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Date: 15 11 2022

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Ford is an American company that was founded in Detroit, Michigan in the United States of
America on June 16th, 1903 when Henry Ford and 12 others invested $28,0000 and created the
Ford Motor Company. It is an automotive corporation that designs, markets, manufactures and
services a full line of cars, trucks, sport utility vehicles and electrified vehicles. (GlobalData Plc
n.d.)

Ford is one of the largest U.S based automaker companies, with its biggest competitor being
General Motors, with General Motors remaining the largest market shareholder in the United
States, controlling 17% of the industry’s total sales as of 2020, however, on a world-wide scale,
according to 2019 statistics, Toyota held the largest global market share, with Volkswagen being
second and Ford being third. From an analysis of the total revenue for 2020, General Motors’ total
revenue was $122 billion, whereas Ford’s total revenue was $127 billion.

The company operates worldwide in over 125 countries, including Canada, Mexico, The United
States, India, China, Turkey, Brazil, Argentina, Australia, the United Kingdom and South Africa.
Ford has different models which cater to a variety of customers, for instance, the Model T that
was a car for working-class, ordinary people instead of the rich and famous. (203 Words)
 Question 1 20 Marks

(700 words)

Business ethics is the study of how to cope with issues such as corporate governance,
whistleblowing, corporate culture, and corporate social responsibility. It focuses on standard norms
established by governing authorities. Noncompliance with company ethics results in unneeded legal
action. (Vaidya, 2022). Ethics in an organization are the set of practices and policies that companies
utilize to guide them through decisions about finances, negotiations, corporate social responsibility
and deals. A company requires a strong set of ethics to avoid breaking the law, encountering
financial pitfalls and moral dilemmas. (Limestone Blog 2021) Some examples of ethical behaviours
that employees should demonstrate are obeying the company’s rules, taking responsibility, effective
communication, mutual respect and trust for their colleagues, professionalism and accountability.
(Formplus Blog 2022) For the Ford company, the Code of Ethics apply to all employees including
contractors, colleagues, People Leaders, senior management and the board of directors and Ford
intention is to work with other businesses and people that share similar standards and values.
Failure to uphold the Code of Ethics at Ford through unethical, improper and illegal conduct would
result in disciplinary action, up to and including termination. It is the duty of the People Leaders to
manage staff with integrity putting people first and ensuring that their actions are in line with the
code. Additionally, it is their responsibility to support subordinates when they speak up, escalating
any issues to the proper channels. Valuing and encouraging technical and cultural competency are
also important for People Leaders to demonstrate and ensuring that employees know all the policies,
procedures and legal requirements that apply to their positions and functions.
Corporate governance is imperative for effective financial management and defined as both
the structure and the relationships which determine corporate direction and performance. The board
of directors is central to corporate governance and its relationship to other primary participants,
managers and shareholders is of utmost importance and it is the responsibility of the board to
implement a system of checks and balances with the objective of reducing conflicts of interest and
ensure that all shareholders and treated equally. (Mitratech n.d.) This also references the agency
theory, which is a concept used to explain the vital relationships between principals and their relative
agent, where the principal is someone who heavily relies on an agent to execute specific financial
decisions and transactions that could result in fluctuating outcomes. (CFI Education Inc. 2015) The
corporate governance framework depends on the legal, institutional, regulatory and ethical
environment of the community. It is a commitment to ensure that diversity, transparency,
accountability and fairness are upheld by the company. (McRitchie 2020)
One of the codes of Ford, which is aligned with the goals of corporate governance and
reducing the agency problem, is avoiding conflicts of interests. Ford implements this by having their
employees identify any potential conflicts, which should be disclosed as soon as possible, working
with the company to avoid any issues. All employees must disclose any personal or family financial
interests in organizations that currently, or intend to in the future, conduct any business with Ford.
Approval must be granted to any employee that finds themselves in a position that benefits them
personally from a transaction involving Ford, examples being buying products or services offered
by the company or family businesses of employees and approval must be given for supplemental
employment outside of Ford that could potentially interrupt job responsibilities.
 Another code stated for Ford is Anti-Bribery and Anti-Corruption, which if not adhered to, will
be detrimental to the company’s financial management. This is implemented by looking out for
behaviour that could constitute a bribe, knowing the rules and regulations pertaining to interacting
with other businesses, ensuring that these businesses are fully aware that Ford is committed to
doing transactions free from bribery and corruption. Due diligence must be conducted appropriately
on third parties that claim to be or interact with government officials. All business expenditures must
be recording, exercising transparency of the actual expense. This ties in with the agency problem
and asymmetry of information. Concealing the value of an expense is the act of purposely
withholding information, which can jeopardize the company legally and financially. The accuracy of
business records avoids legal trouble. (Ford.com n.d.) (701 Words)
 Question 2 20 Marks

