FORD - Truong DINH PHU - FORD MOTOR FINANCIAL ANALYSIS PDF

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FORD MOTOR FINANCIAL ANALYSIS...

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FORD MOTOR COMPANY

IB1401

2019 JUN

Contents I.

Executive summary ................................................................................................................. 3

II.

Introduction ............................................................................................................................ 3

III.

Financial Ratio Analysis ....................................................................................................... 4

1.

Productivity Ratios .............................................................................................................. 4

2.

Liquidity Ratios .................................................................................................................... 6

3.

Profitability Ratios............................................................................................................... 7

IV.

Financial Performance and Projections .............................................................................. 8

V. Evaluation.............................................................................................................................. 10 VI.

Citations. ............................................................................................................................ 10

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FORD MOTOR COMPANY

I.

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2019 JUN

Executive summary

The goals and objectives of this financial report are to value the common stock of Ford Motor Company and provide a briefly information about Ford’s financial in 3 years the most recently which are 2016 to 2018. Quantitative and qualitative data about Ford Motor Company, its competitors, and the markets it operates in were analyzed for this report. With some examples of financial figures from GM ( Generals Motors ) the heaviest competitor of Ford Motos in this industry to have the accurate evaluation of the ability of financial management of Ford Motor Co. The company generated USD 160 billion in revenues for the fiscal year ended December 2018, which accounts for an increase of 2.27 percent over the previous fiscal year. In the Letter from the Executive Chairman, William Clay Ford said that Ford has earned its eighth consecutive year of solid earnings and positive operating cash flow. Ford also distributed more than USD 15 billion to the shareholders since 2012.

II.

Introduction

Ford Motor Company (Ford and ‘the company’) is an American automobile company with its base in Dearborn, Michigan, suburb of Detroit. Henry Ford started the Ford Motor Company on the 16th of June, 1903 and its core operations include the activities of designing along with manufacturing, financing, marketing as well as servicing a wide range of cars, trucks, SUVs, and even luxury vehicles. The company manufactures and distributes a wide range of vehicles marketed under Ford and Lincoln brands across six continents. Ford primarily operates five geographic segments: North America, Europe, South America, Middle East and Africa, and Asia Pacific. In 2018, Ford sold approximately 6,607,000 vehicles (wholesale) throughout the world.

Figure 1. Wholesales by region in 2018 ( in thousands of units ) 5% 2%

24% 45%

24%

North America

Asia Pacific

Europe

South America

Middle East and Africa

Source: Ford’s 2018 Annual Report TRUONG DINH PHU

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FORD MOTOR COMPANY

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The company's operating activity consists of four operating segments: Automotive, Financial Services, Ford Smart Mobility LLC, and Central Treasury Operations. The Automotive segment deals in the process of selling, developing, manufacturing, designing, distribution of Ford and Lincoln brand vehicles, as well as their accessories and service parts. In 2018, the Automotive segment reported revenues of approximately USD 145.65 billion, which accounted for 92.9 percent of the company's total revenue. The financial segment comprises wholly owned subsidiary Ford Motor Credit Company, LLC. The credit segment offers varieties of credit along with financial products to automotive dealers and through these dealers to other retailers. Through this arrangement, the company draws its revenue from retail installment payments as well as lease contract payments. In 2018, the Financial Services segment reported revenues of approximately USD 11.11 billion, which accounted for 7.1 percent of the company's total revenue.

III.

Financial Ratio Analysis 1. Productivity Ratios

The fixed asset turnover ratio tells an investor how effectively a company is using its fixed assets to generate revenues. The average fixed asset turnover ratios of 3.99x and 3.07x indicate that Ford and GM’s fixed asset investments help generate 3.99 and 3.07 times revenue, respectively. This means that Ford has been efficient at generating revenue form such investments. Ford shows an average of 1.62 times lower ratio of Days’ Sales in Receivables (DSO) compared to GM within the same time period. Thus, a high DSO number shows that GM is selling its product to customers on credit and taking longer to collect payment Figure 2. ROI values for Ford Motor over last 5 years ( % ) 7 6

5.85

5.85

5 4 3

3 2.23

2 1

0.96

0 2015

2016

2017

2018

2019

Return on Investment

Source:www.stock-analysis-on.net

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FORD MOTOR COMPANY

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Ford has a conservative policy regarding its extension of credit which can be a good thing for customers who are more likely to take a long time in paying their debts. The inventory turnover ratio examines how efficient a company was in turning around its inventory. Ford’s average inventory turnover was 17.53 times whereas GM’s was at 11.86 times a year. A higher inventory turnover is better as it shows Ford is more efficient in managing their inventories.

