Henry Ford incorporated Ford Motor Company in 1903 at Dearborn, Michigan, USA and is known to have adapted practices that were not popular in those days. The Car Maker is known for their famous “Model T” and the unique innovation of interchangeable parts in moving assembly lines that makes it possible to assemble cars at low cost and high reliability. Ford Motor established an impressive financial track record almost throughout the 20th Century (barring the record loss of $7 billion in 1992) till the Millennium started (Alan Mullally, 2012).
Ford motor Company is the second largest automobile company in the world representing a $164 billion multinational empire. Ford is primarily known as a manufacturer of cars and trucks but also operates Ford Motor Credit Company which generates over 3 billion in revenues. Ford also owns The Hertz Corporation which is the largest car rental company in the world. Ford has vehicles under the name of Ford, Lincoln, Mercury, Jaguar, Volvo, Land Rover, Aston Martin, and has a controlling interest in Mazda Motor Corporation. Ford Motor Company incurred a financial loss of about 5.
45 billion dollars in 2001 and never really recovered confidently after this slump. It is said that the Ford 2000 initiative of Lord Alex Trotman was the primary reason for financial downturn of Ford Motor Company. The failure of Lord Trotman’s Ford 2000 strategy was primarily due to the vision of centralized management that resulted in narrow viewpoints and too much of Americanization thus resulting in ignorance of the local factors of the Global Markets. As a result, Ford badly lost market share to the competition (especially the Japanese and European companies) that otherwise had a much wiser approach.
Probably, Ford survived because of their unique innovations and quality that maintained the respect in consumer’s mind about the reliability, performance and quality of the products (Alan Mullally, 2012). While the company has been surviving for quite some time irrespective of the major financial hits that they suffered intermittently, their real testing times have emerged now when the entire world is reeling under a severe financial crisis. Ford maintains their esteem presence in the auto industry with continued innovation expansion and technological advances.
With new expansion of its company, the Ford Motor Company needed a strategy for success and connecting these new manufacturing plants with suppliers and customers. Ford’s strategy for increasing and maintaining their share of the automotive market is to establish strong interaction between them and consumers by addressing wants and needs at every stage of the purchasing process. For a company such as Ford, a corporation that supplies thousands of automobiles, the coordination and interaction in its supply and demand is essential to the businesses success.
The company will have to remain competitive and innovative to survive. The automotive industry, along with many other industries, is in the midst of a global economic crisis that has caused a sudden and substantial decline in sales volume. This has put significant pressure on Ford’s liquidity. Ford has created a four pillar plan to help turn their company around. This plan includes aggressively operating profitably at the current demand and changing model mix, accelerating the development of new products, improving their balance sheet, and working together as a team to leverage global assets.
Despite Ford’s well thought out plan for future success, they must remain mindful of the evolving risk that increase their vulnerability in this highly competitive industry. Ford frequently has expenditures and receipts documented in foreign currencies. Some of these items include sales of finished vehicles and production parts, debts and other payables, and investments in foreign operations. These expenditures and receipts create exposure to changes in exchange rates. Because of this foreign currency risk, Ford’s financial results could be better or worse than planned.
Ford uses derivative instruments to forecast their economic exposure with respect to forecasted revenues and costs (Capital Budgeting and Valuation of Investment Decisions , 2010). In the current market Ford is also vulnerable to interest, residual and liquidity risk; Interest rate risk relates to the gain or loss Ford could incur due to a change in interest rates. They invest various types of securities which are subject to fluctuations in interest rates. Their investment strategy is based clearly on defined risk and liquidity guidelines to maintain liquidity, minimize risk, and earn a reasonable return on short-term investments.
A rise in interest rates could have a material adverse impact on the financial statements. Residual risk in the possibility that the actual proceeds received at lease termination will be lower than projections or return volumes will be higher than projections. Basically, a customer may return a vehicle to Ford, and Ford obtains less for this vehicle then is expected. Although estimates are created for these situations, it can still have an adverse relationship on the financial statements, especially if many people return their vehicles in the same period.
Because of all the risks stated above, added to the intense competition and the fact that the industry functions so closely to the changes in the economy, gives Ford liquidity risk. Liquidity risk is the possibility that Ford may not be able to meet all of its current and future obligations in a timely manner (Capital Budgeting and Valuation of Investment Decisions , 2010). Ford Motor Company is the biggest car manufacturer in the world. Net sales break down by activity as follows: # car sales (94. 1%): 5. 7 million vehicles sold in 2011 (Ford, Mercury and Lincoln brands); – financing services (5.
