Ford motor organization analysis dissertation
Business Summary
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Ford Motor Company is a north american automobile company founded and headquartered in Dearborn, Michigan but incorporated in the point out of Delaware. The company was started simply by Henry Ford in 1903 which is historically recognized for the creation and rendering of the assembly line in manufacturing techniques. Ford’s objective is to generate and sell autos ” cars, trucks, SUVs, etc ” from the types initially designed and built by Holly Ford all through the newer versions created in the last couple of years.
(Profitable Growth for All, 2012)
In 2011, the company performed strongly ” making revenues of $134, 264, 000, 000 and net income of $20, 213, 000, 000. Economic data has become gathered from your 2011 twelve-monthly report and 10-K forms filed while using SEC for more analysis. Appendix A includes these reviews and appendix B includes select financial ratios worked out in the examination. The ratios are broken into six main categories: short-term liquidity, capital structure and solvency, come back on used capital, advantage turnover, working performance and profitability, and financial market measures.
All six combine to supply an overall photo of financial wellness for the company. The under analysis delivers evidence that, although Ford’s public stock may be overvalued, the company itself is in great financial overall health.
Company/Industry Information
Ford is one of the world’s largest producers of cars and trucks yet also engages in other business sectors, specifically vehicle loans, through subsidiaries. The major sections of the automotive production and sales portion include Kia North America, Kia South America, Ford Europe, and Ford Asia Pacific-Africa. Kia Motor Credit Company is definitely the predominant auto financing subsidiary from the firm. (Profitable Growth for all those, 2012) By 2011, Ford Motor Business vehicle brands included Honda and Lincoln subsequently; between the two lines, the corporation sold more than 5. a few million vehicles through practically 12, 000 dealerships around the world. (Profitable Growth for All, 2012) Since automobiles are tough goods, Honda and the whole automotive industry is highly affected by standard economic conditions. Given the 2008 economic crises and its lasting results, the sale of durable items has beenrelatively low in recent years.
In addition to economic elements, Ford must also contend with rivals worldwide. The automotive industry is extremely competitive and ever growing regarding brands as well as the various cars offered by every single. The high level of competition within the automotive industry, particularly in mature marketplaces like the Us, has led to a very competitive charges environment. Competitive pricing in automotive sales tends to surface area in the form of cost discounts, promoting incentives, and financing offers to attract consumers to a particular brand since vehicles do not tend to end up being highly differentiated products. In terms of brand reputation, Ford is known as one of few American car makers still thriving and is likely best known for its pick-up vehicles and athletics cars, particularly the Mustang.
Results and Assumptions
Select financial ratios have been completely calculated depending on Ford Electric motor Company’s financial statements via 2011 and is found in Appendix B. The financial claims used for measurements are found in Appendix A. Based on the calculations, research of immediate liquidity, capital structure and long-term fluidity, return on invested capital, asset yield, operating overall performance and earnings, and economic market actions are included here.
Ford’s short-term liquidity looks appealing. The current ratio of 1. 18 is good; that shows that the corporation can pay their short-term commitments 1 . 18 times. Commonly, a current proportion over 1 is considered healthier, though bigger is definitely better. (Wahlen et al, 2008) At first glance, Ford’s cash rate of 0. 52 appears a bit fragile. It demonstrates that, although the business can fulfill its immediate debts per the current proportion, it just has enough cash on hand to meet 52% of the short-term commitments. The economic statements included tend to combine cash and marketable investments into a category labeled “cash and money equivalents. In the event the cash percentage is recalculated using this worth instead of just cash compared to the ratio improves to 1. 10, which displays much stronger fluid capabilities.
Long term solvency for Ford Electric motor Company as well appears to be good. The company’s instances interest earned ratio of 1. 96 ensures that it can cover itsinterest fees on current debt issues almost two times over. This is a good sign that bankruptcy can be not prestigious and the firm is solvent in the long-run. A higher debts to fairness ratio means a company gets a larger percentage of its financing from collectors than shareholders, though larger is a subjective measure and depends on the industry. (Wahlen ain al, 2008) Automotive manufacturers tend to have personal debt to value ratios previously mentioned 2 because the industry can be capital rigorous. (Debt/equity rate, 2014) Ford’s debt to equity ratio in 2011 was 10. fifth 89, far greater than the market standard, possibly due to the instances of the time. The financial crisis of 2008 led to major economic bailouts throughout the automotive industry. These kinds of large levels of debt towards the government will increase the financial debt to fairness ratios of companies that accepted the amount of money.