Figure 2. ROI values of Ford's over the last 5 years

Gross profit margin Operating profit margin Net profit margin Return on equity (ROE) Return on assets (ROA)

2018 8.11% 2.16% 2.48% 10.23% 1.43%

2017 9.83% 3.30% 5.22% 21.79% 2.95%

2016 10.85% 4.06% 3.25% 15.76% 1.93%

Table 1. Ford's Profitability Ratios from 2016 – 2018

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FORD MOTOR COMPANY

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2. Liquidity Ratios The current ratio of Ford shows a promising result of 1.20 in 2018. A high ratio indicates a high level of liquidity and less chance of a cash squeeze. In this case, we will use the figures from GM motors as a benchmark to compare the trend as well as the financial ability of Ford Motor Co. The current ratio of GM is 0.92 in 2018, which suggests that GM may have a risky strategy that could cause liquidity problems for the company in terms of liquidation. It indicates that if GM liquidated all its current assets at the recorded value, it would only be able to cover 92% of its current liabilities. Moreover, a current ratio that is too high, may indicate that the company is carrying too much inventory, allowing accounts receivables to balloon with lax payment collection standards or simply holding too much in cash. 2018

2017

2016

Current assets

114,649

115,902

108,461

Current liabilities

95,569

94,600

90,281

1.20

1.23

1.20

0.92

0.89

0.89

Selected Financial Data (USD $ in millions)

Ratio Current ratio Benchmarks General Motors Co.

Table 2. Current Ratios of Ford Motors over the last 3 years

The cash ratio of Ford averages of 0.90x within the time period, which suggests that the firm can cover all of its current liabilities with its cash and short-term marketable securities. Conversely, GM suffered in paying off its current liabilities due to its low cash ratio averaging at only 0.30x, meaning the firm can cover only 30% of its current liabilities with its cash and shortterm marketable securities. 2018

2017

2016

Cash and cash equivalents

16,718

18,492

15,905

Marketable securities

17,233

20,435

22,922

Ford Credit finance receivables, net

54,353

52,210

46,266

88,304

91,137

85,093

95,569

94,600

90,281

Ratio Cash ratio

0.92

0.96

0.94

Benchmarks General Motors Co.

0.33

0.31

0.29

Selected Financial Data (USD $ in millions)

Total cash assets Current liabilities

Table 3. Cash Ratio values of Ford Motors over the last 5 years

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FORD MOTOR COMPANY

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The quick ratio of Ford averages of 1.06 in the last three years, which indicates that a company has the ability to meet its short-term obligations using its quick current assets. On the other hand, GM’s average quick ratio is 0.70 in the last three years, which tells that GM cannot currently pay back its current liabilities. The higher quick ratio means that the company has more current assets to satisfy current liability needs 2018

2017

2016

16,718

18,492

15,905

Marketable securities

17,233

20,435

22,922

Ford Credit finance receivables, net

54,353

52,210

46,266

Trade and other receivables, less allowances

11,195

10,599

11,102

99,499

101,736

96,195

95,569

94,600

90,281

1.04

1.08

1.07

0.73

0.68

0.66

Selected Financial Data (USD $ in millions) Cash and cash equivalents

Total quick assets Current liabilities Ratio Quick ratio Benchmarks General Motors Co.

Table 4. Quick ratio values for Ford Motor over the last 3 years

3. Profitability Ratios Return on Assets (ROA) measure how efficiently a firm utilizes its assets. A high ratio means that the company is able to efficiently generate earnings using its assets. Ford has an average ROA of 2.10 percent for the period 2016-2018. GM had a lower average ROA than Ford in the last three years at 1.98 percent. Selected Financial Data (USD $ in millions) Net income attributable to Ford Motor Company Total assets Ratio ROA ( Return on Assets )

2018

2017

2016

3,677

7,602

4,596

256,540

257,808

237,951

1.43%

2.95%

1.93%

3.53%

-1.82%

4.25%

Benchmarks General Motors Co.

