FORD MOTOR COMPANY IB1401 2019 JUN

TRUONG DINH PHU 1

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

TRUONG DINH PHU 2

FORD MOTOR COMPANY IB1401 2019 JUN

I. 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 3

FORD MOTOR COMPANY IB1401 2019 JUN

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

3 3

2.23
2

1 0.96

0
2015 2016 2017 2018 2019

Return on Investment

Source:www.stock-analysis-on.net

TRUONG DINH PHU 4

FORD MOTOR COMPANY IB1401 2019 JUN

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

2018 2017 2016

Gross profit margin 8.11% 9.83% 10.85%
Operating profit margin 2.16% 3.30% 4.06%
Net profit margin 2.48% 5.22% 3.25%
Return on equity (ROE) 10.23% 21.79% 15.76%
Return on assets (ROA) 1.43% 2.95% 1.93%

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

TRUONG DINH PHU 5

FORD MOTOR COMPANY IB1401 2019 JUN

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
Selected Financial Data (USD $ in millions)
Current assets 114,649 115,902 108,461
Current liabilities 95,569 94,600 90,281
Ratio
Current ratio 1.20 1.23 1.20
Benchmarks
General Motors Co. 0.92 0.89 0.89

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 short-
term marketable securities.
2018 2017 2016
Selected Financial Data (USD $ in millions)
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
Total cash assets 88,304 91,137 85,093
Current liabilities 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

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

TRUONG DINH PHU 6

FORD MOTOR COMPANY IB1401 2019 JUN

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
Selected Financial Data (USD $ in millions)
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
Trade and other receivables, less allowances 11,195 10,599 11,102
Total quick assets 99,499 101,736 96,195
Current liabilities 95,569 94,600 90,281
Ratio
Quick ratio 1.04 1.08 1.07
Benchmarks
General Motors Co. 0.73 0.68 0.66

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.
2018 2017 2016
Selected Financial Data (USD $ in millions)
Net income attributable to Ford Motor Company 3,677 7,602 4,596
Total assets 256,540 257,808 237,951
Ratio
ROA ( Return on Assets ) 1.43% 2.95% 1.93%
Benchmarks
General Motors Co. 3.53% -1.82% 4.25%

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

TRUONG DINH PHU 7

FORD MOTOR COMPANY IB1401 2019 JUN

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
Selected Financial Data (USD $ in millions)
Net income attributable to Ford Motor Company 3,677 7,602 4,596
Equity attributable to Ford Motor Company 35,932 34,890 29,170
Ratio
ROE 10.23% 21.79% 15.76%
Benchmarks
General Motors Co. 20.62% -11.04% 21.51%

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.

TRUONG DINH PHU 8

FORD MOTOR COMPANY IB1401 2019 JUN

USD $ in millions 2018 2017 2016

Automotive revenues 148,294 145,653 141,546
Cost of sales (136,269) (131,332) (126,183)
Gross profit 12,025 14,321 15,363
Ford Credit revenues 12,018 11,113 10,253
Mobility revenues 26 10 1
Selling, administrative, and other expenses (11,403) (11,527) (10,972)
Ford Credit interest, operating, and other (9,463) (9,104) (8,904)
expenses
Operating income 3,203 4,813 5,741
Interest expense on Automotive debt (1,171) (1,133) (894)
Interest expense (1,228) (1,133) (894)
Net periodic pension and OPEB income 786 1,757 (1,625)
(cost), excluding service cost
Investment-related interest income 667 459 291
Interest income (expense) on income taxes 33 2 3
Gains (losses) on changes in investments in 42 14 139
affiliates
Royalty income 491 678 714
Other 113 380 489
Other income (loss), net 2,247 3,267 169
Equity in net income of affiliated companies 123 1,201 1,780
Income before income taxes 4,345 8,148 6,796
Provision for income taxes (650) (520) (2,189)
Net income 3,695 7,628 4,607
Net income attributable to Ford Motor 3,677 7,602 4,596
Company

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

TRUONG DINH PHU 9

FORD MOTOR COMPANY IB1401 2019 JUN

V. 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

TRUONG DINH PHU 10