Abstract
This paper is about a financial statement analysis report for Ford motors Company which is one of the multinational American automakers, which was founded by Henry Ford. This Company has its main headquarters in Dearborn, Michigan, in the United States of America and was founded in the year 1903. The Ford Motor Company deals with automobiles commercial vehicles as well as automotive parts and pickup trucks. Besides, this Company has produced about 5.5 million vehicles so far, making an estimated revenue of about 155.9 billion dollars. Furthermore, each financial year the Company makes an accounting of profits, and this includes analysis of the Company’s performance through documents such as balance sheet, cash flow statements as well as income statement. An income statement of this Company gives history based on data that shows the total revenue attained by the Company from the year 2017 to the year 2019. According to the statistics provided in the excel project, the company competitors include Chevrolet and Tesla. As per the 2019 financial income statement, Chevrolet had outdone Ford in terms of revenue with a net income of about 6667 million dollars while Ford had 84 million dollars. Tesla, on the other hand, had revenue lower than that of Ford, with a negative net attributable income for the Ford Company of about 862 million dollars. Perhaps the Ford Motor Company provides various services that act as sources of income that can be identified through a comprehensive analysis of the cash flow report of each financial year. Ford uses comparative and ratio analysis to analyze various aspects of the Company, such as liquidity, solvency, profitability, and also market value. Ford Motor Company has also been evaluated as a growing company, which has a possibility of arising and shining as it is written in some of the bible verses, therefore, giving some biblical world view of this Company. The Company is expected to advance beyond limits in the future and hence making it possible to achieve its goals and objectives despite the existence of competition from Tesla and Chevrolet, which are providing almost similar services and products.
Introduction
Ford Motor Company is a multinational America automaker Company that has its headquarters in Dearborn, Michigan, United States of America. The Company was founded on June 16th, 1903, by Henry Ford, specializing in automobiles and commercial vehicles under the industry of automotive. Ford Company offers various services and products such as designing, manufacturing, servicing, financial, and also automotive services. The Company also majors on ford smart mobility LLC, vehicle leasing, and also the central treasury operations. Furthermore, just like any other company, Ford Motor Company has several competitors who offer close substitute products and services. Some of the competitors of Ford include; Hyundai, Toyota, Honda, BMW, Mercedes, General Motors, Nissan, Flat Automobiles, and also Volkswagen. The Company works under a ticket symbol of F, which acts as a trademark for its various products and services. The Company operates in association with other firms across the globe, some of which may include Tesla and Chevrolet, which also deals with automobiles services and products. Ford Company has joint ventures in various countries such as China, the United Kingdom, and also Taiwan, and therefore it is among the leading companies in automotive manufacturing globally. The Company works on large scale production of vehicles, and extensive management is required every day. Perhaps, being the second-largest American automaker company, Ford has been marketing most of its luxury cars worldwide. Despite struggling financially due to various financial crises, the Company has managed to be ranked fifth worldwide in terms of vehicle production, which assures the stakeholders a lot of profit. Statistics show that Ford Company attributed estimated revenue of around 156.7 billion dollars in the year 2017 and hence being ranked among the top eleven American Fortune companies list in the year 2018.
Operating Activities of Ford Motor Company
Ford Company Core Income Sources. Ford Company has most of its income coming from the sales of automotive, mobility services, and vehicle leasing, as well as the Ford credit service. In calculation, the income attributable to this Company is given by the net income less than the other income attributable to non-controlling interests. In the 2019 financial year, Ford Company’s net income after all deductions was estimated at 47 million dollars a value that was notably lower as compared to that of the previous year. The annual report of this Company shows that the core source of income includes the mass sales of vehicles and its related accessories where Ford credit finances the Company on behalf of wholesalers and distributors. In most cases, the interests on receivable finances mainly generate revenue for financial services offered by a segment of Ford Motor Company. The statistics show that in the year 2017, the Company registered revenue of about 156.8 billion dollars higher by five billion the revenue attained in 2016.
- Ford Company Comprehensive Income Sources.
