Financial Analysis for Ford Motor Corporation

Ford Motor Company was registered as a full company in 1919 and it manages operations in the international automobile industry. Ford is responsible for the manufacture and supply of vehicles in six major continents in the world and its automobile products are Ford and Lincoln. The Lincoln brand sells lavish cars while the Ford brand sells commercial vehicles and automobiles.The company also manufactures automobile spare parts, heavy trucks and tractors. Ford holds minor stakes in the U.K’s Aston Martin and Japan’s Mazda brands. Furthermore, the company is listed in the New York Stocks Exchange (NYSE); with the Ford family has minority ownership. In addition, the company’s automobile sector is composed of Ford Asia Pacific Africa Regions, Ford Europe, Ford South and North America. In the financial year 2012, the company recorded more than five million sales in units at whole sale globally. The company’s spare parts, automobiles, and other accessories are su pplies through retail traders in North America and via other global retail stores that are separately owned.Ford Asia Pacific division is focused on selling and distributing in twelve key market regions through wholesales and tracking every market in the region. Some of the regions tracked by the company include South Africa, China, Australia, India and Association of South East Nations (ASEAN). Ford Europe is involved in distribution and tracking of Ford’s wholesale brands in Russia and Turkey and it has affiliates with Ford Sollers and Ford Otosan. The Ford South and North America divisions are involved in the wholesale of both Lincoln and Ford brands.The market region is the U.S, Mexico and Canada. Motor Company competes with other global players, which include Toyota Motor Corporation, Honda Motor Company, Fiat-Chrysler, Suzuki Motor Corporation, PSA Peugeot  Citroen, General Motors Company, Mercedes-Benz, Audi, BMW, Hyundai-KIA Automotive group and Renault Nissan B.V. Horizontal AnalysisThe horizontal analysis for Ford Motor Corporation will enable to exhibit the changes of amounts in the corresponding financial statement items from 2010 to 2012. This is important in depicting and analyzing the trend in these financial years. The earliest period between two financial years is used as the base year, that is, 2010 is the base year for the horizontal analysis between 2010 and 2012, while 2011 is the base year for the horizontal analysis between 2011 and 2012.The horizontal analysis is important for the following reasons; enables to assess the general performance of the Ford Motor Company. In addition, it will help in evaluating the increases and decreases of items in the financial statements. Horizontal analysis assists in examining if the management is realizing the set goals and objectives (Williams, 2008). Finally, the horizontal analysis will disclose the trends of items in the balance sheet and the income statement.Horizontal Analysis of the In come Statement for Ford Motor Corporation (In $ Millions)ItemDec 2012 Dec 2011 Change % Change Revenues 126, 567 128, 168 -1601 -1.25% ExpensesCost of Sales 112,578 113, 345 -767 -0.67% Selling, Administrative and other Expenses 9,006 9060 -54 -0.60% Total Expenses 121, 584 122,405 -821 -0.67%Interest Expense 713 817 -104 -12.73% Interest Income and Other Income 1185 825 360 43.64% Equity in Net Income 555 479 76 15.87% Income before Income Taxes 6010 6250 -240 -3.84%Horizontal Analysis of the Income Statement for Ford Motor Corporation (In $ Millions)Item Dec 2011 Dec 2010 Change % Change Revenues 128, 168 119,280 8,888 7.45% ExpensesCost of Sales 113, 345 104,451 8,894 8.51% Selling, Administrative and other Expenses 9060 9040 20 0.22%Total Expenses 122,405 113, 491 8914 7.85% Interest Expense 817 1807 -990 -54.79%Interest Income and Other Income 825 -362 1187 -327.9% Equity in Net Income 479 526 -47 -8.94% Income before Income Taxes 6250 4146 2104 50.75%Negative and Positive Tren ds in Ford