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 supplies 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 Analysis
The 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 Income Statement for Ford Motor Corporation (In $ Millions)
Item
Dec 2012
Dec 2011
Change
% Change
Revenues
126, 567
128, 168
-1601
-1.25%
Expenses
Cost 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%
Expenses
Cost 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 Trends 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
ASSETS
Cash 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%
LIABILITIES
Payables
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
_
_
_
EQUITY
Capital Stock
Common 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) Item
Dec2011
Dec 2010
Change
% Change
ASSETS
Cash 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
14.29
Deferred income taxes
15,125
2,003
13,122
655%
Other Assets
4,770
6,214
-1,444
-23.24
Total 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%
LIABILITIES
Payables
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
_
_
_
_
EQUITY
Capital Stock
Common 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 include 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) = 2.4
The 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 Quick
Ratio2012 = (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= 2.24
Quick Ratio2011 = (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= 2.31
The 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 Cash
Ratio2012= (15,659+20,284+71,150+10,828+16,451) / (19,308+ 49,407+1,386+470) = (134,372)/ 70,571= 1.9
Cash Ratio2011 = (17,148+18,618+69,976+8565+12,838) / (17,724+45,369+1,033+696) = (127,415)/ (64,822)=1.96
The above 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.