Business Studies
Signature Assignment: Shareholder Analysis
Assignment Content
Continue your work with the company you selected in Wk 2.
(FORD Motor)
Research your company’s financial reports for 2017.
Complete a 2- to 3-page FAQ/Shareholder Analysis.
Evaluate economic conditions that influence company performance. Consider political, environmental, currency (money), global economics, and government influences on economic conditions.
Compare market conditions with the company’s performance for 2017. Conclude how the market conditions that year influenced the company’s performance, such as interest rates, Federal Reserve Bank monetary policy changes, or other market conditions relevant to the company you selected.
Analyze year-over-year performance from 2016 and 2017. Consider key metrics or ratios such as trailing PE ratio, forward PE ratio, price to book, return on assets, and return on equity in your conclusions.
Cite references to support your assignment.
Format your citations according to APA guidelines.
Submit your assignment.
ANSWER
Signature Assignment: Shareholder Analysis
Signature Assignment: Shareholder Analysis
Introduction
Ford Motor Company, which is commonly known as FORD, is a US multinational automaker based in Dearborn, Michigan. The company was founded by Henry Ford and incorporated in 1903. Ford is one of the best-performing automakers in the world. The company sells commercial vehicles and automobiles under the Ford brand and luxury cars under the Lincoln brand. Ford owns Troller, a Brazilian car manufacturer, and has stakes in Aston Martin and Jiangling Motors. The company is controlled by the Ford family and is listed on the NYSE. In this paper, financial analysis of the company is presented. The financial performance is compared with the business environment to determine the influence of the business environment on the performance of the company.
Market Conditions that Influence the Performance of the Company
Like any other business, Ford is affected by various factors in its external environment – political, economic, social, technological, ecological, and legal factors (Havaldar, 2005). The external environment of the company is the global automotive industry. The political factors that affect the company are government support for technological innovation, international trade agreements, and governmental effort for infrastructure in the developing countries (Havaldar, 2005). The economic factors that significantly affect the company are the performance of the US economy, the growth rate of developing markets, and the strength of the US currency. The social factors that affect the performance of Ford are demand for electric and hybrid automobiles, customer attitudes and tastes, and wealth gap.
The significant technological factors include mobile computing, the use of online fulfillment services, and the availability of fuel stations for electric cars. The ecological external factors that affect the company are climate change, low-carbon trends, and oil reserves availability. Lastly, the legal external factors that influence Ford include regulations on environmental protection, safety regulations, and intellectual property laws.
Company Performance
In the year 2017, the company did well in terms of revenues but a little less compared to 2016 in terms of profits. The following figures show the company’s performance in 2016 and 2017 (FORD, 2018).
| 2016 | 2017 | |
| Automotive segment revenue | $141.5 billion | $145.7 billion |
| Operating margin | 6.7% | 5.0% |
| Operating cash flow | $6.4 billion | $3.9 billion |
| Ford Credit Pre-tax profit | $1.9 billion | $2.3 billion |
| Total company net income attributable to Ford Motor Company | $4.6 billion | $7.6 billion |
| Adjusted pre-tax profit (a) | $10.4 billion | $8.4 billion |
| Summary of incomes | 2016 | 2017 |
| Total revenues | $151.8 billion | $156.8 billion |
| Income before income taxes | $6.8 billion | $8.1 billion |
| Provision for income taxes | 2,189 | 520 |
| Net income | $4.6 billion | $7.6 billion |
| Less: income/(loss) attributable to noncontrolling interests | $11 million | $26 million |
| Net income attributable to Ford | $4.6 billion | $7.6 billion |
The Influence of Market Conditions on Financial Performance
The market conditions that affected the performance of Ford in 2017 were currency exchange volatility, changes in demand, pricing pressure, energy price changes, and inflation and interest rates.
Volatility in the Exchange Rate
In 2017, the US Federal Reserve raised the policy interest rate three times, after a rate increase in 2016 (FORD, 2018). Most banks also initiated the end of a period of monetary policy easing. This resulted in increased volatility for developed and emerging market currencies across the world. These conditions had a direct negative impact on the financial flows of the company and the pricing of vehicles exported to overseas markets.
Changes in Demand
The year saw the demand for automotive decrease with increased financial strain in many countries. Coupled with excess production capacity, automotive companies found themselves with low sales volumes, resulting in increased product promotion and lesser revenues. Demand for electric and hybrid vehicles, however, was on the increase during the year, boosting sales of electric and hybrid vehicles.
Pricing Challenges
Excess production capacity and a proliferation of new products introduced in most markets resulted in manufacturers facing pressure on the ability to increase prices (FORD, 2018). The entry of Korean and Japanese manufacturers in North America intensified competition, putting downward pressure on inflation-adjusted prices for vehicles in the US (FORD, 2018). Ford and its competitors faced a very challenging pricing environment in 2017, affecting company profits.
Energy Price Changes
The price of oil increased in late 2017 as a result of global demand increase and extended agreement among oil-producing countries (FORD, 2018). The prices of aluminum, steel, and other metals that are used in vehicle manufacture also remained high, affecting profitability negatively.
Inflation and Interest Rates
In 2017, interest rates rose significantly. However, mature market government bond yields, and inflation remained low. Government deficits and debt remained at high levels in most major markets (FORD, 2018). These conditions resulted in a higher cost of capital over the financial year. The real growth in GDP and vehicle sales was impeded during the year, resulting in a slightly lower net profit for the year.
Conclusion
The performance of a business is affected by the internal and external business environment factors. In 2017, the market conditions were not favorable for the improvement of business performance, as discussed. Energy prices were high, inflation and interest rates were high, demand for automobiles was low, and exchange rate volatility was witnessed. These factors contributed to lower profits by the company, from $10.4 billion in 2016 to $8.4 billion in 2017.
References
FORD. (2018). FORD MOTOR COMPANY 2017 ANNUAL REPORT. https://www.annualreports.com/HostedData/AnnualReportArchive/f/NYSE_F_2017.pdf.
Havaldar, K. K. (2005). Industrial marketing: text and cases. Tata McGraw-Hill Education.
