Ford Motor Company

Ford Motor Company


GROUP PROJECT


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 relativel
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