Background of the company and the economy during 2019 – 2022

NATIONAL ECONOMICS UNIVERSITY  Working Capital Management Report: Ford Motor Company Lecturer: PhD Tran Phi Long Class: Advanced Finance 62A Group 4: Nguyễn Ngọc Hải – 11205149 Phạm Minh Tuấn – 11207358 Nguyễn Nữ Minh Nguyệt – 11206408 Nguyễn Phương Thảo – 11203671 Nguyễn Nam Anh - 11204401 Phạm Linh Chi - 11200620 Nguyễn Đình Long - 11205950 Table of contents: Question 1 Background Ford…………………………………………………………………………… General environment ………………………………………………………………… 2.1 Economy ………………………………………………………………… 2.2 Sociocultural ………………………………………………………………… 2.3 Global ………………………………………………………………… 2.4 Technology ………………………………………………………………… Question Balance Sheet ……………………………………………………………………………… Leverage ratio …………………………………………………………………………… 12 Cash flow statement …………………………………………………………………… 12 3.1 Operating activities …………………………………………………………… … 13 3.2 Investing activities …………………………………………………………….… .13 3.3 Financing activities ………………………………………………………….…… 14 Conclusion ………………………………………………………………………………… 16 Question Ford Inventory Management System …………………………………………………… 16 1.1 Background ……………………………………………………………………… 16 1.2 Problems ……………………………………………………………………………………… 17 1.3 Types and Roles of Inventory at Amazon ……………………………………… 17 Ford’s Inventory Strategies ……………………………………………………………… 18 2.1 Ford’s Lean manufacturing ……………………………………………………… 18 2.2 JIT ………………………………………………………………………………… 19 Ford Measures of Inventory Performance ……………………………………………… 20 3.1 Inventory size ……………………………………………………………………… 20 Ford Measures of Inventory Performance ……………………………………………… 21 4.1 Inventory size ………………………………………………………………………21 4.2 Analysis of inventory management using ratios ………………………………… 22 Question Accounts receivable ……………………………………………………………………… 23 1.1 Credit Policy of Ford - Ford Credit Segment …………………………………… 24 1.2 Comparison: Ford vs General Motors vs Industry ……………………………… 27 1.2.1 Comparison of Accounts Receivable Turnover Ratios …………………… 28 1.2.2 Comparison of Days in Sales Outstanding ………………………………… 29 Accounts payable ……………………………………………………………………… 30 2.1 Comparison: Ford vs General Motors vs Industry ………………………… 31 2.1.1 Comparison of Accounts Payable Turnover Ratios ………………… 32 2.1.2 Comparison of Days in Payable Outstanding ………………………… 33 Recommendation ……………………………………………………………………… 34 Question Ratio ……………………………………………………………………… 34 1.1 Working Capital ……………………………………………… 34 1.2 Working Capital Turnover Ratio …………………………… 35 1.3 Liquidity …………………………… .36 1.4 Probability ………………………………………………………… 38 1.5 Cash Conversion Cycle …………………………………………… 38 1.6 Leverage ………………………………………………………… 39 1.6.1 Debt to Equity …………………………………………… 39 1.6.2 Times Interest Earned ………………………………… 40 Comparison with General Motor and Automotive Industry …… 41 2.1 Working Capital ………………………………………………… 41 2.2 Working Capital Turnover Ratio ……………………………… 42 2.3 Liquidity …………………………………………………… 42 2.4 Probability ………………………………………………… 43 2.5 Cash Conversion Cycle …………………………………… 45 2.6 Leverage …………………………………… 46 Correlation between Amazon’s Working Capital and Stock Price 47 Question Basis for forecasting …………………………………… 49 Question 1: Background of the company and the economy during 2019 – 2022 Background Ford  Ford Motor Company (commonly known as Ford) is an American multinational automobile manufacturer headquartered in Dearborn, Michigan, United States It was founded by Henry Ford and incorporated on June 16, 1903  Ford manufactures a large selection of automobiles, including cars, trucks, SUVs, and commercial vehicles under the brands Ford, Lincoln, and Troller The Ford Mustang, F-150 pickup truck, and Explorer SUV are some of its most well -known models  Ford has also dabbled with various sectors over the years, including telecommunications, financial services, and aviation Nonetheless, it has mostly concentrated on the development and manufacturing of automobiles  Currently, Ford employs about 186,000 people worldwide and has business in over 100 nations Their goal is to produce automobiles that are of the highest quality, are safe, and are environmentally responsible General environment: 2.1 Economy: In 2019:  The company reported a $1.7 billion loss in the last quarter, mostly because