Or is growth flat or declining? Is this growth picture good enough?

Ford’s sales were up 15 percent from 1998 to 1999. They had dropped 3 percent from 1997 to 1998. Before that, sales had been growing by 5 percent annually, in part because the product mix included more higher-priced vehicles. Gateway’s sales have been rising steadily for the past decade. From 1998 to 1999, sales increased 15.7 percent.

What is your company’s profit margin? Is it growing, declining, or flat?

Ford Automotive’s margin, after taxes, was 4.2 percent in 1999. That’s the best it’s been since 1988. Gateway’s margin, after taxes, was 4.9 percent, slightly better than the 4.6 percent of the year before. (Does 4 percent remind you of anything—say, a Wal-Mart or a grocery store? It should. At its core, a PC company is not much different from a grocery store. Both businesses are extremely competitive and sell goods that can quickly become obsolete.)

How does your margin compare with your competitors’? How does it compare with those of other industries?

Ford’s margin was higher than GM’s and also higher than Toyota’s for the year ending 1999. Gateway’s margin was higher than Compaq’s (1.5 percent) but lower than Dell’s (7.4 percent).

Do you know your company’s inventory velocity? its asset velocity?

Ford’s inventory velocity is about 21, but that does not include vehicles in transit between the plant and the dealer or on the dealer’s lot. Combining all these factors would greatly reduce its inventory velocity. Ford’s asset velocity is very different from its inventory velocity. When you consider Ford’s investment in manufacturing plants, buildings, equipment, tools, and accounts receivable, in addition to its investment in inventories, the velocity changes from 21 to 1.3 for the year ended 1999. Ford’s asset velocity is 1.3. Gateway’s inventory velocity was a healthy 45. Its asset velocity—sales divided by total assets, not just by inventory—was 12.6.

What is your company’s return on assets? If you know the margin and the asset velocity, do the math: R = M × V.

If you know the margin and the velocity, you can figure it out using R = M × V. Here’s how it works for Ford: R = M × V Ford’s return on assets = 4.2 percent after-tax margin × 1.3 asset velocity For Ford, the R is about 5.5 percent, not up to the aspirations of management. Now let’s do the thinking for Gateway, again using R = M × V: R = M × V Gateway’s return on assets = 4.9 percent after-tax margin × 12.6 asset velocity Gateway’s return on assets is 61.7 percent. Shareholders should like that.

Is your company’s cash generation increasing or decreasing? Why is it going one way or the other?

Ford had $23.6 billion in cash at the end of 1999—about the same amount it had at the end of 1998. But Ford bought Volvo and made some other investments for growth. How did Ford generate cash? The company has been scrutinizing major investments in fixed assets and working to reduce inventory. Ford continues to be a net cash generator. Gateway generated $731 million in cash from operations in 1999, a little less than in 1998. It, too, is a net cash generator.

Is your company gaining or losing against the competition?

Ford is maintaining strong market share in North America. Gateway’s market share has been increasing and is very strong among consumers (versus business customers). Dell and Compaq continue to dominate the overall PC market, and IBM’s share has been eroding.

Let’s recap the fundamentals of Ford:

· Sales of $137.0 billion in 1999; sales up from 1998 to 1999, but down from 1997 to 1998.

· Maintaining strong market share in major markets.

· Margin of 4.2 percent after taxes.

· Asset velocity of 1.3.

· Very low inventory velocity (including vehicles in transit and on dealers’ lots).

· Generating cash.

· Now let’s recap Gateway Computer:

· Sales of $8.6 billion in 1999; sales up over 1998.

· Market share on the rise.

· Margin of 4.9 percent after taxes.

· Asset velocity of 12.6.

· Very high inventory velocity of 45.

· Generating cash.