Financial Analysis of the Ford Motor Company

Financial Analysis of the Ford Motor Company

PART I, COMPANY OVERVIEW:

a. Brief description of the company:

The Ford Motor Company generates its money through two different sectors: Automotive and Financial Services. Automotive sector’s revenue, income and cash are generated primarily from sales of vehicles to its dealers and distributors. Vehicles the company produces generally are subject to firm orders from its customers and are deemed sold immediately after they produced and shipped to its customers.

Most of the vehicles sold to its dealers and distributors are financed at wholesale by Ford Credit. Ford Credit pays cash to the relevant legal entity in its automotive sector in payment of the dealer’s obligation for the purchase price of the vehicle. The dealer then pays off the wholesale finance receivable when it sells the vehicle to a retail customer. The Financial Services sector’s revenue is generated primarily from interest on finance its money to these dealers.

b. Company history:

Ford Motor Company was established on June 16, 1903 with $28,000 in cash from twelve investors, including Henry Ford. Henry Ford’s vision was to create inexpensive automotive vehicles for the masses. The first highly successful automobile created by Ford was the Model T in 1908. To increase production and efficiency, Ford implemented the moving assembly line in 1913.

From the mid 1920s to the late 1930s Ford sought to use its new cash flow to expand and explore new automobile markets. In 1922 Ford Motor Company acquired the Lincoln Motor Company in order to break into the luxury car market, and in the 1930s it created the Mercury Division in order to seize mid-priced vehicle market share. By the end of the 1930s Ford had built over 25 million vehicles.

In 1942 Ford ceased production of civilian cars and devoted all of its resources to filling defense contracts. Ford built everything from tanks to aircraft engines. In all, they, “produced...