Ford Company Analysis Assignment -800 words

Ford Company Analysis Assignment -800 words

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Ford Company Analysis Assignment -800 words

Ford Company Analysis 

The company that was previously selected if a motor vehicle Company which is an automaker that has been in business since 1903. Concerning the historical position of Ford in the market, the company was created after the founder, Henry Ford received from five investors a sum of $28, 000 and since then, the organization has consistently gained fame in line with motor production. From the annual reports concerning the company especially considering the 2019 report, the company is significantly not stable because compared to the previous year (2018), there was a fall by 2.1 times in the net profit.

However, between 2014 and 2018, the company recorded a rise in the amount of revenue with the cost of sales fluctuating in 2016. The total revenue generated in 2014 was $ 144, 077 million while the value recorded in 2018 was $160,338 million. The figures shows that the company’s revenue value increased consistently with time. However, while a company makes huge revenues, it is important that the cost and expenses are managed accordingly to promote operational efficiency and sustainability. Despite recording a constantly growing income over the time, the profitability was not consistent due to the variations in the operational costs. Furthermore, the income before tax for the years 2017 was higher than the value recorded in 2018. The recorded values were $2,251 million and $ 1919 million respectively. Various factors could have influenced the company’s performance between 2014 and 2019 and one of the factors could be the Brexit issues.

Financial Analysis

All this is, therefore, a justification for the questionable financial stability of the company especially over the last decade. From this financial statement, it is, therefore, possible to conclude that the current condition of the organization is not stable because it experiences mixed situations with regards to consistency in profits and the cost of sales which sometimes fluctuate. From the financial statement analysis, between 2011 and 2012, the company reported a sharp increase in the amount of cash flow from its investing activities. However, the situation becomes mixed because in 2016 there was a drop in the cost of sales.

Generally, from this report, it can be concluded that the future of the company in the market may not be predictable because of the different or mixed prevailing financial circumstances in the firm concerning the cost of sales and cash flow. In my view, one of the interesting aspects that have been revealed by this financial statement for Ford Company is how the leading investment experts positively assess the dynamics of Ford shares despite the fluctuations experienced.

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Presentation Summary

With regards to the analysis of Ford Motor Company, I will include three slides and in every slide, vital information that can be used to analyze the future of the organization will be included. For instance, in the first slide, I will provide information about the current assets and liabilities of the Ford Company. When all the company’s assets and liabilities have been subtracted, the resulting figure will form the equity account for stakeholders. This figure serves an important in the determination of the future of the business because once the total assets are more than the liabilities; it is evident that the company can continue to operate in the future despite any dynamics because it is making profits.

In the second slide, the crucial information that would be included is about the potential strategies that can be taken by Ford Company in order to avoid the problem of liquidity in the future. In this case, as provided in the report, the financial performance of the company can be considered as average given the fact that the organization still has a balance on cash outflows that have been presented in activities involving investments and inflows in the financing activities of the firm. Therefore, in this slide, I would include the need for the organization to take control of operating activities as well as maintaining positive trends in order to avoid any liquidity challenges in the future. Finally, in the third slide, in relation to the future of Ford Company, I will provide an analysis of the financial reports of one of the major competitors so as to compare the trends of the two companies to identify their future in the market.

Liquidity Analysis

The liquidity of a company can be determined from the liquidity ratios which include the current ratio, quick ratio and cash ratio. The company’s current ratio for 2018 and 2019 were 1.20 and 1.16 respectively while the quick ratios were 1.04 and 0.99 respectively. There is a clear indicator that the liquidity ratios for the company reduced with time; the company recorded a deteriorating current ratio and this is an indicator of unfavorable financial position. Low current ratio may imply that the company relies borrowed money to finance the daily activities. Besides, the liquidity ratio also speaks much about the capital structure of a company. Companies that rely on borrowed funds are unsustainable and highly volatile. From the financial data, Ford Company’s volatility increased year after year. Finally, the asset value for the company increased with time. For instance, the total assets’ value for 2016, 2017 and 2018 were $ 97488 million, $103, 573 million and $100,105 million respectively. On the other hand, the interest expenses also increased with time and this shows that the company relied much on credit financing.

SWOT Analysis Summary: Ford Company Analysis Assignment -800 words

Ford Company Analysis Assignment -800 words

 

 

Ford Company Analysis  – Mid Term

Ford Company Analysis

Ford Motor Company is US based automobile company which was set up in 1903 by Henry Ford. By birth, Henry had mechanical interested which turned into genius and earned him with the reward of one of famous industrialists of the world. Henry ford developed his first experimental care in 1896 (Parker, 2017). After the incorporation of the company, the first car was assembled at the Mack Avenue Plant. In 1908, the T model of car was introduced which became very successful. Great demand for this model led to the development of mass production methods so that sufficient production can be dome. In 1911, overseas production plant was established. In 1919, the company was reincorporated (Parker, 2017).

