Recommendation of Acquisition Target (Ford Company)


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Financial Management report by Aleksey Narko for Warsaw School of Economics

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Recommendation of Acquisition Target (Ford Company)

  1. 1. Financial Management Recommendation of Acquisition TargetExample of Ford Motor Corporation Szkoła Główna Handlowa 2013 Professor Lech Kurklinski Aleksey Narko Student’s id 0567830 1
  2. 2. Ford Motor CorporationFord Motor Company is an International automaker from America headquartered in Dearbon,Michigan. Company was founded by Henry Ford and Incorporated on June 16, 1903 and till nowremains under family ownership since that time. Ford was the first to develop and implementassembly line production of cars by the release of T Model in 1909. In the past company alsoproduced tractors, automotive components and heavy trucks. It has started operatinginternationally in 1904 when the first branch in Canada was opened. Since then the companyremained very efficient and competitive encountering several problems and declining marketshare as well as difficulties remaining competitive in the global marketplace at the end of 20th,beginning of the 21st century.In 2006, Ford posted its biggest operating loss to date: $12.6billion. This coincided with continued deterioration in market share, with the majority of theselosses being captured by Toyota and General Motors. By 2005, Ford corporate bonds lost theirstatus dramatically , as a result of high U.S. health care costs for an aging workforce, weakmarket share, rising gasoline prices and an over dependence on declining SUV sales. From 1997to 2007, Ford’s United States market share plummeted from 25% to 15%.Fordnowadays is thesecond-largest U.S.-based automaker and the fifth in the world. It is taking the highest positionsof the Fortune 500 list year after year. Company sells automobiles and commercial vehiclesunder their own brand and luxury cars under Lincoln brand. It owns small stakes in Mazda andAston Martin. In 2008 Ford Motor Company was employing over 210000 people and produced5,532 million automobiles at around 90 plants all over the world. Company expects their sales torise up for about 50% by the mid-decade compared to 2008.Assets and liabilitiesRatio of fixed to total assets (Asset utilization I) = assets/total assets. 2011:32,598% (2010:27,172%) (The higher the ratio, the lower is the liquidity and flexibility; has become higher a bit)Asset Utilization II = current assets/total assets. 2011:67,4%(2010:72,82%)(has become lowerand the difference is 5,42%)Current ratio= current assets/ current liabilities.2011:1, 9053 (2010:1,992) (increase in liquiditycurrent assets relative to current liquid debt)Acid-test ratio = (current assets-inventories) / current liabilities.2011:1,8118(2010:1,8937)(decrease in numbersincrease in liquidity compared to 2010)Inventory turnover = COGS/inventory.2011:19,207(2010:17,652)(increaseless efficient useof capital)Inventory to Assets = inventory/total assets. 2011:3, 31%(2010:3,59%)(closely linked todepreciation) 2
  3. 3. Bound Inventory capital=inventory*360/revenues.2011:15,590(2010:16,518)(compared toearlier years it seems to be going down less bound capital, more efficient production and sales)Account receivable turnover = credit sales/accounts receivable.2011:15,9(2010:15,38)(increasemeans that more goods have been sold, but liquidity decreases but difference is marginal)Capital structure and figuresEquity ratio=equity/total assets.2011:8,45%(2010:-0,389%)(great improvementlessvulnerable to critical business situations)Return on Equity=net income/equity. 2011: 34,107%(2010:-10,21)(big positive increase ofmore than 40%,owners of the company receive higher return on their investment)Total Equity=Dec.2011 15,07B(Dec. 2010 -642 M)(Great increase to positive numbers)Debt Ratio = Total Debt/Total Assets.2011: 91,5%(2010:100%)(decrease in numbers meansless liquidity, however increase in potential of getting new credits and higher credibility) short term debt ratio= current liabilities/total assets.2011:35,3%(2010:36,55%)(decrease means improvement of financial situation) leverage ratio=debt/equity.2011:10,83(2010: 257,52)(huge decrease which is especially favorable for the company as it can reduce the risk of overburdening debt)Equity to assets ratio=equity/assets.2011:25,9%(2010:-0,143%)(big improvement) Equity + long-term debt to asset ratio=(equity + long-term debt)/ assets.2011:198%(2010:233%)(Both ratios should be above 100% and they are) Cash liquidity=cash*100/current liabilities.2011:27,18%(2010:25,58%)(normally one fifth of current liabilities should be covered by cash equivalents, which is true for both periods) Quick ratio= (cash +short term receivables+ marketable securities)* 100/current liabilities.2011:70, 26% (2010:72,996%) (normally it should be 100%,but for the capital and asset intensive automotive industry these numbers are normal) Banker’s ratio=(cash+ short term receivables+ marketable securities+ inventories)*100/current liabilities. 2011:76,92% (2010:82,82%)( normally this number should be around 200%, but according to automotive industry results these numbers are normal)Working capital= current assets – current liabilities. 2011:57,12(2010:59,73)(the value is lower,however the higher it is the better is the liquidity of the company)Net cash flow:2011:5,6(2010:4,4)21,43% increaseNet liquidity:2011:32,4(2010:27,9)13,9% increase 3
  4. 4. Sales, Shares and Operational FiguresSales Revenue:2011:128.168Mio$ (2010:119:280Mio$)(Increase by almost 7%)Vehicle sales (thousands):2011:5695 (2010:5313)6,7% increaseCurrent Stock Price:12,87$ per share (ref. Marketwatch. The Wall Street Journal, 31 Dec.2012-see Annexe) the stock has a 52-week low of $8.82, a 52-week high of $13.05 and $42.60billion in market capitalization.Earnings per share, basic net:2011:5,33(2010:1,90)increase in over 60%Earnings per share diluted quarterly: 0.41 for Sept. 30, 2012Further key figures can be found at the Annual Ford Company Report 2011 and Appendix.Looking at the current financial structure we can find that they are heavily influenced by themanagement decision to heavily expand in the appearing markets such as Africa and Asia.Moreover Ford is one of the 25 American companies that invest the most in plants, technologyand equipment according to the Progressive Policy Institute with around 3,9 billion in capitalexpenditure and the 13th place in the ranking (see Appendix).Looking at the financial results I am fully convinced that Ford is a great investment opportunity.AppendixFor a more detailed analysis and review we should compare Ford numbers with the results of thecompetitors such as General Motors, Chrystler, Toyota and Nissan. More detailed numbers aregiven in the attached 2011 report of Ford Motor Company. 4
  5. 5. Marketwatch (accessed on the 31st December 2012) stock prices and chart: Source:Yahoo Finance 5
  6. 6. Ford Motor Company-Annual Report 2011Balance Sheet of the Ford Motor Company as of December 31, 2011 6
  7. 7. Ford Motor Company-Annual Report 2011Cash Flow Statement of the Ford Motor Company as of December 31, 2011 7
  8. 8. Ford Motor Company-Annual Report 2011Income Statement of the Ford Motor Company for the period January 1 to December 31Further references: 8