The comprehensive income in this Company is given by the change in net assets of the business enterprise while excluding changes from investments by owners and distribution to owners. For instance, in the year 2019, the Company’s comprehensive income was about 315 million dollars. The value of comprehensive income decreased from 2018 to 2019 by a higher value. Some other sources of comprehensive income for this Company include pension plans gains, foreign currency exchange gains, and also the gains on investment activities as well as gains on derivatives that are treated as cash flow hedges.
- Ford Company’s Quality Earnings
The quality earnings in this Company can be assessed through understanding the performance of the Company that can be done using financial analysis tools. Evaluation based on performance from, for instance, the year 2017 to 2019, shows the stand of quality earnings of Ford Company in areas of profitability, financial growth, turnover of each fiscal period as well as the debt owed to other companies. Returns on equity, net profit ratio, and investment ratios can help analyze the quality of earnings over a given financial period. The liquidity of Ford Company as per 2019 financial statements shows that the market value of the Company is diminishing with a 0.01 basic income per share as compared to 0.93 earnings per share of the previous accounting period. Through the balance sheet, the price-earnings ratio is determined by comparing the common stock per share in each financial year. The quality on earnings of Ford Company can be improved by increasing trading and investment activities while minimizing the expenses over any given accounting period.
- Ford Company Sources of Operating and Non-operating income
The operating income of this Company generally comes from profitable car sales that act as a core form of investments. In the year 2019, the operating income of Ford Company was about 0.574 billion dollars a decrease by a greater percentage as compared to the 2018 financial year. This is an income that is attributable to the Company upon deductions of taxes and expenses and before the payment of interests. This Income is gained from wholesale shipments, adjusted operating cash flows, and also earnings per share in a given year. In the year 2019, the Company operating income reduced by 28% as compared to the previous year due to losses made in Europe and the Middle East, whereby the mobility segment lost about 195 million dollars in the last quarter of 2019. Ford Credit increased by a small percentage due to favorable lease performance, which is attributed to the fair pricing of off-lease cars. The Company’s non-operating income comes from dividends income, or profit from various outside investments and also gains from foreign currency as well as asset write-downs. The non-operating income is generated mostly from activities that are not much related to the core operations of the firm. Moreover, operating income analysis helps Ford Company realize its revenue before interests and taxes and hence the total profit over a given financial year.
- Ford Motor Company Sources of Transitory and Permanent Earnings.
Permanent income is the general average flow of income that the Company expects to receive in a given financial year. The Ford Company’s permanent earnings come from the income generated from sales of automotive parts and vehicles, which is subject to savings upon deductions such as taxes and other relative expenses. The difference between the permanent and current earnings gives the transitory earnings or income. Transitory earnings generally originate from temporary changes in the market conditions, which are subjects to fluctuations over a given time. The transitory earnings in Ford Company are generated from gains and not losses, especially the gains in dividends and currency exchange, as well as pensions or reduction in the rates of taxes constitutes to positive index in transitory earnings. Permanent earnings are generated from the current income per share and also the transitory income per share, which keeps on changing gradually for this Company. Some of these earnings come from the permanent gains in dividends, foreign currency, and interest earnings on debts.
Ford Motor Company Sources of Cash flows.
Cash flow is analyzed in three categories, which include; cash flow from operating activities, cash flow from investing activities, and also cash flow from financing activities. According to the statement of analysis of Ford Company, cash flow from operating activities of the year 2019 was around 17.639 billion, an increase from the previous year’s value of 15.022 billion. Furthermore, the net cash provided from the operating activities is arrived at after consideration of operating activities involving depreciation, amortization, foreign currency adjustments, decrease or increase in inventory, and also other provisions. Besides, the Company considered other operating activities such as changes in finances and accounts receivable and other liabilities, stock compensation, provision for pension, credit, and insurance as well as equity investment dividends received in excess and changes in investment in affiliates as at 2019. Another category that gives a trend in cash flow in the Ford Company involves the cash flow from investing activities. Investing activities also provide the Company another form of income that is derived from capital spending, operating leases and finances receivable, marketable securities, settlement of derivatives, and also from sales and maturities, among other investments. As per the 2019 cash flow statement, Ford Company registered 13.721 billion as the net cash provided by investing activities. The value had reduced from the previous year 2018, 16.261 billion, and in 2017 it was placed at 19.360 billion, which means that the investing activities have been declining every year from the year 2017. In addition, cash flow from financing activities also plays a significant role in generating income for the Company. The trend shows that the net cash and restricted cash from the financing activities at the end of 2019 period was about, 17.741 billion an increase from 16.907 billion of 2018 accounting period and in 2017 the company financing activities registered cash of 18.638 billion and this shows that there have been fluctuations in the values in the past three years.
