Ford Motor Company

The average revenue of Ford Motor Company was 151.8 Billion in 2016. In 2017, it rose to about 156 billion (Ford Motor Company, 2017). The company generates billions in terms of profits annually. The company is among the top five automakers in the world. Ford Motor Company produces automobiles in a wide variety of segments, which includes buses, pickups, vans, small cars, cars, trucks, SUVs, and premium vehicles. The products are distributed and sold in all parts of the world. In 2014 alone, the company produced about six million vehicles, which were then distributed and sold to all the six continents of the world. Before the years 2011, Ford Motor Company produced three notable brands; Ford, Lincoln, and Mercury. However, it discontinued Mercury in 2011 and focused on the other two to date. The largest market for products from this particular company is North America. In 2014, 65% of about six million vehicles that were produced that year were sold to people within this specific continent. Since 1903 when Henry Ford and other investors founded the company, it has been facing competition from other automakers such as Toyota, Nissan, Honda, General Motors, Volkswagen Group, and Hyundai Motor Company. The financial strategy of any company plays a vital role in influencing its competitiveness and achievement of its goals. It is a reason why some of the companies perform exemplarily better than others. Besides, specializing in a particular brand also will help curb competition. Ford Motor Company will be shifting to trucks and SUVs to counter competition and remain at the top. Thus, there is a need to re-evaluate the financing strategy of the Ford Motor Company and provides suitable recommendations that can enable it to improve its capital structure. 

Stockholder Analysis 

An average investor in this particular company can be an individual. Anyone with a substantial amount that can enable them acquires shares in the company. For instance, the top three investors at the company who include William Clay Ford, Mark Field, and Joseph R. Hinrichs, are individuals. An average investor at the company pays taxes. Besides, an average investor needs to be large. For instance, they need to have the right amount of money that can be used to afford the shares. The investor also needs to be domestic. In this case, they can understand issues such as tax consequences and the growth of the business. Therefore, the average investor in this stock are individuals who pay taxes, are large and domestic. In this case, William Clay Ford, Mark Field, and Joseph R. Hinrichs constitute the top three average investors in this particular company. 

The marginal investors at Ford Motor Company are individuals with a critical objective of enhancing the distribution and sale of products. The investors directly interact with clients and thus collect feedback from. They influence the price depending on the level of sales and competition on the market. These marginal investors at the company also have substantial shares of equity in the company. Thus, they are instrumental in the management of the firm. 

Risk and Return Assessment at Ford Motor Company 

Ford Motor Company faces various risks. First, the products of Ford Motor Company are old fashioned and out-dated, thus a hindrance to sales. Consumers in contemporary society would prefer hybrid gasoline vehicles that are electrically powered, unlike the old fuel automobiles by Ford Motor Company. Gasoline hybrid cars are efficient and environment-friendly. Other companies such as Toyota and BMW companies have produced Toyota Prius and BMW i8, which are hybrid cars. Therefore, the company stands a chance of losing many customers and suffering diminished sales. As an option, the company can focus on trucks and SUVs. A majority of consumers will always focus on the performance of the trucks and SUVs rather than added technological features. In this case, Ford Motor Company will increase its sales. In the long-run, it will achieve its financial goals on the market. Markedly, it needs to reinvent its product line and focus on trucks and SUVs to have customers and make high sales. Secondly, employee layoffs to enable the company to stay afloat risk jeopardizing the effectiveness of its workforce. In 2006, the company suffered a $12.7 billion loss. Since its establishment, this was the most extensive loss it has ever experienced. As a result, Ford Motor Company chose downsizing and retrenchment as options to enable it to survive by saving more of its income. Having few employees after downsizing and retrenchments significantly reduce the volume of work, increases chances of error, and leads to employee burnouts. All in all, it compromises the quality of work. As a result, the company is likely to lose clients. As an option, the company can fire employees that deal with buses, pickups, vans, small cars, cars, and premium vehicles. The company should retain those that deal with the production of trucks and SUVs. In this case, it will have a lesser workforce and maintain quality in the production of trucks and SUVs. If implemented, this will enhance the ability of the company to achieve its financial goals. Thirdly, the company is experiencing massive competition from other companies on the market. The world currently is experiencing an overproduction of automobiles by various companies. Due to a throat cut competition for consumers, some of the companies have opted to reduce their prices to expand their market share drastically. As a result, the market share, which was once occupied by Ford Motor Company, has been taken by other automakers. If the company remains steadfast on its mission to deliver quality products in all product lines to its consumers, it is likely to lose more of its market shares since people would prefer cheaper options with low-quality products. Markedly, high-quality production goes hand in hand with the cost of production and the price of the final product (Ford Motor Company, 2016). The company cannot minimize the cost of production and produce low-quality products since this will comprise the quality of its products. To counter this, the company can focus on producing tracks and SUVs. In this case, it will enhance its quality and also expand its market share for these particular products. Therefore, old fashioned products by Ford, employee layoffs to save on funds, and massive competition on the market are some of the factors that are likely to reduce part or all the capital investments of the company. 

