Strategic Analysis of Ford Motors Company

Only available on StudyMode
  • Download(s) : 627
  • Published : November 15, 2009
Open Document
Text Preview
Company Profile
Ford Motor Company was founded in 1903 by automotive and industrial pioneer Henry Ford in Dearborn, Michigan. Being first to implement a moving assembly line for automotive manufacturing, Ford was able to more efficiently mass produce their products than their competitors. In 1908 the Model T was introduced and went on to sell over 15 million vehicles, firmly establishing Ford as the major player in the early automotive industry with 50% market share by the 1920s. The company went public 1956 and since then has grown to be a significant presence in the global automotive market. Financial ratios are useful indicators of a firm’s performance and financial situation (Friedlob & Schleifer, 2003). Ratios can be used to analyze trends and to compare a firm’s financials to other firms. Although there is an abundant amount of ratios, we will only be looking at the ones that are most important when analyzing Ford Motors activities and results for the last 3years. Profitability Ratios

Based on the results(See Appendix 1), the recession has really taken its toll on Ford motors. The general decline in nits profitability ratios suggest that the company has not been performing well in recent times. In actual fact, the company's financial conditions began to decline since 2005 which was even before the recession. The negative earnings per share (EPS), profit margin, return on assets raises an alarm. The low profitability is also responsible for the low fixed and total assets turnover ratios. Return on equity however shows a slight improvement which can also be a result of the recent re-engineering process by the company. Liquidity Ratios

The company's Current ratio is low but not alarming (see financial statement in Appendix 1), the general expectation is for current assets to cover current liabilities at company's quick ratio of 1.26 is quite good as it suggests that the company will be able to meet its urgent current liabilities as they fall due even without having to dispose of inventories. Inventory turnover appears to have been steady within the same range over the last 5 years and receivables turnover poses no problem. The company is relatively liquid despite its low profitability Solvency Ratios

The company's low profitability(See Apendix 1) also poses a problem in the Times interest earned as there is a possibility that the company might not be able to generate enough profits to meet up with repayment of interests on loans. This could be an issue as failure to repay interest and/or capital leaves the company vulnerable to bankruptcy procedure by its creditors. The trend over the last 3 years also shows a serious decline in some years. The company also appears to be highly geared from the other solvency ratios and this goes further to confirm initial worries. The company needs to address its profitability problems urgently so as to remain competitive and achieve meaningful growth in the immediate future. This will require a lot and some of the ways I have identified are explained below: Operating expenses and other expenses are on the high side and there is need to try and achieve a reduction to improve profitability. The company should conduct an intensive process audit to identify and eradicate unnecessary processes. This will help to reduce labour hour and eliminate wastage during production. Managing Operational Management in the Global Market

Business today operates in a global environment (Agarwal, 2004). This environment forces companies, regardless of location or primary market base, are now expected to consider the rest of the world in their competitive strategy analysis. Porter (1986) also asserted that firms cannot isolate themselves from or ignore external factors such as economic trends, competitive situations or technology innovation in other countries, especially if some of their competitors are competing or are located in those countries. Global organizations face a complex set of challenges...
tracking img