CASE STUDY on Ford’s

                       CASE STUDY on Ford’s

Case Question #1:

I don’t agree with the opinion that “a meaningful amount of Ford’s earnings improvement over the past three quarters has come from accounting adjustments, as opposed to real improvements in the company’s underlying profitability? “This is because;

First, the ford revitalization plan shows how the company made a lot of changes, such as improving the declining market value of its shares and also made some investments that might lead to the improvement of its profitability. Secondly, Accounting adjustments do not necessarily lead to earnings improvement. This is because they are usually estimated, and therefore they could exceed the actuals, which implies that the alignment could either lead to losses or profits. Ford’s company should set standards that will ensure consistency to ensure the change of values is not that ambiguous.

Ford company financial results of 2003 to those of 2002 differ whereby 2003 three quarters the earnings were %1.2 billion, revenue of118.4 billion, and an income before tax of 2.2 billion dollars while that of 2002 was $850 million, revenue of$121 billion and profit before tax of$822 million. The company managed to improve its debt to equity ratio from 12.9 in 2002 to 12.7 in 2003, and this shows excellent improvement. The Ford company’s adjustments are as follows; cash to cash equivalents, debt, SFAS NO 133, and equity. The company experienced core results for the year 2003 as compared to 2002, which include; decrease of the leverage ratio, an increase of earnings, and a net gain of the cash to cash equivalents reflecting a significant improvement.

Case Question #2:

Change of account receivable, for instance, an increase of the account receivables amounts, this reflects the transactions that have been made, but the firm has not received payments. The adjustment is seen as sales; therefore, an increase in sales revenue, which contributes to improvements in the company’s real profits. Changes of depreciation and amortization costs of the 2003 earnings will lead to the real growth of the company as they have a tangible impact on them. Amortization and depreciation take part in the generation of actual profits; this adjustment will be of high consideration as it avoids overvaluation of the company.

Adjustments of the costs the company is incurring, for instance, reducing its business costs, direct, indirect, and indirect damages incurred this will help improve Ford’s profit margins, thus having a real impact on real profit improvements. The company can also make changes on reverse accounts such as provision for doubtful accounts; this will result in real growth.

Growth rates indicate the improvement the company has made in terms of sales, revenue, and many other financial valuable sectors. The table below outlines the growth rates for the year 2003.

Growth Rate= Current-Past/Past

Sales and earnings growth rate is worrisome as the values are negative. This implies that the company needs to put more effort into marketing its products and services, thus increase its sales and earnings.

Case Question #3:

I agree with the measurement and assessment as it provides the investors with valuable information regarding the company’s; profitability, liquidity, and decision-making proficiency. The measure of automotive segments totals operating-related cash flows, as it includes other valuable parts of the cash flow that are not considered by the General Accounting accepted principles financial measure. There’s an improvement in profitability as there is an increment from $840 million in 2002 compared to $1.2 million in 2003.

Ford credits managed debt to equity ratio is 12.0. This implies that the company is highly leveraged by debt, which is a bit worrisome if it fails to repay the debts. The evaluation is helpful to investors as it reflects the ability of the ford to manage their business activities efficiently and the decision-making processes. The entire company fixed charges are an essential measure. It provides information about the firm’s ability to cover deficiency, thus easy for them to make proper investment decisions. Fords fixed charges earnings to fixed is1.4 indicating the firm’s ability to meet costs.

Case Question #3:

I agree with the standard and poor’s 2003 drops of fords long- term credit rating. In October 2003, standard poor’s downgraded fords long term credit rating to BBB- with a stable outlook grading the company above junk. Ford downgrading could result from; few innovations in the industry and increased prices of steel and fuels. The debt to equity ratio of Ford company is 12.7 to 1, indicating that it is relying highly on debt funding. The company sales growth rate is -1.04; this reflects the lousy state of the company. Therefore, it needs to set market strategies that will increase their market demand. The downgrade was based on long term measuring the company’s ability to meet its financial obligation, and the analysis reflects that ford might fail to meet this responsibility. It is appropriate to base credit evaluation both on a long term and short term to measure the firm’s ability to meet its obligations; this reflects the company’s financial stability.