Ford Case

1. What has happened to Ford's liquidity position over the past 3 years? How does Ford's liquidity compare with its peers? (Use peer key financial ratios and liquidity comparison to answer this question).

Ford Motor Company balance sheet for the years 2007, 2008 and 2009 show the company liquidity fluctuating with current liabilities ratio moving from 1.23 in 2007, to 1.05 in 2008 and then 1.39 in 2009.

There are several reasons why the liquidity ratios might have changed for Ford Motor Company over the past 3 years. The US economy was in one of its worst recession since the great depression in the 1930s as a result consumption of auto was at an all time low, as a result Ford Moto Company could have had lots of money tired up in inventory hence the reason why the current ratio was 1.05 in 2008.

In relation to Ford's peers the current ratio for Daimler is 1.07, Honda 1.09 Nissan 1.32 Porsche 1.13 and Toyota 1.07. Ford's CR is much higher than its peers in the industry during the same period. Creditors like when companies have a high CR ratio although a high current ratio can be both good and bad for companies.

2. Take a look at Ford's inventory turnover ratio. How does this ratio compare with its peers? have there been any interesting changes over time in this measure? Do you consider Ford's inventory management to be a strength or a weakness? Explain.

The management of firms assets is important to its free cash flow as well as its stock price, it is also very important that companies keep enough assets on hand in order to increase sales and by extension make sure that it remains profitable. Looking at Ford Motor company inventory income statement, the inventory turnover ratio for 2009 is 12.37, which is twice as high as most of its peers. What this inventory ratio is telling us is that Ford's inventory is turned over 12.37 times per year, according to financial data in the same industry, Ford is holding lower levels of inventory than its closest rivals. Ford's peers inventory ratio includes: Daimler 3.89, Honda 5.5, Nissan 7.21 Porsche 4.81, Toyota 10.33, and Volkswagen 4.94.

Interestingly over a five year period Ford Motor Company was able to lower its inventory by as much as 50%. According to Ford's annual balance sheet in 2004 inventory totaled 10,271 USD, in 2009 Fords inventory totaled 5,450 USD. Considering the tuff economic times, financial, and union troubles Ford Motor Company had to deal with over the past few years I think the new measures that was put in place to manage the company has worked well thus far.

I don't think Fords inventory management is a major strength to the company and by extension its shareholders. After taking a closer look at Ford's Asset management ratios the company show some signs of good management practices but I think they have some more grounds to cover. Industry ratio shows that Fords turnover ratio is the highest in the industry; with a ratio of 12.37 but the company total asset turnover ratio is one of the lowest in the industry .62. Looking at Toyota's inventory turnover ratio which currently stands at 10.33 and its total asset ratio .71 indicate that Toyota is generating sufficient volume of business given its total asset investment unlike Ford's who turnover ratio is and industry high but total asset is an industry low, which indicate that although sales might be up the company is either heavy in debt indicating that some assets should be sold or a cocktail of steps should be taken to increase the company's efficiency.

3. Construct a simple DuPont analysis for Ford and its peers. What are the Ford's strengths and weaknesses relative to its competitors?

Du Pont analysis for Ford Motor Company

ROA = Profit margin *Total assets turnover = Net income * sales

Sales Total assets

ROA = (2.30)*(0.62) = 1.43

Equity multiplier = Total assets

Common equity

110,728.0 /

ROE = ROA * Equity multiplier

= Net income * Total assets

Total assets Common equity

ROE =

ROE = (Profit margin) (Total assets turnover) (Equity multiplier)

= Net income * Sales * Total assets

sales Total assets Company equity

ROE =

Du Pont analysis for Nissan Motor Company

ROA = Profit margin *Total assets turnover = Net income * sales

Sales Total assets

ROA = (2.30)*(0.62)