of a previously disclosed $2.2 billion charge related to accounting for pension and other benefits for retirees Nevertheless, the operating income in autos was also sharply lower, and worse than expected  The drop is because of the continuation of higher warranty costs during the second half of 2019, lower vehicle sales volumes, reduced results from Ford Credit, and higher investment in the development of the next generation of selfdriving and electric vehicles The company's revenue for the year was $155,9 billion, which was down from $160.3 billion in the previous year Net income was also down to $ 84 million, compared to $3.7 billion in the previous year In 2020:  Fell 15.6% last year due to the coronavirus pandemic, a decline  Commercial fleet sales and tight inventories of its F-150 pickup trucks  Ford's revenue for 2020 was $127.1 billion, down from $155,9 billion in 2019 The company also reported a net loss of $ 1,276 billion for the year, compared to a net income of $84 million in the previous year  Sales of the popular full-size pickup tumbled by about 33% in the fourth quarter from the same time last year  Ford’s truck sales slid 11.3% in 2020, while SUVs were off by 9.7% year over year  The company launched the all-electric Mustang Mach-E SUV in 2020 and announced plans to invest $11.5 billion in electric vehicle development over the next several years  Sales of passenger cars, which Ford is discontinuing, aside from key models such as the Mustang, plummeted 44.7% compared with 2019 Overall, while 2020 was a difficult year for Ford, the company demonstrated resilience and an ability to adapt to challenging circumstances In 2021:  The company reported revenue of $136,341 billion for the year, up from $127.1 billion in the previous year Net income also improved significantly, with the company reporting a profit of $17,910 billion in 2021, compared to a loss of $1,276 billion in 2020  Ford has also benefited from its focus on electric and autonomous vehicle technology The company launched its all-electric Mustang Mach-E SUV in 2021, which has been well - received by consumers and has helped to drive sales  In addition, Ford has been implementing a restructuring plan to streamline its operations and reduce costs This plan includes a significant investment in electric vehicles, as well as a focus on core businesses and markets Overall, while Ford faced significant challenges in 2020, the company has shown resilience and has taken steps to position itself for success in the years ahead In 2022:  The Ford Motor Company reported revenue streams of just over 158 billion U.S dollars in 2022 This figure represents a growth in revenue of nearly 16 percent year-on-year Vehicle wholesales grew from almost 3.9 million units in 2021 to around 4.2 million units in 2022  Ford Motor annual net income for 2022 was $-1.981B, a 111.04% decline from 2021  Ford Motor said that it lost $2.2 billion in 2022 as it wrote down the value of two big investments and struggled with high costs and supply chain problems Ford has long struggled to reduce defects and recalls in its cars and trucks Recalls can be expensive and time consuming, and company executives said that they were working to improve the reliability of their vehicles 2.2 Sociocultural:  Ford employs about 57,000 hourly workers in the U.S., more than any other automaker.* Overall, we employ about 88,000 in the United States  Ford supports American suppliers: In 2020, Ford purchased more than $47 billion in goods and services from more than 5,300 U.S based suppliers, supporting businesses in 47 states  Ford dealerships are in every state: Ford has more than 3,000 dealerships that employ more than 170,000 men and women across the United States 2.3 Global:  One of the ways that Ford affected the global automotive industry in 2021 was through its focus on electric vehicles The company launched its all-electric Mustang Mach-E SUV, which was well received by consumers and helped to drive interest in electric vehicles Ford also announced plans to invest $22 billion in electric vehicle development through 2025, which is expected to have a significant impact on the global electric vehicle market  The company