On the other hand, Ford motor company stands a high chance of having a higher return on its investments if it focuses on the production of trucks and SUVs. For instance, the company's move to layoffs employees to minimize expenditures is not likely to help the company improve its returns. However, having enough employees on track and SUVs product lines and laying-off, the rest will not compromise the quality of its products. In this case, it will enjoy a high return on investment. On the other hand, the company will experience a low return on investment if it will not change its line of production. It should embrace technological concepts and the current of the consumers in its production processes. Then it should maintain producing high-quality products that will satisfy consumers. In this case, it will keep loyal customers and command a substantial percentage of the market. Therefore, the company still has a good chance of having a high return on investment. 

Investment Returns and Characteristics 

The project investment returns have been fluctuating over the years. In 2014, Ford Motor Company invested $143.81 billion and achieved a net income of $155.14 Billion. In this company gained a profit of $11.33 billion (Macrotrends, 2019). Therefore, the project investment return this year was 8.35%. In 2015, it invested $147.75 billion and obtained $149.15 billion as the net income (Macrotrends, 2019). Again, this was a profit of $0.96% billion, which was a positive. Ford received a project investment return of $3.73 Billion in the year 2017, where it invested $127.36 billion and obtained $131.09 billion (Macrotrends, 2019). This was a 3% return on investment. From the year 2014 to the year 2019, Ford Motor Company has been getting a positive return on investment, but it has been fluctuating all along. In 2014, it got the highest return on investment of $11.33 billion after investing 143.81 billion and obtaining $155.14 Billion hence an 8.35% return on investment (Macrotrends, 2019). The figure dropped drastically 0.96% return in 2015. The return increased in 2016, dropped in 2017, increased in 2018, and again dropped in 2019 (Macrotrends, 2019). Therefore, Ford Motor Company has been stable in its return on investment between the years 2014 and 2019. The general trend indicated that the return is going dropping. 

(Macrotrends, 2019) 

The trend in the project investment return has some notable characteristics. First, the highest return on investment was in the year 2014, and the lowest occurred in the year 2019. Therefore, there was a significant improvement from the period between 2015 and 2016, where the return on investment increased by 4.89% (Macrotrends, 2019). Secondly, the return on investment at Ford Motor Company is always fluctuating. In some years it has been high while in others, it dropped. Thirdly, the company has been experiencing a generally low project investment return. In the years 2015, 2017, and 2019, it registered the lowest project investment return. It only performed well in 2014, where the return was highest (Macrotrends, 2019). After that, it was getting less than a 6% return on investment for the years 2015, 2016, 2017, 2018, and 2019. Also, the net income was highest when the investment was low. This is evident in the year 2014, where $143.81 billion was invested, and the return was 8.35% (Macrotrends, 2019). On the other hand, the return on investment seemed to lower when the investment was high. Generally, the amount invested over the years did not have any significant impact on return on investment (Macrotrends, 2019). In some years like 2016, much was invested, but the return did not average like in other years. Therefore, these are some of the notable characteristics of the project investments return at Ford Motor Company between the years 2006 and 2018. 

The Firm Current Capital Structure 

Ford motor company uses both shareholders' equity and debts to fiancé its operations. This means that it uses loans, common and preferred stocks, and retained income earnings. To start with, Ford Motor Company has a net worth of $35.72billion as per December 11th, 2019 (Macrotrends, 2019). The net worth has also been fluctuating since the year 2014. It was highest in 2014 when the company was worth $68.90 billion (Macrotrends, 2019). It was lowest in 2019, with only about $30 billion (Macrotrends, 2019). 

