Finance Analysis

FN2640

Analysis

Using the financial data made available online by the company I have calculated the inventory period, accounts receivable period and the average payment period.

The first ratio calculated, the Inventory Period, is found by dividing the cost of goods sold by the amount of inventory that the firm has on hand. Therefore the ratio for Ford’s inventory period is calculated as $125,442,000 / $7,708,000 = 16.3. Having 16.3 as an inventory ratio is considered to be high which can be interpreted to mean that the company is experiencing strong sales. A high ratio can also be considered unhealthy because it could mean that the company has an investment rate of return of zero. This ratio can assist an individual in knowing how many times a company’s inventory is repeatedly sold and replaced over a period of time by providing a calculated average number of days it takes to sell the current amount of inventory on hand. The inventory period ratio is relevant when comparing to industry averages.

The second calculated ratio for the Ford Motor Company is the Accounts Receivable Ratio. This ratio is used to measure the average time between when a product is sold on credit and cash is received from the buyer. When comparing the revelance of the ratio to industry standards, usually the lower the ratio the better. The accounts receivable ratio is calculated by dividing the firm’s accounts receivables by their average net sales per day. Therefore, Ford’s accounts receivable ratio is $87,309,000 / ($146,917,000/365) = 216.9 days, which is less than a year. Considering Ford Motor Company is in the auto industry, collecting money from consumers in less than a year on average should be considered pretty good.

Lastly, the third ratio calculated for Ford is the Average Payment Period. This ratio represents the amount of time it takes a company to pay its suppliers. The average payment period is found by dividing the company’s accounts payable by its cost of...