Comments: Ford shows unfavorable activity ratios, which is indicative of the fact that the company is using its assets efficiently to meet financial requirements. All measures, except ART improved over time (from 2008 to 2009).
Comments: Ford uses debt heavily to finance the growth of the company. Overall the company is servicing the debt well and is stable over time, even though the loss in 2009 has affected the capital structure formation.
Ford Motor does not have good short-term liquidity -- however, this is expected, since the company has mostly long-term assets and the associated current liabilities within a heavily capitalized firm like Ford Motor will not be covered by current assets completely.
Ford is Uncompetitive and Weak When Compared to Competitors
Ford Motor is within a very competitive industry that requires the company to be innovative and continually develop products that can meet market demand and changing consumer tastes. The financial analysis shows that Ford Motor is competitive and has a strong financial outlook when compared to the industry.
Key Financial Ratios
As of 2009
Qtrly Rev Growth (yoy):
Gross Margin (ttm):
Oper Margins (ttm):
Net Income (ttm):
PEG (5 yr expected):
From the comparative table above from an industry comparison, Ford Motor is extremely competitive and stable, however when compared to its main competitor GM, then Ford Motor is outranked. More specifically, GM has almost three times Ford Motor revenue growth has an extremely higher gross margin and has more efficient and profit operations as measured by financial ratios.
However when compared with GM, then Ford Motor is considered a market leader among this group.
Dividends were not paid to the stockholders in 2009, since the company made a loss and decided to not pay-out dividends, also the financial statements were audited by Ernst & Young LLP, who act as independent auditors for Ford Motor. Also, the notes on the income statement shows that Ford Motor used the first-in-first-out (FIFO) inventory method during the accounting period examined.
Recommendations for Ford
The automobile -- manufacturing industry is competitive, however there are some market leaders that continue to have high market shares because of their innovativeness, as such it is essential that Ford Motor tries to maintain its competitive edge by continually innovating products that are inline with changing consumer taste.
Ford Motor will continue to increase its market share and diversify its products as it tries to compete with dominant firms. The strategic development process and strong corporate governance makes Ford Motor one of the more financially sound and diversified firms in the market.
The overall analysis will focus on a time trend or regression framework that will utilize a profit or revenue equation to determine how revenue is affected by marketing focused on growth sectors. Similarly a variable to measure marketing within the global environment will also be used to determine the relative differences in revenue changes from both perspectives.
The analysis will utilize time series data based on the revenue and independent variables that affect the revenue of the company. The choice of the independent variables will be based on the overall literature that explains the major variables that impact revenue.
With quantitative analysis, the Ford Company will discern the dependent (total revenue) and independent variables (consumer, marketing, and competitive variables), establish a hypothesis -- "as marketing increases, total revenue for Ford increases," show the primary and secondary research sources, establish a confidence interval, and a sample size. Although Ford Motor is a domestic leading brand with a strong portfolio and revenues in excess of $24 billion, the company's cash flow from operating activities decreased 7% in 2009 compared to 2008, and North America performance was far from robust. Annual company growth is approximately $1 billion while current quarterly income statements reflects nearly $7 billion, putting it on pace to recognize a significant annual income. However, competition from the global automobile companies grew 6.3% in 2008 and expects a 30% increase in revenue by 2010; expectations that concern Ford Motor and could affect financials.
It is also useful to test the hypothesis using regression analysis to get an idea of how different socio-economic variables, affect the prevalence revenue. The form of the regression will obtain coefficients from the least square method, so that the necessary measures can be further tested for unbiasedness and consistency. The form of the model is presented in equation 1 below.
Total Revenue =f (specialized marketing (growth sectors), international marketing (global marketing specialization), interest rates, GDP, inflation, and price of related goods (substitutes and/or complements)).
Based on equation 1 above, the paper will examine revenue impacts for Ford Motor using the tools of econometrics. The econometric modeling will employ ordinary least squares methodology based on the time series data, so that the study can incorporate the aspects of the companies competitive behavior via its financial model in a comprehensive way. From the literature it is clear that some variables play a key role in the overall model presented, one such variable is the gross domestic product (GDP), since it can have a highly motivating effect on revenue in the short-run and long-run. The magnitude and effects of other variables is presented below.
Marketing activities will be measured via the marketing expenditure by Ford Motor -- that is, the total expenses directed to marketing. The public records from Ford Motor present the necessary information and also presents a split between global marketing expenditure and other marketing expenditure. Hence the global aspect of marketing and its effect on revenue can be measured. The a priori expectation is that marketing expenditure will increase revenue, both domestic and global initiatives. However it is expected that even though the coefficients will be positive the local expenditure on marketing activities geared towards growth sectors will have a larger effect on revenue.
Interest rates and inflation variables are expected to have a negative and significant effect on revenue changes, since it will affect other issues related to the cost of capital and other investment strategies. That is, higher interest rates (this will be done with the United States as the base market) will lessen revenue. Inflation measures the purchasing power of consumers and higher levels of inflation will imply less revenue for Ford Motor since individuals will have less purchasing power. The interaction between the interest rate and inflation variable will also be tested for endogeneity (which if present could lead to a spurious regression), since the two variables are sometimes related as they are important issues in government monetary and fiscal policy.
Gross domestic product (GDP) is a necessary variable to explain demand characteristics since higher GDP will result in higher revenue, as GDP growth is a proxy for economic growth which implies that consumers will spend more on goods and services. Hence the coefficient on GDP is expected to be positive.
Competitive variables or market forces variables are also needed to complete the revenue equation -- this is especially important for Ford Motor which is a known brand, and has interactions from other market players which in turn affects revenue. As competitors (like Toyota and GM) spend more on marketing activities and strategic development it is expected that revenue for Ford Motor will decrease. The proxy for competitive behavior will be competitors expenditure o marketing which is readily available via the annual reports posted on the websites,
IV. Primary and Secondary Data Sources
It is unlikely that there will be any primary data collection. All the necessary analysis will come from secondary data, which will focus on the variables mentioned above. The secondary data sources are the crux of the analysis, since the information will be focusing on a time trend of revenue and the related components profit, (Yahoo Finance, n.d., para 3). That is, the motivating and deterrent factors that affect revenue within the modeling framework will be examined. Currently, the financial information is available for long time trends on the company's website for the revenue (dependent variable) and for other related expenses or components for independent variables such as; marketing, advertising, and other strategic variables. The financial data is also available from other financial data warehouses such as Yahoo Financials, especially with the company being a 'public' entity. Hence data availability and long time trends should not be hard to gather. It is important that the paucity of data points is not an issue.