9%): essentially vehicle purchase financing. At the end of 2011, the group had 69 production sites worldwide. Net sales break down geographically as follows: North America (60. 3%), Europe (25. 9%) and other (13. 8%). My analysis of Ford’s of Financial Statements and Ratios reflect that Ford Motor Co. ’s gross profit margin for the second quarter of its fiscal year 2012 has decreased when compared to the same period a year ago. Sales and net income have dropped, underperforming the average competitor within its industry.
Gross profit margin is the difference between sales and the cost of goods sold divided by revenue. It expresses the relationship between gross profit (sales – cost of goods sold) and sales revenue. More specifically, gross profit margin represents the percentage of each dollar of a company’s revenue that is available to cover fixed costs after paying for the goods or services that were sold (Garrison, 2012). Ford finished the second quarter with automotive gross cash of $23. 7 billion, an increase of $700 million during the quarter. Automotive debt of $14.
2 billion at the end of the second quarter was up from $13. 7 billion at the end of the first quarter, primarily reflecting additional drawdowns of low-cost loans for the development of advanced vehicle technologies. The company will make its last draw on these loans by August 2012, and repayment of the loans begins in September 2012. Ford also made payments of $800 million to its worldwide funded pension plans, of which $500 million were discretionary payments to U. S. funded plans, in line with the company’s previously-disclosed long-term strategy to de-risk its funded pension plans.
Dividends paid in the quarter totaled nearly $200 million. Automotive gross cash exceeded debt by $9. 5 billion at the end of the second quarter, a net cash increase of $200 million during the quarter. The company’s outlook for full year North America 2012 profits remains unchanged. Ford expects significantly higher pre-tax operating profit and margin compared with 2011, as consumers continue to respond to the company’s strong product line-up, including the recently-launched all-new Escape and the all-new Fusion launching in the second half of this year.
Ford also remains committed to maintaining its competitive cost structure in North America (Pope, 2012). After closing 2011 with a pre-tax operating profit of $8. 8 billion, an increase of $463 million vs. year-earlier, Chief Financial Officer Lewis Booth says Ford “expects to grow volume and be profitable for 2012. Ford’s full 2011 financial results indicate the auto maker is on the right track and ready to take advantage of an improving global economy, CEO Alan Mulally says. Ford expects 3% growth in the global automotive market in 2012, to between 75 million and 85 million units (Alan Mullally, 2012).
In the Ford predicts a seasonally adjusted annual sales rate of 13. 5 million to 14. 5 million units. In 2011, Ford managed to shave $6 billion off its total automotive debt, which now stands at $13. 1 billion. The auto maker ended 2011 with $22. 9 billion in automotive gross cash, exceeding its debt by $9. 8 billion. Fourth-quarter revenue was $34. 6 billion, and the full year was $136. 3 billion, an increase of $15. 4 billion from like-2010. Ford’s fourth-quarter pre-tax operating profit was $1. 1 billion, a decrease of $189 million from year-ago.
The result represents the auto maker’s 10th consecutive quarter of pre-tax operating profit. Full-year net income was $20. 2 billion, or $4. 94 per share, an increase of $13. 7 billion, or $3. 28 per share, from like-2010. Net income includes a favorable one-time, non-cash special item of $12. 4 billion related to the release of a valuation allowance established in 2006 against net deferred tax assets (Pope, 2012). Ford’s Common Stock is listed on the New York Stock Exchange in the United States, and on certain stock exchanges in Belgium and France.
The high and low sales prices for their Common Stock and the dividends paid per share of Common and Class B Stock for 2011 was high $18. 89 and low $13. 75. As of February 13, 2012, stockholders of record of Ford included 158,445 holders of Common Stock (which number does not include 128 holders of old Ford Common Stock who have not yet tendered their shares pursuant to our recapitalization, known as the Value Enhancement Plan, which became effective on August 9, 2000) and 81 holders of Class B Stock.
My suggestions for Ford Motor Company would be to continue to expand its operations globally as it has done with China. Ford Motor Co broke ground for two new plants in China as part of its major expansion plan to boost sales in the world’s largest auto market. The company announced plans to invest $600 million and $760 million in its two new assembly plants, located in the southwestern city of Chongqing and in Hangzhou, respectively. The $600 million plant will be the second assembly plant in Chongqing after the one opened in February this year that began producing the Ford Focus.