(700 words)
Projected financial statements are formed by analysis of current trends and expectations to
provide the potential financial position of the company at a future date and this can be used for
decision-making purposes. (Bragg 2022) These financial statements can be utilized by internal and
external stakeholders to evaluate business performance and value and the basis for projected
financial statement are balance sheets (which is also referred to as the statement of financial
position), income statements and cash flow statements.

The projected statement of financial position us a report if Ford’s financial worth which
consists of assets, liabilities and shareholder equity, where assets like accounts receivable and cash
can indicate operational efficiency; liabilities indicate the company’s expenses and debt capital; and
shareholder equity which consists of details on equity capital investments and retained earnings
from periodic net income. Another projected financial statement that must be considered is the
projected income statement, which details the revenue that Ford earns against the expenses
involved in its business to provide the net profit or loss. The income statement analyses efficiency
through identifying the gross profit, which states the revenue and the direct costs involved with
revenue; operating profit that accounts for indirect expenses like marketing costs, depreciation and
general costs; and net income which is calculated by subtracting interest and taxes. The third
projection utilized is the projected cash flow statement, which is an overview of Ford’s operating,
investing and financing activities. Net income is utilized for the operating activities. Investing
activities include cash flows involved with firm-wide investments and financing activities include cash
flow from both equity and debt financing. The result is the amount of cash a company has available.
(Kenton 2022) Emphasis must be placed on reliability of the projected financial statements, which
indicates that the information present in the financial statements must provide the most accurate
and relevant information available.

Through financial ratios, Ford is able to evaluate their company’s performance over time,
uncovering potential signs of trouble and comparing it to similar businesses in the automotive
industry, where ratios measure the relationship between two of more components of financial
statements. (BDC.ca 2022) Profitability ratios can be utilized by investors and analysts to evaluate
and measure the ability of a company to generate income (profit) relative to revenue, balance sheet
assets, operating costs and shareholder’s equity during a specific period of time, displaying how
efficiently a company uses its assets to produce value and profit to shareholders. The indication of
a business with sound performance is a higher ratio or value of the generation of profits, revenues
and cash flow. These ratios are especially effective when they are analysed against the performance
of other competitors in the automotive industry. (CFI Team 2022) One such profitability ratio is the
net profit margin, which measures the net income of profit generated as a percentage of revenue.
The net profit margin assists investors with their assessment of a company’s management when it
comes to generating enough profit from its sales and if Ford’s operating and overhead costs are
under control. From the analysis of Ford’s income statement shown in Fig. 2, the net profit margin,
shown in Appendix A, for 2020 was calculated to be -1.01% and for 2021 was 13.16%, showing a
drastic increase in profits for Ford, although 13.16% is still considered average. Another profitability
ratio utilized to show Ford’s performance is the Return on Capital Employed (ROCE), which
measures how much operating profit a company makes from its capital employed. From Appendix
B, for 2020 the ROCE was calculated to be -0.66% and for 2021 was 10.69%. 2021 showed an
improvement, but is still isn’t an outstanding performance, considering Ford is one of the top
companies in their industry. This poor performance in 2020 and subsequently, 2021, was due
majorly to the global Covid-19 pandemic, which caused the decline of many businesses.
Liquidity ratios can also be utilized to analyse Ford’s performance, where the ratios used are
the current ratio and quick ratio. As seen in Appendix C, the current ratio for 2020 and 2021 was
1.20 which results in a 1.2: 1.2 ratio, showing no improvement over the 2 years. Ideally, a ratio of
2:1 would ensure the company has enough cover, so a 1.2: 1.2 was average. The quick ratios as
seen in Appendix D, for 2020 and 2021, were 1.09 and 1.07 respectively. There was a slight
decrease by 0.02 with a ratio of 1.09: 1.07, which is less than ideal. The current ratios showed more
promise than the quick ratios, but overall Ford showed to have some liquidity problems during the
height of the pandemic, but the ratio is above 1 which is average. (778 Words)
 Question 3 20 Marks

