Ford Motor Company: Financial Statement Analysis

Date:  2021-03-13 21:27:10
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Ford Motor Company was founded by Henry Ford and subsequently incorporated in June 1903. It has its headquarters in Dearborn, Michigan, US. The company operations involve the production and sake automobiles and commercial vehicles under the Ford brand and Lincoln as its luxury cars. The entity reported revenues for the fiscal year 2015 was $149.5 billion with a net income of $7.6 billion.

Ratio Analysis

Valuation ratio

Valuation ratio encapsulates a measure of how security is expensive or cheap in comparison to some measure of profit or value CITATION Tay10 \l 1033 (Taylor, 2010). It comprises of the Earning per Share, Dividend Payout Ratio, and Price Earnings ratio.

Earnings per Share

The ratio substantiates the amount of money each share at Ford Motor Company will receive when all the profits are shared at the end of the financial year.

The formula is articulated as follows;

Earnings per Share = Net Income-Preference Dividend/ Number of shares outstanding

Earnings per Share

2015 2014 2013

Net Income $7,373 $1,231 $11,999

No. of shares outstanding 4002 3958 4087

Earnings per Share $1.84 $0.31 $2.94

Dividends Payout ratio

The ratio articulates a measure on the percentage of income that is distributed to Ford Motor Company shareholders at the end of the fiscal year. The formula is given as

Dividend Payout Ratio = Total Dividends/ Net Income

Dividend payout ratio

2015 2014 2013

Total Dividend $2,380 $1,952 $1,574

Net Income $7,373 $1,231 $11,999

Dividend payout ratio 0.32 1.59 0.13

Dividend per Share

The ratio substantiates the total declared dividends paid on a one share basis to the ordinary shareholders of the company.

Dividend per Share = Total Dividend/ No. of shares outstanding

Dividend per Share

2015 2014 2013

Total Dividend $2,380 $1,952 $1,574

No. of shares outstanding 4002 3958 4087

Dividend per Share $0.59 $0.49 $0.39

Profitability ratio

The ratio articulates how well Ford Motor Company achieves its profit from the operation. The ratio consists of the profit margin, the return on assets and the return on equity

Profit margin

The ratio encompasses the amount of net income that is substantively generated with each dollar of sale that Ford Motor Company generated in the fiscal year. The formula for the ratio is described as

Profit Margin Ratio = Net Income/ Net Sales

Profit margin

2015 2014 2013

Net Income $7,373 $1,231 $11,999

Net sales $140,566 $135,782 $139,369

Profit margin 5% 1% 9%

Return on Assets

The ratio pragmatically accentuates the efficiency in which Ford Motor Company assets produce the profits in a given accounting period. The formula is derived as

Return on assets ratio = Net Income/ Average Total Assets

Return on Assets

2015 2014 2013

Net Income $7,373 $1,231 $11,999

Average Total assets $216,770 $205,397 $196,698.5

Return on Assets 3% 1% 6%

Return on Equity

The ratio substantiates a measure of the Ford Motor Company's ability to generate profits from funds invested by the shareholders CITATION ROM11 \l 1033 (ROMIC, 2011). The formula is described using

Return on Equity = Net Income/ Shareholder Equity

Return on Equity

2015 2014 2013

Net Income $7,373 $1,231 $11,999

Shareholders Equity $28,657 $24,465 $26,112

Return on Equity 26% 5% 46%

Liquidity Ratio

The ratio substantively analyzes Ford Motor Company's ability settling the current liabilities as they become due and the long-term liabilities as they convert to current. The ratio includes quick ratio, current ratio and times interest earned ratio.

Quick ratio

The ratio accentuates a measure of Ford Motor Company capability in paying the short term obligations using the quick assets that can be converted within 90 days. The formula encompasses

Quick ratio = Cash & Cash Equivalent + Short-term investments+ Current receivable/ Current Liabilities

Quick ratio

2015 2014 2013

Quick assets $23,567 $21,702 $25,116

Current liabilities $39,656 $40,108 $37,003

Quick ratio 0.59 0.54 0.68

Current ratio

The ratio describes a measure of Ford Motor Company capacity to pay the short-term liabilities with the current assets. The formula encapsulates

Current ratio= Current Assets/ Current Liabilities

Current ratio

2015 2014 2013

Current assets $42,574 $38,758 $42,457

Current liabilities $39,656 $40,108 $37,003

Current ratio 1.07 0.97 1.15

Times interest earned ratio

The ratio substantiates a measure of the proportionate income amounts that Ford Motor Company uses to cover the interest expenses. The formulae are derived as

Times Interest Earned ratio= EBIT/ Interest Expense

Times interest earned

2015 2014 2013

EBIT $13,479 $4,730 $18,060

Interest expense $3,227 $3,496 $3,689

Times interest earned 4.18 1.35 4.90

The ratios calculated provide an analysis on Ford Motor Company valuation, profitability and its financial strength CITATION Sof03 \l 1033 (Soffer, 2003). The company is a good investment to the shareholders because it offers a return in the form of dividends paid over the three financial years.

References

BIBLIOGRAPHY ROMIC, L. (2011). FINANCIAL STATEMENT ANALYSIS. International Journal of Management Cases.

Soffer, L. C. ( 2003). Financial statement analysis: A valuation approach. Pearson College Division.

Taylor, M. (2010). Financial statement analysis.

 

 

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