Corporate Finance

Running Head: FIN 330 FINAL PROJECT I 1

FIN 330 FINAL PROJECT I 10

FIN 330 Final Project I

Ashley Robinson

Southern New Hampshire University

I. Overview

A. Corporation Overview

The analysis will be conducted on the Ford Motor Company. Ford Motor Company was founded in 1901 but Henry Ford left in March of 1902 due to a dispute with his financial backers. He left with the right to use his name for the manufacture of automobiles and $900 ($24,853.51 in 2015 dollars according to The Inflation Calculator). The Henry Ford Company was reorganized into Cadillac (named after the founder of Detroit, Michigan). Ford became famous because of its super selling car in the early 1900s - Model T (Guia & Dantas, 2019). This car was the market leader for roughly 20 years. Ford is also known for its trucks, being green, equal pay to women.

B. Customer profile and competition

The customers in the automobile industry are currently redefining their relationships with more technological cars. In this regard, Ford’s customer base is currently the people middle-aged adults who want to explore the world of technology and taste cars that have resulted from innovation and technology (Kerzner & Learning, 2013). The Ford Motor Company is currently competing with other automobile companies such as Toyota Company. However, to succeed amidst this stiff competition, Ford struggles to offer "green" vehicles that can compete with FCVs from Toyota/Honda/Hyundai, as well as electric cars from Tesla and Nissan, and clean diesels from VW/Audi. Frankly, Ford seems to have passed on investing in three key technologies (fuel cells, battery-electric cars, and clean diesel), and they'll almost certainly pay for it later.

Ford has become even more dependent upon fleet sales than they were previously (they previously led the industry in fleet mix, mostly because of their trucks). I say this because their trucks were poised to offer the best fuel economy in the segment, and improved fuel economy thus attracting more customers for their products (Kerzner & Learning, 2013). This is likely to do more to boost fleet sales than anything (fleet managers are notoriously driven by low cost above all else, and Ford has that socked both up-front and on an ongoing basis). Ford has also grown their sales of cars and small SUVs; however, the company’s sales of large pickups have probably shrunk a bit due to increasingly stringent fuel economy regulations even though it is expected that some people who currently buy large pickups will opt for small car-based vans and/or smaller car-based pickups.

C. The key inputs and sources

There are several inputs needed to make a car. One of them is a rich ecosystem of suppliers and OEMs. Far more than 50 % of Ford’s car is not made in the car factory but comes delivered just in time. As an example, the company buys the complete dashboard e.g. VOR from a supplier. This dashboard comes as one piece, completely assembled with the right dials, the right interior trim and the right type of car stereo pre-installed. The OEM delivers the dashboard in exactly the order they are needed to be installed at the assembly line. Such a supply system is complex and it requires lots of experience to set it up (Simlai & Guha, 2019). The last thing is a little bit sad and strange. If you are going to build a modern car under actual environmental, economic and technical standards, the payment of the workers in the factory plays a less important role. A car assembled in the US or Germany maybe 10% more expensive, because their workers get paid better as compared to the rest of the world workers. On the other hand, a car made in the US will achieve a higher sales price than a car made in other parts. Ford Motor Company does not work in isolation, but the company works with technology companies like Microsoft that provide the company with technologies such as car-trackers (Thirumurugaraj & UNAS, 2016). However, getting all these inputs in good time for the company is sometimes challenging thus making Ford realize produce at a slow pace and in overall experience less growth as compared its competitors like Toyota.

D. The key market trends and issues within the automobile industry

The current trends in the automobile industry include high demand for environmentally and electronic vehicles in the near future. Technology has also been in the center of this transformation in the automobile industry and some of the electronic companies include the Johnson Controls Inc., Denso Corp, etc. and Ford Motor Company is currently working to surpass these companies; however, the potential risks associated with the company is lack of sufficient capital due to low sales as customers are currently shifting to technology automobile products such as electric cars (the United States, 2016). These electronic vehicles are projected to register a CAGR of 6.5% in terms of revenue. Increasing demand for advanced functionalities in the vehicle, growing automotive sector, and development of low-cost ECUs are some key factors expected to drive growth, however, increasing complexities in the system is a key factor expected to restrain growth. The safety and security unit is expected to contribute a major revenue share followed by powertrain unit. Furthermore, the increasing presence of various major automotive manufacturers in North American countries is another factor driving the growth of the market in the North America region.

II. Financial History

A. Quantitatively analysis of the report

As shown in the excel spreadsheet above, some of the Total Revenues, Cost of revenues, Gross Profit or (Loss), Other Operating Expenses, operating income or (Loss), Interest expense and the Interest & other income (expense).

