Accounting Evaluation of Ford Motor Company

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.

Portrait of Henry Ford (ca. 1919)

English: Ford Motor Company Headquarters, Dearborn...

1961 Ford H-Series trucks

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...