Ford Motor Company Operating - Term Paper Example

Financial Research Report for Ford Motor Company Introduction:             The Ford Motor company basically functions in the US, Mexico, South America, Canada and Asia Pacific with its headquarters in Dearborn, Michigan with 327,500 employees working in it. In recent years, the company has revolutionized its operations with the help of various types of information technology (IT). Ford is one of those companies that belong to the category of large consumer of IT (Allen & Morton, 1994). Description of the Ford Motor Company Ford Motor Company started a revolution in the manufacturing field when it introduced the mass production assembly lines early in the 20th century. The company, at present, is one of the biggest producers of cars and trucks at a global level. The different brands of Ford Company vehicles include Ford, Lincoln, Mercury and its redesigned Ford Mustang and the F-Series pickup which have been very successful. The company also possesses interest in Mazda and commands the Volvo nameplate. Ford Motor Company has 95 plants spread throughout the world with 41 distribution centers and warehouses. It also has 50 engineering, research and development centers. The company carries its operations under the two sections namely, Automotive and Financial Services. For the year ended on December 31, 2008, Ford traded the ACH glass business to Zeledyne, LLC. The Nashville, Tulsa, and VidrioCar plants were also included in this sale. In the year 2008, Ford and its subsidiary, the Volvo Car Corporation sold the Thai-Swedish Assembly Group to Volvo Holding Sverige, AB. The company was able to acquire 72.4% of the shares of S.C. Automobile Craiova SA in March 2008. The sale of the company’s Jaguar and Land Rover operations to Tata Motors Limited took place in June 2008. Stock price analysis The share value of Ford has reached $1.56. Steny Hoyer, the House Majority Leader told the Fox News Sunday that he expects that the plans of the companies will win governmental aid. However, its accountability and feasibility are yet to be seen in the long run. But the Republican leader Mr. John Boehner was sceptical about these plans. He remarked that it was a matter of convincing the American tax payers that the government was financing a viable corporation. The following is the stock activity of the company: Stock Activity Last Price 6.11 52 Week High 6.75 52 Week Low 1.01 Volume 54.58 Mil Average Daily Volume (13wk) 102.05 Mil 50 Day Moving Average 5.19 200 Day Moving Average 3.31 Volatility (beta) 2.55 F Intraday Chart 5d 1m 3m 1y 3y 5y 10y Beta 2.55 Dividend & Yield NA Earnings/Share -7.03 Forward P/E -15.28 Market Cap. 19.39 Bil P/E -0.86 Return on Equity NA Total Shares Out. 3.17 Bil Financial data in U.S. dollars (Source: http://moneycentral.msn.com /detail/stock_ quote?Symbol=F, retrieved on 14th June, 2009) Ford Motor must strive hard to find out new strategies to make the company progressive. That is what the Democrats told the executives of the major three companies last week, when they sought an emergency financial aid of $25 billion. They were told by the Democratic leaders to submit new proposals with bailout plans to Congress on 2nd December. On getting the proposals they would hold hearings for voting on it the next week. Stock Charts (2009-06-14) Ford Motor The companies have to prepare a plan as to how the governmental loans will be utilised and period for which the financial loans are required. In order to get these loans the companies must forego the payment of dividends and the huge amount of executive compensation. (http://articles.moneycentral.msn.com/Investing/Dispatch/market- dispatches-112408.aspx, retrieved on 14th June, 2009) Ratio analysis Gross Profit Margin 19.4% EBIT Margin -5.1% EBITDA Margin 4.4% Pre-Tax Profit Margin -12.8% Current Ratio 2.4 Quick Ratio 1.9 Receivables Turnover 1.2 Inventory Turnover 11.2 Asset Turnover 0.5 Revenue to Assets 0.6 Return on Invested Capital -12.6% Return on Assets -8.0% Long-Term Debt to Total Capital 1.14 The Ford Motor company earned revenues of $146,277 million during the financial year which ended in December 2008, and these earnings were down by 15.2% when compared to that of 2007. The company faced an operating loss of $4,130 million during 2008 as compared to its operating profit of $5,631 million in 2007. The net loss was $14,672 million in the financial year 2008, whereas a net loss of $2,723 million occurred in the year 2007. The sales of Ford Auto Company were down by nearly 12% for the same year. This resulted in the Japanese rival namely, Toyota, surpassing it and becoming the top auto manufacturer. The company was also hit by the rising gas prices, which brought down the demand for its SUVs and pickups. Also, the cost of cutting its North American labor force by about 33,000 people was the outcome. Consistent loss on some of the company’s overseas brands pressed the company to put Land Rover, Jaguar and Aston Martin on the chunk. The loss of Ford was $2.7 billion for the year and the company is cutting down capacity to encounter decreased demand and offer buy ups to its full U.S. hourly labor force of 54,000 people. Ford Motor Company, which is the second-largest U.S. automaker, collapsed 21% to $2.92, which is the least price in the history of the company since April 1983. (http://money.cnn.com/magazines/fortune /fortune500/ 2008/ snapshots /160.html ?source=story_f500_link, retrieved on 14.06.09). Ford Motor Financial Ratios   Company Industry Median Market Median1 Price/Sales Ratio 8.90 2.55 0.16 Price/Earnings Ratio (1.13) (0.04) 0.04 Price/Book Ratio (0.99) 0.42 0.17 Price/Cash Flow Ratio 0.20 0.17 0.03 Source: www.ford.com $ millions % change from 2006 Revenues 