Accounting Ford Motor Company

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1: Assignment Ford Motor Company 1 Assignment 1: Ford Motor Company Heather Plum Professor Jacquelyn Mosely ACC 599 Graduate Accounting Capstone April 14, 2012 Strayer University Assignment 1: Ford Motor Company 2 Company Background: Ford Motor Company (NYSE: F) is an American multinational automaker based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford and Lincoln brands, Ford owns a small stake in Mazda in Japan and Aston Martin in the UK. Ford's former UK subsidiaries Jaguar and Land Rover were sold to Tata Motors of India in March 2008. In 2010 Ford sold Volvo to Geely Automobile. Ford discontinued the Mercury brand after the 2011 model year. The company is controlled by the Ford family, which owns a controlling stake. Ford introduced methods for large-scale manufacturing of cars and large-scale management of an industrial workforce using elaborately engineered manufacturing sequences typified by moving assembly lines. Henry Ford's methods came to be known around the world as Fordism by 1914. Ford is the second-largest U.S.-based automaker and the fifth largest in the world based on annual vehicle sales in 2010 (after Toyota, General Motors, Volkswagen AG, and Hyundai Motor Group). At the end of 2010, Ford was the fifth largest automaker in Europe. Ford is the eighth-ranked overall American-based company in the 2010 Fortune 500 list, based on global revenues in 2009 of $118.3 billion. In 2008, Ford produced 5.532 million automobiles and employed about 213,000 employees at around 90 plants and facilities worldwide. During the automotive crisis, Ford's worldwide unit volume dropped to 4.817 million in 2009. In 2010, Ford earned a net profit of $6.6 billion and reduced its debt from $33.6 billion to $14.5 billion lowering interest payments by $1 billion following its 2009 net profit of $2.7 billion. Starting in 2007, Ford received Assignment 1: Ford Motor Company 3 more initial quality survey awards from J. D. Power and Associates than any other automaker. Five of Ford's vehicles ranked at the top of their categories and fourteen vehicles ranked in the top three ("Ford 2011 annual report," 2012) Quarterly financial projections under Normal economy Assumptions: 1. Revenue for Q1 and Q2 is based on average estimated revenue provided by 11 financial analysts. For Q3 and Q4 revenue is assumed to increase by 8% and 7% respectively based on the trends of revenue of Q1 and Q2. 2. Cost of revenue for the year 2011 on a quarterly basis is showing an increasing trend. Cost of revenue as % of sales in the each of the 4 estimated quarters of 2012 is assumed to be same as previous year. 3. Selling and administrative expense for all the quarters of 2011 are in a range as a % of revenue. Selling and administrative expenses in each of the 4 quarters of 2012 have been computed based on the average of Q1, Q2 and Q4. Due to certain non-recurring items the SG&A expenses of Q3 is not comparable and therefore not considered for estimates. Below are the quarterly financial projections under Normal Economy for all the 4 quarters of 2012: CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) Q4 2011 Q1 2012 E Q2 2012 E Q3 2012 E Q4 2012 E Assignment 1: Ford Motor Company 4 Total Revenue $ 34,576,000 $31,490,000 $34,100,000 $36,828,000 $39,405,960 Cost of revenue 29,699,000 25,462,833 28,078,005 30,776,738 33,847,686 Gross Profit 4,877,000 6,027,167 6,021,995 6,051,262 5,558,274 Selling, general and administrative 3,076,000 3,364,470 3,643,329 3,934,795 4,210,230 (5,000) - - - - Total operating expenses 3,071,000 3,364,470 3,643,329 3,934,795 4,210,230 Profit / (Loss) from operations 1,806,000 2,662,698 2,378,666 2,116,467 1,348,043 Non Recurring Expenses Quarterly financial projections under Recession Assumptions: 1. Revenue for all the 4 quarters of 2012 has been assumed to decrease by 10% of the revenue for the corresponding quarter of 2011. This is due to the fact that in times of recession the demand for products and services declines which in turn impacts the revenue of the company. 2. Cost of sales for all the 4 quarters of 2012 has been assumed to increase based on cost of sales as a percentage of revenue in the 4 quarters of 2011. It has been assumed to increase because in times of recession since the demand for products goes down, the supply also declines thus increasing the cost of products and services. 3. Selling and administrative expenses for all the 4 quarters of 2012 has been assumed to increase based on average percentage of revenue in the 4 quarters of Assignment 1: Ford Motor Company 5 2011. Selling and administrative expenses has been assumed to increase because in times of recession the company will have to spend more on marketing to sell its products and administrative expenses which are more of a fixed nature will not vary will decrease in revenue. Below are the quarterly financial projections under Recession for all the 4 quarters of 2012: The projected quarterly results are shown at a loss due to the reason that in times Ford Motor Company CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) Q4 2011 Q1 2012 E Q2 2012 E Q3 2012 E Q4 2012 E Total Revenue $34,576,000 $28,341,000 $30,690,000 $33,145,200 $35,465,364 Cost of revenue 29,699,000 25,208,204 27,797,225 30,468,971 33,509,210 Gross Profit 4,877,000 3,132,796 2,892,775 2,676,229 1,956,154 Selling, general and administrative 3,076,000 3,330,825 3,606,895 3,895,447 4,168,128 (5,000) - - - - Total operating expenses 3,071,000 3,330,825 3,606,895 3,895,447 4,168,128 Profit / (Loss) from operations 1,806,000 (198,029) Non Recurring Expenses (714,121) (1,219,218) (2,211,974) of recession the revenue decline but the cost increases and the fixed cost like corporate and management expenses remain at the same level. In Q3 the projected earnings is shown at a profit due to the fall in the selling and administrative expenses in that quarter. This is in line with the 2011 quarters numbers. Assignment 1: Ford Motor Company 6 Quarterly financial projections under Improved Economy Assumptions: 1. Revenue for all the 4 quarters of 2012 has been assumed to increase by 10% of the