Ford Motor Company is known for its vehicles and parts worldwide as well as operating in two sectors, automotive, and financial services. This proposal is to obtain project funding pertaining to increasing worker safety at Ford Motor Company. With the commitment of investing $16 billion to augment personnel in the United States, and $25million to address this issue notwithstanding, this project will establish greater worker safety to improve worker productivity globally, thus reducing worker absenteeism because of accidents on the job. The high-level deliverables to address this issue is as follows:
1) provide a system that will allow assessing current safety procedures; 2) provide a system that will cover workflows and out-of-scope deliverables pertaining to project execution and implementation; 4) provide a system that will convert data input to a large flowchart to assess and assign project management.
NPV, IRR, Profitability, & Payback Method
Financial ratios have strengths and weaknesses, and one should be aware of these ratios to determine which is best in calculating the company’s financial health as well as the viability of a project. A company’s financial position can be assessed using NPV, IRR, profitability, and payback method; each important in itself to calculating the company’s financial stance.
By definition, NPV is the net result of an investment spanning multiple years expressed in today’s dollars. It strengths lie in that it considers the time value of money, and allows thought concerning cost of capital, interest rates, and investment opportunity costs, especially appropriate for long-term projects. Weaknesses of NPV are ranking investments because NPV does not compare absolute levels of investment; its concern is cash flows not profits and losses the way accounting systems does because of its sensitivity to the discount percentage.
IRR, another ratio in use and similar to NPV strengths is that it provides an uncomplicated rate for investment decision-making; conversely, not simple to understand or easy to compute because it works with assumptive reasoning. Computation irregularities can/may produce misleading results regard to reinvestments, and does not consider project size.
In deliberation of other used ratios, further discussion reveals the strengths and weaknesses of profitability ratios and Payback method. Profitability ratios measure a company’s ability to generate earnings relative to sales, assets, and equity thus assessing the ability to generate earnings, profits and cash flows relative to some metric, often the amount of money invested usually highlighting the effectiveness of management of company profitability (Audit IT, 2013, para. 3). Therefore, different profitability ratios provide different useful insights into the financial health and performance of a company.
The weakness lies in that profitability ratios cannot stand alone, work best when conducting comparisons to competitors and previous periods, and require knowledge of company background and nature of business when analyzing profitability ratios. Payback method, on the other hand, provides break-even calculation for costs of financing a new project, easy to calculate, intuitive, and compensates for time value of money. Nevertheless, it is recommended to not compare the discounted payback bench mark with the original payback benchmark. Additionally, payback ignores cash flows after the payback period, and the time value of money.
Upon assessing the financial ratios NPV, IRR, profitability, and payback method pertaining to project viability, four of four suggest the project would add value to the company’s bottom line. Each ratio poins to gaining a profitable outcome; the NPV is positive, the IRR is greater than or equal to the initial investment, the profitability is $0.02, and the payback method dictates the recoup will take approximately 2years. Recommendations are for Ford Motor Company to pursue this project.
Performance management is an essential in running a business; therefore, management uses a mixture of financial ratios to gauge the effectiveness of operations. Financial statements supply the information to use the ratios to assess a company financial position. Financial ratios have strengths and weaknesses, and one should be aware of what each does and the information it will provide. Ford Motor Company is assessing the viability of a new project, and given the results from the various financial ratios applied, the project appears to be a step in the right dire
Audit IT. (2013). Profitability ratios. Retrieved fromhttp://www.readyratios.com
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