Page 45 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes Conclusion
Although Ford Motor Company is one of the largest companies in the world, we can
still attribute accounting trends to some of the key events in Ford’s history. In 1990, Ford
acquired Jaguar Cars, Ltd. Jaguar was a company suffering terrible loses due to poor
quality, and lack of sales. Jaguar has been in the black since Ford purchased them until
1994. It is important to note that Ford’s net income trend from 1991 to 1995 illustrates this.
In 1992, the Ford Taurus became the number one selling car in the United States, which
helped increase 1992 net earnings, and in 1994 the Ford Falcon was the top selling car in
Australia, helping maintain the trend of increasing net income. It is important to note that
Ford’s net income has increased from 1991 to 1994, and then decreased in 1995. There are
several possible causes for this change in the trend. In 1995, Ford acquired 20% equity in a
major Chinese truck manufacturer, and launched several new vehicles; including the Ford
Contour, Ford Mondeo, Mercury Mystique, Ford F-150, and Ford Taurus. These additional
investments and expenses help explain the decrease in net income in 1995. Overall, the
company has done well, and with reorganization in 1996 to decrease spending and increase
efficiency, Ford is striving for future periods of growth.
Questions
1. What do you see as the main cause behind the result of trend analysis at Ford?
2. “Ford was able to use stockholder’s investments to increase it’s profitability rather
than borrow the funds to do it”. Justify the statement on the basis of the case.
Source: www.ghostpapers.com

3.6 Summary

z z Financial statement analysis can be explained as a method used by interested parties
such as investors, creditors, and management to evaluate the past, current, and projected
conditions and performance of the firm.

z z Under the financial statement analysis, the information available are grouped together in
order to cull out the meaningful relationship which is already available among them; for
interpretation and analysis.

z z Three primary types of financial statement analysis are commonly known as horizontal
analysis, vertical analysis, and ratio analysis.

z z To reveal qualitative information about the firm in terms of solvency, liquidity, profitability,
etc., are extracted from the analysis of financial statements.
z z Comparative (income) financial statement analysis is being carried out in between the
income statements of the various accounting durations of the firm, with other firms in the
industry and with the industrial average.

z z After having been procured the financial data pertaining to various time periods are ready
for comparison; to determine or identify the level of increase or decrease taken place in the
operating financial performance of the firms.

z z Trend analysis involves calculating each year’s financial statement balances as percentages
of the first year, also known as the base year. When expressed as percentages, the base
year figures are always 100 percent, and percentage changes from the base year can be
determined.

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