(700 words)

Risk is defined as unexpected events which are beyond control, which means a chance of
incurring losses or less profit than anticipated. The inability to control this factor can result in a
decline in profit or can also lead to a loss and risk is influenced by man factors, such as input costs,
sales volume, competition, per-unit price, government regulations and the overall economic climate.
(Toppr n.d.)

One of the types of risks that can affect Ford is financing risk, which refers to a business’
ability to manage debt and fulfil their financial obligations, where financial risk can rise due to
instabilities, losses in the financial market or movements in stock prices and interest rates. Another
type of risk that could affect Ford is liquidity risk, which is defined as the risk of incurring losses as
a result of the inability to meet payment obligations in a timely manner when they become due or
from the inability to do this at a sustainable cost. Referencing the liquidity ratios from Question 2, it
is shown that recently, Ford’s liquidity has not been the optimal ratio between 1.5 and 2 in the years
2020 and 2021, however, it is above 1 which is fair. If it was below 1, however, there would have
been severe liquidity problems. Delving further into 2020, an article titled “Ford Motor CFO stresses
‘maximizing liquidity’ amid Q2’s $5B operating loss,” in the second quarter of 2020, Ford Motor
Company was expected to lose about $5 billion, which was twice as large as anticipated by analysts,
on an operating basis as announced by CFO Timothy Stone. However, despite this huge operating
loss, Ford had enough money to last the rest of 2020. (Thier 2020) Companies or investors
possessing assets or business operations across national borders are subjected to currency risk,
creating unpredictable profits and losses. According to Brian Schaaf of Ford, historically, Ford has
dealt with foreign exchange risk associated with each currency exposure on an independent basis
by developing a portfolio view of foreign exchange exposures across the company to assess and
manage risk more holistically. (risk.net staff 2016) Credit risk can result in an increased cost of
collection and an interrupted cash flow. Through analysing the credit risk associated with each
borrower, there would be a resulting reduction in losses and fraudulent activities. (Vaidya 2022) In
order for Ford Motor Credit Co. to reduce credit risk, the implementation of machine learning credit
approval models helped determine if it will lend a consumer money, through analysis of the market
that doesn’t have a solid credit history. (PYMNTS 2017)

The financial gearing ratio is an indicator of the financial risk associated with a company.
According to the calculations in Appendix E, the financial gearing ratio for 2020 was 88.47% and
2020 was 81.08% in 2021. Due to both years having a gearing ratio higher than 50%, it is a highly
levered or highly geared ration, resulting in greater financial risks. According to Simply Wall St. and
Fig. 4 below which was extracted from the article, Ford Motor had a debt of US $128.8 billion at the
end of June 2022, a reduction from US $146.9 billion over a year, however, it also had US $28.2
billion in cash, making its net debt US $100.6 billion. (Simply Wall St. 2022)

Risk mitigation us the process of planning for disasters, with methods of reducing the negative
impacts, focusing on the inevitability of disasters and threats that cannot be entirely avoided. The
five steps taken to design a risk mitigation plan are; identifying all potential events in which risk is
presented, performing a risk assessment, prioritizing risks, tracking risks and implementing and
monitoring progress. (Lutkevich 2021) In May 2018, Meridian Magnesium Products, a plant vital to
Ford’s global supply chain, was shut down by a fire, ceasing all production of Ford’s popular F-150
Series pickup trucks, resulting in 7,600 workers being temporarily laid off and the ceased production
of about 35,000 vehicles. This supply chain crisis demonstrated the severe negative impact that
could affect Ford at any given time, giving rise to improved risk mitigation strategy. (Industry Today
2018) (688 Words)
 Question 4 20 Marks

(700 words)
Financing refers to the process of raising funds or capital for any type of expenditure, through
channelling various funds in the form of loans, credit or invested capital to those economic entities
that most need them or can put them to the most productive use. (Britannica 2022) In order to survive
and grow, businesses are required to maintain adequate funding. The flow of cash to and from
lenders and owners, also known as financing activities, provide insight into a company’s capital
management and financial health. Changes in cash over a given period is tracked through the use
of a cash flow statement, which consists of three sections; operating activities, financing activities
and investing activities. Financing activities include borrowing and repaying short-term and long-
term debt, issuing and repurchasing equity, paying dividends and sourced from other contributions
from or distributions to owners. (Sylvester 2022) Ford’s financing mainly comes from automotive
sales, however, in 2021, the only operating segment of Ford to report positive earnings was Ford
Credit, as measured by earnings before interest and taxes.