Corporation From the Income Statement horizontal analysis between 2012 and 2011, the company exhibits negative trends in the total expenses, revenues, cost of sales, selling administrative and other expenses, interest expense and income before taxes. The positive trends in 2012/2011 include equity in net income and in interest income and other income. From the income statement horizontal analysis between 2011and 2010, the company exhibits positive trends in the total expenses, cost of sales, selling and administrative expenses and income before income taxes. The negative trends in the 2011/2010 include; interest expenses, interest income and other income and equity in net income.2012/2011 Horizontal Analysis of the Consolidated Balance Sheet for Ford Motor Company (In $ Millions) Item Dec2012 Dec2011 Change % Change ASSETSCash and Cash Equivalents 15,659 17,148 -1,489 -8.68% Marketable Securities 20,284 18,618 1,666 8.95% Finance Receivables 71,510 69,976 1534 2.19% Other Receivables 10,828 8,565 2263 26.42% Net Investments in Operating Leases 16,451 12,838 3613 28.14% Inventories 7,362 5,901 1,461 24.76% Equity in Net Assets 3,246 2,936 310 10.56%Deferred income taxes 15,185 15,125 60 0.4% Other Assets 5,000 4,770 230 4.82% Total Current Assets 165,525 155,877 9,648 6.18% Net intangible Assets 87 100 -13 -13%Net Property 24,942 22,371 2,571 11.49% Total Assets 190,554 178,348 12,206 6.84%LIABILITIESPayables 19,308 17,724 1,584 8.94% Accrued Liabilities 49,407 45,369 1,038 2.29% Short Term Debt 1386 1033 353 34.17%Deferred Income taxes 470 696 -226 -32.47 Total Current Liabilities 70,571 64,822 5,749 8.87% Long Term Debt 103,672 98,455 5,217 5.3% Total Liabilities 174,243 163,277 11,966 7.33%Redeemable noncontrolling Interest 322 _ _ _EQUITYCapital StockCommon Stock, par value $0.01 per share 39 37 2 5.41% Class B Stock, par value $0.01 per share 1 1 _ _ Capital in Excess of par value of stock 20,976 20,905 71 0.34% Retained Earnings 18,077 12,985 5 ,092 39.21 Accumulated other comprehensive inc. (22,854) (18,734) -4,120 22% Treasury Stock (292) (166) -126 75.9% Total equity to Ford Motor Company 15,947 15,028 919 6.12%Equitable to noncontrolling interests 42 43 -1 2.32% Total Equity 15,989 15,071 918 6.09% Total Liabilities and Equity 190,554 178,348 12,206 6.85%2011/2010 Horizontal Analysis of the Consolidated Balance Sheet for Ford Motor Company (In $ Millions) ItemDec2011 Dec 2010 Change % Change ASSETSCash and Cash Equivalents 17,148 14,805 2,343 15.83% Marketable Securities 18,618 20,765 -2,147 -10.34%Finance Receivables 69,976 70,070 -94 -0.13% Other Receivables 8,565 7,388 1,177 15.93%Net Investments in Operating Leases 12,838 11,675 1,163 9.96% Inventories 5,901 5,917 -16 -0.27% Equity in Net Assets 2,936 2,569 367 14.29Deferred income taxes 15,125 2,003 13,122 655% Other Assets 4,770 6,214 -1,444 -23.24Total Current Assets 155,877 141,406 14,471 10.23% Net intangible Assets 100 102 -2 -1.96% Net Property 22,371 23,179 -808 -3.49% Total Assets 178,348 164,687 13,661 8.29%LIABILITIESPayables 17,724 16,362 1,362 8.34% Accrued Liabilities 45,369 43,844 1,525 3.48% Short Term Debt 1033 2049 -1,016 -49.59% Deferred Income taxes 696 1,135 -439 -38.68% Total Current Liabilities 64,822 63,390 1,432 2.24% Long Term Debt 98,455 101,939 -3,484 -3.42% Total Liabilities 163,277 165,329 -2,052 -1.24%Redeemable noncontrolling Interest _ _ _ _EQUITYCapital StockCommon Stock, par value $0.01 per share 37 37 _ _ Class B Stock, par value $0.01 per share 1 1 _ _ Capital in Excess of par value of stock 20,905 20,803 102 0.05% Retained Earnings 12,985 (7,038) 20,023 -284.5%Accumulated other comprehensive inc. (18,734) (14,313) -4,421 30.89% Treasury Stock (166) (163) -3 1.84% Total equity to Ford Motor Company 15,028 (673) 15,701 -2332.99%Equitable to noncontrolling interests 43 31 18 38.71% Total Equity 15,071 (642) 15,713 -2,447.5% Total Liabilities and Equity 178,348 164,687 13,661 8.29%Negative and Positive Trends in Ford Corporation From the