Analysis of Ford Motor Company

Ford Motor Corporation Financial Statement Analysis

Revenue and Net Income Analysis

Table 1: Revenues and net earnings for the years 2016 and 2015

2016 (000,000) (000,000)

2015 (000,000) (000,000)

151,800 149,558 in revenue

Net income 4,596 7,373

Ford Motor Company achieved significant revenues in 2016 and 2015, allowing it to generate positive net income. Even overall revenue climbed in 2016, net income fell. The increase in income can be attributed to an increase in product sales. Meanwhile, the decrease in net income is related to the organization’s higher expenses (Yahoo Finance, 2017). Some of the expenditures that lead to the discrepancy include selling general and administrative that that moved from $10,502,000,000 to $12,196,000 and interest expense that shot from $773,000,000 to $894,000,000.

Ratio Analysis

Table 1: Financial Ratios of Ford Motors Company

Ratio Formula 2016 (000,000) 2015 (000,000)

Profitability Ratios

Gross profit margin ratio Gross income ÷ net sales 16,312 ÷ 151,800 = 10.7% 18,149 ÷ 149,558 = 12.1%

Net profit margin ratio Net income ÷ net sales 4,596 ÷ 151,800 = 3% 7,373 ÷ 149,558 = 5%

Return on total assets Net income ÷(beginning assets + ending total assets)/2 4,596 ÷ (224,925 + 237,951)/2 =2% 7,373 ÷ (208,615 + 224,925)/2 = 3.4%

Liquidity Ratios

Current Ratio Current Assets ÷current liabilities 108,461 ÷90,281 = 1.2 102,587 ÷ 82,336 = 1.2

Market Ratios

Earnings per share Net Income - preferred dividends) ÷ weighted average common shares outstanding (4,596 - 0) ÷ 3,958 = 1.16 (7,373 - 0) ÷ 4,002 = 1.84

Price-earning (P/E) ratio Market value price per share ÷ earnings per share 12.13 ÷ 1.16 = 10.46 14.09 ÷ 1.84 = 7.66

Debt Measures

Debts to Asset Total liabilities ÷ total assets 208,685 ÷ 237,951 = 0.88 196,189 ÷ 224,925 = 0.87

Analysis of Profitability Ratios

Gross Profit Margin

Ford Motor Company had ratios of 12.1% and 10.7% for the years ending 2015 and 2016 respectively. It means that the firm managed to sell its products at a higher value that the production cost. However, it registered a declining trend that is attributable to the increase in the cost of sales against the total turnover more than it was in the year 2015 (Ford Motor Company, 2016). Nevertheless, the percentages are still desirable given that they are positive.

Net Profit Margin

The company managed to cater for its expenses and still had part of the revenues remain for the shareholders (Ford Motor Company, 2016). The net profit margin ratio moved from 5% in 2015 to 3% in 2016. Even though the company managed to raise positive outcomes, it was unfortunate to realize a decreasing trend. Such a pattern came about as a result of the increase of expenditures in the year 2016.

Return on Assets

The positive ratios implied that the firm had the ability to generate income from its assets sufficiently. However, the ratios moved from 3.4% in 2015 to 2% in 2016. The declining trend was due to the reduced net income against the total assets employed in the year 2016 (Kimmel, Weygandt, & Kieso, 2008).

Analysis of Liquidity Ratios: Current Ratio

The current ratios of 1.2 for both the years 2015 and 2016 imply that the firm could manage to repay its current liabilities using its current assets. That is a desirable ratio that can be attributed to an effective credit control (Kimmel, Weygandt, & Kieso, 2008). The fact that the firm maintained the ratio at 1.2 also portrays effective management and proper balance between short-term assets and liabilities.

Analysis of Market Ratios

Earnings per Share

The positive EPS of $1.84 and $1.16 for the respective years 2015 and 2016 imply that Ford Motor Company’s profits were sufficient to take care of all the expenses and to enable the distribution of some funds to the shareholders. Despite the desirable outcome, the firm registered a declining trend that was not desirable (Kimmel, Weygandt, & Kieso, 2008). However, the trend can be attributable to the higher decrease in the net income against the shares more than it was in 2015.

Price Earnings Ratio

The PE ratios increase in the year 2016 having moved from $7.66 in 2015 to $10.46 in 2016. The increase was a desirable trend because it means that the potential investors gained more confidence in the firm than in 2015. Nevertheless, it was unfortunate that whatever the incoming shareholders were willing to pay was below the listed price of the shares (Kimmel, Weygandt, & Kieso, 2008). For instance, the stakeholders would only pay $10.46 against the listed price of $12.13 in 2016 and $7.66 against $14.09 in 2015.

Analysis of Debt Measures: Debt to Asset Ratio

The debt to asset ratios for both the two years under examination demonstrated that the firm had total assets than liabilities. The ratio also increased from 0.87 to 0.88, thus, indicating a desirable performance given that the firm used more of its assets to finance the business operations than it used debts and other liabilities (Kimmel, Weygandt, & Kieso, 2008).

Suitable Growth Rate

Based on the analysis of the net asset turnover, profit margins, dividend policies, and the financial policies of Ford Motor Company, the company had suitable growth rates of 1.12, 1.305, and 1.503 for the respective years 2014, 2015, and 2016. The firm could readily achieve growth in sales using its internal resources without borrowing funds from outside. The rates should enable the organization to determine if it would achieve its intended increase in sales without necessarily obtaining external funding (Kimmel, Weygandt, & Kieso, 2008). As it is, the enterprise will manage some level of growth, but for further expansion and increase in the rate of growth, the management might have to borrow funds or issue additional shares to the potential shareholders to help in investments.

References

Ford Motor Company (2016). Ford Motor Company 2016 annual report. Retrieved on 9th May, 2016 https://corporate.ford.com/content/dam/corporate/en/investors/reports-and-filings/Annual%20Reports/2017/2016-Annual-Report-Final.pdf

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2008). Accounting: Tools for business decision making. Chichester: John Wiley.

Yahoo Finance (2017). Ford Motor Company. Retrieved on 9th May, 2016 https://finance.yahoo.com/quote/F/balance-sheet?p=F