Company Overview
Ford Motor designs, develops, and manufactures automobiles worldwide. Ford Motor is one of the world's largest automakers. Ford Motor has two brands: Ford and the luxury line Lincoln. Ford generates more than half of its revenue from North America. The rest of sales come from Asia (21.23%) and Europe (21.47%). Just like all the other automakers, Ford Motor suffered from the global economic crisis and started to streamline its operations. Ford Motor sold three brand (Land Rover, Jaguar, and Volvo) and cut down the number of suppliers. Ford also shifted its focus to fuel efficiency and hybrid models such as Fusion. Ford is also expanding in emerging markets for growth, especially China, India, Brazil, and Russia. However, Ford had a rough year in 2012. Its revenues fell by nearly 2% from $136 billion to $134 billion. Its profits also plummeted by 72% to nearly $6 billion.
1939 Ford pick-up truck
English: Ford-Tractor (unidentified model of the N...
All Ford's models with EcoBoost engines are identi...Although Ford achieved a turnaround in 2013 with its profits increasing from $5 billion to $7 billion, its profits still fall short of expectations, less than 40% of 2011.
DCF Valuation
We implemented the one-stage FCFF discount model because Ford Motor is a mature company growing at a stable rate. The following are assumptions for the DCF models:
Inputs | Stable Growth |
Length of growth period (year) | 5 |
Growth Rate (%) | 1.55% |
Debt Ratio (%) | 69% |
Beta | 3.12 |
Riskfree Rate (%) | 2.73% |
Risk Premium (%) | 4.96% |
After-tax Cost of Debt (%) | 3.07% |
Tax Rate | 35% |
Return on Capital (%) | 4.4% |
Cost of Equity (%) | 20.68% |
Cost of Capital (%) | 8.44% |
The fundamental analysis shows that the growth rate of Ford is 1.55%. The terminal growth rate should not exceed the U.S GDP growth rate (3%). By levering the auto & motors industry unlevered beta (1.28), we found the beta of...