has partnerships with companies such as Argo AI and Volkswagen to develop autonomous driving systems, and it is testing autonomous vehicles in select markets  The company has announced plans to exit some markets, such as Brazil, and to focus on more profitable segments of the market  Overall, Ford's investments in electric and autonomous vehicle technology, as well as its restructuring plan, are expected to have a significant impact on the global automotive industry in the years ahead 2.4 Technology:  Ford Motor Company is a major player in the automotive industry, and technology is a key area of focus for the company Some of the key technology areas that Ford is working on include electric and hybrid vehicles, autonomous driving Technology in manufacturing is also improved, such as advanced robotics and automation This technology helps Ford to produce vehicles more efficiently and with greater precision Ford is committed to sustainability and is investing in technology to reduce the environmental impact of its vehicles and manufacturing processes This includes the use of recycled materials and advanced energy management systems Overall, technology is a key focus for Ford Motor Company, and the company is investing heavily in a variety of technology areas to improve its products, manufacturing processes, and sustainability Question 2: How does the company manage its cash? Balance Sheet 10 and almost matching General Motor's ROA of 3.50% The data suggests that Ford has improved its efficiency in using its assets to generate profits over the years 2.5 Cash Conversion Cycle 2019 2020 2021 2022 Ford -5 -6 -3 General Motor -15 -10 -3 -1 Automotive Industry -6 -8 -5 Looking at the data, we can see that all three entities (Ford, General Motors, and the automotive industry as a whole) have experienced negative cash conversion cycles over the four-year period This suggests that these companies are able to convert their inventory into cash relatively quickly, which is generally seen as a positive indicator of financial health However, it is worth noting that the magnitude of the cash conversion cycle varies between the three entities Ford has the smallest magnitude, with a low of six and a high of four General Motors has a much larger magnitude, with a low of -15 and a high of one The automotive industry as a whole has a magnitude somewhere between Ford and General Motors, with a low of eight and a high of two 44 Overall, these data suggest that Ford has been relatively successful in managing its cash conversion cycle, while General Motors has struggled more in this area However, it is important to note that the automotive industry as a whole has experienced some volatility in its cash conversion cycle over the past four years 2.6 Leverage  Debt to Equity Ratio 2019 2020 2021 2022 Ford 4.68 5.27 2.85 3.21 General Motor 2.47 2.44 1.83 1.69 Automotive Industry 0.34 0.24 0.69 0.63 Ford's debt to equity ratio has been higher than both General Motors and the overall automotive industry over the past four years However, Ford has been successful in decreasing its debt-toequity ratio from 5.27 in 2019 to 3.21 in 2022 In contrast, General Motors has maintained a lower D/E ratio than Ford, which suggests a lower level of financial risk Over the previous four years, General Motors' D/E ratio, which ranges from 1.69 to 2.47, has stayed largely steady Although it has changed over the last four years, the D/E ratio for the automotive industry has consistently been lower than that of Ford It is significant to remember that a lower debt-toequity ratio typically denotes a corporation with lesser financial risk and less dependence on debt financing for operations Overall, Ford's efforts to reduce its D/E ratio are commendable, and it is important for the company to continue to manage its debt effectively to maintain a healthy financial position  Times Interest Earned 2019 2020 2021 2022 Ford 0.37 0.32 10.86 -1.40 General Motor 10.51 8.37 14.39 12.75 45 Automotive Industry 4.26 4.8 34.31 18.08 Ford's Times Interest Earned ratio has fluctuated significantly over the past four years General Motors, on the other hand, had a consistently high times interest earned ratio