Financial Analysis of a Company

This assignment presents a financial analysis of an unidentified company. It provides various key financial metrics such as return on equity (ROE), price-to-earnings ratios (P/E ttm and P/E forward), PEG ratio, payout ratio, and dividend information. The data covers a period from January 2014 to January 2015, with daily figures for performance indicators like percentage change. The analysis also includes the company's retention ratio and earnings per share (EPS).

Finance and investment

TABLE OF CONTENTS
Introduction – Ford Motors Company.......................................................................................3
Performance of Ford Motors Company.....................................................................................3
Calculations................................................................................................................................3
S&P 500 and Industry analysis..................................................................................................5
Ford Motors Company v/s Automobile Industry.......................................................................6
Recommendation........................................................................................................................7
References..................................................................................................................................9
Appendices...............................................................................................................................10

INTRODUCTION – FORD MOTORS COMPANY
Ford Motor Company (globally known as “Ford”), a second largest the United States based
multinational deals in automobiles and automaking of cars as well as commercial vehicles,
was founded in 1903. The company owns few brands like SUV, Troller and FPV; has stakes
in many countries and is also jointly holds ventures across the world (Annual report of Ford
Motors Company, 2016). Although a public company, it is one of the largest family-owned
global business and is listed on New York Stock Exchange, NYSE. It was Ford who
introduced Fordism, meaning manufacturing of cars and management of industrial workforce
on a large scale by assembly line moving. It is also ranked fifth globally for production of
vehicles and is eight on Fortune 500 Companies’ list. Ford worldwide had its
manufacturing operations like in the United States of America, Canada, the United Kingdom,
China, Australia, Germany, Mexico, Turkey, Argentina, Brazil, South Africa and cooperative
agreement in Russia.
PERFORMANCE OF FORD MOTORS COMPANY
Looking at the performance of the company from its financial statements, revenue has
increased gradually since the year 2014, but the net income has not grown in proportion to its
revenue. Similarly, the assets as well cash dividends declared by Ford has shown a rising
trend, which shows that the company is performing well for the equity holders who have also
grown in number since 2014 (Bodie, 2013). Ford currently has two automobile divisions Ford
and Lincoln, with highest no. of dealerships with Ford and Ford-Lincoln and lowest with
Lincoln. Ford reveals an average of negative return of 0.44 % in comparison to a positive
return of 0.66 % of S&P 500. Ford has a good payout ratio of 63 % with dividends rising
with the growth rate of 13.98 %. With the P/E ttm of 12.92 and P/E Forward of 12.27, Price
earnings Growth comes at 3.52 %, which is reasonable. But the Present Value Growth
opportunity is negative with one third percent, which is a negative sign for the investors to
put in money for a long term.
CALCULATIONS

Beta K Expected Market
Return
Risk Free
Rate
1.40724314 11.05 % 7.9115 % 0.1942 %
G-simple G0-1yr GPEG PVGO Sustainable P/E
5.015840 % 5.30 % 3.515759312 % -33.32558052 % 6.90801329 %
*Growth used for PVGO and sustainable P/E was GPEG growth.
*Used ROE ttm from Yahoo for PVGO
Bull Call Spread:
Current Price: $12.27 October 27, 2017
Date Strike Last
Oct 20, 2017 $11 $1.09 Short/sell
Oct 20, 2017 $11.5 $0.59 Long/buy
Cost: $1.68