Table 5. ROA Return on Assets of Ford Motor Co over the last 3 years

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FORD MOTOR COMPANY

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The Return on Equity (ROE) measures the level of income attributed to shareholders against the investment that shareholders put into the firm. Ford has ROE of 21.79% percent while GM’s ROE was-11.04 percent in 2017 due to GM’s a high deferred income tax expense resulting from negative net income for the year. Then in 2018, Ford has decrease the ROE to10.23 percent while GM’s ROE have increase enormously to 20.62 percent. 2018

2017

2016

3,677

7,602

4,596

35,932

34,890

29,170

10.23%

21.79%

15.76%

20.62%

-11.04%

21.51%

Selected Financial Data (USD $ in millions) Net income attributable to Ford Motor Company Equity attributable to Ford Motor Company Ratio ROE Benchmarks General Motors Co.

Table 6. ROE Return on Equity of Ford Motor Co. over the last 3 years

IV.

Financial Performance and Projections

According to Ford’s income statement from 2016 to 2018, the company’s net profit has experienced different shifts over the financial periods. Ford posted its highest income of USD 7,628 million in 2017. In 2018, the company reported the lowest income of USD 3,695 million. This shift in performance could result from different production methods and marketing trends affecting the company. Ford’s total costs as a percentage of net sales were lowest in 2017 which reflects a more efficient cost management and ability to generate higher income. Ford’s average net income as a percentage of net sales is 3.98 percent for the last three years.

Ford has consistently had strong and increasing cash flows from operating activities, and has generated positive net cash flows for 2 out of the last 3 years. Ford’s dividend cash payouts have been growing at a steady and predictable rate for the last 3 years, which is expected with their dividend policy. Based on last three years of financial data, Ford’s revenue is projected to increase average in future years even their revenue decrease a bit in 2018.

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FORD MOTOR COMPANY

USD $ in millions

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2018

2017

2016

148,294

145,653

141,546

(136,269)

(131,332)

(126,183)

12,025

14,321

15,363

12,018

11,113

10,253

26 (11,403)

10 (11,527)

1 (10,972)

Ford Credit interest, operating, and other expenses Operating income

(9,463)

(9,104)

(8,904)

3,203

4,813

5,741

Interest expense on Automotive debt

(1,171)

(1,133)

(894)

Interest expense Net periodic pension and OPEB income (cost), excluding service cost

(1,228) 786

(1,133) 1,757

(894) (1,625)

Investment-related interest income Interest income (expense) on income taxes

667 33

459 2

291 3

Gains (losses) on changes in investments in affiliates Royalty income

42

14

139

491

678

714

113

380

489

Automotive revenues Cost of sales Gross profit Ford Credit revenues Mobility revenues Selling, administrative, and other expenses

Other

2,247

3,267

169

Equity in net income of affiliated companies Income before income taxes

Other income (loss), net

123 4,345

1,201 8,148

1,780 6,796

Provision for income taxes

(650)

(520)

(2,189)

3,695

7,628

4,607

3,677

7,602

4,596

Net income Net income attributable to Ford Motor Company

Table 6. Income Statement of Ford Motor Co. over the last 3 years

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FORD MOTOR COMPANY

V.

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Evaluation

Ford faces great competition from existing companies around the world, which include General Motors, Tesla, Toyota Corporation, Volkswagen Group, and Daimler AG among others. Therefore, Ford is able to satisfy customers with the help of its experts focused on manufacturing quality products. In terms of the global market share of automobiles, Ford Motor Company is ranked 3rd with car sales of approximately 5,329,000 in 2018 (Global car sales analysis 2018). With Ford’s common stock of Fords of USD 9.99. Based on this valuation and details from the financial analysis, I recommend you should not hold shares in Ford Motor Company at this moment.

VI.

Citations.

Demandt, Bart, et al. “Global Car Sales Analysis 2018.” Carsalesbase.com, 1st Mar. 2019, “People.” CORPORATE GOVERNANCE, Ford Motor Company, “Our Sustainability Strategy.” Ford Corporate, Ford Motor Company, “FINANCIALS.” Final-Annual-Report-2017, Ford Motor Company, 15 Mar. 2018 “Summary for Ford Motor Company.” Yahoo! Finance, Yahoo!, 7 Dec.2018 Daimler. “Annual Report & Full Year Results 2017.” Daimler, 1 Feb. 2018 “Company Financials.” Mergentonline.com, Mergent Online “FINANCIALS.” Final-Annual-Report-2018, Ford Motor Company, 16 Mar. 2019

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