over the four-year period, indicating that the company had strong earnings available to cover its interest expenses Compared to the industry average, the automotive industry's times interest earned ratio was typically higher than Ford's but lower than General Motors Overall, these findings imply that Ford would have trouble meeting its interest obligations and that it should concentrate on boosting earnings in order to raise its multiple of interest earned ratio Correlation between Amazon’s Working Capital and Stock Price Relationship between Working Capital and Stock Price The relationship between working capital and stock price can be complex and indirect Generally, a company with higher working capital can be viewed as more financially stable and less risky This can lead to increased investor confidence, which may drive up the company's stock price On the other hand, if a company is using its working capital to finance operations or investments that are not generating returns, this can negatively affect profitability and ultimately the stock price Therefore, while there is a relationship between working capital and stock price, it is not always straightforward 46 It can be seen that the working capital and stock price have a negative relationship when the company has a high working capital and low profitability There was a significant rise in Ford‘s stock price in 2021 from $6 to over $22 Similarly, the Profitability of the company showed exceptionally high Profitability indicators compared to the other three years However, at the same time, the Working Capital of Ford Motors decreased The negative relationship leads to investors perceiving the company as inefficient and potentially unstable Inefficient inventory management can explain the result In 2021, Ford witnessed excessive inventory, which tied up the working capital and reduced the cash available for other business operations In such cases, the company may have high profitability due to increased sales but low working capital due to excess inventory In the end, this negative perception can lead to a decrease in demand for the company's stock and a subsequent decrease in stock price Additionally, if the company has a low working capital and struggles to meet its short-term obligations, this can also lead to a decrease in investor confidence and a decrease in stock price Question 6: Long-term annual financial statements and short-term quarterly cash budget Basis for forecasting 47 After examining Ford motor's current working capital management, it is possible to make some general assumptions about its future financial performance and position One of the essential steps in working capital management is forecasting and budgeting, which serves as a foundation for decision-making in the future and a safety net for unpredictable events In addition, it enables managers to grasp the big picture of the company going forward and possible avenues for growth For this assignment, a set of projected financial statements for Ford Motor in a period of years from 2022 to 2025, along with a cash budget for quarters of 2025 The forecast is based on sales, assuming that they account for the majority of Ford Motor’s cash flows The sales projection will be used to create an initial expected income statement Other plug factors will be used to balance out the statement of financial position, and assets and financing sources will also need to be forecasted in proportion to support the sales-based cash flows 48 Since future sales will depend on the economy (both domestic and global), the industry’s prospects, the company’s current product line, proposed products that are in the pipeline, and marketing campaigns, the estimation of growth rate in sales only based on the past sales may not be accurate Revenue 2016 151,8 2017 156,8 2018 160,3 2019 155,9 2020 127,1 2021 136,3 2022 158 Market share 14,80% 14,90% 14,29% 14,08% 13,87% 13,01% 13,92% Based on the figures from Macrotrends’s Report, the revenue of the car company fluctuated for years, from 2016 to 2022 The market share of Motor Ford Company also witnessed a fluctuation during that period Ford Motor Company's revenue came to over 158 billion U.S