Evaluation of the Financial Statements of Ford and General Motors - Research Paper Example

GM Acquiring Ford Table of Contents Background 2 Financial Analysis 2 General Motors Company LLC 3 Ford Motors 5 Conclusion 6 References 7 Appendices 8 Appendix 1 8 Appendix 2 9 Background The automobile industry was the most affected sector in the global financial crisis. The demands for cars and other vehicles fell considerably during the recession. The impact of the global financial crisis was more on the automobile sector than on the housing and financing sector. This study would include an analysis of two most famous American automakers General Motors and Ford. Ford Motors is the third largest automaker in USA and the fifth largest in the world. The company is based in Michigan, and it has about 164,000 employees around the world. Henry Ford was the founder of Ford Motors. The company manufactures cars worldwide, which includes countries like Canada, Mexico, United States, China, UK, and many other countries. General Motors was among the top auto-makers of the world and one of the most well-known in America. The objective of the company was to be the most successful automaker in a span of 5 years and also ensure that the marketing strategies such as e-commerce technologies are utilized for the overall growth of the organization. The mission of the company was to become the most respected automakers of the world. General Motors was indeed successful in moving towards its goals. We would be presenting a comparative analysis of the financial statements of both the companies to evaluate the financial status of both General Motors and Ford. Financial Analysis The financial analysis would include evaluation of the financial statements of Ford and General Motors, which would assist in understanding the revenue and profitability of the two companies and the operating expenses that the company has to bear. The financial data for the last 2 years has been studied for such purpose. General Motors Company LLC We would be considering the financial highlights of General Motors after its restructuring. The market share of General Motors has increased by 0.4 percent in 2011 from 11.9 percent in the year 2010. Even a hike of 13 percent has been recorded in sales than the last year. General Motors had to downsize due to bankruptcy, so after restructuring the company created 17,500 jobs in America. The company also added around 3,400 dealerships more in US alone to provide better services to customers and a wonderful sales experience. In the Asian market such as China, General Motors has again gained its leader position. The revenue in 2011 has been recorded to be $ 150 billion, which was $ 135.6 billion in 2010. Similarly the net income was $ 4.7 billion in 2010, which has increased to $ 7.6 in 2011. Earnings per share (EPS) signify the profitability per share. The EPS of GM in 2010 was $ 2.89, which increased to $ 4.58, as can be seen in Figure 1. A significant growth in profitability per share has been seen in case of GM. This is due to the gradual sustainability that the company was gaining after its restructuring. The IPO price of GM’s shares was around $ 33 per share, which was around $ 25 per share. The price of shares increased by 32 percent in the year 2011, again in the second quarter of 2011 and in the first quarter of 2012, the stock prices of GM reduced by 41 percent and 62 percent respectively. The revenue of the company grew by 10.83 percent, but the gross income increased by only 9.25 percent. This signifies that the profitability for the company is growing at a slower pace than its revenue. This also indicates a decline in efficiency and also increase in the cost of goods sold. Figure 1 Source: (General Motors Company, 2011, p. 2-4) General Motors is among those automobile companies which has the Revenue Per Employee (RPE). General Motors stands second in the rank with a RPE of $ 730,000, based on the data derived from New York Stock Exchange. The direct labor costs of the company are mentioned in the cost sheets of the company, which is publically revealed. However, the sales figures of the company can be helpful in determining the business of the company. The sales as recordrd in third quarter of 2012 are 240,520 vehicles in US, which is 10 percent higher than it was sold in last year. This is the effect of the extensive marketing that was done in the London Olympics (Bloomberg, 2012b). Ford Motors Ford has been a stable company all throughout its journey, though the company was also a victim of the global financial crisis which engulfed many leading stable companies of America, but Ford managed to save itself from bankruptcy. It recorded an operating profit of $ 8.8 billion in the year 2011, or $ 1.51 per share earnings. This revenue figure states that there has been an increase of $ 463 million in 2011 from 2010. The net income amounts to $20,213 in 2011, which is much higher than the net income of 2010, $6,561 million. Ford Motors is the top company among the automobile companies that have the highest RPE, which is about $ 817,000. The company is also into financing of vehicles, insurance and leasing. In 2011, Ford made substantial investment for the future. The company invested about $ 32.4 billion for meeting the automotive liquidity. The automotive debt was about $ 13.1 billion, which was $ 6 billion lesser than the last year. The gross cash figures of the company were recorded to be $ 22.9 billion. Ford also signed four significant agreements with United Auto Workers, which will assist the company to improve its global competitiveness. Due to this reason Ford would be investing $ 16 billion more in USA and also create many jobs in the country. The stock prices of Ford fell considerably in 2009, but it was a common financial condition for every company in the sector, as can be seen in Figure 2 (Ford Motors Company, 2011, p. 4-6). Figure 2 Source: (Bloomberg, 2012a). Conclusion After conducting a detail analysis of the financial analysis and studying the financial statement of both the companies, General Motors and Ford Motors, it was found that Ford is in a much stronger and sustainable position that General Motors. References Bloomberg. (2012a). Ford Motor Co. Retrieved from: http://www.bloomberg.com/quote/F:US/income-statement. Bloomberg. (2012b). General Motor Co. Retrieved from: http://www.bloomberg.com/quote/GM:US/income-statement. Ford Motors Company. (2011). Ford Motor Company 2011 Annual Report. Retrieved from: http://corporate.ford.com/doc/2011_annual_report.pdf. General Motors Company. (2011). General Motors Company 2011 Annual Report. Retrieved from: http://www.gmannualreport.com/common/documents/2011_GM_Annual_Report.pdf. Appendices Appendix 1 Ford Motors: Income Statement Appendix 2 General Motors: Income Statement Read More