Examine the Accounting Cycle of Ford Motor Group
Introduction
Ford Motor Group (F) is a multinational company based in Michigan, USA. It manufactures the
ford brand of trucks together with a range of spare parts. Ford also owns other subsidiaries some
that deal in provision of financial services. Ford manufactures several models of trucks and
SUVs including Ford Focus, Ford Escort, Ford Sierra, Ford Capri and the latest one Ford Edge.
The Ford family holds 2% type A shares and the rest of type B shares. The company has a total
market capitalization of about $47.9 Billion currently. By the end of June the year 2014, Ford
Motor Group had outstanding common stock shares amounting to 3,837,638,073 with a book
value of $17.24 whose market value was $ 66,160,880,379.
Financial Analysis
Liquidity
Liquid assets are assets that can be quickly converted into cash. The liquidity position for Ford is
impressive. The current ratio is 6.58 to 1. The current assets are 6.58 times more than the current
liabilities. The rule of thumb dictates that the minimum ratio should be 2:1 while the quick ratio
should be 1:1 (Hermanson et al, 2011). Ford’s quick ratio for 2014 was 6.19:1. The financial
statements suggest that Ford’s liquidity is commendable.
Leverage
Examining the Accounting Cycle – Ford Motor Group 2
Fords leverage ratio are however not so impressive. The ratio of total debts to assets for the year
2014 was 0.88 to 1. For every dollar that Ford has invested in its assets, 0.88 is debt. Ford’s debts
are 88% of its assets (United States Securities and Exchange Commission (SEC), 2016)
Profitability
Fords profitability is also not improving.
GPNPSalesDebtsCost of
sales
-60.00
-50.00
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
Fords Financial Trend for 2014
2013
2014
The gross profit for Ford increased by 8.37% in the year 2013 while in 2014 it decreased by
5.3%. The Net Profit increased by 27.85% in 2013 but in 2014 it decreased by 55.6%. The total
sales increased by 10% in 2013 but decreased by 1.93% in 2014. The debts increased by 1.5% in
2013 but in 2014 the debts increased by 4.35%. The cost of sales however increased by 10.25%
in 2013 but decreased by1.44% in 2014. Ford’s Return on Equity for the year 2014 was 13%
decreasing from 27% and 35% from the previous years (2013 and 2012).
GP NP Sales Debts Cost of
Sales
2013 8.37 27.85 10 1.5 10.25
2014 -5.3 -55.6 -1.93 4.35 -1.44
Examining the Accounting Cycle – Ford Motor Group 3
Ford Motor Group 2014 2013 2012
Current Ratio Total Current Assets/Total current liabilities 6.58 6.74 6.48
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 6.19 6.34 6.10
Inventory Turnover Cost of goods sold/Average inventory 16.51 16.75 15.19
Asset turnover % Sales/Average total assets 69.09 72.67 66.98
Dividend yield % Div per Share / Current Share price 4.14 3.31 1.24
Dividend cover % EPS/ Dividend per Share 6.63 14.66 11.68
Net assets turnover % Net assets / total sales 11.90 12.92 8.00
Times interest earned EBIT/Annual Interest Expense 5.45 8.49 10.71
Debt to total Asset % Debt/Assets 87.94 86.92 86.83
Book value per share 17.24 17.24 17.24
Interest cover EBIT/Annual Interest Expense 5.45 8.49 10.71
Profit margin on sale
%
GP/sales 12.40 12.84 13.03
R.R return on assets % EAT/Total Assets 1.53 3.55 2.81
R.R com stock equity
%
Profit after taxes/Shareholders equity 12.84 27.48 35.19
Earnings per share Profit after taxes-pref div)/No. of comm O/S 0.80 1.77 1.41
ROE Return On Equity (ROE) 0.13 0.27 0.35
ROA % Return on average Assets 1.57 3.53 2.76
Conclusion
It can be concluded that as much as profitability is decreasing the company is still acquiring
more debts. Most of the debts can be concluded are used to pay off current liabilities to clear the
balance in order to give the company an impressive liquidity position (Yahoo Business Finance,
Examining the Accounting Cycle – Ford Motor Group 4
2016). The debts are very high but it may be argued that Ford is out to get all the opportunities in
the market hence it is utilizing its debt portfolio to diversify its business in other markets like
financial services while also improving its research and development team to come up with very
outstanding models like the Ford Edge that has caught the American market by storm.
Examining the Accounting Cycle – Ford Motor Group 5
References
Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011) Accounting Principles: A Business
Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 37-73.
United States Securities and Exchange Commission (SEC) Form 10-K for the Year 2014 for
Ford Motor Company,
Yahoo Business Finance (2016) Ford Motor Company (F), Yahoo Finance
