Ford’s impressive total asset size is $225 billion (Ford, 2015a). The fixed assets turnover ratio (FATR) illustrates the effectiveness of using fixed assets to generate sales. Ford’s average fixed asset turnover ratio for 2013-2015 is (0.33 for 2015 + 0.32 for 2014 + 0.28) / 3 = 0.31 (Ford, 2015a; Ford, 2015c). Although the number is small, one can compare Ford’s FATR with a competitor during the same period to determine which one uses their fixed assets better. GM’s average FATR for the same period was (0.28 for 2015 + 0.18 for 2014 + 0.14 for 2013) / 3 = 0.2 (GM, 2015a, GM, 2015c). Therefore, one can conclude that Ford’s usage of fixed assets was more productive than GM’s. I will give GM some credit, because of their increasing trend of FATR, if they keep the same pace, next year they could surpass Ford’s FATR. If I were to look for a company that is stable, Ford would be my choice. However, GM is showing strong improvement in the utilization of fixed assets and may higher risk investment with potentially larger gains if they keep up their momentum.
In continuation with the discussion on asset management and efficiency, the total asset turnover ratio (TATR) for Ford and GM includes current assets, long-term investments, fixed assets, other assets and deferred long-term asset charges. Over half of the total assets for Ford are current, meaning they are able to turn them into cash within the given period. Ford had a TATR of 0.67 in 2015, 0.69 in 2014, and 0.73 in 2013 (Ford, 2015b). I am concerned with the declining trend that represents they are losing efficiency.
Another interesting component is although the TATR has been trending down. Ford’s fixed asset turnover ratio is increasing. One ...
... middle of paper ...
...o new markets, their costs are increasing for selling and administration. The costs include hiring new salespeople and promoting their new products in new market segments. Thus causing the increase of selling and administrate costs in the horizontal income statement analysis. Furthermore, Ford’s fixed assets are also increasing because they are investing in new land and equipment to manufacture their new products.
Ford’s decrease in net revenue from 2013 to 2015 is constant with their decreasing change in gross cash within the 10-k Management’s discussion and Analysis. Ford mentioned this is caused from having lean inventories and building vehicles to order not for inventory (SEC, 2015). In conclusion, Ford’s financial analysis reflects a strong and efficient organization that is planning for the long-term gain while maintaining stable short-term efficiency.
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