Ford Motor Company Case

Ford Motor Company

Dachaundra K. Mosley

Strayer University

Dr. Ralph J. Palumbo

ACC 599: Graduate Accounting Capstone

April 21, 2013

Abstract

Ford Motor Company has had its share of ups and downs. Ford Motor Company, like other automobile industries, experienced what could be considered its worst economical timeframe in 2008 when the American economy went into a recession. However, the company refused to take a government bailout and has bounced back to be as strong as it was prior to the economic recession.

Ford Motor Company

Ford Motor Company has been in existence since 1903, when Henry Ford started the company with $28,000. The company has had its share of good and turbulent economic times, but has been able to stay afloat. In 2012, Ford reported the highest fourth quarter it has seen in a while (Ford, 2012). The economic condition is always fluctuating and Ford's financials can either increase or decrease. Based on the most recent quarter pre-tax operating profit, project the profit for the next four (4) quarters assuming that the U.S economy stays the same as today, declines into a recession and modestly improves, Ford will have a profit or suffer a loss.

Economy Stays the Same

Ford is currently is good financial standing because the economy is currently in a stable economic condition. In the period ending December 2012, Ford started with a positive net income; however, it was $33,000 less than the ending September 2012 period. Investopedia.com defines cash flow as cash spent on expenses or investments and can be used as a warning of a company's financial strength (Investopedia, 2013). On Yahoo! Finance, Ford's Cash Flow shows that the company had a lot of financing activities, with over $4 million in net borrowings. Despite the company having high financing activities, the company was able to produce a profit. The company does have enough money to pay the bills in the current economic condition.

Economy in Recession

Ford has experienced a hard time during the recession in 2008. Every automobile manufacturer experienced economic hardship; whereas Chrysler and General Motors had to accept financial assistance from the federal government. However, Ford declined the financial bailout. In the December 22, 2008, Newser article, during the 2008 recession Ford CEO Alan Mulally said the company would be able to survive without help from the government through 2009. He said that Ford would ask for a line of credit in the event the economy worsened severely (O'Neil, 2008). Mulally was the only CEO of the three automotive manufacturers to refuse the bailout and Ford survived the recession. Ford's stock gained one-half percent to sell for $10.10 per share; however, during the economic recovery stage, the stocks did drop. Ford has proven that it can survive during a recession without any assistance from the government or banks.

Economy Modestly Improves

Ford has bounced back from a recession and is currently surviving as the economy has stabilized. Ford did not take assistance from the government and despite stock prices slipping six percent in 2012, Ford is still doing well. If the economy was to modestly improve, then Ford will do much better economically. Since November 2009 to January 2013, Yahoo! Finance analysts have favored Ford for investors to either buy or hold on to the stock. Their opinion in a modestly improved economy would have Ford's stock selling higher than the twenty dollar high target and the price could possibly skyrocket to over 100 dollars (2013).

Investment Opportunity

Ford has been through a lot and despite its struggles the company has been able to survive through the good and the bad. Investors can review Ford's financial statements to decide whether to invest in Ford or not. The three ratios that should be factored into deciding to invest are current ratio, EBIT to total assets ratio, and debt - to - equity ratio. The current ratio reveals your business's ability to meet its current obligations. The current ratio discloses balance sheet changes that net working capital will not. A company that cannot meet its obligations will fold. The current ratio is calculated as current assets divided by current liabilities. Ford's current ratio for the four quarters in 2012 (December, September, June and March) respectively are 1.83%, 1.91%, 1.90% and 1.91%. Based on the current ratios, Ford is able to meet its obligations. The