Finance

Introduction Comment by Author: An introduction must “tell me what you plan to tell me.”

Ford Motors recorded a tremendous increase on its financial performance during the first quarter of 2018, beating the analyst estimates. The company recorded a revenue of $41.96 billion and a net income of 1.7 billion thus increasing by 7% from the previous quarterly earnings. The improved performance was attributed to the cost cutting objectives such as dropping the sedan model of cars particularly in North America reduced taxes that were undertaken by the company. However, the second quarter recorded poor performance missing analyst’s estimates and reducing earnings by 50% from the previous quarter. Comment by Author: This paragraph doesn’t really belong in the introduction.

This research project critically looks into the viability and soundness of investing in Ford Motor company while at the same time providing recommendations that can be undertaken to not only improve on the company’s financial performance but also give advice to investors on the best choice of whether to invest or not to invest.

Despite having recorded poor performance during the second quarter of 2018, Ford motors can be a good company to invest in due to strong brand presence, improving financial performance and the necessary managerial action to improve company’s performance.

History of the Company

A. Support

Ford Motor Company was started on 16th June 1903 and founded by Henry Ford. The company is based in Michigan the city of Dearborn.

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The company has grown tremendously to survive during the great depression and emerge as one of the top five automakers.

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The company has also been under the control of family for more than 100 years. In addition to this, the company has also before owned top brands such as Aston Martin, Land rover, Mercury, Volvo and jaguar. Today, the company has two divisions which include Lincoln and Ford.

B. Support

At the start of its operation, the company manufactured several types of vehicles that runs from model A to K.

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In 1904, the company achieved the global status and the Ford of Canada became its initial location.

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Over the years, the company expanded to other parts of the world such as Ireland, France and England leading to opening up assembly lines and manufacturing plants.

C. Support

Towards 1919, the company manufactured about 50% of automobiles used in the United States while 40% in England.

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The tremendous market led to its strong growth and performance particularly the sales of Model T’s in the United States of America.

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In today’s competitive environment, Ford motors has innovate different types of cars according to different market needs and lays emphasis on technology, performance, fuel economy and safety standards.

Industry in which it competes

A. Support

Ford motor company operates in the automobile or automaker industry.

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The automaker industry comprises of a variety of organizations and companies that are involved in development, design, marketing, and manufacturing and selling of automobile or motor vehicles.

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Some of the best automobile companies include Bayerische Motoren Werke (BMW), Toyota, Volks Wagen, Ford Motor, Nissan, Mercedes Benz, Honda, and Audi among others.

B. Support

Some of the aspects that impact the automotive industry include exchange rate, political stability, economic growth, inflationary levels and technological advancements.

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Strong economy, politically stable and technologically advanced improves company’s performance through increased production levels and reduced costs of operation.

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Additionally, low levels of inflation and stable exchange rates helps to improve company’s revenue since revenues are not eroded due to inflation and increased currency rates.

C. Support

The automotive industry acts as a watchdog for the economy and consumer spending thus having a huge contribution to the growth domestic product.

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The automotive industry accounts for about 4% of the GDP of the United States of America.

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Addition ally, the industry accounts for about $100 billion yearly on research and development and is considered to be capital intensive.

Company Strategy

A. Support

The company’s strategy encompasses between customization and standardization particularly on its international markets while at the same time the United States of America as its domestic market as unique to international market.

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The corporate strategy is centered on cost leadership where the management objective is to manufacture quality automobiles at considerable price.

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Additionally, the company’s product lines comprises of a variety of automobiles across different categories that offer affordable types of cars on every category.

B. Support

Ford Company has divided its different international markets into different segments according to interests and the offerings across every region. Therefore, the company is able to customize its products that sit different markets.

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For example, in one of its markets, North America, the company comprises of muscle cars and trucks that are not offered on other parts of its market.

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Additionally, Ford motors introduced its model Kuga to the South African consumer and took it from Europe.

C. Support

Ford motors have also embarked on cost cutting strategies I order to improve its performance and reduce unnecessary costs.

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The company has announced plans to reduce its spending by $25 billion through simplifying its product lines such as emphasis on about 30 models instead of 100 different models across its different markets.

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Additionally, the company has also altered its architecture designs and introduced new modules such as suspension design etc. furthermore, the company intends to drop the next generation sedan type and hatchbacks.

Detailed analysis of company financials Comment by Author: You’ve focused on really just one area of the financials. Virtually all your metrics are related to liquidity. You need to expand your analysis parameters greatly.

A. Support

The financial ratios used to perform the financial analysis on the company include return on invested capital, profitability, operating profit, capital structure, short term liquidity and financial market structure.

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Ford motors have maintained a relatively stable current ration that indicate the ability to meet short term obligations. Comment by Author: ratio

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For a period of 13 years, the company’s current ratio has been 0.25 as the lowest level and 4.32 at the highest level with 1.31 as its average range.

B. Support

The company has a relatively mild solvency especially on the long term outlook as shown by the interest coverage and the debt equity ratios.

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The company has maintained an interest coverage ratio of between 6 and 4 which implies the company can cover the interest expenses that are more than two times over.

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The company’s debt to equity ratio has been ranging from 3.94 to 2.56 over the past 5 years that is an advantage which keeps its leverage low.

C. Support

In order to determine the financial capability and performance of the company, it is imperative to look into the operational performance.

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The company has recorded an average fixed asset turnover averagely at 5 which indicates strong ability to generate revenue from its fixed assets. Comment by Author: delete

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Additionally, the price to earnings ratio of the company ranges from 17 to 5 over the past few years, which indicates strong performance on its stock price.

Conclusion

In conclusion, despite having recorded poor performance during the second quarter of 2018, Ford motors can be a good company to invest in due to strong brand presence, improving financial performance and the necessary managerial action undertaken to improve company’s performance over the next few years.

A. Summarize the main points Comment by Author: In the conclusion you must “tell me what you told me.”

Ford Motors has a strong international brand presence and consumer market for its products and service of about 7.3 % market across the world.

Fords changing business strategy such as introducing electric cars will increase its profitability over the coming years.

Despite missing analyst estimates in the second quarter, the company has recorded strong consistent financial performance over the past decade and survived financial tremors.

B. Make your recommendation

From the above in-depth analysis, I would recommend that an investor should invest in Ford Motor Company with holding period of at least 5 years in order to realize good returns on investment. This is due to the corporate strategy of the company to adopt electric cars that has a large untapped market hence creating possibility of growth over the next 5 years. Additionally, the company’s market share has remained consistent and growing over the past 5 years. However, it is imperative for the investor to not expect positive growth over the short term and intermediate future.

References

Cachon, G. P., & Olivares, M. (2010). Drivers of finished-goods inventory in the US automobile industry. Management Science, 56(1), 202-216.

Ford Motor Company - Financials. (n.d.). Retrieved from https://shareholder.ford.com/investors/financials/annual-reports/default.aspx

Govindan, K., Kannan, D., & Noorul Haq, A. (2010). Analyzing supplier development criteria for an automobile industry. Industrial Management & Data Systems, 110(1), 43-62.

Levinson, W. A. (2012). Henry Ford's lean vision: Enduring principles from the first Ford motor plant. Productivity Press.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION. (n.d.). Retrieved from https://www.sec.gov/Archives/edgar/data/37996/000003799618000015/f1231201710-k.htm

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