Stern Value Mangement Interview Vasishta Atmuri Presentation

Topics: Ford Motor Company, Capital structure, Discounted cash flow Pages: 10 (1975 words) Published: February 2, 2015
Ford Motor Company
Valuation Business Case
Stern Value Management Interview

Vasishta Atmuri
December 5, 2014

Ford Motor Co. Analysis| Stern Value Management Interview

Introduction

Ford Motor Co. manufactures and sells cars and is the sixth-largest car maker

Stock Price in $

20

1000000000
800000000
600000000
400000000
200000000
0

15
10
5

FINANCIAL HIGHLIGHTS
Ticker

F

Date, as of

12/03/2014

Stock Price

$16.01

P/E

10.47x

Market Cap (mm)

$61,617

Dividend Yield
Ford Motor Co. (NYSE:F) - Volume
Ford Motor Co. (NYSE:F) - Share Pricing
Ford Motor Co. (NYSE:F) - Share Pricing (Announced/Completed Transactions)

Shares Out. (mm)

3.1%
3,848

RECENT NEWS
MANAGEMENT
Ford, William Clay

Executive Chairman, Chairman of Finance
Committee

Fields, Mark
Shanks, Robert L.

Chief Executive Officer, President and Director
Chief Financial Officer and Executive Vice
President

Rowley, Stuart J.

Chief Accounting Officer, Vice President and
Controller

Ford Motor Co. Analysis| Stern Value Management Interview

• Ford is the top seller in Canada as car
sales rose 4% in November; Yearly sales
of 269K
• Car prices rise in November with Ford’s
average car price increasing +2.6% to
$35,832; foreign makers such as Honda
and Volkswagen saw a reverse trend
• Decline in oil prices result in stock
price increases for automobile
manufacturers
• Like all manufacturers, Ford is plagued
by recalls of models such as Lincoln
and Ford Crossovers

Financial Performance: Indicators

Sales and profitability metrics indicate declining performance Revenue, Gross Margin and Net Income Margin
150000

25%

145000
Revenue in $billion10.2%
140000
135000

16.0%

13.9%
6.4%

5.1%

2.3%

13.3%

12.9%

12.3%

4.2%

4.9%

4.2%

15%

Growth rate and Margins

5%

130000
-5%

125000
120000

-15%

115000
110000

Dec-31-2009A
Total Revenue

Dec-31-2010A

Dec-31-2011A

Growth Over Prior Year

Return

Gross Margin

Dec-31-2013A

Sep-30-2014A

-25%

Net Income Margin

OBSERVATIONS

Return on Assets, Return on Capital
6%
5%
4%
3%
2%
1%
0%
2009A
(1%)

Dec-31-2012A

• Unexpected sales growth combined with declining
gross and net income margins indicate poor
performance; 2010 and 2013 have seen an increase in
sales but margins have consistently declined

2010A

2011A

Return on Assets %

2012A

2013A

2014A

Return on Capital %

Ford Motor Co. Analysis| Stern Value Management Interview

• Return on Assets and Return on Capital metrics confirm
declining returns trend; current levels at 1.2% and
1.8% respectively
• Stock prices follow trends in sales rather than trends in margins

Financial Performance: Factors

Stable capital structure but sales credit sales and capital expenditures are of concern SOLVENCY RATIOS

SHORT TERM LIQUIDITY RATIOS

ASSET TURNOVER RATIOS

2.1x

70x

120%

1.8x

60x

100%

50x

1.5x

40x

1.2x

30x

0.9x

20x

0.6x

40%

10x

0.3x

20%

0x
2009A

2010A

2011A

2012A

2013A

2014A

0.0x
2009A

80%
60%

2010A

2011A

2012A

Total Asset Turnover

Current Ratio

Fixed Asset Turnover

Quick Ratio

Accounts Receivable Turnover

2014A

Operating Cash Flow
Ratio

Inventory Turnover

• Total Asset turnover remained
fairly constant while Fixed
Asset turnover declined over
last few years indicating
deteriorating sales and more
capital expenditures
• Drastic decline in Accounts
Receivable turnover indicates
loosened credit policy
• Decline in Inventory turnover
is indicative of poor sales

2013A

• Both current and quick ratios
indicate sufficient short
term liquidity to cover
current liabilities
• Decline in 2014 of these
ratios might be of concern
and needs to be watched for
future decline
• Operating cash flow ratio is
low (~0.1x to 0.2x)...
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