Balance Sheet – Ford Motor Company
Balance Sheet – Ford Motor Company
Balance Sheet – Ford Motor Company
In all organizations (non-profit and for-profit), keeping a balance sheet, which is also referred to as the statement of financial position is a critical move that enhances the accountability of a company’s expenditure. Therefore, the use of the balance sheet is to show the financial position of an enterprise as of a given point in time. The statement reveals the entity’s assets, liabilities and the amount invested in the business (Epstein, 2014). Presentation of several balance sheets from subsequent financial periods makes the information indispensable as it can be grouped to identify a pattern or trends in different line items. The report has numerous subsets of information essential in gaining an in-depth understanding of the short-term financial position of a firm. When the current assets subtotal is compared to current liabilities subtotal, one can approximate if the entity has access to adequate funds to offset short-term obligations. Therefore, the balance sheet gives a snapshot of an entity’s financial status at a given time.
The information gathered from the balance sheet is integral in guiding the decision-making process among investors and other stakeholders. The information influences investors’ decisions because it reveals how the firm is efficiently utilizing its assets and managing liabilities in the quest for profits. Also, creditors and lenders can compare the total debt to total equity listed on the balance sheet to determine if the subsequent debt/equity ratio indicates a risky degree of borrowing (Kenton, 2019). This information can be used in determining whether additional lending could result in bad debt. Also, the investors can examine the cash listed on the balance sheet to determine whether the available amount is sufficient to pay dividends though the accessed information might need adjustments based on the need of additional investment in the business.
Finally, the balance sheet informs all stakeholders that the books are in balance as it indicates the distribution of funds. For instance, it shows that finances borrowed from lenders or cash raised from investors are used to finance the firm’s assets, the liability section shows the funds borrowed from lenders and the equity section shows money invested in the company by the investors (Epstein, 2014). Availability of such information helps a potential acquirer of the firm to determine whether disposing of certain assets could harm the fundamental business. For instance, an acquirer can compare inventory balance to sales to get an inventory turnover level that can indicate the existence of surplus inventory. Similarly, the comparison can be used in accounts receivable or comparison of fixed asset total to sales to derive a fixed asset turnover measure then compared to best-performing firms in the industry to determine if non-current asset investment is excess.
A financial ratio refers to a well-defined comparative of two specific statistical values obtained from the financial statement of a given company. The financial ratios of an enterprise are calculated differently depending on the category in question. Financial ratios can be classified as liquidity ratio, asset management ratios (activity ratios), market ratios, and profitability ratios. Calculating debt to equity ratio is one of the essential financial ratios that help determine a firm’s capability to pay their debts. Hence, in the case of Ford Motors, shareholders or potential investors can use the company’s balance sheet for the year 2012 to calculate its liability to equity ratio. The debt to equity ratio is an indicator of enterprise financing that comes from investors or creditors. Hence, the higher the debt to ratio, the more the creditors (bank loans) in a company than shareholders (investor financing).
Debt to equity ratio of Ford Motors Company can be calculated as follows:
Debt to equity ratios= Total liabilities ÷ Total equity.
An organization’s information on liabilities and equity can be obtained from the balance sheet as in the case of Ford Motors’ 2012 Balance sheet. Below is an extract of Ford Motors balance sheet for the year 2012, which shows the total liability and equity that can used to calculated debt to equity ratio.
| LIABILITIES
Payables Accrued liabilities and deferred revenue Debt Deferred income taxes Total Liabilities EQUITY Capital stock – Common Stock, par value $.01 per share (3,875 million shares issued) – 3937Class B Stock, par value $.01 per share (71 million shares issued) Capital in excess of par value of stock Retained earnings Accumulated other comprehensive income/(loss) Treasury stock Total equity attributable to Ford Motor Company Equity attributable to non-controlling interests Total Equity |
AMOUNT (In Millions)
$19,308 $449,407 $105,058 $470 |
| $174,243
$39
$1 $20,976 $18,077 ($22,854) ($292) |
|
| $15,947
$42 |
|
| $15,989 |
Debt to equity ratio of Ford Motors Company will be calculated as follows
Total liabilities ÷ Total equity
$174,243÷$15,989= 11.029. Therefore, the interpretation of the debt to equity ratio of Ford Motors indicates that the company has a higher risk to investors and creditors since it is evident that the operations of the organization are more funded by creditors than investors.
References
Epstein, L. (2014). Financial decision making: An introduction to financial reports.
Ashford University. Retrieved from https://content.ashford.edu/.
Ford Motor Company 2012 annual report.(2014). Ford Motor Company. Retrieved from
Harper, D. R. (n.d.). Financial statements: The system. Investopedia. Retrieved from
http://www.investopedia.com/university/financialstatements/financialstatements2.asp.
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