Ford Motor Corporation: Company Analysis

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The Company’s Financial Forecast

The objective of Ford Motor Corporation is similar to that of other organizations, which is the minimization of profit in order to maximize financial performance. The firm reduces its incurred costs by utilizing cheap but quality raw materials including training of its staff. The performance of the company for the third quarter of 2012 indicates that it made a net profit of $1,631 as compared to a similar period in the 2011 financial period. Given the economic performance of the U.S., the company’s performance is expected to experience some gradual improvement over time. The extrapolation technique will be used to forecast the performance of the company based on the third-quarter performance of 2012, the last 2 quarters of the 2012 financial period and the performance of the other four quarters of 2011 (Duchac, Reeve & Warrel, 2011).

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The method of extrapolation forecasts the performance of the organization beyond the current performance while including the uncertainties experienced in the U.S. economy. In order to use this method, it is important to obtain the previous performance of the company for the last seven quarters of the 2012 and 2011 financial periods. After that, data will be extrapolated for the next four quarters. The method makes an assumption that the economy of the U.S. will continue with its current performance similar to what has been experienced in the last two years, 2011 and 2012. From the extrapolated results in the excel spreadsheet attached, the forecast performance of Ford Motor Corporation for the last four quarters are given as

Quarter Pre-tax Profit (mil. $)
2011Q1 2776
2011Q2 2606
2011Q3 1846
2011Q4 1965
2012Q1 2038
2012Q2 1595
2012Q3 2246
2012Q4 1664.571
2013Q1 1542.429
2013Q2 1420.286
2013Q3 1298.143

The above data indicates the pre-tax performance of Ford Motor Company for the 2011 and 2012 performance up to the third quarter. The pre-tax profit of the company for the last four quarters shown above has been forecast using extrapolation with the assumption made being that the U.S. economy will not show stability but fluctuation over the next four quarters. Therefore, the performance of the company will keep on fluctuating downwards as its performance reduces as shown (United States Securities and Exchange Commission, 2012).

Financial Ratios

Solvency ratios denote the ability of the Ford Motor Corporation in meeting its long-term obligations, especially during this difficult economic period. The ratio indicates the income of the Ford Motor Corporation after taxation while excluding non-cash expenses. The ratio is established through the division of the sum of after-tax profit and depreciation by the sum of all liabilities as shown.

2012Q3 = ($1,631+ $800)/$184,680 = 0.0131

2011Q3 = ($1,649+ $800)/$178,348 = 0.0137

The above ratio for the two periods is low and it therefore implies that the company faces difficulties in meeting its long term obligations and this is one feature that makes the firm less attractive to investors (Hansen, 2000).

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The ratios denoting the profitability of the firm were many and are very significant to investors interested in Ford Motors. The ROA is an indicator of the profitability that the Ford Motor Corporation realizes as compared to its assets that are distributed in various regions. Established through the division of net income by total assets, the ratio for the firm for the third quarter in 2012 was 0.0088 as compared to 0.0092 that was realized in a similar period in 2011. This ratio is too low and it indicates that the firm is not realizing any income in relation to its available assets.

The net profit margin is another important ratio to investors since it determines the extent to which the firm is realizing income from its operations. Since investors only earn dividends when the firm realizes a profit, the ratio determines the extent to which investors could invest in the company. The net profit margin for Ford Motors for the third quarter in 2012 was 0.05 as compared to 0.049 in a similar period in 2011. The ratio is still low and not a good pointer to investors. From the ratio analysis, it is clear that the performance of Ford Motors is not attractive to investors since investors are not sure of the company’s future going concerned or profitability, which does not guarantee them income on their invested funds (Hansen, 2000).

Strategies Recommended

Companies grow from one small company to become large multinational corporations operating in various countries across the world. The growth that firms undergo involves many aspects, one of them being mergers and acquisitions. According to the United States Securities and Exchange Commission (2012), the Ford Motor Corporation has a risk-averse opportunistic strategy that seeks to establish long-term growth in the value of the firm’s shareholders.

In order to maximize its profits, the firm needs to seek low-cost raw materials, especially labor. The outsourcing strategy is one of the strategies that the firm can pursue in order to meet this objective. The U.S. is capital intensive, which makes labor costly. The firm should seek to outsource its manufacturing services outside the U.S. to other countries that are labor-intensive such as China and India. Through this strategy, the firm will minimize its incurred costs, especially labor while maintaining the quality of its manufactured products (Duchac, Reeve & Warrel, 2011).

Similarly, the firm can be involved in mergers and acquisitions of foreign firms especially in lucrative markets such as in markets the firm outsources labor. This strategy is significant for the firm since it will enable the firm to diversify and expand its operation outside the U.S. market, which is mature, almost saturated and very competitive. By utilizing outsourced employees, the firm can venture into other markets at a low cost through the use of either joint ventures, mergers or acquisition strategies.

The Impact of denied Government ‘Bail out’ on Ford Motor Corporation

The global financial crisis that affected the U.S. economy affected many companies, Ford Motors Corporation included. The company realized reduced operations and therefore poor performance especially from the revenue realized. The U.S. government bailed out insolvent companies, though Ford Motors was one of the companies that were bailed out. The failure of the government to bail out the company has various implications. To begin with, it is the reason the firm is undergoing a poor performance since it is struggling to recover from the effects of the recessions. The performance of Ford Motors has been fluctuating with a downward trend being realized especially after the recession and the trend is likely to continue unless the company employs various strategies some of which are highlighted above.

The denied bailout scared investors because the company’s performance is poor yet investors are only attracted to well-performing companies that can enable them to earn income on their invested funds. With no investors, even existing investors may pull out of the company thereby making it insolvent and bankrupt.

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On the contrary, bail from the federal government could have boosted the company’s solvency and liquidity thereby enabling it to meet its obligations. This could have attracted more investors, which means more capital, growth and expansion of the company to various countries across the globe. The performance of the company would be good and attractive to more investors.

References

Duchac, J., Reeve, J. & Warrel, C. (2011). Principles of Finance and Managerial accounting. Boston: Pearson international.

Hansen, W. (2000). Financial Management. New Jersey, NJ: Prentice Hall. 2000.

United States Securities and Exchange Commission, (2012). Ford Motor Company: Quarterly Report on Form 10-Q. Washington, DC.: United States Securities and Exchange Commission.

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