Ford Financial Analysis Essay

3224 Words13 Pages
Writing Assignment: Financial Analysis
Margaret Ison
Ron Lentz, CPA, PhD
Financial Management
September 8, 2012
Henry Ford incorporated Ford Motor Company in 1903 at Dearborn, Michigan, USA and is known to have adapted practices that were not popular in those days. The Car Maker is known for their famous “Model T” and the unique innovation of interchangeable parts in moving assembly lines that makes it possible to assemble cars at low cost and high reliability. Ford Motor established an impressive financial track record almost throughout the 20th Century (barring the record loss of $7 billion in 1992) till the Millennium started (Alan Mullally, 2012). Ford motor Company is the second largest automobile company in the world
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Ford uses derivative instruments to forecast their economic exposure with respect to forecasted revenues and costs (Capital Budgeting and Valuation of Investment Decisions , 2010). In the current market Ford is also vulnerable to interest, residual and liquidity risk; Interest rate risk relates to the gain or loss Ford could incur due to a change in interest rates. They invest various types of securities which are subject to fluctuations in interest rates. Their investment strategy is based clearly on defined risk and liquidity guidelines to maintain liquidity, minimize risk, and earn a reasonable return on short-term investments. A rise in interest rates could have a material adverse impact on the financial statements. Residual risk in the possibility that the actual proceeds received at lease termination will be lower than projections or return volumes will be higher than projections. Basically, a customer may return a vehicle to Ford, and Ford obtains less for this vehicle then is expected. Although estimates are created for these situations, it can still have an adverse relationship on the financial statements, especially if many people return their vehicles in the same period. Because of all the risks stated above, added to the intense competition and the fact that the industry functions so closely to the changes in the economy, gives Ford liquidity risk. Liquidity risk is the possibility that Ford may
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