Executive Summary Ford Motor Company continues to strive to meet customer needs, industry challenges and world issues. Their efforts have resulted in strong financial outcomes and 3 years in a row of positive net income. Outstanding performance is anticipated to continue in the coming years. In 2012, Ford proved they were moving in the right direction. Their credit rating was restored to investment-grade, they resumed regular dividend payments and achieved 14 consecutive quarters of operating profit. Ford has a robust display in the electric vehicle market and as a result sold more hybrids in the U.
S. in the last quarter of 2012 than any other period in their history. This is an example of Ford’s ongoing efforts to reduce their environmental impact from their products. Ford’s variety of low emissions vehicles allows customers to embrace fuel-saving technologies. As the number of vehicles on the road increase, Ford is determined to be the automotive leader by developing vehicles with communication technology to improve afety and reduce traffic congestion. The One Ford plan has been a success to date and gives Ford the assurance that they will continue to grow profitably.
Ford’s operating profit in 2012 was $8 billion (pre-tax) or $1. 41 per share, which were record results. Their 2012 balance sheet ended with $24. 3 billion gross cash, exceeding debt by $10 billion. Ford also shows a strong liquidity position of $34. 5 billion, an increase of $2. 1 billion over 2011. Looking towards the future, Ford has continued their largest and quickest manufacturing expansion, adding the ability to support growth plans. More than 8,100 jobs were created in 2012 to increase production capabilities to meet the growing demand for fuel-efficient, high-tech vehicles.
2013 is expected to be another strong year for Ford Motor Company. Introduction This report is prepared to understand the financial statement analysis on Ford Motor Company. During the dawn of the automotive industry, Ford Motor Company was established as one of the big three. Henry Ford recognized himself as a professional automaker and took his first step as Ford Motor Company during 1901. However, as Henry Ford left, the company was revamped into what was called, Cadillac Motor Company. At the age of 39, Henry Ford founded the official Ford Motor Company in 1903, which became one of the largest and most profitable companies.
From the Model T to the Ford Mustang, Ford has seen extraordinary leadership during its time. President and CEO Alan Mullaly began in 2006 as a top leader for Ford. During economic hardship, Alan Mullaly took Ford through one of the greatest recessions the United States has ever seen. With great leadership skills and a revitalized process system, Ford refused the government bailout during 2008. Mullaly projected a strong belief that Ford would make it out of the storm. A plan that was thought, but never defined, showed a visionary motive that kept Ford growing through fear that government doubted.
Gambling the blue logo, Mullaly noticed that Ford Taurus was already in the gutter. Restructuring the division, redesigning the vehicle, and adding value created substantial amount of wealth for the Ford industry. Ford Motor Company emphasizes deeply about technological advancements. Employing approximately 166,000 employees globally, Ford became the second largest U. S. based automaker and the fifth largest in the world based on 2010 vehicle sales. Ford’s structured core business model uses resources sensibly to create long term value as a corporate citizen and global competitor.
Ford develops advanced technology to revolutionize prototyping, personalization, and low-volume production. Ford is leaner and stronger today after overhauling their production strategy and globalizing their business. The company is committed to producing vehicles with best-in-class quality, fuel efficiency, safety, smart design and value. They operate within a complex system, which interconnects their products and plants with the customers and communities they serve. Exhibit 1: Income Statement The purpose of the Income Statement is to provide information regarding revenues, expenses, and net income of Ford Motor Co.
Exhibit 1 above represents three years of reported data. Ford Motor Co. revenues have generously increased from 2010 to 2011, however, there was a slight decline resulting in 2012. Cost of Goods Sold increased almost 9% from 2010 and 2011, and declined close to 1% from 2011 to 2012. Out of the last three years, net income was at its highest level in 2011. Ford Motor Co. received a tax credit in 2011, resulting in a higher net income. Looking at the past three years, revenue comfortably exceeds expenses, ensuing a positive net income.
Exhibit 2: Balance Sheet The balance sheet represents the financial assets, liabilities, and equity a firm holds. Regarding the balance sheet, assets must equal liabilities and stockholders’ equity. Balance sheet characterizes how much a corporation is worth and estimates its financial condition. It displays the value of assets the company owns, the amount of debt it holds, how much inventory they maintain, and how much money the company has to work with in the short term. As we see in Exhibit 2 Ford Motor Co. current assets have increased dramatically from 2010 to 2012, due to an increase in account receivables.
Since the current assets have increased, the company has more money readily available giving management the ability to pay dividends and have reserves set aside for future projects. Ford’s short-term investments aren’t as readily available as cash, but they provide added cushion if an immediate need were to arise. From 2011 to 2012, inventory drastically increased which may cause Ford to face the risk of having too much inventory that consumers won’t want to purchase.
Due to the vehicle model being outdated, Ford might end up taking a loss on the inventory because prices will be adjusted to the change in value over time. Consumers always want the newest and best vehicles offered. Even though deferred long-term liability charges significantly decreased from 2010 to 2012, Ford’s total liabilities were still on the rise, due to long-term debt increasing. In 2010, Ford’s totals liabilities were higher than their total assets, resulting in a negative shareholders’ equity.