S&P 500 AND INDUSTRY ANALYSIS
The automobile industry is very volatile and changes with every new technological
advancement and emerging regulatory requirements of environmental concerns. With the
new era of connecting people, Ford has established a city solutions team to work with
municipalities to deliver solutions relating to mobility to specific communities. Since the
economic conditions and highly competitive scenario affects industry so is the company’s
demand, and industry share is influenced (&P 500 Automobiles (Industry), 2017). The per
annum total shareholder’s rate of return S&P 500 and Dow Jones Industrial Average has been
able to accomplish for the investors were 14.8 % and 10.1 %, respectively, over five years
period, whereas it was only 5.5 % for an average automaker. The return earned on invested
capital by the top 10 original equipment manufacturers was just 4 %, which was just half of
the cost of capital of the industry in 2016.
The analysis suggests the auto industry will have relatively less number of winners in another
five years. The ones who are more creative in making best out of its resources will be able to
stand out. Rate of return on capital invested has been so low that has lead to bankruptcy of
many in the auto industry in last 10 years or so, which further is going down with speedy new
capital expenditure on self-directed driving technology, connected cars, omnipresent
electronics, new powertrains, Various digital services and creative connectivity systems
creating a need for new and expensive auto parts (Parkin and et al., 2017). Designer car
interior, safety, entertainment, security, digitization, comfort, warning on screens, safety
aiding systems, creative software developments at work, etc. has increased the passive needs
as well as cost of the automobile manufacturing and retailing by adding to cost of resources,
talent acquisition, infrastructure development, new start-ups, investments, publicity,
marketing tactics, etc. Below mentioned graph picturises the auto industry with S&P 500
index, which denotes automobile industry is on rising trend with 139.93 % than 78.65 % of
S&P 500.

The rising concerns of safety and global environmental regulations are enhancing the cost
further high for the industry. The United States although bring some ray of hope with likely
relaxation of regulations with the current administration which postpones or abolish the
stringent emissions standards which raise costs incurred due to it (Pinto and et al. 2015).
However, this is dicey looking at individual American states as well as European countries
still push for stricter norms, in addition to other counties of the world which are quickly
adding to the list of the environmentally regulated requirements.
FORD MOTORS COMPANY V/S AUTOMOBILE INDUSTRY
The above-mentioned graph shows the market share of automobile manufacturing companies
in the United States, with Ford at the second position with 14.8 % share of the market,
disclosing its success and profitability. The United States car manufacturers’ showed a flat
trend for within country sales between the year 2015 and 2016, whereas Ford Motor’s market
sales declined by 0.1 % arriving at 2.6 million units in the year 2016. The current price of

Ford is $ 12.27 in October 2017 with the eighth rank amongst Fortune 500 companies. The
Ford shows a fluctuation of price over a period of 5 years, with highest in the year 2014
which gradually faced a fall thereafter. But the stock is promising with the projected rise in
Earnings per share and dividend per share which recommends that it shall be kept on hold as
well as buy at lower prices for future returns.
Ford achieved a pre-tax profit of $10.4 billion in the year 2016 and a net income of $4.6
billion. Ford was able to pay off its shareholders with the distribution of $3.5 billion in the
year 2016, including the very first $1 billion of supplemental dividend maintaining a strong
liquidity profile, with $ 27.5 billion of automotive cash and $ 11.6 billion net cash
(Greenbaum, Thakor & Boot, 2015). In 2017 some lower returns than 2016, primarily due to
higher amounts of investments in creative technological advancements, core competencies,
innovative talents and budding opportunities.
RECOMMENDATION
Looking at the rising trends of revenue, assets as well as dividend payout and PVGO, the
Ford Motors Company shows a successful innovators sign investing in innovation, creativity
and compliance. Thus, I am of the opinion that Ford Motors Company shows a very
promising and growth-oriented trends in the near future and should be overweighted and is
considered at a buy option for the investors. The buy recommendation comes with the sole
research and study of the Company’s historical statistics that reveal that the business of the
firm is surely going to flourish and offer a positive return to its stakeholders. I opine about the
overweight Ford since, its second largest in the United States market and fifth in the global
market of automobile manufacturing with substantial creative investment in current investor
demands. Understanding and working on different needs of customers, alternate energy

sources, technology, luxury, costing and environmental norms are becoming more prominent
with strong scope to the expansion of Ford Motors. Ford expects the biggest strategic shift in
its history which is rising thrust in a planned manner with promising high financial results of
all the times.

