Ford’s Financial AnalysisReport

By: Richard (Drake) Burcham IIISection 6

Julia LaRosa

I have read and understand the academic honesty policy as outlined in the syllabus and the student handbook. By affixing this statement to the title page of my paper, I certify that I have not cheated or plagiarized in the process of completing this assignment. If it is found that cheating and/or plagiarism did take place in the writing of this paper, I understand the possible consequences of the act/s, which could include, but are not limited to a ZERO for this assignment and a failing grade for the course.

Richard (Drake) Burcham III

Section 6

Julia LaRosa

Ford’s Company Profile

Ticker Symbol – F

Mission Statement - “One Team. One Plan. One Goal.”

Corporate Headquarters Location - Dearborn, Michigan

Date of Incorporation - June 16, 1903

Public Auditors – Chris Hall, and Carmen Slappey

Name of CEO – Mark Fields

Name of CFO – Robert L. Shanks

Stock Classifications – Common Stock

Exchange – NYSE

Dividends – According to Hoover’s Academic Database, each dividend is worth

$.85 while Street Insider says that a Ford dividend is $.15 quarterly ($.60 a year).

Ford’s corporate website says that the dividends were lasted issued on 12/1/16.

Industry Profile

Ford Motor Company belongs to the market sectors of Automotive and Financial

Services according to finance.yahoo.com. This website explains that Ford is in the

Automotive sector because it develops, manufactures, distributes, and services passenger

cars, trucks, SUVs, light commercial vehicles, trucks, vans, electrified vehicles, with an

addition of offering parts/accessories. Finance.yahoo.com also mentions that Ford is in

the Finance sector because it offers various automotive financing products to and through

automotive dealers. In detail, Ford’s Finance sector provides financing products (retail

installment sale contracts for new and used vehicles), direct financing leases for new

vehicles to retail/commercial customers, government entities, daily rental car companies,

leasing companies and fleet customers with also being able to give out wholesale loans to

dealers. This sector’s primary objective is to finance Ford’s purchases of vehicle

inventory and capital.

Ford Motor Company belongs to the automotive industry, which means that the

company develops and sells vehicles according to corporate.ford.com. Statista.com states

that the three leaders in this industry (for global car sales in 2015) are Toyota,

Volkswagen, and General Motors while the three laggards are Renault-Nissan, Hyundai,

and Ford.

(A Yahoo Finance evaluation of Ford’s stock performance compared to General Motors

and Toyota from January 21, 2014 to December 1, 2015)

Referencing CNN Money, Ford’s shares experienced a 15% drop on July 1, 2014

when Mark Fields was given the CEO spot for the company. By having him succeed

CEO Alan Mulally, many investors became skeptical on how he would make Ford’s

managing decisions, thus ending up with a sudden drop of shares because of the

company’s investor confidence went down. Investors could see new management as risky

as a coin flip, which means that a new CEO could either bring profit or loss. Some

investors in this case didn’t want to run the risk so they sold their shares thinking that

they would cut their future losses if they stayed with Ford.

Another drop that CNN Money documented on was between the dates September

29 and 30th in 2014 as The Street reported that Ford’s shares fell and closed down 7.47%

to $15.11 as the company announced that it no longer expected a profit in the future year

2015. The dramatic drop was due to several things, which include the weak demand

towards the company’s flagship F-150 product, pretax losses up to 1.45 billion dollars, a

1 billion dollar loss in South Africa due to currency issues, and a recall expense of 500

million dollars (equivalent of 850,000 vehicles).

On January 8, 2015 CNBC reported that Ford shares rose after heightening its

dividends to 20% that Thursday. Originally each share (common stock) was worth 12.5

cents, and then with the dividends going up 20% the total share became 15 cents. Once

that announcement was given to the public, the company’s stock was up 2% in early

trading. This caused investors to buy Ford shares so that they could receive more

profitable dividends for the first quarter. By investors buying more shares, Ford’s balance

sheet improved, which made the company look financially stronger as a whole.

