Financial analysis in the case of Ford Motor Co and Microsoft Corporation
Each company must prepare financial statements to provide a comprehensive picture about its past performance and situation for the owners, the managers, the state and other stakeholders as well. In the case of enormous, international public limited companies like Ford and Microsoft these statements and data are public, so anybody can reach them through the internet. Moreover, we can also compute a lot of financial ratios based on these data. If we want to get an authentic frame about the firms, we have to know what these statement and ratios mean. In addition, it’s difficult for the companies that they want to give other picture about their financial status to the owners and shareholders and an other to the state, namely in the former case the firm is interested in showing high profit to retain the older and win newer investors, whereas in the latter case it wants to give a worse picture in order to pay as little tax as possible. Below, we analyse the above mentioned two companies (Ford and Microsoft) for leverage, profitability and growth purpose with some ratios. Ford Motor Co: As we can see in the income statement, the total net income was fluctuating yearly, until 2008 it was negative that means Ford’s expenses exceeded its revenues. Over the past four years, this amount was the least, in number -14,672.00 million $ in 2008, thank to the financial crises. So the in 2009 reached, in number 2,717.00 million $ net income rates a good result. As the total net income was negative or relative low, the ratios of profitability like ROE, ROA or ROIC, which give that how much percentage shares the net income of the equity, the assets or the capital. We can’t say that it’s good if these indicators are high, namely in 2006 ROE was more than 300%, in 2008 more than 80 %by Ford, because both the net income and the equity were negative, so in this case this high ratio meant problems, not success. In 2007 and 2009 this ratio was positive, because the sign of the net income and the equity differed (plus and minus). In 2009, the net income covered the 30 percentage of the debt of the stockholders equity, which cannot be said too high. ROA and ROIC were also negative from 2006 to 2008 because of the negative income, but in 2009 the net income came out at slightly more than 1% of the total assets and 2% of the capitalization. Until last year it didn’t worth to buy Ford shares, namely the earnings per shares (EPS ratios) were also negative, so it was in fact loss. A year ago, this number was 0,91$ per shares. We can state that Ford’s profitability is quite low; its total net income is very low compared to its equity, assets or capitalization. However, the firm produce a loss for years and also the book value remained also negative, its market value exceeded that and stayed over 5 million $ all the time. This amount was the least two years ago, when the financial crisis hit the automotive industry. The number of shares increased yearly, mainly last year, but their worth didn’t, even in 2008 the current market price of a Ford share was 2,29$. After the crises, the prices was getting higher, in 2009 a shares cost 10$. As the historical prices, the market value fluctuated also, namely the number of shares increased slowly, so the market capitalization was influenced by the market price of the shares. In 2009, Ford’s market capitalization was slightly less than 30000 million $, which is almost 400% of the book value. This number in not too surprising, namely the market value contain a lot of factors, which cannot be quantified like the reputation of the company, the expertise of the employees and managers, the social values of the firm. We can realize that Ford reached a quite high market value through its shareholders after an enough strong oscillation. Nowadays, Ford ranked fourth among the leaders in market capitalization in the automobile industry beyond Toyota,...
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