dollars in 2022, up from some 136 billion in 2021 and 127 billion in 2020 and surpassing pre-pandemic revenue However, the company also recorded the steepest net loss since 2008 49 Assuming the economy growth on macro level and Amazon’s growth continue to be as in 2020, Ford Motor’s revenue growth rate was calculated using LOGEST based on the closest exponential curve The resulting coefficient was 1.1149 thus, the growth rate for its revenue would be 0.1149 or 11.49% As a result, the revenue for the next years would be calculated as in this function: Next year’s revenue=1,1149×This year's revenue The projected sales for the required periods would be estimated accordingly  Long-term Income Statements and Balance Sheet Income Statement of Ford Motor 2023 (In millions) Year 2023 % of Sales Sales 155,724 100% Cost of good sold 66,096 42% Operating expense 74,534 48% EBITDA 15,094 10% EBIT 9,822 6% Interest expense 1,453 1% EBT 8,369 5% Tax expense 1,453 1% Net income 6,601 4% Pro forma income statement of Ford Motor 2022-2025 (In millions) Year 2023 2024 2025 Calculation 50 Sales 155,724 173,617 193,566 Sales year 1=Sales year * 1.1149 Cost of good sold 66,096 72,919 81,298 42% of Sales Operating Expense 74,534 83,336 92,912 48% of Sales EBITDA 15,094 17,362 19,357 10% of Sales EBIT 9,822 10,417 11,614 6% of Sales Interest Expense 1,453 1,736 1,936 1% of Sales EBT 8,369 8,681 9,678 5% of Sales Tax expense 1,453 1,736 1,936 1% of Sales Net income 6,601 6,945 7,743 4% of Sales 2022 2023 2024 2025 Calculation  Balance sheet Year Assets Current assets Cash and cash equivalent 25,134 24,916 27,779 30,970 16% of Sales Account receivables 15,729 17,342 17,362 19,357 10% of Sales Inventories 14,080 14,015 15,625 17,421 9% of Sales 54,943 54,503 60,766 67,748 line + line +line Total current assets Other assets 200,941 196,212 218,757 243,893 126% Total assets 255,884 250,715 279,523 311,641 line + line Liabilities and stockholders’ equity 51 Liabilities 11 Account payable 25,605 24,893 27,779 30,970 16% Debt 71,261 70,076 78,128 87,105 45% Other liabilities 115,851 113,678 126,740 141,303 73% Total liabilities 212,717 208,670 232,647 259,378 line 11 + line 12 + line 13 Stockholders’ equity 43,167 42045 46,876 52,263 27% Total liabilities and 255,884 250,715 279,523 311,641 line 14 + line 15 stockholders’ equity  Short-term cash budgeting  Projected cash receipts  Inventory  Payables  Projected cash disbursement  Cash Budget Ford, being a large multinational corporation, would typically have a detailed cash budgeting process in place to manage its short-term cash flow The process would involve estimating the company's expected cash inflows and outflows over a specific period, usually a month or a quarter Ford's cash inflows may come from various sources, including sales revenue from the sale of vehicles, financing income, and other income-generating activities The company's cash outflows would include expenses such as materials and supplies, wages and salaries, rent and utilities, and other operating expenses 52 To ensure that Ford has sufficient cash to meet its financial obligations, the company would closely monitor its cash inflows and outflows and adjust its cash budget as necessary For example, if Ford experiences a cash shortfall, it may need to reduce its expenses or find other ways to increase its cash inflows, such as borrowing money or selling assets Overall, short-term cash budgeting is an essential aspect of financial management for any company, including Ford It helps to ensure that the company has enough cash on hand to operate efficiently and meet its financial obligations Quarterly sales proportion in 2022 % of sales compared to total year sales Q1/2022 Q2/2022 Q3/2023 Q4/2022 21.81% 25.43% 24.92% 27.84% Quarterly income statements in 2023 (in million dollars) Ford Motor's accounts receivable, inventory, and accounts payable all need to be carefully considered when creating a short-term quarterly cash budget The projected sales of Ford Motor for each quarter of 2023 will be calculated using the ratio of the quarterly sales to the annual sales for 2022 Additionally, expenses will be allocated based on the quarterly sales proportion for each