According to Investopedia.com, Market Capitalization refers to the total dollar

market value of a company’s outstanding (investor owned) shares. To calculate its

Market Capitalization, Ford multiplied its number of outstanding shares by the current

market price of one share. Finance.yahoo.com has documented Ford’s current Market

Capitalization at 49.68 billion dollars while its competitors General Motors, Volkswagen,

and Toyota are 52.57 billion, 62.43 billion 169.25 billion respectfully.

49.68

52.57

62.43

169.25

Market Cap (Billions)

Ford

General Motors

Volkswagen

Toyota

The following data (cost, outstanding shares, and market capitalization) were

from the websites Hoovers, Yahoo Finance, Macroaxis, and Markets.ft. Toyota has the

biggest market capitalization, which is due to the company selling each share at the cost

of $112.09 dollars and already having 1.51 billion outstanding shares. The second largest

is Volkswagen as the company sells each share for $124.54, yet having a small amount of

outstanding shares at 501 million. Third largest goes to General Motors since it prices

each share at $33.92 and has 1.55 billion outstanding shares. Ford’s Market

Capitalization ends up in fourth because it sells each share at $12.48 and has its

outstanding shares at 3.98 billion. According to Investopedia.com, a Market

Capitalization bigger than 10 billion means that the company mostly focuses on long-

term goals. Furthermore, in order to receive and keep investors for a long period of time,

Ford, General Motors, Volkswagen, and Toyota increase their dividend payments.

Having the dividend payments go up also makes the share value rise. By doing this, the

investors are willing to stay with said companies to be able to receive more dividends

than being with a lower market capitalization company.

Ford To Industry Acid Test Observations

The data from the past two years on Ford showed that their Acid Test Ratio

(evaluates a company’s cash flow) slightly increased while the industry average

decreased. According to investinganswers.com, acid test ratios that are less than 1 can

deliver satisfaction, however, it borders cash flow problems. Ford Motor Company on the

other hand, had a 1.93 in 2014 and a 2.04 in 2015. This means that the company is

becoming more sufficient when paying their short-term liabilities. Ford’s strategy was to

become more efficient with its cash flow and to do so it moved from an auto company

into an auto and mobility company (increased utilities) and experienced strong top line

growth with the addition of global market share as said by Mark Fields in the letter to the

shareholders. By also following the trend of customers wanting luxury when driving,

Ford expanded their company to mobility, which ended up expanding their

products/markets that lead to profit. When comparing Ford’s acid test ratio to the industry

average, it is shown that the industry as a whole is far away from having cash flow

problems. Even though Ford Motor Company doesn’t have its acid test ratio as high as

the industry average, it still aims to keep increasing this ratio in order to positively

enhance their cash flow. Overall, to continue increasing their acid test ratio the company

needs to continue making strategies that revolve around customer trends.

2014 2015 2014 20150

0.51

1.52

2.53

3.54

4.55

Ford to Industry Acid Test

(Ford = Blue, Industry = Red)

Ford to Industry Profit Margin Observations

The data from the past two years on Ford showed that their profit margin

(financial performance) increased while the industry average also increased. Ford’s profit

margin went from 2.21 in 2014 to 4.93 in 2015 due to experiencing strong top line

growth and global market shares with the addition of increasing their market shares as a

whole, which was said by Mark Fields in the letter to the shareholders. Ford’s strategy of

increasing their market shares and making the shares global was successful, thus making

the company more profitable. Ford’s strong top line growth also helped in attracting

money to the business as its growth lead to new products. When comparing Ford’s profit

margin to the industry average, the industry had a larger ratio, however, Ford’s financial

performance was still at an efficient number. The company still wants to increase their

profit margin and the one way to do so is to obtain new customers and keep the ones they

already have. In order to attain that, Ford must continue to strategize around growth in

general with the addition of growth within market shares so that the company can have

their sales higher than their net income. By raising their financial performance, Ford can

increase their competitiveness with the industry and achieve a higher reputation in the

markets. Overall, Ford needs to make strategies that revolve around growth in order to

increase its profits.