            Ford Motor Company has contributed considerably towards the American society and economy through the development of business practices such as invention of moving assembly line, division of tasks, specialization of workforce etc. These business practices have increased the productivity (Seeking Alpha, 2019). The workforce which used to manufacture one care in 12 hours is producing it in 13 minutes. The company has created an American automobile culture which has changed the housing, transportation and tourism sector. During the financial crisis in 2008, the automobile industry of America had almost died. Ford Motor company too faced the fear of potential insolvency. The company faced toughed time (Ford, 2010). It was able to swift without the intervention of government through its decision like sale of Swedish Based-Volvo to Chinese car maker and sale of Jaguar and Land Rover to Tata Motors.

The position of the company is not stable. It is due to following two major challenges being faced by the company. These challenges are as follows:

  • Current business plan of the company is not sustainable in terms of financial aspects as well as environmental aspect. The company does not have much focus on the development of energy efficient vehicles such as hybrid electric vehicles, electrical vehicles etc.
  • The performance of global market economies is very poor. In the recent period, there has been improvement in the interest rate, but bond yield and inflation rates have been lesser than what was expected. It has implications for higher interest rates and higher cost of capital. Ultimately the real gross domestic product is adversely affected which has shaken the confidence of customers and hence sales have also reduced.

The financial analysis of Ford Motors over the past years shows that its position has not been stable. The total revenue generated in 2014 was $ 144, 077 million while the value recorded in 2018 was $160,338 million. The figures show that the company’s revenue value increased consistently with time. However, while a company makes huge revenues, it is important that the cost and expenses are managed accordingly to promote operational efficiency and sustainability. Despite recording a constantly growing income over time, the profitability was not consistent due to the variations in the operational costs. Furthermore, the income before tax for the years 2017 was higher than the value recorded in 2018. The recorded values were $2,251 million and $ 1919 million respectively. Various factors could have influenced the company’s performance between 2014 and 2019 and one of the factors could be the Brexit issues (Document, n.d.).

The financial analysis has been done with the help of liquidity ratios, capital structure ratios, profitability ratios and operational efficiency ratios. Liquidity position of the company has worsened as the proportion of current assets to current liabilities has declined over the last 10 years. There is the possibility of delay in payments of current liabilities. The solvency position is also not good as the company has financed its operations through more of outside funds. This raises the level of financial risk. Profits of the company have declined over the last ten years. Operational efficiency of the company has though improved in terms of management of its inventory and total assets but there is increase in number of days in terms of collection from them which is not good for liquidity position of the company.

Liquidity analysis: Ford Company Analysis Assignment -800 words

Current ratio and quick ratio are two ratios which have been computed to present the liquidity position of the company.

Ford Company Analysis Assignment -800 words

Figure 1: Liquidity analysis

The curve of quick ratio and current ratio has shown fluctuating trend over the previous five years. Both ratios increased from 2011 to 2013 but thereafter they declined. In 2015, there was sharp decline in both ratios. From 2015 to 2019, both ratios have again declined but at the slow rate. Overall the liquidity position of Ford Motor Company has declined over the previous 10 years which highlights poor ability of the company to repay its current assets from current liabilities. The company’s current assets almost equal to its current liabilities which implies that company’s current assets fall short to repay its current liabilities if there is bad debt or obsolete inventory. The company’s current ratio for 2018 and 2019 was 1.20 and 1.16 respectively while the quick ratios were 1.04 and 0.99 respectively (Ford Motor Co. (F), n.d.). There is a clear indicator that the liquidity ratios for the company reduced with time; the company recorded a deteriorating current ratio and this is an indicator of unfavorable financial position. The low current ratio may imply that the company relies on borrowed money to finance the daily activities. Besides, the liquidity ratio also speaks much about the capital structure of a company. Companies that rely on borrowed funds are unsustainable and highly volatile. From the financial data, Ford Company’s volatility increased year after year.

Capital structure ratios

Debt to equity and shareholder’s equity to fixed assets are two capital structure ratios computed to present the solvency position of the company.

Figure 2: Solvency analysis

Debt to equity shows proportion in which financing of total assets has been done from debt and equity of the company. This ratio was negative in 2010 which implies company’s equity was negative. Therefore, whole of financing was from debts only. From 2011 onwards, the proportion of debt to equity has declined. However, the ratio is revolving around 4 which implies the proportion of financial risk is very high. The company may face difficulties in the payment of its debts. The ratio of total equity to long term assets shows the financing policy of the company. It shows the extent to which fixed assets have been financed from the total equity. This ratio was also negative in 2010 as the total equity was negative in this year. From 2011 onwards the ratio has declined. The ratio is revolving around 0.25 which implies the company has financed its fixed assets from the total equity to around 25% only. Rest of the fixed assets have been financed from the long term debts. Also, the asset value for the company increased with time. For instance, the total assets’ value for 2016, 2017 and 2018 were $ 97488 million, $103, 573 million and $100,105 million respectively (Document, n.d.). On the other hand, the interest expenses also increased with time and this shows that the company relied much on credit financing.