balance sheet horizontal analysis between 2012 and 2011, the company exhibits positive trends in the total current assets, total assets, total current liabilities, total liabilities, total equity and total liabilities and equity. From the balance sheet horizontal analysis between 2011and 2010, the company exhibits positive trends in the total current assets, total assets, total current liabilities, and total liabilities and equity. The company however depicts negative trends in the total liabilities and total equity.Ratio Analysis Current Ratio: This financial ratio is derived from the balance sheet financial and is used to measures of a company’s liquidity performance .This ratio assists in determining whether the current assets are readily available in order to pay off the current liabilities (Bodie, 2004). The current liabilities are cash and cash equivalents, accounts receivables, inventory and marketable securities. The current liabilities i nclude accrued expenses, accounts payables, short term debt, taxes and notes payables (Groppelli, 2000). The 2:1 ratio is the typically suitable current ratio. It is evaluated by dividing the current assets by the current liabilities: Current Ratio = Current Assets/Current Liabilities Current Ratio 2012 =(15,659+20,284+71,150+10,828+16,451+7362+3,246+15,185+5,000) / (19,308+ 49,407+1,386+470) = (162,525)/ (70,571) = 2.3 The 2012 current ratio for Ford Motor Corporation is commendable since it is slightly more than the conventional 2:1 ratio. Current Ratio 2011 = (17,148+18,618+69,976+8565+12,838+5901+2936+15125+4770) / (17,724+45,369+1,033+696) = (155,877)/ (64,822) = 2.4The 2011 current ratio for Ford Motor Corporation is recommendable since it is slightly more than the conventional 2:1 ratio. This means that Ford’s current assets are readily available in paying off current liabilities. Quick Ratio: This is a rather enhanced method to evaluate for liquidity since it does not include inventories from current assets. This is due to the reason inventories may be obsolete, harmed and at times stolen. This ratio reveals the ability of a firm is able to meet its short-term goals from its liquid assets (Groppelli, 2000). The suggested target for the quick-ratio is 1:1 and it is evaluated as: Quick Ratio = (Current Assets – Inventories or Stocks)/ Current Liabilities QuickRatio2012 = (15,659+20,284+71,150+10,828+16,451+3,246+15,185+5,000) / (19,308+ 49,407+1,386+470) = (165,525 – 7,362)/ 70,571= 2.24Quick R atio2011 = (17,148+18,618+69,976+8565+12,838+2936+15125+4770) / (17,724+45,369+1,033+696) = (155,877 – 5,901)/ 64,822= 2.31The 2011and 2012 Quick ratios for Ford Motor Corporation are commendable since they exceed the conventional 1:1 ratio. This therefore means that Ford Motor Corporation is able to meet its short-term objectives. Cash Ratio: This ratio assists in determining the company's liquidity by further refining the current ratio and the quick ratio (Bodie,2004). This ratio is evaluated by calculating the quantity of cash and cash equivalents or invested funds that are in the current assets to cover current liabilities (Groppelli, 2000). It is calculated using the following formula; Cash Ratio= (Cash+ Cash Equivalents+ Invested Funds)/ Current Liabilities CashRatio2012= (15,659+20,284+71,150+10,828+16,451) / (19,308+ 49,407+1,386+470) = (134,372)/ 70,571= 1.9Cash Ratio2011 = (17,148+18,618+69,976+8565+12,838) / (17,724+45,369+1,033+696) = (127,415)/ (64,822)=1.96The a bove Cash Ratio results for 2012 and 2011 reveal that Ford Corporation is able to settle its current liabilities by use of its Cash and Cash equivalents only.Recommendation Any investor willing to invest in Ford Motor Corporation should move ahead and invest in the company. The company’s financial strength as depicted by the financial ratios reveals that the company is able to meet its shot term obligations. This is because the liquidity ratios reveal that the company’s current assets are able to pay off the current liabilities.