quarter Interest-related costs, interest-related income, and investment-related income are all assumed to be distributed equally each quarter Year Q1/2023 Q2/2023 Q3/2023 Q4/2023 Sales 33,963 39,601 38,806 43,354 Cost of goods sold 14,264 16,632 16,298 18,208 Operating expense 16,302 19,008 18,626 20,809 EBITDA 3,396 3,960 3,881 4,335 53 EBIT 2,038 2,376 2,328 2,601 Interest expense 339 396 388 433 EBT 1,698 1,980 1,940 2,168 Tax expense 339 396 388 433 Net income 1,359 1,584 1,552 1,734 Year Q1/2023 Q2/2023 Q3/2023 Q4/2023 Calculation Assets Current assets Cash and cash equivalent 5,434 6,336 6,209 6,937 Account receivables 13,571 15,840 15,542 17,342 Inventories 3,057 3,564 3,493 3,902 9% Total current assets 11,887 13,860 13,582 15,174 line + line +line 16% of Sales Other assets 42,793 49,897 48,896 54,626 127% Total assets 54,680 63,758 62,478 69,800 line + line Liabilities and stockholders’ equity 54 10 Liabilities 11 Account payable 25,425 25,246 25,069 24,893 12 Debt 15,283 17,820 17,463 19,509 45% 13 Other liabilities 24,793 28,909 28,328 31,648 73% 14 Total liabilities 45,510 53,065 52,200 58,094 line 11 + line 12 + line 13 15 Stockholders’ equity 9,170 10,692 10,478 11,706 27% 16 Total liabilities and 54,680 63,758 62,478 69,800 line 14 + line 15 stockholders’ equity The days in sales outstanding were 35.9 days Assuming a 90-day quarter for Ford Motor, 3/5 of sales were collected in the quarter made, and the remaining 2/5 were collected the following quarter Beginning receivables are forecasted to be $13,550 which were collected in the first quarter of 2023 Projected cash collections (in million dollars) Quarter Q1/2023 Q2/2023 Q3/2023 Q4/2023 Beginning Receivables 13,550 13,571 15,840 15,542 Sales 33,928 39,601 38,856 43,354 Cash collections 33,907 37,332 39,154 41,554 Ending receivables 13,571 15,840 15,542 17,342 The days in inventory in 2022 were 219 days Assuming a 90-day quarter for Ford Motor, the quarterly inventory turnover was 0.41 This is used to calculate the ending balance and the purchase amount accordingly Projected inventory (in million dollars) Q1/2023 Q2/2023 Q3/2023 Q4/2023 55 Beginning inventory 14,080 143,460 269,462 394,794 Purchase 143,644 142,634 141,630 140,637 Cost of sales 14,264 16,632 16,298 18,208 Ending inventory 143,460 269,462 394,794 517,223 The day’s payable outstanding were 16 days Assuming a 90-day quarter for Ford Motor, the payable turnover is 5.61 This is used to calculate the ending balance and the payment amount accordingly 82.3 17.7 Projected account payables (in million dollars) Q1/2023 Beginning payables 25,605 Credit purchase 143,644 Payments 143,824 Ending payables 25,425 Q2/2023 Q3/2023 Q4/2023 25,425 25,246 25,069 141,630 140,637 142,813 141,807 140,813 25,246 25,069 24,893 142,634 Projected cash disbursements (in million dollars) Q1/2023 Payments 143,824 Operating expenses 16,302 Q2/2023 Q3/2023 Q4/2023 142,813 141,807 140,813 19,008 18,626 20,809 56 Taxes 339 396 388 433 Interest expense & Dividend payments 339 396 388 433 2,065 2,065 2,065 Capital expenditures 2,065 Total cash 162,869 164,678 163,274 164,553 disbursements Cash budget (in million dollars) Q1/2023 Beginning cash balance 5,434 Q2/2023 6,336 Q3/2023 6,209 Q4/2023 6,937 Total cash collections 33,907 37,332 39,154 41,554 Total cash disbursements 162,869 164,678 163,274 164,553 Net cash flow (128,962) (127,346) (124,120) (122,999) Ending cash balance (134,396) (121,010) (117,911) (116,062) 57 REFERENCES https://edition.cnn.com/2022/09/20/business/ford-supply-chain-problems/index.html https://www.detroitnews.com/story/business/autos/ford/2022/09/19/ford-inventory-unfinishedvehicles-grow-supply-shortages/10429658002/ https://www.stock-analysis-on.net/NYSE/Company/Ford-Motor-Co/Analysis/Inventor https://www.macrotrends.net/stocks/charts/F/ford-motor/net-income https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_F_2021.pdf https://www.nytimes.com/2023/02/02/business/ford-earnings-fourth-quarter2022.html#:~:text=The%20company's%20financial%20performance%20was,and%20an %20autonomous%20car%20business https://en.wikipedia.org/wiki/Ford_Motor_Company https://edition.cnn.com/2020/02/04/business/ford-earnings/index.html 58