172,468.0 7.7 Profits -2,723.0 — Assets 279,264.0 — Stockholders' equity 5,628.0 — Market value (3/28/2008) 12,337.1 — Source: www.ford.com Source: http://www.corporateinformation.com Ford cuts down output in Venezuela It was reported that Ford Motor Company is trying to reduce its production by 10% this year at its Venezuelan assembly plant. It was due to the fact that the government did not allow it to get enough money to import parts. But Gabriel Lopez, president of Ford Affiliate Company said that it did not intend for a shut down. However, production at some of its car plants may affect due to the non availability of the imported parts. Government of Venezuela has imposed restriction on US currency inflow since the year 2003. The companies have to get the approval of the government for buying dollars at a limited exchange rate. The situation aggravated when the price of the oil slashed down globally bringing disadvantage to the company in procuring dollars. (http://news.moneycentral.msn.com/ticker/article.aspx?symbol=US:F &feed=AP&date=20090611&id=10005566, retrieved on 14th June, 2009). Foreign Operations: The company’s overseas operations function under its corporate jurisdiction including the regions of the European continent. Its corporate websites are designed to serve specific locations. In Ford’s overseas operations several economic concepts are used. In UK and other parts of Europe, Ford applies the principle of comparative advantage to maintain modern international trade relations. This approach benefits both the countries in the matter of their economies as well as employment opportunities. After the 1982 devaluation of the Peso to US dollar, Ford Mexico had a relative advantage in the production of aluminium, iron, electricity, labor and transportation subject to the proximity of US market. Likewise, the free trade agreements and policies existing in Asia and Pacific opened great opportunities for economic integration in those areas. Because of the company’s free-trade policies, the respective governments have created comparative advantage of localities. This in turn originated global platforms for multinationals. The international branches of Ford exercise their economic policy of free market. The policies of the government affecting the industry were formulated according to laissez-faire, which demanded the intervention of the government only if there is a market failure. These develop potential opportunities for the company. and at the same time if it is used waywardly might cause corporate losses. The company’s free trade policies affect its overall operations, and the research and analysis wing guides the management in all its businesses. It serves as sources of information required for planning and decision making process. The information technology makes it easier for them to intrude the international market through effective marketing and advertising strategies. The technological development gives strategic edge to the company and the product technologies highlight their products to gather advantage. However, the cost of innovations has increased the cost of new product development. The fast paces of globalization expanded the company’s operations worldwide. The global integration of economy and the socio-political aspects forced the company to expand its activities to overcome the hurdles to economic progress. Global competition created a potential market for the automobile industry and has provided improvement in the production lines. The blessings of the globalization such as free market policies and the regulation for direct foreign investment together with e-commerce paved the way for Ford to improve its operations.              Despite the present adverse economic conditions and uncertainties rampant in the automobile industry, Ford earns a good return from their business. Being one of the leading automotive companies it looks for innovations so as to streamline its operations. (Source:http://ivythesis.typepad.com/2009/04/ford-motor-company-international-operations.html, viewed on 14th June, 2009) Conclusion Automobile industry began in the early 1900’s when Ford started producing its Model T. Cars became cheaper with the origination of the assembly line. Initially, there were 500 automotive companies. But by 1908 the number was reduced to 200. Later in 1917 there remained only 23 manufacturers due to the consolidation occurred within the industry. At present the main companies in this field are Ford, DaimlerChrylser, General Motors (GM), Honda, Toyota, and Volkswagen. USA is responsible for 23% of the total production of cars whereas Japanese share is 21%. The consolidation of the industry continued its onward march resulting in the acquisition of Chrysler by Daimler-Benz in late 1998. This proved advantageous to consumers as the cost of the cars came down. Nissan sold its 37% shares to Renault and General Motor gave away its 49% ownership of Isuzu. Ford also gave its 33% interest of Mazda. Thus the consolidation prevailed. The automotive industry in USA showed a 2 to 3% growth in the last few years. Also there was an increase in popularity of the Sport Utility Vehicle (SUV) and big luxury cars. The future of the global car market is very bright. Reference: 1. Thomas J. Allen and Michael S. Scott Morton, 1994, Information Technology and the Corporation of the 1990s. 2. http://moneycentral.msn.com/companyreport revisited on 14th June, 2009. 3. http://money.cnn.com/magazines/fortune /fortune500/ 2008/ snapshots /160.html ?source=story_f500_link retrieved on 14th June, 2009. 4. http://news.moneycentral.msn.com/ticker/article.aspx?symbol=US:F &feed=AP&date=20090611&id=10005566, retrieved on 14th June, 2009.. 5. www.ford.com, retrieved on 14th June, 2009 Read More