In addition to both brief and long-term solvency, a company’s return on spent capital ought to be analyzed once determining their financial overall health. Ford’s returning on assets from 2011 is 10. 3%. This kind of number seems strong itself but the ideal information comes from comparing that to both competitors or perhaps previous years in the same company since return upon assets varies drastically throughout industries. (Wahlen et ‘s, 2008)) In 2010, Ford’s come back on resources was only 4%. This kind of increase is actually a significant improvement since the two ratios demonstrate that, this year, $100, 1000 of assets would create $11, 300 in profits while the same assets this year would have simply generated $4, 000 in income. Ford’s return upon equity this summer was 134%, a hugely impressive rate! This calculation shows that $100, 000 in shareholder fairness would create $134, 000 in cash flow. Considering the ROE in 2010 was negative, this is an extreme improvement in profitability for the organization.
In 2010, Ford’s asset and inventory yield ratios had been excellent. The entire asset turnover of 74. 9% demonstrates the company can be effectively deploying their assets and has been capable to generate $74, 900 profit for every hundred buck, 000 in assets. This is not surprising with the high returning on assets analyzed previously. Days sales in products on hand for Honda in 2011 was only nineteen days ” meaning the organization could convert inventory to sales in under 3 weeks. Just like return upon assets, the acceptable standard of inventory convertability varies substantially from one market to another. (Wahlen etal, 2008) In recent years, automobile companies have got averaged over 60 days with this inventory proportion. Ford’s 2013 days revenue in products on hand was nearly 90 days and increased by 26% to over 100 days in January of 2014. These increased numbers are probably a result of the slow financial recovery and consequential reduction in car product sales. (Young, 2014)
Operating overall performance and earnings ratios, which includes fixed property turnover ratio and operating performance percentage, also present financial strength for Honda Motor Organization. The fixed asset yield ratio of 5. sixty two shows that the business is able to create significant profits from set assets, i. e. real estate, plant, and equipment. Ford’s operating performance ratio of 15. summer also implies that the company can be performing highly.
Ford’s price-earnings ratio of 3. 15 means the company’s inventory was trading at three times the earnings worth as of 12 , 31, 2011. This demonstrates that investors were willing to pay 3 times its well worth to own Kia stock, signifying that profits growth was expected. The market-to-book rate of 5. 23 signifies that the market value of the inventory is four. 23 occasions the book value of the identical stock. Basically, Ford’s stock was overvalued in excess of 4x its book value. Crucial Factors
Various crucial factors play a role in analyzing a company’s finances. Some of these elements are interior ” such as management, specifically changes in management, and the business design. Other factors happen to be external ” examples include government action, competitors, and the overall economic point out. The above evaluation of Kia Motor Organization incorporated several crucial factors when interpretation the selected percentages and their part in the general financial well being of the company.
Conclusions
Overall, Ford Motor unit Company seems to be in great financial health as of the finish of 2011. Both short and long-term solvency will be strong, particularly if marketable investments are contained in the cash rate calculation. Ford’s capital structure is greatly tilted toward creditors, although this is very likely due to the governmental bailout and lack of buyers in the little by little recovering wall street game. Return in assets and return upon equity are bothimpressive, particularly if compared to data from the previous year. This year, Ford experienced excellent advantage and products on hand turnover statistics. Unfortunately, these types of have since declined ” most likely because of the decrease in automobile sales in the current slowly recovering economy. Operating performance and profitability specifications both show financial durability and great performance, although financial industry measures indicate that investors may be even more ambitious than they should be regarding the performance strength.
References
(2012). Successful growth for all: Ford engine company 2011 annual report. Retrieved by Ford Electric motor Company site: http://corporate.ford.com/doc/2011 Kia Motor Organization AR_LR. pdf Debt/equity proportion. In (2014). Investopedia. Recovered from http://www.investopedia.com/terms/d/debtequityratio.asp United States Securities and Exchange Commission, (2012). Ford electric motor company 10-k. Retrieved via Ford Engine Company web page: http://phx.corporate-ir.net/phoenix.zhtml?c=87772&p=irol-SECText&TEXT=aHR0cDovL2Fwa S50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTgwODI3MDYmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc= Wahlen, M., Baginski, T., & Bradshaw, M. (2008). Financial credit reporting, financial assertion analysis, and valuation. (7th ed. ). Mason, ALSO: South European CENGAGE Learning. Young, A. (2014, February 13). Us new car inventories maximum since 09; gm, volkswagen top list; kia, hyundai up many; toyota inventory at ‘healthiest’ level. Worldwide Business Times, Retrieved from http://www.ibtimes.com/us-new-auto-inventories-highest-09-gm-volkswagen-top-list-kia-hyundai-most-toyota-stock-healthiest
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