Page 139 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes
profitability measurement and project a positive image to the investors of Ford Motor
Company.
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
Ratio Analysis

Short-term Solvency Ratios
Current Assets
1. Current Ratio =
Current Liabilities
Liquid Assets
2. Quick Assets Ratio =
Current Liabilities
Capital Structure Ratios
Leverage Ratios
1. Long-term debt-equity ratio

Debt (Long-term Debt = Debentures/Term Loans)
Debt-equity Ratio =
Net Worth/Equity (Shareholders' Fund)
2. Total debt-equity ratio
Short-term Debt + Long-term Debt
Total Debt-equity Ratio =
Equity (Shareholders' Fund)
Proprietary Ratio
Owners' Funds or Equity or Shareholders' Funds
Proprietary Ratio =
Total Assets
Contd...

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