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28 May 2017

A business uses three major financial statements as part of its financial reporting (Epstein, 2014). These are the balance sheet, the statement of cash flows, and the income statement. The purpose of this examination is to gain insight about the 2012 Income Statement of the Ford Motor Company. Before one can understand the income statement of a company one must understand what a balance sheet is and what financial analysts look for when reviewing income statements.

What is an Income Statement?

In short, an income statement dialogs a firm’s financial performance over a given period such as year-to-year (Bajkowski, 1999). This is done by summarizing how the business gets it revenues and expenses in both operating and non-operating functions. The income statement, otherwise referred to as the profit and loss statement, also catalogs the firms net profit and or loss over a given period.

Part of the income statement focuses on operating items (Bajkowski, 1999). This is of particular interest to investors and analysts since this section reveals data regarding revenues and expenses that come from regular business operations. For example, if a company makes power amplifiers the operating items section would reveal the revenues and expenses of the manufacturing of power amplifiers. The non-operating section reveals revenue and expense data about activity that is not directly part of the firm’s regular operations (Bajkowski, 1999). For example, if the power amplifier company sold some of its old equipment or sold an old factory, that data would fall under the non-operating items section.

There are two basic formats for presenting income statements; multi-step format and single-step format (Bajkowski, 1999). In multi-step format, four measures of profitability are presented at four critical and specific areas. These are gross, operating, pretax, and after tax. In single-step presentations, gross and operating income numbers are left out. These numbers can be calculated from the data nonetheless. The income statement lets stakeholders know if the firm is making money or if it is not (Epstein, 2014). A firm must be able to bring in more money that it spends if the firms seeks to survive. Investors seek firms that have either low expenses relative to revenue or high profits relative to revenue. With the basics of an income statement understood, an examination of the 2012 income statement of the Ford Motor Company may begin.

Analysis of the Ford Motor Company 2012 Income Statement

In looking at 2012, the first thing to notice is that Ford was down in revenues from the prior accounting period (Ford Motor Company, 2012). This was not a major number because revenues were down just over 1%. The lower revenues were down about equally in both automotive sales and financial services. Costs and expenses are a little more interesting.

The automotive cost of sales was down at about the same level, percentage wise, as revenues (Ford Motor Company, 2012). However, the category of selling, administrative, and other expenses was up slightly. The firm was a bit upside down in the category of financial services provision for credit and auto insurance losses. This requires further exploration of the complete report because the firm had credit balances in the prior two reporting periods on this line item. Overall, total costs and expenses were down so slightly that it can be considered flat.

The overall net income of Ford, at first glance, appears to be significantly down from the prior period (Ford Motor Company, 2012). This required a look at Note 24. In the prior reporting period, Ford took an 11,541,000,000 dollar deferred tax credit. This tax credit is the reason that Ford’s net income appears to be down substantially from the prior reporting period. If everything were equal Ford would still be down from the prior period, but it would follow the trend of its down revenues in terms of percentage.

The bottom line is that Ford turned a 5,665,000,000-dollar profit in 2012 (Ford Motor Company, 2012). It is true that the firm was down from the prior period, but the firm was still quite profitable for the fourth consecutive reporting period. However, if not for the deferred tax credit in 2011, Ford would have been down second reporting period in a row. This is not cause for alarm, but it is a trend that must be watched by current and future investors alike.

Conclusion

. The purpose of this examination is to gain insight about the 2012 Income Statement of the Ford Motor Company. The income statement is perhaps the most valuable part of a firm’s financial reporting documents. This statement gives investors and potential investors a bottom line look at a firm’s performance in a given reporting period. In the case of the Ford Motor Company, the report shows that Ford was profitable in the 2012 reporting period (Ford Motor Company, 2012). However, the firm was down in net income from the prior two reporting periods. Investors, potential investors, and all other stakeholders must observe this trend carefully.

References Bajkowski, J. (1999). Fiancial statement analysis: A look at the income sheet. American Association of Individual Investors, 23-26. Epstein, L. (2014). Financial decision making: An introduction to financial reports. San Diego, CA: Bridgepoint Education, Inc. Ford Motor Company. (2012). Profitable Growth for All. Detroit MI: Pricewaterhouse Coopers.