Ford Motor Company Analysis Essay

Executive Summary ford Motor Company is an Ameri bottomland automobile manufacturer founded and headquartered in Dearborn, Michigan but incorporated in the state of Delaw atomic number 18. The order was started by hydrogen Ford in 1903 and is historic altogethery famous for the creation and implementation of the assembly line in manufacturing processes. Fords mission is to produce and sell automobiles cars, trucks, SUVs, etc from the ones initi totallyy designed and engineered by Henry Ford all the way through the newer versions created in the last few years. (Profit competent Growth for tout ensemble, 2012)In 2011, the accompany performed strongly producing revenues of $134,264,000,000 and straighten out income of $20,213,000,000. Financial data has been gathered from the 2011 annual report and 10-K forms filed with the SEC for further analysis. adjunct A contains these reports and concomitant B contains select monetary symmetrys calculated in the analysis. The ratios are divided into six major categories short-term liquidity, capital coordinate and solvency, soften on invested capital, asset disorder, operating performance and profitability, and financial market measures. All six combine to provide an overall picture of financial health for the company. The below analysis provides try that, although Fords public store may be overvalued, the company itself is in proficient financial health.Company/Industry DescriptionFord is one of the worlds largest producers of cars and trucks but athe likes of engages in other business sectors, specificly vehicle financing, through subsidiaries. The major segments of the self-propelling production and gross revenue shell out include Ford North America, Ford south America, Ford Europe, and Ford Asia Pacific-Africa. Ford Motor assurance Company is the predominant financing subsidiary of the firm. ( gainful Growth for All, 2012) As of 2011, Ford Motor Companys vehicle cracks included Ford and Linco ln between the two lines, the company sold over 5.5 one thousand million vehicles through almost 12,000 dealerships around the world. (Profitable Growth for All, 2012) Since vehicles are long-wearing goods, Ford and the entire automotive persistence is highly affected by general scotch conditions. Given the 2008 financial crises and its lasting effects, the sale of durable goods has beenrelatively low in recent years.In addition to economic factors, Ford must also contend with competitors worldwide. The automotive industry is highly competitive and ever growing in terms of brands and the different vehicles offered by each. The high level of competition within the automotive industry, oddly in mature markets like the United States, has led to a very competitive pricing environment. Competitive pricing in automotive sales tends to surface in the form of price discounts, marketing incentives, and financing incentives to attract customers to a particular brand since vehicles do no t tend to be highly differentiated products. In terms of brand recognition, Ford is well known as one of few Ameri gash of tail car makers still halcyon and is probably best known for its pick-up trucks and sports cars, particularly the Mustang.Findings and AssumptionsSelect financial ratios flummox been calculated based on Ford Motor Companys financial statements from 2011 and can be found in Appendix B. The financial statements used for calculations are contained in Appendix A. Based on the calculations, analysis of short-term liquidity, capital structure and long-term liquidity, return on invested capital, asset turnover, operating performance and profitability, and financial market measures are included here.Fords short-term liquidity looks promising. The flow ratio of 1.16 is good it orders that the company can pay its short-term obligations 1.16 time. Typically, a current ratio over 1 is considered healthy, though higher is unquestionably better. (Wahlen et al, 2008) At first glance, Fords cash ratio of 0.52 seems a bit weak. It shows that, although the company can meet its short-term debts per the current ratio, it only has enough cash on hand to meet 52% of its short-term obligations. The financial statements included tend to combine cash and marketable securities into a category designate cash and cash equivalents. If the cash ratio is recalculated using this value instead of simply cash than the ratio improves to 1.10, which shows much stronger liquidity capabilities.Long-term solvency for Ford Motor Company also appears to be strong. The companys times interest earned ratio of 1.96 means that it can cover itsinterest charges on current debt issues almost two times over. This is a good sign that bankruptcy is not eminent and the company is solvent in the long-run. A higher debt to equity ratio means a company gets a larger portion of its financing from creditors than shareholders, though higher is a subjective measure and depends on the indus try. (Wahlen et al, 2008) self-propelled manufacturers tend to have debt to equity ratios above 2 because the industry is capital intensive. (Debt/equity ratio, 2014) Fords debt to equity ratio in 2011 was 10.89, far higher than the industry standard, potentially due to the circumstances of the time. The financial crisis of 2008 resulted in major financial bailouts crossways the automotive industry. These large levels of debt to