The following summarized financial statements for Ford Motor Company were downloaded from Morningstar into an Excel spreadsheet and then reformatted slightly and double checked against the audited financial statements:

Ford Motor Company	2017	2018	2019
in millions
Total Revenue	$ 156,776	$ 160,338	$ 155,900
Cost of Goods and Services	131,322	136,269	134,693
Gross Profit	Single line25,454	Single line24,069	Single line21,207
Subcategory, Operating Expenses	Single line	Single line	Single line
Selling, General and Administrative Expenses	11,527	11,403	11,161
Other Income/Expense, Operating	9,114	9,463	9,472
Total Operating Expenses	Single line20,641	Single line20,866	Single line20,633
Total Operating Profit/Loss	Single line4,813	Single line3,203	Single line574
Subcategory, Non-Operating Income/Expenses, Total
Interest Expense Net of Capitalized Interest	(1,133)	(1,228)	(1,049)
Interest Income	461	700	809
Gain/Loss on Investments and Other Financial Instruments	(22)	115	144
Share of Profit and Interest from Associates	1,208	165	52
Gain/Loss on Extinguishment of Debt	0	0	(55)
Other Income/Expense, Non-Operating	2,821	1,390	(1,115)
Pretax Income	Single line8,148	Single line4,345	Single line(640)
Provision for Income Tax	(520)	(650)	724
Net Income from Continuing Operations	Single line7,628	Single line3,695	Single line84
Non-Controlling/Minority Interests	(26)	(18)	(37)
Net Income after Non-Controlling/Minority Interests	Single line$ 7,602Double line	Single line$ 3,677Double line	Single line$ 47Double line

You can see there is a lot of information here, but just looking at the bottom line without any statistical analysis, we can see that Net Income has been decreasing. In fact, using 2017 as a baseline, we can see that Net Income from Continuing Operations decreased by $3.933 billion from 2017 to 2018, a decrease of 51.56%, and then decreased again from $3.695 billion in 2018 to a measly $84 million in 2019. That’s a decrease of 97.73% from 2018 to 2019, and a decrease of 98.9% from 2017 to 2019.

It’s fairly easy to see that Pretax Income dropped in half (a 50% reduction) from 2017 to 2018 and then by more than 100% from 2018 to 2019 (from $4.345 billion to a loss of $640 million).

Interestingly, if we go look at operating expenses, we see them fairly stable at just under $20 billion for each year. Revenue was declining, but not dramatically (well, I suppose a drop of a billion dollars from 2017 to 2019 could be dramatic if you just look at the nominal drop, but it’s only a drop of 0.56%, which is about half a percent).

We see the cost of goods sold going up slightly, and the combination of declining sales and the increasing cost of goods and services is driving the overall gross profit down, which is affecting operating income. The other significant item that changed between 2018 and 2019 was Other Income/Expense, Non-Operating, which went from an income item of $2.821 billion in 2018 to an expense of $1.115 billion in 2019. Some digging into the disclosure section of Ford’s annual report (specifically Note 5 on page FS-20), along with press releases and other public information, reveals that Ford recalculated it’s defined benefit pension plan costs and, under GAAP, recognized an additional expense of almost $2 billion in 2019 for that line item that was previously showing as an income source (likely due to higher-than-expected market returns).

The point is that a horizontal analysis like this can reveal trends and hot spots that need more research.

Let’s look at the exact same data in a common size format. This is essentially a combination of an intracompany vertical and a horizontal analysis:

Ford Motor Company	2017	2018	2019
Total Revenue	100.00%	100.00%	100.00%
Cost of Goods and Services	83.76%	84.99%	86.40%
Gross Profit	Single line16.24%	Single line15.01%	Single line13.60%
Subcategory, Operating Expenses	Single line	Single line	Single line
Selling, General and Administrative Expenses	7.35%	7.11%	7.16%
Other Income/Expense, Operating	5.77%	5.90%	6.08%
Total Operating Expenses	Single line13.12%	Single line13.01%	Single line13.23%
Total Operating Profit/Loss	Single line3.11%	Single line2.00%	Single line0.37%
Subcategory, Non-Operating Income/Expenses, Total
Interest Expense Net of Capitalized Interest	-0.76%	-0.77%	-0.67%
Interest Income	0.29%	0.44%	0.52%
Gain/Loss on Investments and Other Financial Instruments	-0.01%	0.07%	0.09%
Share of Profit and Interest from Associates	0.77%	0.10%	0.03%
Gain/Loss on Extinguishment of Debt	0.00%	0.00%	-0.04%
Other Income/Expense, Non-Operating	1.80%	0.87%	-0.72%
Pretax Income	Single line5.20%	Single line2.71%	Single line-0.41%
Provision for Income Tax	-0.26%	-0.41%	0.46%
Net Income from Continuing Operations	4.95%	2.30%	0.05%
Non-Controlling/Minority Interests	-0.02%	-0.01%	-0.02%
Net Income after Non-Controlling/Minority Interests	Single line4.93%Double line	Single line2.29%Double line	Single line0.03%Double line

You can see the gross profit percentage declining, as cost of goods sold as a percentage of sales increases:

Ford Motor Company	2017	2018	2019
Total Revenue	100.00%	100.00%	100.00%
Cost of Goods and Services	83.76%	84.99%	86.40%
Gross Profit	16.24%	15.01%	13.60%

For every dollar in sales in 2017, the product cost was about 84 cents, and by 2019 the product cost for every dollar in sales had gone up to 86 cents, driving the margin down to about 14 cents per dollar.