Shareholders’ equity represents the net worth of the company and the stockholders’ claim to assets in case of liquidation circumstances from bankruptcy. Shareholders’ equity is the difference from subtracting liabilities from assets.
Exhibit 2 shows us that for Ford, shareholders’ equity has increased since 2010. The most change that occurred was an increase in retained earnings and the issue of stock options and warrants. Ford’s net tangible assets represent the value of their physical assets such as buildings and equipment, which has increased over the last three years. Exhibit 3: Statement of Cash Flows The Statement of Cash Flows reveals how Ford Motor Co. spends their money. The cash flow from operations shows Ford’s ability to generate cash from their regular operations.
Exhibit 3 illustrates that net cash from operating activities has decreased from 2010 to 2012. The cash demands of investing activities have increased over the last three years resulting in a negative outcome of cash for operations. Over the last three years there have been extreme fluctuations in the cash flows from financing activities mainly due to changes in short-term debt. The net change in cash represents the sum of cash flows from each component of operations and shows dramatic differences from 2010 through 2012.
Exhibit 4: Profitability Ratios Years 2012 2011 2010 Gross Profit Margin 16% 17% 19% Operating Profit Margin 5% 15% 6% Net Profit Margin 4% 15% 5% Profitability ratios assess the company’s ability to generate earnings relative to sales, assets and equity. Gross profit margin is the difference of net sales revenue and cost f goods sold. Exhibit 4 illustrates that gross profit margin has declined over the three year period. Gross profit shows how well a company is managing its expenses and provides data for management to adjust budgets. Operating profit margin is the difference of operating income over net sales.
We can see that Ford had a substantial increase from 2010 to 2011 and a substantial decrease from 2011 to 2012. Net profit margin measures the firm’s return on sales and it is the difference of net income over total revenue. It is desirable for the ratio to be high because it shows how much income is earned per dollar of sales. Exhibit 5: Liquidity Ratios 2012 2011 2010 CURRENT RATIO: 1. 83 1. 91 0. 83 QUICK RATIO: 1. 72 1. 81 0. 73 CASH RATIO: 0. 52 0. 57 0. 59 The current ratio shows the firm’s ability to pay current liabilities using current assets.
The cash ratio indicates the immediate liquidity of the firm and as we see on Exhibit 5 Ford’s has been relatively steady over the three year period. Quick ratio is the same as current ratio, but it includes inventory. Creditors will be able to figure out if the firm can pay off their long-term debt. They analyze if the firm is able to pay their current liabilities using their current assets. Investors can figure out if the company will be profitable after the short-term debt is paid off. They need to make sure if the company will be a good investment choice.
Managers will be able to make decision and adjustments in the spending of the firm depending on the outcome. Exhibit 6: Debt and Leverage Ratios 2012 2011 2010 DEBT RATIO: 0. 91 0. 92 1. 00 DEBT-EQUITY RATIO: 10. 93 10. 87 -245. 71 TOTAL CAPITALIZATION RATIO: 0. 87 0. 87 1. 01 Managers, investors, and creditors might analyze a firm’s long-term debt ability by using debt ratio, debt to equity ratio, debt to total capital, and times interest earned. Debt ratio will measure the firm’s leverage, which will show the percentage of debt used to finance assets.
The lower the debt ratio indicates the firm relies less on borrowing. Debt to equity ratio measures leverage of the firm by comparing long-term debt to shareholder’s equity. A smaller number indicates less risk, so investors can use this ratio to determine risk. Total capitalization ratio compares long-term debt to capital structure of the firm. High ratio might indicate high risk, but low ratio does not always indicate low risk if current liabilities are high. Creditors will look at this to determine the probability of payment if the firm’s goes into financial problems.
Managers can use all ratios to make decision for the future such as: equipment, employee, or facility upgrades. Conclusion The big three symbolized manufacturing in the 20th century. Once dominated, the big three expressed fortune, employment, and opportunity. After the collapse of the financial markets in 2008, our beloved automotive industry slipped through a depressed state. One of the noblest automotive corporations, Ford, stood high and rejected government bailout that was offered to its competitors. Ford gambled its way through the worst recession the United States ever witnessed.
The famous blue logo was the only collateral Ford leveraged to keep afloat amongst all other automotive manufactures. Through hope of productivity and innovation of technology, new vehicles were shifting through the production line with only the intangible asset backing up their guarantee. References Anonymous (2013). Ford Motor Company. Available from www. corporate. ford. com Anonymous (2013). Yahoo Finance. Yahoo. Available from http://finance. yahoo. com/q? s=f&ql=1 Anonymous (2013). Yahoo Finance Financial Statements. Yahoo. http://finance. yahoo. com/q? s=f&ql=1 Gibson, C. (2012). Financial reporting