Complete Comprehensive Assignment

BOND AND STOCK ANALYSIS OF FORD MOTOR COMPANY
BOND
AUTOMOTIVE SECTOR	$(MILLIONS)	INTEREST RATE	effective i.r
Shorterm	1779	7.3%	7.3%
longterm	11060	5.3%	6.0%
FINANCIAL SERVICES SECTOR
Shorterm	12123	1.6%	1.6%
longterm	107892	2.3%	2.4%
	$ 132,854
Moody's Investors Service upgraded the long-term ratings of Ford Motor Company (Ford) and Ford Motor Credit Company (Ford Credit) to Baa2 from Baa3. In addition, the short-term rating of Ford Credit is upgraded to Prime-2 from Prime-3. The outlook for both companies is stable.
Approximate interest rate	357684.3	2.69%
financial leverage	.=total debt/total equity
	in millions
total shareholders equity=	$ 28,642.00
total debt	$ 132,854
leverage	4.63843307
The high leverage ratio is mainly as a result of its financial services sector of the ford motor company
The Leverage ratio of Ford motor company is very high since it 4.63 meaning for every 1 unit of equity used in the company it in turn uses 4.63 units of debt to finance its activities
INTEREST PAYMENTS TO TOTAL REVENUE ANALYSIS
motor sector
interest expense	773
Earnings Before Interest and tax	6023
Interest covereage ratio	7.79
financial services sector
interest expense	2454
Earnings before interest and tax	8992
Inteerest Coverage ratio	3.66
STOCKS
market price,	11.76
book price	=)TOTAL ASSETS-TOTAL LIABILITIES)/OUTSTANDING SHARES
	=(224925-196174)/3960
	7.26
forecasted price.
FAIR PRICE- INTRINSIC VALUE	$22.6

ANALYSIS.

From the information on Ford Motor Company bonds we can conclude that from its bond that of its two divisions that is the motor division and the financial services division, the financial services division contributes a huge chunk of the overall bond of the company.

The short-term debt in the motor division is $1779 million while the long term debt is $11,060 million which clearly shows that the motor division prefers using long term debt compared to short term debt. The effective interest rate of the short –term debt is 7.3% which is much higher than the 6% charged for long term debt. Long term debt is thus cheaper to use than short-term debt.

On the other hand in the financial services division is $12,123 million while the long term debt is $107,892million which clearly shows that the motor division prefers using long term debt compared to short term debt. The effective interest rate of the short –term debt is 1.6% which is much lower than the 2.4% charged for long term debt. In the financial services division it is much cheaper to use short term debt compared to long term debt.

From comparison of the interest rates charged on the motor and financial services division the debt used by the motor division is more expensive than the debt used by the financial services division.

The credit rating of the Ford Motor company indicates a Baa2 (Moodys, 2016). This means that Ford Motor Company has sufficient capability to fulfil its financial obligations when they fall due. Nevertheless, unfavorable economic conditions or shifting circumstances have a very probability to cause a weakening in the capacity of the company to fulfil its financial obligations when they fall due.

On comparison of the two division’s interest payments it was found out that the interest coverage ratio of the motor division was 7.79 meaning that the motor division can cover the interest payments 7.79 times from its earnings. However the financial services division has an interest coverage ratio of 3.36 which is much lower than the motor division meaning that it can only cover its interest payment obligations by 3.66 times.

The leverage to equity ratio of Ford motor company is 4.63 which means for every one unit of equity used to finance the company 4.63 units of debt are also used. We can conclude therefore that the financial services sector is more heavily leveraged compared to the motor division.

The current market price of the Ford Motor Company share is $11.76 (Financial Times, 2016) this is as at the close of business on 18th November 2016 at the New York Stock Exchange. When this is compared to the book price which is obtained by deducting the total liabilities from the total assets then sharing out that amount among all outstanding shares the value arrived at is $7.26 per share. Which is much lower than its market price. This shows that the Ford motor Company is more valuable when in operations than if it was liquidated and its net proceeds shared out among its shareholders. The fair market value has been arrived at $22.6. Which is the intrinsic value of the share which is the discounting of all future cash flows related to the Ford Motor Company share in form of dividend. The share is therefore undervalued in the current market.

IMPLICATION OF THE STUDY

1.Ford Motor Company is heavily leveraged and should strive to reduce its debt financing in its financial services division. The heavy leverage negatively affects its credit rating since a big percentage of its earnings are used to service debts payments which if not met could drive it to bankruptcy.

2. The Ford Motor Company stock is undervalued in the market and I would recommend that an investor can either hold on to the stock or accumulate more shares until the share is correctly valued by the market forces.

. References Financial Times. (2016, November 18). Financial times. Retrieved from Equities: https://markets.ft.com/data/equities/tearsheet/forecasts?s=F:NYQ Moodys. (2016, February 16). Moody's upgrades Ford and Ford Credit long-term ratings to Baa2 from Baa3; outlook is stable. Retrieved from Moodys Investor Services: https://www.moodys.com/research/Moodys-upgrades-Ford-and-Ford-Credit-long-term-ratings-to--PR_343854