It will also be the company’s third assembly plant in China, including the one in Nanjing, China, both operated by Changan Ford Mazda Automobile (CFMA) joint venture. The new Chongqing plant will have the annual production capacity of 250,000 vehicles after it is completed in 2014 (Karadzho & Blitterswijkv, 2009). It will manufacture Ford’s 2. 0-liter Eco Boost turbocharged engines. With the opening of the plant, Chongqing will become the largest manufacturing base for Ford outside Michigan.
Ford has improved liquidity, lowered its cash burn, and had many benefits from restructuring; however the company’s finances remain exceptionally weak even though they have not asked for federal assistance. There are still many challenges facing the U. S. auto industry. Although Ford will ultimately need a sustainable recovery not dependent on government subsidies, the companies are expected to improve product line-up, continued cost cutting efforts, and the difficulties at General Motors and Chrysler to generate strong results for Ford in the future (Karadzho & Blitterswijkv, 2009).
Ford should continue deploying single manufacturing operating systems that will drive improved efficiencies, better capacity utilization As part of increasing plant flexibility, Ford will be able to produce 25 percent more vehicle derivatives per plant by 2015 Ford will increase investment efficiency 8 percent a year by using standard processes and virtual tools References Capital Budgeting and Valuation of Investment Decisions . (2010). Retrieved September 8, 2012, from Sarbainsoxley: http://www. sarbanesoxley. biz/154/capitol-budgeting-and-valuation-of–investment-decisions.
html Financial Statements for ford motor co (F. (2012). Retrieved September 8, 2012, from Bloomberg business Week: http://investing. businessweek. com/research/stocks/financials/financials. asp? ticker=F&dataset=incomeStatement&period=A¤cy=native Alan Mullally. (2012). Our Company. Retrieved September 7, 2012, from Ford: http://corporate. ford. com/our-company/investors/investor-quarterly-results/quarterly-results-detail/pr-ford-earns-16-billion-net-income-35458? releaseId=1244754820891 Garrison, R. (2012). How to Interpret the Price Elasticity of Demand. Retrieved September 8, 2012, from About.
com: http://video. about. com/economics/How-to-Interpret-the-Price-Elasticity-of-Demand. htm Karadzho, R. , & Blitterswijkv, M. V. (2009, September 22). Financial Management. Retrieved September 4, 2012, from sarbanesoxley: http//www. sarbanesoxley. biz/128/capital-budgeting-and-valuation-of-investment-decisions. html company Pope, B. (2012, January 27). Ford’s Positive Financial Results Tempered by European Debt Crisis . Retrieved September 6, 2012, from Wards Auto: http://wardauto. com/auto-makers/ford-s-positive-financial-results1-tempered-european-debt-crisis Income Statement View:
Annual Data All numbers in thousands Period Ending Dec 30, 2011 Dec 30, 2010 Dec 30, 2009 Total Revenue 136,264,000 128,954,000 116,283,000 Cost of Revenue 113,345,000 104,451,000 98,866,000 Gross Profit 22,919,000 24,503,000 17,417,000 Operating Expenses Research Development – – – Selling General and Administrative 11,578,000 11,909,000 13,029,000 Non Recurring (33,000) (216,000) 1,030,000 Others – – – Total Operating Expenses – – – Operating Income or Loss 11,374,000 12,810,000 3,358,000 Income from Continuing Operations Total Other Income/Expenses Net 1,238,000 (47,000) 5,836,000 Earnings Before
Interest And Taxes 13,112,000 13,301,000 9,389,000 Interest Expense 4,431,000 6,152,000 6,790,000 Income Before Tax 8,681,000 7,149,000 2,599,000 Income Tax Expense (11,541,000) 592,000 (113,000) Minority Interest (9,000) 4,000 – Net Income From Continuing Ops 20,222,000 6,557,000 2,712,000 Non-recurring Events Discontinued Operations – – 5,000 Extraordinary Items – – – Effect Of Accounting Changes – – – Other Items – – – Net Income 20,213,000 6,561,000 2,717,000 Preferred Stock And Other Adjustments – – – Net Income Applicable To Common Shares 20,213,000 6,561,000 2,717,000 (Financial Statements for ford motor co (F, 2012)
