The Financial Analysis Of Ford Motor Co (Term Paper Sample)
Part I: It is a brief overview to explain how the financial analysis will be conducted, and it includes 1) the data you used for your company (the financial statements collected from the Capital IQ), the time span of your database; 2) the rival(s)/competitor(s) you choose for the cross-sectional analysis, the data and the time span of the rivals/competitors, etc.; 3) how would you conduct the financial analysis, or what methods you are using for your analysis, i.e., the financial ratio analysis and/or Du Pont Identity analysis, or if you also add cash flow statement analysis, etc.
Part II: The Financial analysis - a detailed financial ratio analysis is required. Use charts and tables to present the financial ratios and your research results. Remember to explain the numbers you are presenting, and your assessments and comments about the company's operating performance and financial status. The part II is the main body of the paper you will hand in for the second assignment (also Parte explained in b);
Part III: a brief summary/conclusion of what you have found out through your study, and your assessment of the firm's operating performance and financial standing. A bibliography shall be included at the end of your paper (The format shall be APA style.)
The second assignment shall include the cover page, your financial analysis, charts, tables, footnotes, and bibliography. You can attach the financial statements that you worked out as an appendix of the paper; while the attachment is not counted in the page limit.
Financial analysis provides information on the financial performance of an organization and various ratios include items from the balance sheet and the income statement and at other times the cash flow statement. Profitability, return on Equity (ROE) and return on assets (ROA) guide Ford Motor Co when making investment decisions (Rakićević et al., 2015). Comparison of changes in financial rations over years and within an industry provides insights on performance and areas that require improvement for a firm to be more competitive. Financial analysis on Ford will focus on accounting ratios and will be compared with those of General Motors, and will highlight the profitability ratios, credit ratios, asset utilization ratios, liquidity ratios and cash flows. The liquidity ratios measure the ability of the firm to meet their short-term obligations and represents solvency.
The current ratio is the most common liquidity ratio and is the current assets divided by the current liabilities, the current ratio for Ford Company in the five years were1.82, 1.74, 1.25, 1.2 and 1.23 as the current liabilities were higher than the current liabilities. On the other hand, the current ratios for GM were below 1 from 2015-2017 were below 1. Hence, Ford has a better ability to meets the short-term obligations, and the working capital which is the difference between current assets and liabilities is also positive when the current ratio is above 1. Since the inventory is included in calculating the current ratio, it may not be the best measure to assess liquidity and is excluded from the current assets when calculating the quick ratio. Ford still had quick ratios above 1 in the five year period indicate that the firm is in a better position to generate cash from the liquid assets. Ford Moro more leveraged as uses a higher proportion of debt in financing activities as is also indicated in the debt to equity ratio and the long-term debt ratio.
Considering the capital structure and financial strength, and General Motors is in a slightly better position since the company reported lower debt-to equity. The debt levels depend on the current portion of long-term debt, the long-term debt and capital lease obligation. High debt levels may threaten automotive industry similar to the 2007-2009 financial crisis, which affected the industry’s liquidity (Acharya, Schaefer & Zhang, 2015). Since Ford had higher debt-to-equity ratios in the past five years compared to General Motors, the company will spend more to pay off the debt obligations and the challenge then is whether Ford can increase the tangible assets to cover debt, while General Motors has better ability to pay off the debt. Additionally, the levels of debt influence the ROE% since higher debt investment is associated with higher financial leverage. Foreign currency risks affect the automotive industry and Ford is exposed to this risk because of the high proportion of exports in sales and both companies also borrow other currencies other than the US dollar.
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