Ford Motor Company Research Paper

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Ford Motor Company

Over the last several years, Ford Motor Company has been through a tremendous amount of challenges. This is because they were adversely impacted by the financial crisis and consumers switching to fuel efficient vehicles. Despite these issues, the firm has continued to adapt and become stronger. However, there are renewed worries that a secondary slowdown in consumer spending could adversely impact the automaker. To fully understand what is happening there will be a focus on the pre-tax operating profits, key financial ratios, strategies to improve performance and how the company's refusal of bailout funds may have impacted their results. Together, these different elements will highlight the current fiscal state of Ford. (Hiraide, 2012)

Based on the most recent quarter pre-tax operating profit, project the profit for the next four (4) quarters assuming that the U.S. economy stays the same as today, declines into a recession and modestly improves. Explain the assumptions made to support your calculations.

If Ford's operating profits remain the same over the next four quarters, they will be down. This means that these figures will come in around $3.63 billion for the first half of the year. Evidence of this can be seen in the below table which is comparing the pre-tax operating profit for the first half of 2012 with the same period in 2011. ("2011 Annual Report," 2012) ("Ford Motor Company 10Q," 2012)

Ford's Pre-Tax Operating Profits for the First Half of 2012 versus 2011

Year

Pre-Tax Operating Profit

2011

$5.32 billion

2012

$3.66 billion

("Ford Motor Company 10Q," 2012)

These figures are showing how the operating profits will more than likely be around $3.60 billion for each half of the year ($7.2 annually). Given that sales have been improving, there is the possibility that these numbers could come in around $8.2 billion. These assumptions are based on combining the pre-tax operating profits together.

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Then comparing the results with similar periods when the economy was slower (i.e. 2009 to 2010). ("2011 Annual Report," 2012) ("Ford Motor Company 10Q," 2012)

If the economy enters another recession, there is a possibility that these figures could decline to between $6 billion and $7 billion. These assumptions are based on looking at the annual report and studying where these figures were in 2010 (which is $8.30 billion). Since there is a slowdown, these numbers will more than likely decline even further. This is why the range of $6 billion to $7 billion was chosen. ("2011 Annual Report," 2012)

In the event that the economy modestly improves, there is the potential for an increase in pre-tax operating profits. This means that these figures will more than likely come in around $8.96 billion. This was determined by comparing the results for 2011 with 2010 and subtracting the difference. These figures were divided in half to reflect a more modest recovery (which is approximately $200 million). ("2011 Annual Report," 2012)

Discuss three (3) key financial ratios that you would analyze to determine whether or not Ford would be a wise investment opportunity. Explain your rationale.

The three key ratios that would be analyzed include: the forward price earnings (PE), return on equity and current ratios. The forward price earnings ratio is looking at how over or undervalued the stock is in comparison with the historical mean. It is currently sitting at 7.10. This is a sign that the price is oversold with the ability to see an increase in value. (Hiraide, 2012) ("Ford Motor Company," 2012) ("2011 Annual Report," 2012)

The return on equity is determining how effectively the company is taking the working capital from investors and utilizing it to increase profit margins. This is showing an increase of 157.85%. The high number is.....

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