Balance Sheet View: Annual Data | All numbers in thousands Period Ending Dec 30, 2011 Dec 30, 2010 Dec 30, 2009 Assets Current Assets Cash And Cash Equivalents 17,148,000 14,805,000 20,894,000 Short Term Investments 18,618,000 20,765,000 21,387,000 Net Receivables 8,565,000 8,381,000 7,194,000 Inventory 5,901,000 5,917,000 5,041,000 Other Current Assets – – – Total Current Assets 50,232,000 49,868,000 54,516,000 Long Term Investments 72,912,000 72,639,000 78,259,000 Property Plant and Equipment 35,209,000 34,854,000 47,525,000 Goodwill – – – Intangible Assets 100,000 102,000 165,000
Accumulated Amortization – – – Other Assets 4,770,000 5,221,000 8,096,000 Deferred Long Term Asset Charges 15,125,000 2,003,000 3,479,000 Total Assets 178,348,000 164,687,000 192,040,000 Liabilities Current Liabilities Accounts Payable 63,093,000 60,206,000 60,445,000 Short/Current Long Term Debt – – – Other Current Liabilities – – – Total Current Liabilities 63,093,000 60,206,000 60,445,000 Long Term Debt 99,488,000 103,988,000 131,635,000 Other Liabilities – – 5,321,000 Deferred Long Term Liability Charges 696,000 1,135,000 2,421,000 Minority Interest 43,000 31,000 38,000
Negative Goodwill – – – Total Liabilities 163,320,000 165,360,000 199,860,000 Stockholders’ Equity Misc Stocks Options Warrants – – – Redeemable Preferred Stock – – – Preferred Stock – – – Common Stock 38,000 38,000 34,000 Retained Earnings 12,985,000 (7,038,000) (13,599,000) Treasury Stock (166,000) (163,000) (177,000) Capital Surplus 20,905,000 20,803,000 16,786,000 Other Stockholder Equity (18,734,000) (14,313,000) (10,864,000) Total Stockholder Equity 15,028,000 (673,000) (7,820,000) Net Tangible Assets 14,928,000 (775,000) (7,985,000 (Financial Statements for ford motor co (F, 2012)
Cash Flow View: Annual Data All numbers in thousands Period Ending Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Net Income 20,213,000 6,561,000 2,717,000 Operating Activities, Cash Flows Provided By or Used In Depreciation – – – Adjustments To Net Income – – – Changes In Accounts Receivables – – – Changes In Liabilities – – – Changes In Inventories – – – Changes In Other Operating Activities – – – Total Cash Flow From Operating Activities 9,784,000 11,477,000 15,477,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (4,293,000) (4,092,000) (4,059,000)
Investments 523,000 9,774,000 10,682,000 Other Cash flows from Investing Activities 729,000 1,226,000 (4,000) Total Cash Flows From Investing Activities (3,041,000) 6,908,000 6,619,000 Financing Activities, Cash Flows Provided By or Used In Dividends Paid – – – Sale Purchase of Stock – 1,339,000 2,450,000 Net Borrowings (4,333,000) (18,558,000) (21,710,000) Other Cash Flows from Financing Activities 92,000 (7,202,000) (3,570,000) Total Cash Flows From Financing Activities (4,241,000) (24,421,000) (22,830,000) Effect Of Exchange Rate Changes (159,000) (53,000) 454,000
Change In Cash and Cash Equivalents (Financial Statements for ford motor co (F, 2012) Financial Statements Ratios F Industry Average Ratio data TTM as of 06/30/2012 Profitability – ford motor co (F) Return on Assets Industry Comparison 2. 38% Return on Equity Industry Comparison 157. 85% Return on Capital Industry Comparison 3. 77% Margin Analysis – ford motor co (F) Gross Margin Industry Comparison 13. 82% Levered Free Cash Flow Margin Industry Comparison -15. 75% EBITDA Margin Industry Comparison 8. 48% SG&A Margin Industry Comparison 8. 83% Asset Turnover – ford motor co (F) Total Assets Turnover
Industry Comparison 0. 8x Accounts Receivables Turnover Industry Comparison 17. 3x Fixed Assets Turnover Industry Comparison 5. 4x Inventory Turnover Industry Comparison 15. 6x Credit Ratios – ford motor co (F) Current Ratio Industry Comparison 1. 7x Quick Ratio Industry Comparison 1. 6x Long-Term Solvency – ford motor co (F) Total Debt/Equity Industry Comparison 584. 9x Total Liabilities/Total Assets Industry Comparison 90. 6x Growth Over Prior Year – ford motor co (F) Total Revenue Industry Comparison 1. 77% Tangible Book Value Industry Comparison 225. 41% EBITDA Industry Comparison