Although operating expenses as a percentage of sales stayed fairly constant, the increased cost of goods sold drove the already thin operating margin down from 3 cents on the dollar to almost zero.

Ford Motor Company	2017	2018	2019
Subcategory, Operating Expenses
Selling, General and Administrative Expenses	7.35%	7.11%	7.16%
Other Income/Expense, Operating	5.77%	5.90%	6.08%
Total Operating Expenses	13.12%	13.01%	13.23%
Total Operating Profit/Loss	3.11%	2.00%	0.37%

Before we look at the balance sheet, note that Ford publishes some of its metrics on the company website:

We could (and should) check these against the audited financials, but since they are easily verified, it’s likely the company is not inflating or deflating any of these measures.

We can see that revenue numbers agree with the income statement we downloaded, but we would have to do more research to find out how the company came up with “adjusted” free cash flow and “adjusted” EBIT (earnings before income tax). There is a footnote on that page that states, “Reconciliations of the non-GAAP financial measures designated as “adjusted” to the most comparable financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) can be found on pages 62 and 63 of Ford’s 2019 printed annual report.

FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)

Description	December 31, 2018	December 31, 2019
Subcategory, ASSETS
Cash and cash equivalents (Note 9)	$     16,718	$     17,504
Marketable securities (Note 9)	17,233	17,147
Ford Credit finance receivables, net (Note 10)	54,353	53,651
Inventories (Note 12)	11,220	10,786
Assets held for sale (Note 10 and Note 24)	—	2,383
Other assets	3,930	3,339
Total current assets	Single line 114,649	Single line 114,047
Ford Credit finance receivables, net (Note 10)	55,544	53,703
Net investment in operating lease (Note 13)	29,119	29,230
Equity in net assets of affiliated companies (Note 15)	2,709	2,519
Deferred income taxes (Note 7)	10,412	11,863
Other assets	7,929	10,706
Total assets	Single line $      256,540Double line	Single line $      258,537Double line

 

Let’s take a look at assets from the annual report:

From this information, we could calculate inventory turnover for 2019:

[latex]\dfrac{\text{Cost of Goods Sold}}{\text{Average Inventory}}=\dfrac{134,693,000,000}{\frac{11,220,000,000 + 10,786,000,000}{2}}[/latex]

It’s easier to drop all of those zeros, so

[latex]\dfrac{134,693}{\frac{22,006}{2}}=\dfrac{134,693}{\frac{11,220+10,786}{2}}=\dfrac{134,693}{11,003}=12.24[/latex]

Inventory turns over 12.24 times per year, or about once a month [latex]\left(\dfrac{365}{12.24}=29.82\text{ days}\right)[/latex].

For comparison, let’s compute the same metric for General Motors (GM) for 2019.

GM’s Cost of Goods Sold = 110,651 million

Average inventory = [latex]\dfrac{10,398 + 9,816}{2}[/latex](in millions)

Therefore, inventory turnover =[latex]\dfrac{110,651}{10,107}= 10.95[/latex]

[latex]\dfrac{365}{10.95}=33.33\text{ days}[/latex]

Based on just this analysis, it would appear that Ford is more efficient at moving inventory than GM, but not by much. In essence, both companies only hold inventory (including work in process) for about a month.

Assuming that most of Ford’s sales are credit, accounts receivable turnover for Ford for 2019 = Net Credit Sales / Average Accounts Receivable = 155,900 / [(11,195 + 9,237)] = 15.26.

Accounts receivable turn over 15.26 times per year, which is once every 24 days (365/15.26).

The same metric for GM for 2019 = 18.39 times, or just about 20 days, so GM is a bit faster at collecting accounts than Ford.