the government would increase the debt to equity ratios of all companies that accepted the money.In addition to both short and long term solvency, a companys return on invested capital should be analyzed when determining its financial health. Fords return on assets from 2011 is 11.3%. This number seems strong on its own but the best information comes from comparing it to each competitors or previous years in the same company since return on assets varies drastically across industries. (Wahlen et al, 2008)) In 2010, Fords return on assets was only 4%. This increase is a epochal improvement since the two ratios show that, in 2011, $100,000 of assets would generate $11,300 in income while the same assets in 2010 would have only generated $4,000 in income. Fords return on equity in 2011 was 134%, a hugely impressive ratio This calculation shows that $100,000 in shareholder equity would generate $134,000 in income. Considering the ROE in 2010 was negative, this is an extreme improvement in profitability for the company.In 2010, Fords asset and register turnover ratios were excellent. The total asset turnover of 74.9% shows that the company is effectively deploying their assets and has been able to generate $74,900 profit for every $100,000 in assets. This is not surprising considering the high return on assets analyzed earlier. Days sales in scrutinise for Ford in 2011 was only 19 days meaning the company could convert inventory to sales in less than 3 weeks. Like return on assets, the acceptable level of inventory convertability va ries drastically from one industry to another. (Wahlen etal, 2008) In recent years, automotive companies have averaged over 60 days for this inventory ratio. Fords 2013 days sales in inventory was almost 90 days and change magnitude by 26% to over 100 days in January of 2014. These increased numbers are possible a result of the slow economic recovery and consequential decrease in car sales. (Young, 2014) operate performance and profitability ratios, including fixed asset turnover ratio and operating performance ratio, also show financial strength for Ford Motor Company. The fixed asset turnover ratio of 5.62 shows that the company is able to generate significant revenues from fixed assets, i.e. property, plant, and equipment. Fords operating performance ratio of 15.06 also shows that the company is performing strongly.Fords price-earnings ratio of 3.15 means the companys stock was trading at 3 times the earnings value as of December 31, 2011. This shows that investors were willing to pay 3 times its worth to own Ford stock, signifying that earnings growth was expected. The market-to-book ratio of 4.23 means that the market value of the stock is 4.23 times the book value of the same stock. In other words, Fords stock was overvalued in excess of 4 times its book value. Crucial FactorsMany crucial factors play a agency in analyzing a companys financial situation. Some of these factors are internal such as management, particularly changes in management, and the business model. Other factors are external examples include governmental action, competitors, and the overall economic state. The above analysis of Ford Motor Company incorporated numerous crucial factors when interpreting the selected ratios and their piece in the overall financial health of the company.ConclusionsOverall, Ford Motor Company seems to be in good financial health as of the end of 2011. Both short and long term solvency are strong, particularly when marketable securities are included in the cash ratio calculation. Fords capital structure is heavily tilted towards creditors, though this is seeming due to the governmental bailout and lack of investors in the slowly recovering stock market. Return on assets and return on equity are bothimpressive, particularly when compared to data from the previous year. In 2011, Ford had excellent asset and inventory turnover statistics. Unfortunately, these have since declined most likely due to the decrease in automotive sales in todays slowly recovering economy. Operating performance and profitability standards both show financial strength and good performance, though the financial market measures indicate that investors may be more ambitious than they should be about the performance strength.References(2012). Profitable growth for all Ford travel company 2011 annual report. Retrieved from Ford Motor Company website http//corporate.ford.com/ doctor/2011 Ford Motor Company AR_LR.pdf Debt/equity ratio. In (2014). Investopedia. Retrieved from http//www.investopedia.com/terms/d/debtequityratio.asp United States Securities and Exchange Commission, (2012).Ford motor company 10-k . Retrieved from Ford Motor Company website http//phx.corporate-ir.net/phoenix.zhtml?c=87772&p=irol-SECText&TEXT=aHR0cDovL2Fwa S50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTgwODI3MDYmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc= Wahlen, J., Baginski, S., & Bradshaw, M. (2008).Financial reporting, financial statement analysis, and valuation. (7th ed.). Mason, OH South Western CENGAGE Learning. Young, A. (2014, Feb 13). Us new auto inventories highest since 09 gm, volkswagen top list kia, hyundai up most toyota stock at healthiest level. International Business Times, Retrieved from http//www.ibtimes.com/us-new-auto-inventories-highest-09-gm-volkswagen-top-list-kia-hyundai-most-toyota-stock-healthiest