When analysing financing activities, it is important to look at short-term and long-term sources
of finance, from both internal and external sources. Short-term constitutes a period of less than one
year and there are three main sources of short-term external finance, being trade credit, overdrafts
and debt factoring. For long-term sources, which is defined by a time period of 5 years and over,
the two main factors are debt or share (equity) finance, where sources of long-term external debt
finance include equity finance/share capital, government grants and subsidies, venture capital, loan
capital/long-term bank loan and business angels. For internal sources of finance, the funds must
come from within the organization. Examples of internal sources of finance include personal funds
in the event where there is a sole trader with personal savings or borrowing from family; retained
profits where remaining profits after government tax and dividends are paid out, where investing the
retained profits back into the business is considered a significant source of expansion finance; sale
of assets where an organization may sell machinery or even subsidiaries to generate cash in the
event where they are not fully utilized or profitable. However, in a liquidity crisis, organizations are
often forced to sell assets that are necessary. (Clark 2021)

There are several advantages and disadvantages of internal and external sources of finance.
For internal sources of finance some advantages are; Internal sources of finance improve the
planning process in business when utilizing internal finance, once the business has the cash
available to expend. Spending the money that a business generated for a project result in positive
spending habits and less waste on unimportant things. Another advantage is that internal sources
of finance lower the overall cost of projects, as opposed to borrowing and paying interest from an
external source of finance. Lastly, the business can sustain complete control when relying on the
use of its internal sources of finance without the worry of not meeting repayment obligations.
Conversely, the disadvantages of internal sources are the increase in time to complete projects, the
requirement of accurate estimations to be successful and the adverse effect on the operating
budget. (StudySmarter UK 2022)
The matching principle of finance can be defined as a process of matching the expenses of
a company with the associated revenues for the financial period. The principle, based on the accrual
method of accounting, emphasises that a company’s income statement will reflect not only the
revenue for the period reported, but also the costs associated with those revenues. (Williams 2020)
As seen in Ford’s consolidated income statement in Fig. 2, for 2019 and 2020, the total revenue
was less than the actual expenses incurred for those respective years, meaning that the matching
principle of finance was not properly implemented. (632 Words)
 Question 5 20 Marks

(700 words)
Where the financial factors affecting a business are of utmost importance in investment
appraisal, there are several non-financial factors a business must take into consideration, which can
include fostering positive relationships with customers and suppliers; keeping up to industry
standards and good practice; meeting the requirements of current and future legislation; improving
staff morale, which would make it easier to recruit and retain employees, anticipating and dealing
with future threats and lastly, developing the capabilities of your business.

Peter Atrill (2020) stated the following non-financial factors considered in investment decision
making; strategy, where the overall strategy of a company needs to be taken into consideration;
flexibility, where an organisation that seeks to retain flexibility might avoid otherwise profitable
investment opportunities; creditworthiness, where the provider of the source of finance has to be
assessed; capability, where a business possesses the skills, experience and resources required for
investment and; market reaction/competition, which is the response of competitors to a company’s
decision to accept or reject an investment (Atrill 2020)

The Ford Motor Company has a Ford+ plan for growth and value creation, combining existing
strengths with new capabilities, fostering interactive and prosperous relationships with customers to
improve their experiences and encourage loyalty of those customers. The intention of the
organisation is the build a better world, with vehicles accessible to every person, regardless of
financial status. Ford develops and delivers innovative cars, vans, sport utility vehicles, Ford trucks
and Lincoln luxury vehicles as well as additional services, such as Ford Credit. The impact of the
Covid-19 pandemic severely affected the financial position of Ford, but the company is recovering
and returning to being one of the most successful organizations in the automotive industry. (Ford
Media Centre 2022) This is a demonstration of Atrill’s (2020) non-financial factor, strategy.

