Ford Motor Company, Inc. Is the company maximizing the wealth of its shareholder
ID: 2775265 • Letter: F
Question
Ford Motor Company, Inc. Is the company maximizing the wealth of its shareholders? If not, what can they do to achieve this result? Review calculations and discussion of the following 6 ratios and financial measures: Current Ratio, Debt/Equity Ratio, Return on Investment, Earnings per Share, Profit Margin and Free Cash Flow. Conclude the analysis with other observations on the firm and whether your analysis differs from other analyses that are available. Indicate if there is any other measure you would want in order to make an investment recommendation. Finally, make an Investment Recommendation. For this recommendation, assume you have been asked by an investor, age 35, who wishes to invest in conservative stocks that will provide some income now but is mainly interested in growth over the next ten (10) years. Would Ford meet this investor’s investment goals?
http://corporate.ford.com/annual-reports/annual-report-2014/files/201_Ford_Annual_Report_sm.pdf
Explanation / Answer
The financial ratios of Ford Motors for the year 2014 is as given below:
1. We can see that the debt/equity ratio is very high which is negative.
2. The current Ratio is also large which is again a negative.
3. Thr ROI is just 2.47% when compnared to the industry average of 13.04%. This is again a very big negative factor.
4. The EPS and net profit margin are also not exceptionally positive
Hence the investor would be advised not to invest in ford Motor Inc
Current Ratio Current Assets/Current Liabilties 2.01 Debt to Equity Total Debt/ Stockholder's equity 3.23 Return on Investment Gain in Inv. - Cost of Inv./Cost of Inv. 2.47% Earnings per share Retained Earnings/ No. of Sahres 0.81 Profit Margin Net Profit/ Total Revenue 2.21% Free Cash Flow EBIT(1-Tax Rate) + Depriciation - Change in Working Capital - Capital Expenditure 7592 Million USD