2014 2015 2014 20150

2

4

6

8

10

12

14

Ford to Industry Profit Margin

(Ford = Orange, Industry = Cyan)

Financial Question #1

According to Investopedia.com, liquidity is the term used to describe how easy it

is to convert assets into cash. Ford Motor Company has experienced a slight increase in

liquidity from .53 to .56 over the past two-year period. This increase of liquidity derived

from Ford’s Current Assets divided by its Current Liabilities. Even though Ford’s Total

Current Liabilities went up 4.3 billion due to discrepancies in the manufacturing sector,

its Total Current Assets also went up 4.4 billion due to improvement in technology and

innovations as said by Mark Fields in the letter to the shareholders.

1-Jan-14 1-Jan-150.50

0.51

0.52

0.53

0.54

0.55

0.56

0.57

Ford's Liquidity

Ford’s CEO Mark Fields mentioned the following statements from the letter to the

shareholders. From the slight increase of Ford’s liquidity, their long-term performance in

investor confidence was raised as well. Plus, by entering new markets (developed and

emerging) Ford increased its expansion globally, which also made the company’s equity

go up. Additionally, Ford’s short-term performance increased because of its investor

confidence going up. The company became more reliable on sales since its assets would

have to end up higher than its liabilities in order to become less in debt.

Financial Question #2

According to Investopedia.com, profit margin is a useful ratio that provides

insight about a company’s financial performance. In order to calculate profit margin, the

company takes their net income (revenue minus all expenses) divided by their sales

(revenue). The answer from this equation tells a company, which in this case Ford, if it is

profitable based on its resources and profit. In fact, Ford’s profit margin has dramatically

increased from 2.21% to 4.93% over the past two years due to sales going up 5.4 billion

while net income going up to 4.1 billion as said by Mark Fields in the letter to the

shareholders. By having its sales larger than its net income, Ford became more profitable.

21-Jan-14 21-Dec-150.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%5.00%

Ford's Profit Margin

Ford’s CEO Mark Fields mentioned the following statements from the letter to the

shareholders. For Ford’s long-term goal performance, this increase in profit margin was a

massive benefit towards investor confidence, which means that the investors continued to

stay with Ford as they saw that the company was becoming more profitable. This benefit

came from the company’s strong top line growth (its increase in sales) and global market

share. By having the market shares in the company increase, Ford’s competitiveness went

up while its net income did the same. This also helped Ford’s short-term performance as

investor confidence continued to increase, however, so did its reliability with sales. Ford

became more reliable on sales because it had to satisfy the investor’s interest in the

company in order to keep the investors. Instead of having a company’s reliability on sales

being turned into an issue of stress, Ford was in a comfortable position as its reputation

was growing with the increase in sales, thus their profitability grew.

Financial Question #3

According to investopedia.com, debt to equity is the debt ratio used to measure a

company’s financial leverage (the amount of debt used to finance a firm’s assets). To

calculate this ratio, a company takes its total liabilities and divides it by its total equity.

Over the past two years, Ford Motor Company decreased their Debt to Equity from 7.41

to 6.85. This means that the company wanted to decrease their debt so they could become

more profitable. A high D/E ratio of 6.85 could be a positive affect to the company if the

sales were greater than debt (the debt would be a smart risk in order to become

profitable), however, Ford had their sales at 149,558 million while their debt was at

196,283. The drop in this ratio was to reduce Ford’s total liabilities and increase its sales,

which would overall increase the company’s share value.

