Ford Motor Company

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Ford Motor Company

GROUP PROJECT

ACC 505 - FINANCIAL ACCOUNTING 12/01/96

TABLE OF CONTENTS

DESCRIPTION PAGE

INTRODUCTION........................................................1

LIQUIDITY...........................................................1-3 Working Capital...................................................1 Current Ratio & Quick Ratio.......................................2 Receivable Turnover & Average Days' Sales Uncollected.............2-3 Inventory Turnover & Average Days' Inventory on Hand..............3

PROFITABILITY.......................................................3-7 Profit Margin.....................................................3-4 Asset Turnover....................................................4-5 Return on Assets..................................................5 Debt to Equity....................................................5-6 Return on Equity..................................................6-7

CONCLUSION..........................................................7-8

APPENDIX............................................................9

INTRODUCTION

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 significannot ly 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 significannot

ly 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...
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