(Macrotrends, 2019) 

Concerning loans, Ford Motor Company has high debts between the years 2014 and 2016. In 2014, it had a long term debt of $117.00 billion. In 2015, the debt was at $122.78 billion. In 2016, the long-term debt had increased to $141.00 billion. During this particular period, the shareholders' equity, which is vital in any capital structure, was significantly low. For instance, it was negative $26.81 billion in the year 2014, $24.97 billion in 2015, and $29.62 billion in 2016 (Macrotrends, 2019). In the three years, the operations of the company relied heavily on long-term debts. Shareholders' equity was at the lowest between 2015 (Macrotrends, 2019). After that, it started rising gradually. On the other hand, the long-term loan started reducing in the year 2016, where it reached its lowest on September 30th, 2016 (Macrotrends, 2019). It is started rising gradually up to September 30 th , 2016, where it reached $126.43 billion and then dropped again to $89.88billion in December the same year. After that, it has stagnated at about $100billion to date. 

As per September 2019, Ford Motor Company had a long-term loan of $99.51billion and shareholders’ equity of $35.39 billion. In this case, the debt to equity ratio for the company was 2.81. 

The debt to equity ratio of 2.8 shows indicates the ability of the company to settle its debts. In this particular case, the company has a higher ability to settling its long-term debts than in the past years. Between the years 2014 and 2015, the company had the highest debt to equity ratio, meaning it was the most challenging moment for the company to clear off its debts. Therefore the business of the company is at lesser risk at the moment than in the past. However, the ratio could also mean that the company can be at risk in cases of a downturn. For instance, its properties, equipment, and the entire plant are way below the debts of loan term loan. Even if it is combined with the shareholders' equity amount, the total would not be able to settle the debt (Ford Motor Company, 2017). Also, the low debt to equity ratio of 2.8 means that the assets the company is not leveraged well. This could be the reason why the company is not attaining the highest profits. Conclusively, Ford Motor Company has a capital structure consisting of long-term debts amounting to $99.51billion and a shareholder's equity amount, which is $35.39 billion. 

The Most Suitable Optimal Capital Structure 

An optimal capital structure for Ford Motor Company will be one that will be able to enhance the value of the business. In this case, it should able to increases the value of shares and minimize the overall cost of capital in the company. In the case of Ford Motor Company, I would recommend a capital structure with a debt to equity ratio of 2.0. For instance, if the company should have $91.51billion, it should have a shareholder's equity of $45.76 billion. If this structure is achieved, Ford Motor Company will have a maximum market value of its shares. As a result, the company will have a higher ability to borrow (Ford Motor Company, 2015). Financial institutions within an economy will always prefer a company that has securities as collateral (Wang et al., 2017). This shows a high likelihood of the loan being paid in time. If shares have a maximum value, they become a better source of funds when a business needs it. If Ford archives the recommended optimal capital structure, it will easily get funds by selling these shares to finance its operations (Wang et al., 2017). On the other hand, an optimal capital structure will also minimize the cost of capital. This will make it is easier for the company to develop and finance its operation with a low return on capital. All in all, the recommended optimal structure will make the business more stable and, thus, grow steadily in an economy. 

Recommendations to Achieve the Recommended Structure 

First, the company should embrace effective inventory management. This will minimize working capital and save funds to pay for long-term debt. First, the firm should reduce stock kept at the company at any given moment. For instance, it should produce automobiles that balance adequately with the demand within the economy. If fifty cars are sold in a day, then the company should have slightly above fifty, say fifty-five cars in stock. The move will minimize cash resources that could be used to maintain the inventory. For example, paying up insurance for the stock, security, and rent can increase working capital hence minimize revenue generated in the company. However, having insufficient inventory will also hurt the reputation of the company and damage its relationship with customers (Jiang et al., 2018). Balancing stock levels at any given moment should remain a vital goal of the inventory management team. Another step that can be implemented in the inventory management department is to enhance its communication with other relevant departments. In this case, they will be a better position to forecast demand and, thus, avoid keeping excessive inventory or having insufficient stock. Furthermore, frequent inventory checks should be contacted at the firm to ensure that understock and overstock challenges are addressed in time. In this case, products that stay too long in the inventory without being sold will be identified. Those that are under-stocked, as dictated by the current demand, will also be identified. Proper measures will be taken to balance the inventory. Therefore, Ford Motor Company can embrace ideal inventory management practices to minimize working capital. This will reduce expenses and leave the company with much that can be used to pay debts (Anuar & Chin, 2016). If the long term debt is lowered, the debt to equity ratio will reduce towards 2.0. 

