Relationship between financial statements

Table of Contents

Introduction1

Ford Motors Company1

Forecasting financial statements1

Important financial ratios3

Profitability ratios3

Liquidity ratio5

Solvency ratios5

Recommendations6

Ford and bailout7

References10

Introduction

Ford Motors Company

In 1903, ford motor company started producing model “A” cars. First car was sold on 15th of July 1903. Ford motors acquired Lincoln brand in 1921. Ford played a major role in different areas such as NASA mission to moon, manufacturing of boats in World War I and played a role in World War II (Ford Motor Company, 2013a).

Ford has achieved various goals through it production line by production popular vehicles in history. Vehicles such as Model “A”, in 1949, Ford changed the design of cars which won Fashion Academy Award for Styling. Ford also introduced several cars for several U.S. presidents and by introducing Ford Mustang series which became favorite for U.S. (Ford Motor Company, 2013a).

Now, Ford is producing different models according to the regions but few models of Ford have a global recognition. Popular models include Ford Focus, Fiesta and Ford Shelby GT500 (Ford Motor Company, 2013b).

Forecasting financial statements

(Carnot et. al, 2005) Discussed that forecasting gives expected view of the future to act upon. It gives quantitative output for the analysts. It gives picture to the analyst to see the view of the future. Below are the assumptions made for forecasting Ford Motor Company pre-tax profit for next four quarters, shown in table I.

Pre-tax profit

Period

Millions

Difference with the previous quarter

Percentage Change

Q3 2012

$ 2,163.00 $ 334.00

18.26%

Q2 2012

$ 1,829.00 $ (464.00)

-20.24%

Q1 2012

$ 2,293.00 $ 1,189.00

107.70%

Q4 2011

$ 1,104.00 $ (840.00)

-43.21%

Q3 2011

$ 1,944.00 $ (934.00)

-32.45%

Q2 2011

$ 2,878.00 $ 41.00

1.45%

Q1 2011

$ 2,837.00 $ 1,544.00

119.41%

Q4 2010

$ 1,293.00 $ 1,293.00

Data collected from (Ford Motor Company, 2013c), difference is calculated from the preceding quarter and percentage increase or decrease is calculated. The approach used here to forecast future pre-tax profit is minimum decrease in history has been taken as the worst case for the Ford, growth in the current quarter is taken as normal trend and highest growth in historical data is taken as good trend and following forecast is generated as illustrated in table II.

Projection

Normal (Millions)

Good (Millions)

Worst (Millions)

Q4 2012

$ 2,557.99 $ 4,745.89 $ 1,228.37

Q1 2013

$ 3,025.12 $ 10,413.05 $ 697.59

Q2 2013

$ 3,577.54 $ 22,847.51 $ 396.16

Q3 2013

$ 4,230.85 $ 50,130.24 $ 224.98

The normal trend has used the growth pattern of 18.26% on next quarter; the trend is increasing pre-tax profit with constant increment of approximately 18%. By analyzing the growth history for previous 8 quarters, we can see that Ford growth Q1 2011 is 119% approximately. By applying the same growth rate we calculated pattern of good growth of Ford Motor Company. For worst case, such as declines into recession, maximum decrease in percentage is used to predict the next four quarters of Ford Motor Company. The percentage used for worst case is -43.21%.

Important financial ratios

(Kurowski & Sussman, 2011) Argues that important financial issue for an investor is, whether projected returns meet the minimum requirement or ...