REFERENCES
Annual report of Ford Motors Company. (2016). [PDF]. Available through <
https://corporate.ford.com/microsites/sustainability-report-2016-17/doc/sr16-annual-
report-2016.pdf>. [Accessed on 28th October 2017].
Bodie, Z. (2013). Investments. McGraw-Hill.
Greenbaum, S. I., Thakor, A. V., & Boot, A. (Eds.). (2015). Contemporary financial
intermediation. Academic Press.
Parkin, R., Wilk, R., Hirsh, E. and Singh, A., (2017). 2017 Automotive Trends. [Online].
Available through <https://www.strategyand.pwc.com/trend/2017-automotive-
industry-trends>. [Accessed on 28th October 2017].
Pinto, J. E., Henry, E., Robinson, T. R., & Stowe, J. D. (2015). Equity asset valuation. John
Wiley & Sons.
S&P 500 Automobiles (Industry). (2017). [Online]. Available through
<https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/industries.jhtml?
tab=investments&industry=251010>. [Accessed on 28th October 2017].

APPENDICES
Date
Ford
returns
SP500
returns
T-bill
monthly
Ford minus T-
bill
SP500
minus T-
bill
01-04-17 -1.46% 0.91% 0.0650% -0.015 0.008
01-03-17 -7.10% -0.04% 0.0615% -0.072 -0.001
01-02-17 3.01% 3.72% 0.0436% 0.030 0.037
01-01-17 1.90% 1.79% 0.0417% 0.019 0.017
01-12-16 1.42% 1.82% 0.0400% 0.014 0.018
01-11-16 3.14% 3.42% 0.0390% 0.031 0.034
01-10-16 -2.73% -1.94% 0.0246% -0.028 -0.020
01-09-16 -4.21% -0.12% 0.0217% -0.042 -0.001
01-08-16 0.62% -0.12% 0.0267% 0.006 -0.001
01-07-16 0.72% 3.56% 0.0200% 0.007 0.035
01-06-16 -6.82% 0.09% 0.0207% -0.068 0.001
01-05-16 0.58% 1.53% 0.0236% 0.006 0.015
01-04-16 0.44% 0.27% 0.0161% 0.004 0.003
01-03-16 7.91% 6.60% 0.0161% 0.079 0.066
01-02-16 8.31% -0.41% 0.0257% 0.083 -0.004
01-01-16 -15.26% -5.07% 0.0250% -0.153 -0.051
01-12-15 -1.67% -1.75% 0.0123% -0.017 -0.018
01-11-15 -2.26% 0.05% 0.0142% -0.023 0.000
01-10-15 9.14% 8.30% 0.0057% 0.091 0.083
01-09-15 -2.16% -2.64% 0.0004% -0.022 -0.026
01-08-15 -5.52% -6.26% 0.0042% -0.055 -0.063
01-07-15 -1.20% 1.97% 0.0048% -0.012 0.020
01-06-15 -1.05% -2.10% 0.0008% -0.011 -0.021
01-05-15 -3.08% 1.05% 0.0003% -0.031 0.010
01-04-15 -2.11% 0.85% 0.0004% -0.021 0.009
01-03-15 -1.22% -1.74% 0.0021% -0.012 -0.017
01-02-15 12.21% 5.49% 0.0007% 0.122 0.055
01-01-15 -5.10% -3.10% 0.0004% -0.051 -0.031
01-12-14 -1.46% -0.42% 0.0031% -0.015 -0.004
01-11-14 12.63% 2.45% 0.0004% 0.126 0.025
01-10-14 -4.73% 2.32% 0.0003% -0.047 0.023
01-09-14 -15.05% -1.55% 0.0011% -0.150 -0.016
01-08-14 3.02% 3.77% 0.0015% 0.030 0.038
01-07-14 -1.28% -1.51% 0.0015% -0.013 -0.015
01-06-14 4.87% 1.91% 0.0017% 0.049 0.019
01-05-14 0.0000%