Secondly, the company should aim at restructuring its debts to minimize expenses incurred by servicing them. In this case, the company should compare the current interest on a loan with what it is paying for a loan that was taken in the past. If they are paying higher rates than the current ones, they should consider refinancing the existing loan and seeking another one with a lower interest rate. In this case, Ford Motor Company will cut down on expenses incurred, paying interest on a loan. As a result, the company's profitability will increase since more money will be saved (Pepur et al., 2016). Also, the cash flow in the company will grow. In this case, it can save more to pay the debt hence achieve a lower the debts to equity ratio. 

The company should establish and improve its relationship with vendors. In this case, it can be able to negotiate for maximum period paying for products obtained on credit. Besides, the company can also get better discounts and also enjoy more profitable deals with vendors. For instance, the company should pay for paint vendors on time and build a good relationship with them so that they can enjoy better deals, discounts, and more extended periods to pay for debts when the paint is supplied. As a result, the company will enjoy more working capital that will enhance its financial stability. In this case, the company will be left with more cash to pay long-term debts (Anuar & Chin, 2016). The move will be effective in reducing the debt to equity ratio in the company. Therefore, Ford Motor Company will achieve an optimal capital structure. 

The company should come up with an advisory board that includes critical clients of the company. The clients come from all countries. These are people who would have a genuine desire to see the company increase its sales and profitability. The key clients on the board will share ideas concerning the needs of the consumers. The board should hold meetings periodically to discuss the progress of the meeting. In those meetings, relevant issues concerning can raised and examined accordingly. For instance, key weaknesses and strengths of the company can be mentioned and discussed extensively. Ford Motor Company can then focus on addressing issues raised by the board. This will minimize the chances of errors, enhance effectiveness in its operations, and improve its profitability. This will ensure that the business is always on an upward trajectory and expanding its profitability (Anuar & Chin, 2016). This will be ensured by correcting identified weaknesses and capitalizing on the strength of the company. In the long-run, the business will enjoy extensive sales and profits. The amount can be used to settle long-term debts. Therefore, Ford Motors Company will be able to achieve an optimal capital structure that is more stable for growth. 

Also, the company can enter into strategic alliances with other companies or firms to enhance the market of its products. If the market is increased, the company will increase sales and income. This kind of partnership will expose information about the products to new markets. This will also enhance the customer base as more clients reach the company for its products. For instance, Ford Motor Company can enter into an alliance with the shell. Their products are related since automobiles depend on fuel from Shell Company to operate. In this particular alliance, the shell can market the products of Ford Motor alliances on its clients. It gives help in giving them information and persuading them to consider acquiring products from Ford Motor Company. The move will significantly increase the number of customers through referral by the party in an alliance. As a result, there will be high sales of its products. This will generate substantial revenue for the company (Opperman et al., 2016). Due to enhanced cash flow in the business, it will be able to pay its debts and, thus, reduce the debt to equity ratio. In this case, Ford Motor Company will easily achieve an optimal capital structure. 

The company can also consider selling idle assets. For instance, idle equipment, plants, and materials owned by the company can be sold to generate income. Since it is shifting to tracks and SUVs is an option, it can sell resources that were particularly used in production in other segments. For example, idle pieces of land owned by the company can be sold off. The amount generated from the sales can be used to pay the long term debts by the company. This will reduce the debts and low the debt to equity ratio. In the long-run, Ford Motor Company will achieve an optimal capital structure that is more stable and ideal for the growth of the company. Therefore, selling off idles owned by the company can be options that help ensure this. 

Ford Motor Company can consider hiring a majority of its employees on a part-time basis. Part-time employees’ salaries will require a lesser amount that when hiring them on fulltime. For instance, I can have workers work for specific hours in shifts. Probably, wages can be based on hours spent working. Then, the company can schedule them to work more productive hours. This will eliminate the extra cost incur on red paying employers even when it is a productive moment. The company will also not incur the cost of providing benefits to its employees. Therefore, Ford Motor Company will save a lot of cash that can be channeled towards settling the debts of the company. Gradually, the debt will reduce, and the company will be able to attain an optimal capital structure that ideal for the stability of the company. 