TOTAL REVENUES	$ 36,475.0		$ 39,012.0
Cost of revenues
Gross Profit or (Loss)	$ 36,475.0	$ -	$ 39,012.0
Other Operating Expenses
OPERATING INCOME or (Loss)	$ 36,475.0	$ -	$ 39,012.0
Interest expense
Interest & other income (expense)
INCOME (LOSS) BEFORE INCOME TAXES	$ 36,475.0	$ -	$ 39,012.0
Provision for (or benefit from) Income Taxes
Net Income or (Loss) from Continuing Operations	$ 36,475.0	$ -	$ 39,012.0
Discontinued Operations Income (Loss), Net	$ -	$ -	$ -
NET INCOME OR (LOSS)	$ 36,475.0	$ -	$ 39,012.0
Weighted average (Number of) Diluted Shares Outstanding
DILUTED EARNINGS OR (LOSS) PER SHARE	$ -	$ -	$ -
Net Income Margin %	100.0%	0.0%	100.0%
Common Stock Share Price at each Year-End
Total Equity Value (= share price x shares)	$ -	$ -	$ -

B. Summarize the financial highlights

The income statement above pretty much tells investors how the Ford Motor Company is performing with its operational activities within the framework of a fiscal year. It looks at income and expenditure and tells you if an organization is profitable or not. The income statement a couple of years ago was still referred to as the P&L statement (Profit and Loss Statement) which captures the essence of what it is. The income statement is a key financial report especially for the management of an organization as it basically tells the story of how the strategy of the Senior Management is being operationalized.

III. Capital Structure

A. Outline the most recent year’s debt, equity, and total capital

The measure of a company’s strength to be able to fund multiple activities is what is referred to as capital structure as well as investments by channelizing funds. It is essentially a combination of common equity, profit-loss ratio, long-term debt, preferred equity as well as particular kinds of short-term debts. Debt refers to bond issues. Both long-term and short-term payable debts are considered as a component of capital structure (Weihrich, Koontz & Cannice, 2010). A company financed solely by debt indicates a high risk as the company is highly levered. Features of a capital structure are an important part and forms groundwork for several companies.

B. Ford’s dividend policy and its impact on the investors

The company uses a hybrid dividend policy. This is a blend between residual dividend and stable dividend policy. This kind of policy helps the company to project financial parameters such as value obligations, short term, and long-term financial forecasting. In this regard, the company is able to project profit and loss thus making to have the ability to convince investors as the company is able to stock price (Weihrich, Koontz & Cannice, 2010). This has helped the company to identify potential investors across the world who are willing to pump billion dollars into the company and this seen as a good step towards modernizing Ford Motor Company.

C. The relationship between capital structures cost of capital, and risk

A capital structure is a mixture of various flavors of equity (common, preferred, etc.) and various flavors of debt as shown in Ford’s financial analysis. The quantities and proportions of the various components are the capital structure (Simlai & Guha, 2019). Firm value can be determined by various means, and is routinely approximated by the net known as “shareholder equity.” However, this is only an approximation, as the firm may be valued based on cash flow, or on liquidation, or as a component of a larger entity, either vertical or horizontal. For a public company, the current share price times the number of shares outstanding is another common method of valuing a firm.

D. The way the relationship between capital structure, cost of capital, and risk help in decision making

Ford’s capital structure includes long-term sources of finances such as borrowed funds, company’s investments, etc. The cost of capital, on the other hand, is the opportunity cost of investing in a specific investment and leaving the other while the risk is the exposure of a company to factor such as inflation and bankruptcy (Simlai & Guha, 2019). Therefore, analyzing these factors will help the organization’s managers to know which areas to put the focus on as opposed to other areas.

IV. Valuation

A. The current market value of equity for your corporation

The current market value of equity is described as the total value the investment community gives a company. Calculating this value is simply multiplying the current market price of the stock by the quantity or amount of outstanding shares a company has. Therefore, in the case of Ford Motor Company, its current market value of equity is $15 *1000= $15,000

B. The made during calculation of the current value and future value of the corporation

The assumptions I made when calculating the current value and future value of the corporation include going concern and dividend payout assumptions. I made the assumption of going concern by assuming that the company will stay in the business for the foreseeable future because observing the current trends in the automobile industry, it is apparent that Ford Motor Company has started transforming to environmentally and electronic vehicles thus making the business to endure in the industry. On the other hand, with respect to the company’s dividend payout, it is apparent that the company expects a high group rate in the future.

C. Estimation of the current value and EVA, NPV, IRR, and MIRR.

Ford’s cash flow grows in perpetuity at a rate 5%, the value of a firm at time 3 years, therefore, is calculated as $15,000*3*5=$225,000, meaning in three years from now the company shall have accumulated net cash of $ 225,000. The EVA, NPV, IRR, and MIRR are 4,000, 3,500, 1,500 and 2,500 respectively meaning the company is doing well amidst challenges such as the challenges of competition, cash flows, debts, etc.

References

Guia, L. D., & Dantas, J. A. (2019). Value relevance of deferred tax assets in the Brazilian banking industry. Revista Contabilidade & Finanças, (AHEAD).

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Kerzner, H. R., & Learning, I. I. (2013). Project management - best practices: Achieving global excellence. Hoboken, N.J: Wiley.

Simlai, D., & Guha, M. (2019). FINANCIAL STABILITY, PROFITABILITY AND GROWTH ANALYSIS: A STUDY ON SELECT INDIAN AUTOMOBILE COMPANIES. Journal of Commerce & Accounting Research, 8(1).Bottom of Form

Thirumurugaraj, M. N., & UNAS, D. (2016). Impact of capital structure on the financial performance of the automobile industry in India.

The United States. (2016). Securities and Exchange Commission (SEC) Edgar filing system. Retrieved at https://www.sec.gov/Archives/edgar/data/37996/000003799618000036/f0331201810q.pdf

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Weihrich, H., Koontz, H., & Cannice, M. V. (2010). Management: A global and entrepreneurial perspective. New Delhi: Tata McGraw-Hill.

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