The cash flow is generally good in relation to the Company’s organizational strategy. Ford Company utilizes an organization strategy that embraces a low-cost leadership strategy and also the product differentiation strategy, which is best for reducing the cost of production by minimizing possible expenses while maximizing the output. In all segments of operations, the Company aims at working at low expenses, and this is seen in the analysis of cash flow statements where various activities involving investments and financing are highly fluctuating. The organizational strategy adopted by Ford Company dictates the overall performance of all segments in the entire firm.
Implications of Potentially Unrecorded asset for the Ford Company
Assets not recorded in the financial statements of the Company, such as balance sheet or income statement, may tend to affects the credibility of the accounting and hence causing errors in calculations and the final statement. Some of the unrecorded assets are intangible and are considered uncertain and thus not included in financial statements because they may represent a significant source of abnormal earnings. In accounting systems, unrecorded assets may constitute irregular earnings that cannot be accounted for, and therefore they cannot be used in the valuation of various estimates for the Company. Basically, in some straight forward cases, the unrecorded assets have a high degree of homogeneity in financial and investing operations, and hence they are subject to persistence earnings, which require conservative accounting. In Ford Company, the unrecorded assets create an implication of high or abnormal earnings with disparities in either pricings or foreign currency changes, which gives the valuation of the Company and hence the degree of persistence.
Comparative and Ratio Analysis
- The ratio analysis implications are addressed concerning the following aspects of the Ford Company.
- Liquidity. This shows the Company’s ability to cater for its short term obligations. Ford Company ratio analysis shows that the liquidity ratio has been declining from the year 2017 to 2018 and also from the year 2018 to 2019, respectively. This particularly implies that the total current liabilities of the Company are substantially increasing as compared to the current assets.
- Solvency. This shows the long term debt ratios, and it measures the Company’s ability to meet for its long term obligations. The solvency ratio is given by total debt divided by total equity of shareholders, and therefore in Ford Company, the rate of 2019 was 4.72. It implied that the debt to equity while including the operating lease liability was higher than equity attributable to Ford Motor Company and hence whole number value. This ratio provides an insight into the certainty of the Company’s obligation to meet its debts, and therefore being an average ratio; it implies the financial strength of the Company is absolute.
- Financial leverage. This shows the extent to which the Company can affect others through the use of debt and its contribution to the total structure of the capital in the Company. The leverage position of the Company sometimes is contributed by the extensive capital extensive nature in relation to the automobile business, which may profoundly lead to the utilization of debt. The financial leverage ratio shows the Company’s ability to meets its financial obligations and may include the debt-equity ratio. The ratio is arrived at by dividing the adjusted total assets by adjusted total equity. In the year 2019, the Ford financial leverage was about 7.79.
- Asset Efficiency. This measures the Company’s ability to effectively generate revenues from its assets. The Ford Company’s equity turnover ratio is given by automotive revenue divided by equity attributable to Ford Company, and in the year 2019, this value was 4.33, and this implies that the proportion of Company’s sales is moderate and so is the revenue.
- Profitability. The profitability ratio of Ford Company as of 2019 financial year shows that the profit margin reduced as compared to the previous year. This implies that the Company made some losses that contributed to a low-profit margin.
