Corporate Finance Report: Ford Financial Performance Analysis

This report provides a comprehensive financial analysis of Ford, comparing its performance with competitors like Toyota, General Motors, and Honda. It assesses various financial ratios, including liquidity, debt, profitability, efficiency, and valuation. The analysis reveals Ford's strengths, such as a strong liquidity position, and weaknesses, like lower profitability margins compared to competitors. The report examines the company's financial leverage, highlighting its higher debt levels, and evaluates its efficiency in managing receivables and payables. Based on the analysis, the report recommends selling Ford stock due to lower profitability and growth metrics. The report includes a bibliography of relevant sources, providing a complete overview of Ford's financial standing.

CORPORATE FINANCE

Answer 1
The analysis of the financial ratios of the entity Ford in relation to the other organizations
namely the Toyota, General Motors and Honda is conducted as follows. The study of the
liquidity ratios of the entity Ford lead to the observation that the liquidity position of the
entity is much better than its competitors with a current ratio of 1.23 in year 2017. The
company Honda with liquidity ratio of 1.21 is almost on the same platform. In addition, a
higher debt to total assets ratio of Ford signifies that the entity has major presence of long
term borrowings in its capital structure. The higher debt indicates higher risk in the capital
structure (Stephen Westerfield, and Jaffe 2013). In addition risk is high as compared to that
of the competitors. The total debt to EBITDA ratio of Ford also indicates that the company’s
debt are quite high as compared to earnings in case of Ford. However, it is also essential to
note that the risk percentage has been reduced as compared to the year 2016 data as
highlighted by the declining ratio trend. In contrast to this, the financial leverage ratios of the
competitors are lower, except in case of General Motors which is equally having debt
financing in its capital structure but lesser risk as compared to Ford because of higher
EBITDA against the total debt. The Profitability ratios of the company Ford indicate that the
entity is not performing as well as its competitors in terms of the core business operations as
highlighted by lower gross margins as compared with others. The net profits of the entity
have improved from last year and an overall return on equity is higher as compared to others
because of more dependency on outside sources for finance. The efficiency ratios of the
company Ford indicate while the company is able to rotate more of its payables and
inventories, the receivables of the entity are not realized timely, as per the performance of
other industry competitors. The higher day’s receivable of 146 days in year 2017 indicates
that the company must make use of factoring or other similar services for better management
of debtors and avoidance of fund blockage therein. The growth and valuation ratios of the
company such as price earnings ratio indicates public perception of stocks of the company
(Bradford, Miller, and Dolvin 2015). It can be stated that Ford company’s shares are much
preferred after that of Honda and therefore a higher market price. In addition it can be stated
that the entity has improvised from last year in terms of the growth of net income. However,
the improvement is not significant enough as compared to earnings per share of other entities.
Answer 2
The major strengths and weaknesses of Ford is presented as follows. The entity’s major
strength is it sound liquidity position which is significant for day to day running of businesses

operations. In addition, the company has a good credit worthiness and therefore the huge
borrowed funds in capital structure. The major weakness of the company is that the company
is not able to earn much from its core business operations in automobile industry which
means the cost of production is much higher as compared to the profitability of the
competitors.
Answer 3
Based on the analysis conducted in the previous parts, it is better to sell the stock of Ford
presently because of the lower profitability margins and lower growth and valuation ratios as
compared to other shares. As the Ford shares are currently trading at higher prices as
indicated by higher price earning share, the prices are likely to fall in future because of lesser
returns to shareholders.

Bibliography
Jordan, Bradford D., Thomas W. Miller, and Steven D. Dolvin. Fundamentals of
investments: valuation and management. McGraw-Hill Education, 2015.
Ross, Stephen A., Randolph Westerfield, and Jeffrey F. Jaffe. Corporate finance. McGraw-
Hill/Irwin, 2013.