If we add liabilities into the picture, we can calculate working capital and the associated current quick ratios:

FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)

Description	December 31, 2018	December 31, 2019
Subcategory, LIABILITIES
Payables	$     21,520	$     20,673
Other liabilities and deferred revenue (Note 17)	20,556	22,987
Automotive debt payable within one year (Note 20)	2,314	1,445
Other debt payable within one year (Note 20)	—	130
Liabilities held for sale (Note 24)	—	526
Total current liabilities	Single line 95,569	Single line 98,132
Other liabilities and deferred revenue (Note 17)	23,588	25,324
Automotive long-term debt (Note 20)	11,233	13,233
Other long-term debt (Note 20)	600	470
Total liabilities	Single line 220,474	Single line 225,307

 

Working capital at the end of 2019 = current assets – current liabilities:

$114,047 (million) – $98,132 (million) = $15,915 million in working capital, and the current ratio would be 114/98 = 1.16 which means the company had $1.16 in current assets for every dollar in current liabilities. Excluding inventory from the calculation gives us a quick ratio of (114,047 – 10,786) / 98,132 = 1.05, still more than a 1:1 ratio.

The debt to assets ratio would be 225,307/258,537, just slightly less than 1:1. Just looking at the numbers, we see that most of the assets are debt-financed. In fact, using the accounting equation, we would expect shareholders’ equity to be 258,537 (assets) – 225,307 (liabilities) = 33,230.

In fact:

FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)

Description	December 31, 2018	December 31, 2019
Redeenmable noncontrolling interest (Note 23)	100	—
Subcategory, EQUITY
Common Stock, par value $.01 per share (4,011 million shares issued of 6 billion authorized)	40	40
Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)	1	1
Capital in excess of par value of stock	22,006	22,165
Accumulated other comprehensive income.(loss) (Note 25)	(7,366)	(7,728)
Treasury stock	(1,417)	(1,613)
Total equity attributable to Ford Motor Company	Single line 35,932	Single line 33,185
Equity attributable to noncontrolling interests	34	45
Total equity	Single line 35,966	Single line 33,230
Total liabilities and equity	Single line $      256,540Double line	Single line $      258,537Double line

 

Owner’s equity, as predicted, is $33,230 million.

Although we can see there were 4.011 billion shares of stock issued as of December 31, 2019, we can’t calculate Earnings Per Share because we don’t know the shares outstanding. However, if we trust the auditors who have issued an opinion on these statements, we can find the EPS on the bottom of the income statement on the same page and the basis for the calculation in Note 8 on page FS-25 of the annual report, as well as an explanation of Class A and Class B stock.

EARNINGS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (note 8)
Basic income	$     1.94	$     0.93	$     0.01
Diluted income	$     1.93	$     0.92	$     0.01
Weighted-average sahres used in computation of earnings per share
Basic shares	3,975	3,974	3,972
Diluted shares	3,998	3,998	4,004

 

On your own, feel free to explore these financial statements and ratios in more detail. You can calculate and compare debt to equity, return on owners’ equity, return on assets, dividend payout ratio (from the statement of retained earnings on page FS-8), and a host of other ratios. You could also perform a horizontal analysis between Ford and GM, or even between diverse companies such as Ford and Home Depot.

Depending on how deep you want to dive, and how serious you are, there are services for which you pay, like Dun & Bradstreet and Reuters that provide current industry averages. Also, there is information widely available through a brokerage or even sites like finance.yahoo.com that can provide comparative information, such as this:^[1]

Automobile Companies’ Stock Information

Symbol	Name	Price (Intraday)	Change	%Change	Volume	Avg Volume (3 months)	Market Cap	PE Ratio (TTM)
TSLA	Tesla, Inc.	444.10	+10.10	+2.33%	24.053M	76.507M	413.574B	1,149.84
TM	Toyota Motor Corporation	131.88	−0.20	−0.15%	83.504k	168,096	183.432B	8.06
GM	General Motors Company	32.42	+0.26	+0.81%	3.932M	14.13M	46.468B	30.69
HMC	Honda Motor C, Ltd.	24.12	−0.26	−1.07%	312.519k	661.832	41.617B	4.16
RACE	Ferrari N.V.	184.73	+1.89	+1.03%	92.868k	190,260	45.665B	41.19
F	Ford Motor Company	7.68	+0.43	+5.98%	71.759M	62.032M	0.603B	N/A
NIO	NIO Limited	21.67	+0.20	+0.93%	33.483M	108.573M	26.47B	N/A
FCAU	Fiat Chrysler Automobiles N.V.	12.55	+0.06	+0.44%	929.511k	2.422M	25.418B	5.42

Notice that Tesla stock was trading at almost 1150 times earnings, while Toyota and Honda were trading in the single digits. Ford’s P/E ratio is not being calculated because the earnings are too low, but we could take our most current EPS of $0.01 and divide the price of 7.68 by that amount to get a P/E of 768.

In the above analysis presented by Yahoo Finance, you’ll see the P/E ratio is being calculated in real time on a Trailing 12 months (TTM) basis. TTM uses the past 12 consecutive months of a company’s performance data to report financial figures. The 12 months studied do not necessarily coincide with a fiscal-year ending period.

Obviously, there is much more to financial analysis than can be covered in one module, but the information presented here will give you a good start and a basis for educating yourself about what is possible and will make you a better manager and investor.

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