- Market value. The market value ratio is used to show an evaluation of the current share price of a publicly-held company’s stock. The ratio of Ford Company as per the year 2019 is at 0.01, and this implies that the Company’s shares are moderately priced. This means that the market value is almost the same as the book value.
- Compare and Contrast the Ford Company, its Competitors, and Industry Averages.
Ford company competitors highlighted in the project include General Motors, Chevrolet, and Tesla. Perhaps there exist several competitors to this Company, which was earlier mentioned, such as Toyota and Mercedes; however, the competitors to elaborate on are; Tesla and General Motors. In the industry of automotive, the Ford Company has been receiving direct competition from the above three companies because of both majors on the selling of vehicles and automobiles, which are close substitutes. The comparison between the three shows in the year 2019 as per financial statements shows that there exist stiff competitions from the Tesla and Chevrolet against Ford Company. Ford and General Motors, which is owned by Chevrolet, exist in the same market share, and both were hit by a financial crisis in the year 2008, which saw Ford decline. The two companies have recovered together in the same period since the crisis. Furthermore, the statistics of financial analysis of last year shows that General Motors leads Ford in terms of revenue while Tesla is lagging behind due to expenses and costs. After comparing the income statement of the three firms, it is seen that General Motors made a higher income than all other two firms by far values. Tesla recorded a declining performance in the year 2019 as compared to the Ford Company. Ford Recorded total revenue of $155.9 billion in 2019, while General Motors had slightly higher revenue of $ 161.815 billion, and Tesla recorded lower revenue of $24.578 billion in the same year. The averages in the industry show that Toyota Company still leads worldwide in terms of global market share in 2019 by a rate of 9.5 %, and its followed closely by Volkswagen while Ford comes third in terms of market share with 5.8%.
- Ford Motor Company Strengths and Weaknesses.
Ford Motor Company has various strengths that contribute to its performance in the competitive market. One of the vital Company’s strengths is based on its research and development strategy, and this is seen in Ford Company’s commitment to design and develop new products. The Company is currently ranked as the fifth-largest automobile manufacturer worldwide, and this is based on its ability to meet the market needs and hence making significant sales. Furthermore, the strength of Ford Company is associated with its sharp brand image that has existed since the nineteenth century. Besides, the global supply chain is another strength, which the Company has tried to control and develop over the years. The Ford Company has effective innovation processes that keep it positioned among the leading automotive dealers worldwide. On the other hand, Ford Motor Company has weaknesses, some of which include threats such as competition and pricing of oil globally. Fluctuations in prices of oil, the new entry of high tech-firms, and an increase in competitive rivalry have been some of the major threats to the Company, which also affects its performance. Besides, Ford Company has a limited global scope of the production network, slows the innovation process that is accompanied by high costs compared to those of competitors and thus its weakness.
Ford Company Evaluation in Relation to Biblical Worldview.
The evaluation of Ford Company can be related to the bible verses that tend to prove or show concern to existence of success and also build strength in a given situation for instance like any other Ford Company still faces challenges and threats that tend to bring it down. According to Malachi 3:6, the Lord does not change, and therefore He is the core source of strengths and can prevent even the threats from happening. In Isaiah chapter 60, there is a chance to move from below to above through the help of the Lord, and light will be sent by way of those in darkness. According to Luke 17:2, the temptations exist as a reality, and they can influence anyone who is not strong enough. This relates to Ford Company based on weaknesses that are due to the Company’s lack of proper management, and if not catered for, they can lead to high losses.
Conclusion
In general, Ford Motor Company can exist beyond the limits set by competitors despite the making of losses in the 2019 financial year; the Company can beat all odds and realize its full potential in the future. The Company may come up with a new strategy to enable it to compete internationally, and hence its future is inevitable because the market for its products has already grown global. Besides, the Company is making strategies that will enable it to increase its mobility; for instance, Ford is strategizing to enter the Indian economy due to various outstanding favorable conditions. Nevertheless, the prospects of this Company is to become the leading automobile manufacturer worldwide since, over the last decade, the Company has faced many challenges but still managed to be among the best.