Next, Ford Motors Company can consider departmentalizing its budgets. This will enhance the efficiency in the use of revenue by the company. Each of the departments will be expected to have a manager who will over the process of preparing and implementing the budget. The move will ensure that the performance of the company is monitored at a departmental level. This will enhance the competitiveness within the company, which will have a ripple effect on sales and revenue generated by the company. As a result, the revenue generated will then be used in settling the debts of the company (Vošta & Kocourek, 2017). As a result, the debt to equity ratio will be lowered towards 2.0, and the company will achieve an optimal capital structure. 

Finally, the company should evaluate its products and focus on those that achieve high sales. For instance, if SUVs and Tracks are registering high sales, the company should focus on them. This will ensure that all the resources of the company are channeled toward producing products that could lead to high sales (Pavlínek, 2017). This will enhance the profitability of the company. If the company makes profits for a given time, it will have enough revenue to settle or reduce the long-term debts significantly. In the long-run, this will enable the company to achieve an optimal capital structure since the debts to equity ratio will reduce. 

Conclusion 

Ford Motor Company remains one of the top automakers in the world. The company was started in 1903 by Henry fought, and since that time, it has produced millions and millions of products to every continent. An average investor in the company is an average investor in this stock is individuals, who pay taxes, are large and domestic. Some of the average investors in this company include William Clay Ford, Mark Field, and Joseph R. Hinrichs. On the other hand, marginal investors directly interact with clients and thus collect feedback from clients. They also have a substantial share of equity in the company. The company is faced with risks. Old fashioned products by Ford, employee layoffs to save on funds, and massive competition on the market are some of the factors that are likely to reduce part, or all the capital investments of the company are some of the risks. Based on the performance of the company from 2006, it has been experiencing a fluctuating return on investments. However, it has managed to maintain a positive return on investment from 2010. It registered losses in 2006 and 2008. The company’s net worth has also been fluctuating over the years. Notably, the company had a high long-term debt in the previous years with low shareholder equity, the debt has generally reduced, and the shareholders' equity has increased. I would recommend a debt to equity ratio of 2.0. This will mean an optimal capital structure that is stable for the company. This can be achieved by implementation measures that can cut down on its expenses, increases, being in more customers, and enhances its profitability. 

References 

Anuar, H., & Chin, O. (2016).  The Development of Debt to Equity Ratio in Capital Structure Model: A Case of Micro Franchising . Procedia Economics and Finance, 35, 274–280.   

Ford Motor Company. (2015). 2015 Annual Report. Retrieved from http://www.annualreports.com/HostedData/AnnualReportArchive/f/NYSE_F_2015.pdf 

Ford Motor Company. (2016). 2016 Annual Reports. Retrieved from http://www.annualreports.com/HostedData/AnnualReportArchive/f/NYSE_F_2016.pdf 

Ford Motor Company. (2017). 2017 Annual Report. Retrieved from http://www.annualreports.com/HostedData/AnnualReportArchive/f/NYSE_F_2017.pdf 

Jiang, J., Xia, X., & Yang, J. (2018).  Investment-based optimal capital structure . Applied Economics, 1–10.   

Macrotrends. (2019) Ford Motor Return on Investment 2006-2019 | F. Retrieved from https://www.macrotrends.net/stocks/charts/F/ford-motor/roi 

Opperman, C., Liebig, D., Bowling, J., Johnson, C. S., & Harper, M. (2016).  Measuring Return on Investment for Professional Development Activities. Journal for Nurses in Professional Development, 32(3), 122–129.   

Pavlínek, P. (2017).  Global Production Networks, Foreign Direct Investment, and Supplier Linkages in the Integrated Peripheries of the Automotive Industry. Economic Geography, 94(2), 141–165.   

Pepur, S., Ćurak, M., & Poposki, K. (2016).  Corporate capital structure: the case of large Croatian companies . Economic Research-Ekonomska Istraživanja, 29(1), 498–514.   

Vošta, M., & Kocourek, A. (2017).  Competitiveness of the European Automobile Industry in the Global Context . Politics in Central Europe, 13(1), 69–86.   

Wang, H., Xu, Q., & Yang, J. (2017).  Investment timing and optimal capital structure under liquidity risk . The European Journal of Finance, 24(11), 889–908.