Ford Motor Company Analysis

Ford Motor Company Analysis

Patsy Brown

ACC/561 Accounting

May 26, 2014

Julio Jimenez

Ford Motor Company Analysis

The Ford Motor Corporation is the fifth largest automaker in the world according to vehicle sales worldwide. Henry Ford founded the company in 1903 in Dearborn, Michigan and has become one of the chief automaker and most profitable enterprises in the world, as well as being one of the few survivors of the Great Depression. Ford Motor Company is one of the largest family-owned companies in the world with continuous family control for over 110 years. Although the company has been successful, there are many competitors in the auto industry that could be considered a threat to Ford Motor. To assist Ford Motor Company sustainability, Team B will conduct a corporation analysis to measure profitability and liquidity through a comparative and ration analysis.

Comparative and ratio analysis of profitability

In assessing the profitability of a company, there are several financial analysis tools available to the user of the financial information. The available tools include comparative analysis and ratio analysis. For our comparative analysis of the Ford Motor Company, we utilize the vertical and horizontal analysis.

The vertical analysis, according to Kimmel, Weygandt, and Kieso (2011), is an evaluation of the financial statements with each line item reflected as a percentage of a base amount. In the case of the Ford Motor Company’s income statement, the base amount against which all other line items are measured is the revenue. In this analysis, we examine the two sectors of the Ford Motor Company’s operations (Automotive and Financial Services).

For the automotive sector, we see the percentages the various lines are of the base (revenue). Comparing 2013 and 2012, we see that in both years, we see that the cost of sales and affiliated expenses represents close to all of revenue, with 97% in 2013 and 96% in 2012. For the Financial Services sector, we see that the cost of sales and affiliated costs represent the majority of the revenue for 2013 and 2012, 82% and 81%, respectively. The year to year comparison shows that the various components of the income statement remains relatively the same. The significant change which affects the bottom line net income is the line item “Provision for/ (Benefit from) Income taxes (Note 22) in the consolidated section. In 2012, there was a provision for income taxes amount of $2,056,000,000, accounting for 27% of the consolidated revenue. This item relates to tax liability deferrals and unrecognized tax benefits. In 2012, there was a tax liability