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Ford Motor Company Essay

2032 words - 8 pages

Ford Motor Company

Ford Motor Company, a large United States automotive corporation, strives for
success each and every year. The success of Ford Motor Company, as well as
other corporations, can be measured by analyzing the two most important goals of
management, maintaining adequate liquidity and achieving satisfactory
profitability. Liquidity can be defined as having enough money on hand to pay
bills when they are due and to take care of unexpected needs for cash, while
profitability refers to the ability of business to earn a satisfactory income.
To enable investors and creditors to analyze these goals, Ford Motor Company
distributes annual financial statements. With these financial statements,
liquidity of Ford Motor Company is measured by analyzing factors such as working
capitol, current ratio, quick ratio, receivable turnover, average days' sales
uncollected, inventory turnover and average days' inventory on hand; whereas
profitability analyzes the profit margin, asset turnover, return on assets, debt
to equity, and return on equity factors.

LIQUIDITY Working Capital

Ford Motor Company's working capital fluctuated significantly in the years
1991-1995. This phenomenon is directly attributable to the fact that Financial
Services current assets and current liabilities are not included in the total
company current asset and current liability accounts. For example, the
fluctuation from 1994 ($1.4 billion) to 1995 (-$1.5 billion) of $2.5 billion
would suggest that Ford would be unable to pay liabilities during the current
period. However, examination of the Financial Services side of the business
reveals that surpluses of $13.6 billion existed in both 1994 and 1995,
convincingly mitigating the figures indicating negative working capital.

Current Ratio & Quick Ratio

The current ratio in the years 1991-1995 has remained stable, fluctuating
between 0.9 and 1.1. The quick ratio has also remained stable, fluctuating
between 0.5 and 0.6. The larger fluctuation in the current ratio versus the
quick ratio is caused by inventories being included in the asset side of the
equation. Although inventories were significantly higher in both 1994 and 1995,
current liabilities were also higher. In addition, marketable securities
decreased substantially in 1994 and 1995. These factors resulted in the
stability of both the current ratio and quick ratio.

Receivable Turnover & Average Days' Sales Uncollected

An examination of trends in Ford Motor Company's receivable turnover and average
days' sales uncollected ratios reveal positive indicators of Ford's liquidity
position. The receivable turnover, a function of net sales and average accounts
receivable, has nearly doubled in the years 1993-1995 versus 1991-1992. This
trend indicates an extensive increase of net sales in relation to accounts
receivable. Receivables were relatively higher in 1994 than in any other of the
five years, affecting the ratio for...

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