Goodyear Tire and Rubber Company

Goodyear Tire and Rubber Company

Goodyear Tire (NYSE:GT) is one the top manufacturers as well as distributor for wide variety of tires in the world. As, the company produces and markets its products through: over 1,500 different retail outlets. However, the industry has been facing a number of challenges from the sharp increase in oil prices and the stagnant global economy. ("Goodyear Tire and Rubber Annual Report, " 2010) To determine the current financial state of the corporation and to provide the best possible recommendations requires: conducting an analysis of the stock using different financial ratios in relation to how they compare to one of their top competitors Cooper Tire and Rubber (NYSE: CTB). Once this occurs, it will provide the greatest insights as to the overall strengths and weaknesses of the company.

An Analysis of the Goodyear Tire and Rubber in Comparison with Cooper Tire Using different Financial Ratios

To determine the underlying advantages and disadvantages of the company requires using different financial ratios using. This will be accomplished by: looking at the asset turnover ratio, debt ratio, debt to equity ratio and the market book ratio. These different elements are important, because they will provide specific insights about the financial strength of the company.

Asset Turnover Ratio

The asset turnover ratio is used to determine how effectively a company is using its assets to generate sales. In general, the higher the number that is reported, the better. This calculated by dividing the revenues into assets. ("Asset Turnover," 2011) As far as GT is concerned, they have an asset turnover ratio of .853. This was calculated by dividing $15.63 billion into $18.832 billion. ("Goodyear Tire and Rubber Annual Report," 2010) While, CTB reported an asset turnover ratio of 27.92 which was calculated by: dividing $33.61 billion / $1.3 million. In this aspect, CTB is a stronger company in comparison with Goodyear, as they are more effectively using their assets to increase sales. ("Cooper Tire and Rubber Annual Report," 2010)

The Debt Ratio

The debt ratio is used by investors to determine the overall risks to the business from: various loans and other financial obligations they have. During times of financial challenges, the total amounts of debt could have an impact on future company's revenues (which may affect the financial strength of the business itself). This ratio is calculated by dividing the total debt into the total amount of assets. Any kind of reading higher than 1.0 indicates that the company has more than enough assets to meets its financial obligations. ("Debt Ratio," 2011) In the case of GT, the company has a debt ratio of .28. This was determined by dividing $4.475 billion into $15.63 billion. While CTB, has a debt ratio of .90. This was calculated by dividing $21 billion into $23 billion. In this aspect, CTB has lower amounts of debt in comparison with Goodyear. ("Goodyear Tire and Rubber Annual Report," 2010) ("Cooper Tire and Rubber Annual Report," 2010)