Ford Motor Company

Ford Motor Company was incorporated in Delaware in 1919. The company acquired the business of Ford Motor a Michigan company that was started in 1903 to manufacture and sell cars that were engineered by Henry Ford. The company employs 201000 workers and has 62 plants distributed throughout the world. The core business for the company is to design, manufacture, and market and to service a range of Ford cars, SUVs, trucks and Lincoln luxury vehicles. The company is pursuing other opportunities in electrification, mobility, and autonomy in an effort to expand its business model. The company also provides financial services through Ford Credit. Ford Motors has four operating segments representing its core business. The four include; automotive, financial services, central treasury operations and Ford Smart Mobility LLC. The company operates in a competitive industry with many producers where there is no dominant player. Some of the manufacturers, however, have a dominant market in their home countries. The industry is also faced by competitive pricing which is driven by the excess capacity. Companies have issued price discounts and other incentives to maintain their market share as well as the production levels. Ford manages its production schedule based on the retail sales and the stock levels held by the dealers. 

Stock Performance 

The following chart shows the performance of the company’s stock in the last five years. The stock price has continued to decline over the three years. The stock was trading at a high of 15.30 on 07/29/2015 when the company declared a dividend of 0.15. The price increased to a high of 15.84 three months later in the next quarter. On 01/27/2016 the stock was trading at a high of 12.14 which shows a significant drop from the previous quarter performance. The stock, however, reported an increase in its price at the close of the next quarter on 04/27/2016 where it recorded a high of 14.22. The stock traded at a high of 13.99 on 07/26/2016. The highest price on 10/25/2016 was 12.20. The highest price slightly increased at the end of the quarter on 01/18/2017 to 12.73. The stock recorded the lowest price on 04/18/2017 when its high was 11.50. The stock slightly increased on 07/20/2017 when it closed with a high of 11.83. Three months later the stock had a high of 12.35. The highest price on 01/29/2018 was 11.47 which was almost similar to the high price recorded on 04/19/2018 which was 11.48. The stock traded at a high of 10.97 on 07/202/2018. The stock showed a slight increase in the prices when the company was about to declare divided as investors rushed to cash in anticipating of receiving dividends once the company declares them. Ford had been declaring a constant dividend of 0.15 throughout the three years. The stock, however, continued to show a decline throughout the period. 

According to Yahoo finance, the stock has a beta of 0.87 and a 52-week change of -5.49%. The S&P500 52 week change was 13.55% with a 52 week high of 13.48 and a low of 10.14. The stock 200-day moving average is 11.32 which is slightly lower than the 50 days moving an average of 11.45. The share outstanding is 3.91B which is the same as the float. The insiders hold 28% of the shares whereas institutions held 7.61%. The dividend payout ratio is 31.09% with a forward annual dividend yield of 5.36% the five-year average dividend yield was 4.09. The market capitalization for the company was 42.088. 

The profit margin according to the latest financial statement was 4.85% while the operating margin was 2.97%. The return on asset was 1.16% and the return on equity was 23.11%. The revenue for the company for 2017 was 159.59B where the revenue per share was 40.15. Quarterly revenue growth year on year was 7.20% whereas the quarterly earnings growth year on year was 9.00%. The total cash held by the company at the end of 2017 was 27.6B and the total cash per share was 6.93. The total debt stood at 158.33B and the total debt/equity was 433.39. The current rat.io was 1.23 whereas the book value per share was 9.13. The operating cash flow for the company is 17.27B and the levered free cash flow is 1.28B. 

Ford Motors recently received the application to leave by the vice president for government and community relationships. Ziad Ojakli established the company as a trusted entity to different governments around the world in addition to supporting the global community efforts of the company. The new position holder is Stephen Biegun who will continue to steer the position until a new replacement is obtained. Ojakli joined Ford in 2004 and was responsible for the global government affairs and philanthropy for the company. The announcement was made on June 29, 2018, and placed on the company's website. On July 12, 2018, Ford declared a dividend for its third quarter. The board declared a third-quarter regular dividend of $0.15 per share for the common stockholders and outstanding class B. The dividends are payable on September 4, 2018, and are the same as other regular dividends paid by the company in the previous quarters. On June 19, 2018, Ford announced that it had acquired an iconic Michigan Central station which is to be transformed to a vibrant campus serving as an innovation hub for the future of transportation. The company will be working on the autonomous and electric vehicle business in addition to designing for innovative transportation operating systems that ensure convenience and accessibility through connected and smart vehicles, public transit, roads, and parking. 

There are significant changes in the automobile industry with competitors rebounding and developing innovations in an effort to outperform each other. Ford needs a strategy that will counter the moves of its competitors and take the company to the next level. Ford has four of the top selling cars in North America but the other markets remain competitive with major companies dominating their home markets and venturing into overseas markets. The company, therefore, needs to be responsive to the needs of the market to counter emerging competition and changing taste and preference. 

Ratio Analysis 

Inventory turnover ratio for the company has continued to decline over the last three years. The receivables however improved in the period under review whereas the payables have continued to decline in the three years. The working capital of the company improved in the initial years before it deteriorated in 2017. The operating cycle for the company has continued to deteriorate over the last three years whereas the average payables payment period has reported an increase in the three years. 

Discounted Cash Flows 

The calculation of DCF for Ford motors uses the cost of equity as the discount rate. A two-stage growth model is used in this case where it is assumed that there is a higher growth rate in the initial time followed by a stable growth in perpetuity. The financial statements are used to extrapolate the projected cash flows. The average annual growth rate for the year 2015, 2016 and 2017 is used. The sum was of the cash flows were discounted to obtain the current value. 

FCFF growth 

The revenue growth for the company in the next 5 years is projected to be 2.90. The tangible book value is 9.12 with a growth value of 7.98 and a terminal value of 9.51. The stock price is 10.56 and the margin of safety at 40%. The EBITDA as a percentage in the next five years will be 3.60 whereas the operating income growth is expected to be -0.30. Free cash flow growth will be 31.60 and the book value growth is expected to be 12.80. 

Capital Structure 

The total l.ong term debt held by Ford Motors according to the Financial Statements are 12,575,000, 90,281,000 and 82,336,00 for 2017, 2016 and, 2015 respectively. The total liabilities for the same period ,were 222,792,000, 208,668,000 and 196,174,000. The total stockholders equity according to the financial statements are 34,890,000, 29,170,000 and 28,642,000 for 2017, 2016, 2016 respectively. It is evident that most of the operations are financed by debt which makes the company riskier since financiers are interested in the interest and installments payable by the company. 79% of the capital is financed by debt while 21% is financed through equity. The capital structure is not optimal as the company is in a risky position if it is unable to raise the finances required to repay the loans plus the interest.