FORD MOTOR COMPANY

GROUP PROJEC


















ACC 505 - FINANCIAL ACCOUNTING
12/01/96


TABLE OF CONTENTS




DESCRIPTION PAGE

INTRODUCTION................................................................................. 1

LIQUIDITY........................................................................................ 1-3
Working Capital................................................................................... 1
Current Ratio & Quick Ratio.................................................................... 2
Receivable Turnover & Average Days\' Sales Uncollected................................. 2-3
Inventory Turnover & Average Days\' Inventory on Hand................................. 3

PROFITABILITY................................................................................. 3-7
Profit Margin................................................................................. ..... 3-4
Asset Turnover.................................................................................... 4-5
Return on Assets................................................................................... 5
Debt to Equity..................................................................................... 5-6
Return on Equity.................................................................................. 6-7

CONCLUSION................................................................................... 7-8

APPENDIX........................................................................................ 9

















INTRODUCTION

Ford Motor Company, a large United States automotive corporation, strives for success each and every year. The success of Ford Motor Company, as well as other corporations, can be measured by analyzing the two most important goals of management, maintaining adequate liquidity and achieving satisfactory profitability. Liquidity can be defined as having enough money on hand to pay bills when they are due and to take care of unexpected needs for cash, while profitability refers to the ability of business to earn a satisfactory income. To enable investors and creditors to analyze these goals, Ford Motor Company distributes annual financial statements. With these financial statements, liquidity of Ford Motor Company is measured by analyzing factors such as working capitol, current ratio, quick ratio, receivable turnover, average days\' sales uncollected, inventory turnover and average days\' inventory on hand; whereas profitability analyzes the profit margin, asset turnover, return on assets, debt to equity, and return on equity factors.

LIQUIDITY
Working Capital

Ford Motor Company\'s working capital fluctuated significantly in the years 1991-1995. This phenomenon is directly attributable to the fact that Financial Services current assets and current liabilities are not included in the total company current asset and current liability accounts. For example, the fluctuation from 1994 ($1.4 billion) to 1995 (-$1.5 billion) of $2.5 billion would suggest that Ford would be unable to pay liabilities during the current period. However, examination of the Financial Services side of the business reveals that surpluses of $13.6 billion existed in both 1994 and 1995, convincingly mitigating the figures indicating negative working capital.

Current Ratio & Quick Ratio

The current ratio in the years 1991-1995 has remained stable, fluctuating between 0.9 and 1.1. The quick ratio has also remained stable, fluctuating between 0.5 and 0.6. The larger fluctuation in the current ratio versus the quick ratio is caused by inventories being included in the asset side of the equation. Although inventories were significantly higher in both 1994 and 1995, current liabilities were also higher. In addition, marketable securities decreased substantially in 1994 and 1995. These factors resulted in the stability of both the current ratio and quick ratio.

Receivable Turnover & Average Days\' Sales Uncollected

An examination of trends in Ford Motor Company\'s receivable turnover and average days\' sales uncollected ratios reveal positive indicators of Ford\'s liquidity position. The receivable turnover, a function of net sales and average accounts receivable, has nearly doubled in the years 1993-1995 versus 1991-1992. This trend indicates an extensive increase of net sales in relation to accounts receivable. Receivables were relatively higher in 1994 than in any other of the five years, affecting the ratio for both 1994 and 1995. However, net sales increased 30% in 1994 and 34% in 1995 over the average net sales of 1991-1993. The average days\' sales uncollected ratio has decreased significantly over the same period, from 16.9 days in 1991 to 9.7 days in 1995. The substantial decrease in average days\' sales uncollected ratio coupled with the near doubling of the receivable turnover ratio is a reflection of Ford\'s strong sales and effective credit policies in years 1993-1995.

Inventory Turnover & Average Days\' Inventory on Hand

An examination of trends in the inventory turnover and average days\' inventory on hand ratios also reveal positive indicators of Ford\'s liquidity position. Inventory turnover, a function of cost of goods sold and inventories, has remained stable between 14.0 and 16.0 times from 1992-1995. The average ratio over these four years (15.1 times) is 40% higher than that of 1991. The average days\' inventory on hand, a derivative of the inventory turnover, has conversely decreased to stable level fluctuating between 23.5 and 26.0 days in the years 1992-1995. The operating cycle of Ford Motor Company has decreased significantly as the table below indicates.
1991 1992 1993 1994 1995
Days: 50.8 29.0 33.8 31.1 34.3


PROFITABILITY
Profit Margin
Profit margin, which is net income divided by net sales, is a measure of how many dollars of net income is produced by each dollar of sales. As you can see in Appendix