With the global crisis of the Covid-19 pandemic, in 2021, a majority of Ford Motor’s
approximately 86,000 employees globally were unable to return to work, until the company
demonstrated its flexibility by implementing a hybrid work schedule. This hybrid work schedule
enables an employee to work remotely; where how much remote work allowed is dependent on their
job responsibilities in addition to discussion with their managers. (Wayland 2021) The adjustment of
work schedules in order for Ford to survive as an organisation amidst the pandemic is proof of the
flexibility of the company, which is another non-financial factor to be considered for an investment
decision.
In 2021, shares of Ford Motor Co. rose by 1.4% in morning trading, after S&P Global ratings
shifted to a positive outlook on Ford’s credit, from the previous negative outlook, due to the positive
results of ongoing cost-reduction programs, leaner inventories and favourable product pricing.
Ford’s credit rating in 2021 was rated BB+, which is the highest speculative grade or “junk” rating,
therefore, an upgrade would increase the creditworthiness of Ford to a suitable investment-grade
status. Amidst the height of the Covid-19 pandemic, Atrill’s creditworthiness factor made it a bad
investment decision to invest in Ford, but due to new methods being implemented and recovery,
Ford will be a worthy investment in the upcoming years. (Kilgore 2021)
 According the Ford press release seen in Fig. 5, in the third quarter of 2022, Ford fulfilled
earnings guidance, resulting in strong cash flow that would accelerate development. Despite supply
chain drawbacks, revenue was up by 10%, which exceeded recent guidance. The quarter ended
with strong cash of $ 32 billion and liquidity of $49 billion, and the anticipated EBIT was adjusted to
approximately $11.5 billion, which was up by about 15%. These accomplishments as seen in the
third quarter set Ford up for a solid finish, despite the many challenges faced throughout the year,
setting up for a strategically quick start to 2023. Recent improvements have proven the capability of
Ford, making it a feasible potential investment decision.

In order for Ford to remain a good investment decision in relation positive market
reaction/competition, the company must employ, for example, a differentiation strategy, to appear
more appealing than top competitors such KIA, Hyundai and Toyota. Differentiation occurs when a
company decides to do something out of the ordinary in comparison to its competitors. In the case
of Ford, the cost of this new feature must be affordable and possess reasonable expectation that
the customers will pay a higher price for the product. One of the methods of differentiation is the
development of vehicles into mobile centres of communication and entertainment, where the
MyFord Touch entertainment provided the first system that allows a driver to safely engage with
technology through syncing with smart phones and verbal commands, along with unique apps. (Built
Tough-Ford n.d.) (770 Words)

Total: 3,569 Words

Reference list

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 Appendix

Fig.1: Ford Statement of Financial Position

Fig 2. Ford Income Statement
Fig 3. Ford Cash Flows Statement
Source: https://images.simplywall.st/asset/chart/106335-debt-equity-history-analysis-1-
dark/1661165439437 [Accessed: 08 November 2022]

Fig. 4: Debt to Equity History

Source:
https://media.ford.com/content/dam/fordmedia/North%20America/US/2022/10/26/2022ford_final_3
q.pdf [Accessed: 15 November, 2022]

Fig.5: Ford Q3 Report dated October 26th, 2022

A:

Net Profit Margin, 2020= Net income after tax/sales revenue= ((1279)/127,144)*100= -1.01%

Net Profit Margin, 2021= 13.16%

B:

Return on Capital Employed (ROCE),

2020= net profit before tax, interest and dividends/total assets

= (-1,116)/ (267,261-97,192) = -0.66%

2021= 17,780/ (257,035- 90,727) = 10.69%

C:

Current ratio: current assets/current liabilities

2020= 116,744/97,192= 1.20

2021= 108,996/90,727= 1.20

D:

Quick ratio: current assets-inventory/current liabilities

2020= 116,744- 10,808/97,192= 1.09

2021= 108,996- 12,065/90,727= 1.07

E:

Financial gearing= debt/(debt+equity) x 100

2020= 236,450/267,261 x 100= 88.47 %

2021= 208,413/257,035 x 100= 81.08%