Overall the analysis shows that the long term solvency position of Ford Motor Company has become worse. Its financial risk has increased which increases the possibility of potential bankruptcy.

Operational efficiency

The analysis of operational efficiency of the company has been done with the help of analysis of efficiency with which inventory, receivables and total assets of the company are being managed. Figure 3 highlight the trend of ratios related to these three items:

Figure 3: Operational efficiency analysis

Inventory turnover ratio shows how efficiently the stock is being turned over by the Ford Motor Company. The curve showing trend of inventory turnover ratio shows that it has declined which means the company is taking lesser number of days to turn over its inventory which is good for operational efficiency of the company.

Receivable turnover ratio shows how efficiently the receivables are being turned over by the Ford Motor Company. The curve showing trend of receivable turnover ratio shows that it has increased which means the company is taking higher number of days to turn over its receivables which is not good for operational efficiency of the company.

Assets turnover ratio shows how efficiently total assets is being turned over by the Ford Motor Company. The curve showing trend of assets turnover ratio shows that it has declined which means the company is taking lesser number of days to turn over its assets which is good for operational efficiency of the company.

Overall the operational efficiency has improved.

Profitability analysis

The analysis of profitability position of the company has been done with the help of operating profit margin, net margin, return on equity and return on assets which is shown as below:

Figure 4: profitability analysis

Curve showing operating margin, net profit margin, return on assets and return on equity shows that all profitability ratios of the company have declined over the period of previous 10 years.

Analysis of position of the company in comparison to one of its competitors i.e. Toyota shows that Ford Motor stands in better position in terms of liquidity ratios. Toyota’s current ratio is 1.03 and quick ratio is 0.93 which is 1.16 and 1.05 in case of Ford Motor. The debt equity ratio of Toyota is 1 which shows that proportion of debt and equity is same. Here the level of financial risk is low while the same ratio is greater than 4 times for Ford Motor. So Ford Motor has poor solvency position. Profitability ratios are very good for Toyota as these are 8.16%, 6.2%, 9.8% and 3.8% for operating margin, net margin, return on equity and return on assets. Same are 0.36, 0.3 0.25 and 0.3 for Ford Motor. Operational efficiency of Ford Motor is better as compared to Toyota.

Market share of Ford in the foreign market is also lower than the desired level. The company’s position in the international market is lower than the position of Toyota, General motors and Volkswagen. Toyota recorded profits of 5% in 2019, while it was 6.2% in case of Volkswagen and 4.7% in case of General Motors.

Overall the future period of Ford Motors company seems to be full of struggle. In the era of autonomous cars, the company need to work hard and spend huge on the research and development activities

 

 Reference list

Ford. (2010). Economic Impact. Retrieved from https://henryfordchangingtpm.weebly.com: https://henryfordchangingtpm.weebly.com/economic-impact.html

Macrotrends. (2020). Ford Motors. Retrieved from https://www.macrotrends.net/: https://www.macrotrends.net/stocks/charts/F/ford-motor/balance-sheet

Macrotrends. (2020). Toyota Analaysis. Retrieved from https://www.macrotrends.net/: https://www.macrotrends.net/stocks/charts/TM/toyota/quick-ratio

Miller, D. (2019). Where Ford Is Failing, and What It’s Doing About It. Retrieved from https://www.fool.com: https://www.fool.com/investing/2019/02/25/where-ford-is-failing-and-what-its-doing-about-it.aspx

Parker, D. (2017). Early History: Model T And Assembly Line. Retrieved from https://www.britannica.com/: https://www.britannica.com/topic/Ford-Motor-Company

Pascus, B. (2018). GM, Ford, and Chrysler almost died a decade ago during the financial crisis – here’s how the auto giants have changed since. Retrieved from https://www.businessinsider.in/: https://www.businessinsider.in/finance/gm-ford-and-chrysler-almost-died-a-decade-ago-during-the-financial-crisis-heres-how-the-auto-giants-have-changed-since/articleshow/65830750.cms

Seeking Alpha. (2019). Business, But The Company Has A Major Risk. Retrieved from https://seekingalpha.com: https://seekingalpha.com/article/4287243-ford-surprisingly-stable-business-company-major-risk

Document. (n.d.). SEC.gov. https://www.sec.gov/Archives/edgar/data/37996/000003799617000013/f1231201610-k.htm

Ford Motor Co. (F). (n.d.). Stock Analysis on Net. https://www.stock-analysis-on.net/NYSE/Company/Ford-Motor-Co/Ratios/Liquidity

 

 

 

Annexure

 

 

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