Ford Motor Company's financial performance and global market position

Ford Motor Company is headquartered in Detroit and operates globally. The company competes primarily in cars and light trucks. The company was founded in 1903 and today is one of the Big Three of U.S. automakers. The industry has globalized rapidly over the past few decades, and Ford now operates plants around the world. The company rose to prominence not only as an early automobile maker but the developer of the assembly line, and a leader in industrial production techniques. These allowed Ford to sell more cars than its competitors early, allowing it to establish itself as a market leader. The company today sells two main lines -- Ford and Lincoln (Ford.com, 2015). The industry is also in a state of flux with respect to technological change. Electric cars, and greater fuel efficiency are driving one segment of the market, while other segments still rely on light trucks and larger vehicles to meet their needs -- the automobile market is much more specialized than in the "any color you want as long as it's black" days. The financial statements can provide some valuable insight as to how Ford is performing in this challenging modern automotive market.

Financial Analysis

Ford has a market capitalization of $63.22 billion, which is a reasonable figure considering that the company was on the brink of collapse in 2008, and its two major U.S. competitors needed bailouts just to survive ( MSN Moneycentral, 2015). The company earned total global revenue of $144 billion in FY 2014, which represents a slight decline from 2013 levels, but an improvement over the several year prior. The net income, however, was relatively low. At $3.187 billion, Ford earned less than half of what it earned in 2013 ($7.182 billion) and this was the poorest net income level since 2009 (MSN Moneycentral, 2015). Ford's revenue is almost entirely from the automotive division. It earned just $1.9 billion in pre-tax profit from its financing division due to low rates and the need to use financing as a loss leader.

The industry's biggest market by units sold is China, with 24 million units. This is followed by the U.S., with 16.8 million units. Europe combines for 18.6 million units, and the industry sells a total of 87.9 million units in 2014. Sales have recovered strongly in the U.S. In the past few years, and China has exhibited consistent growth for the past several years. Ford's share of this is 6.3 million units, or a global market share of 7.16%. The company has a 14.6% share in the U.S., good for 2.457 million units. This figure is lower than it was in 2013. Ford's market share in China is 4.5%, or 1.116 million units. The company has a similar share to the U.S. In both Canada and Britain, but otherwise has a smaller share in other markets (Ford 2014 Form 10-k).

Conclusions

Ford has done reasonably well in the four years since its peers were bailed out. The company saw its revenues slip slightly in 2014, but the cash flow from operations increased, even where the net income did not. This indicates that Ford's underlying performance remained strong, even when the income statement said it was a down year. Ford remains solvent, though it has arguably too much debt, and the large amount of cash it has on the balance sheet could be put to better use to earn a better return on equity for shareholders, as Ford is below the industry average on that regard The company still has high unfunded pension obligations but it has the cash to pay for those now, and these are now a relatively small portion of the company's total liabilities.

Overall, Ford's financial situation is stable, and it has a multi-year track record of earning profits. The company may not be the dominant force that it once was, but it remains a strong competitor, with a healthy balance sheet, decent margins and ever-improving cash flow from operations, all encouraging signs. There are no major red flags in the company's financial statements, with the biggest issue being inefficiency from too much cash, and the fact that the company has what most would consider to be a debt/equity ratio that is far too high for most manufacturing companies.

Cash Flow Statement

The cash flow statement should also be considered. The cash flow from operations is an important measure because there are times when the net income is distorted, but cash flow from operations indicates the degree to which the ongoing business is contributing to the company's overall profitability. The cash flow from operations from automotive was $8,764, compared with $7,738 the year before. Further, the cash flow from operations from financial was $4,810, compared with $3,352 the year before. This shows that even though Ford's net income was lower in 2014, that the underlying operations actually showed improved performance. The company did not add cash in 2014, instead choosing to pay down some debt and purchase common stock. Of note in the cash flow statement is the buying and selling of marketable securities. This reflects the company's large cash position, and these securities are most likely cash equivalents on the balance sheet. Nevertheless, this activity at the very least demonstrates an inefficient usage of the company's capital -- if its return on capital is half the industry average, this might be a contributor to that.

General Motors is a natural comparative. Like Ford, GM has recorded steady profits, but the operating cash flows have increased consistently over the past several years, from $8.1 billion in 2011 to $12.6 billion in 2013. This increase is greater than Ford's. GM has committed substantial capital to paying down receivables, and it issuing debt to finance this. Arguably, Ford has better cash flow management, even though GM has performed well with respect to operations. Ford's strategy with respect to cash flow is more conservative, which even in an improving market (both firms have increased revenues significantly) is a good thing. Thus, Ford seems to perform fairly well relative to its contemporaries, even though GM has experienced better operating cash flows over the course of the past few years.