21-Jan-14 21-Dec-156.56.66.76.86.9

77.17.27.37.47.5

Ford's Debt to Equity

Ford’s CEO Mark Fields mentioned the following statements from the letter to the

shareholders. Even though their debt to equity ratio had dropped, Ford needed it to

become lower in the future in order to have its shares rise in price. To achieve this, Ford

entered new global markets (developed and emerging) to make their sales higher than

their debt. This affected Ford’s long-term performance by having their investors’

confidence go down at first, however, the lost confidence returned when they showed

profitability in the new markets. Their short-term performance on the other hand

diminished since their investors’ confidence went down due Ford’s vehicle recall (fragile

steering shafts), which was documented by blog.caranddriver.com. As a result of that,

Ford’s investors sold their shares so that they could cut their future losses if the recalls

continued.

Personally, I agree with Ford’s decision to enter new markets since new markets

can lead to new profit. By doing so, I can see the company’s Debt to Equity ratio become

a lot less than it is now in the following years since the demand in the new markets will

be high for their products, thus increasing sales. When something enters a market for the

first time (in this case Ford’s products), I would think that customers would be interested

in knowing about the products and evaluating their benefits. This could lead to increasing

sales and lowering debt by having more people being interested in their products. On the

other hand, I think that Ford needs to do everything it can do to dramatically reduce their

recall numbers. If Ford continues to have recalls each year then their reputation will

certainly go down, which will end up with them being unreliable. Myself and other

customers don’t like unreliable products so as a response the customers will buy one of

Ford’s competitor products that are reliable. I think that Ford needs to have specifically

detailed evaluations before any cars are on the market in order to ensure customer safety

and efficiency. Since Ford is already trying to reduce their recall numbers then the

company is looking more beneficial than ever before. I, for one, would invest in Ford

because of their ability to respond to problems in a positive/profitable way.

Financial Question #4

According to Investopedia.com, inventory turnover is the ratio that shows how

many times a company’s inventory is sold and replaced over a period of time. If a

company has a little Inventory Turnover then it means that its sales are less than the

inventory they possess. So as time goes on, more and more inventory take up space

within the company’s storage, which makes them not profitable. On the other hand, a

company with a high inventory turnover ratio such as Ford means that their sales are

greater than their inventory. Even though Ford’s I/T ratio went down over the past two

years from 18.32 to 17.98, the company still had a great ratio for selling its inventory.

This company’s sales were at 149,558 million in 2015 while their inventory was 8,319

million, which translates into having a high customer demand for their inventory

(products) so they kept producing enough of it to receive enormous profits.

21-Jan-14 21-Dec-1517.517.617.717.817.9

1818.118.218.318.4

Ford's Inventory Turnover

Ford Motor Company’s CEO Mark Fields mentioned the following statements

from the letter to the shareholders revolving around inventory, inventory turnover and

liquidity. The inventory and inventory turnover can affect the company’s liquidity (how

easy it is to convert assets to cash), which means that depending on how fast their

inventory is sold determines how fast their liquidity will occur (how much time it will

take to receive profits). Since the company expanded from an auto company into an auto

and mobility company, their types of products grew while at the same time their sales

experienced a strong top line growth and global market share. This increased their

liquidity by raising the pace of their assets being converted into cash in order for the

company to follow up the demand for their products. Most importantly, they were

making a profit on each sale since no inventory was collecting dust waiting to be sold.

Appendix

Balance Sheet:

http://subscriber.hoovers.com/H/company360/balanceSheets.html?

companyId=10597000000000&newsCompanyDuns=001344746

Income Statement:

http://subscriber.hoovers.com/H/company360/incomeStatements.html?

companyId=10597000000000&newsCompanyDuns=001344746

Events:

http://money.cnn.com/2014/10/02/investing/ford-stock-slump/ (two events)

http://www.cnbc.com/2015/01/08/ford-shares-rise-after-boosting-dividend-

20.html

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@macroaxis. "Ford Motor Profile and Current Price Info | F - Macroaxis." Macroaxis. N.p., n.d. Web. 15 Nov. 2016. <https://www.macroaxis.com/invest/market/F--Ford-Motor-Co.>.

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