SEC 10K Analysis of Ford Motor Company
Introduction
A SEC (Securities &Exchange Commission) analysis of companies is done to provide information that is useful to investors. It contains details about a firm’s industry, the company itself and its impact on the industry. Companies may perform SEC analysis through a 10-K form which is filled annually and contains annual financial statements of a company. According to the 2015 annual report for Ford Company, it is clear that it is on a road to success in the automotive industry.
Facts on Ford Motor Company
Ford Motor Company is an international auto company established in 1919 in Delaware. The company has 67 plants all over the world with close to 199,000 employees. Ford primarily deals in designing, marketing, manufacturing and servicing of Ford trucks ranging from trucks, cars, SUVs and many others. The company also offers services such as leasing of vehicles, maintenance, and automotive finance. Henry Ford was the founder of the company back when it had its headquarters in Michigan. In the beginning of the 21st century, Ford Motor Company was so close to bankruptcy, but it made efforts that have since seen the company make itself huge profits. For instance, in 2015 alone, the company made sales of over 6,635,000 vehicles all over the world at wholesale. It has its operations in Northern and Southern America, Middle East Europe, Africa and Asian Pacific.
Just as its aims on improving quality and establishing customer satisfaction, the year 2014 saw the Ford Company introduce 23 new vehicles globally. It served the largest market share in the United States in 2013, with the F-Series being the popular, high-selling car in the United States in a row for 32 years. Its nameplate Ford Focus was the most-selling nameplate in globally. Positioned in a global marketplace Ford Company has the newest car portfolio and a pledge to deliver constant improvement in fuel costs as it goes green (Motor, 2015)
Issues Affecting the Automotive Industry
The 2015 annual report for Ford Company showed that the automotive sector as a whole is affected by many factors such as adverse economic conditions which are out of their control. Since vehicles are durable goods, customers determine when and whether they need to replace them. A customer’s decision on whether to purchase a vehicle or not is profoundly affected by the slow economic growth, cost of purchasing and maintaining a car, geopolitical events and may other factors. Nevertheless, the automotive sector is very competitive with a growing variety of products being offered by different manufacturers. The industry is also made up of a competitive pricing environment caused by excess capacity in the industry with largely concentrated areas being Europe and Asia. The weakening of the yen value over the last four years has likewise resulted in competitive pressures. Therefore, in order to maintain market shares and high levels of production, manufacturers have given discounts and other forms of incentives to customers (Company, 2015)
Financial Information
For the case of Ford Motor Company, they delivered good results in the year 2015. Their total net income for 2015 was $7.4 billion which was an increase of $6.1 billion from 2014. On the other hand, the total revenue for 2015 was $149.5 billion. Ford Company generates its revenue through the sale of whole cars, their parts, and other additional accessories. Revenue is recorded only after the rewards and risks of possession are shifted to the brokers and suppliers. For the case of vehicles sold at auction, the proceeds made are recognized as revenue the time the sale is made.
The Financial Services sector which is Ford credit generates its revenue from interest on financial receivables. Once Ford Credit originates the wholesale receivable that is connected to buying of a vehicle by a broker, it reimburses cash to a deserving authorized entity in the automotive sector of Ford Company. After the dealer trades the car to a retail client, he pays the wholesale finance receivable to Ford Credit. Revenue in this area is also generated from net deferred origination costs that are inclusive in the decrease in financing income, and that income is acknowledged over the receivable term via the interest method (Company, 2015)
When it comes to the total equity, Ford Company had total equity of $28.7 billion in 2015. This was an increase of $4.2 billion from the previous year which was very impressive. The increase in equity reflected the positive deviations in retained earnings of $5 billion which were related to the whole year of 2015 net income belonging to Ford, which was $7.4 billion. The increase in total equity also reflected the fortunate changes in Capital in excess per value of stock linked to compensational equity issuance of $332 million.
The pre-tax profit results for the automotive sector improved by $3.3 billion as compared to 2014. This progress was encouraged by $7.4 billion of advantageous market features that reflected the victory of the launch of Ford’s new products, their Asia Pacific development approach and the industry growth in Europe and North America. In North America, Ford Motor Company brought top-line development with its operating margin at 10.2% and a pre-tax profit of $ 9.3 billion. The high pre-tax profit was driven by higher net pricing compared to the previous year as well as suitable volume and mix. However, there were partial offsets such as high costs (a one-time ratification bonus) and unfavorable exchange (Company, 2015)
Competitive Environment
The world of automotive industry is growing, with no dominant producer accounts on sales by car manufacturers is highly based on their place of origin. Each car manufacturer earns a high sale percentage within the country source. Major players on a global scale include General Motors Company, Fiat Chrysler Automobiles, Honda Motor Company, and Hyundai-Kia Automotive Group. Besides, there is also Suzuki Motor Company and Toyota Motor Company just to name a few. Ford is on a competitive environment, receiving about 6% market share of the total revenue of around $2.3 trillion within the Automotive Industry. It also projects growth in its carriage services which includes mass transit, taxis, and rides sharing. The services total up to $ 5.4 trillion in revenue on an annual basis.
To bridge the gap in the competitive environment, Ford Company is investing, innovating and leading in being an automotive company. The move saw Ford Company launch 16 new brand cars worldwide in 2015. Through the adamant investment in today’s business, the company can restructure sections that are non-profit making and irrelevant to the future of the company. It has also enabled them to pursue emerging opportunities within the industry. Through the Ford Smart Mobility, the company plans to be a leader in connectivity, mobility, autonomous vehicle, the customer experience and data and analysis. Among the highlights is the SYNC Connect, which allows customers to lock, unlock, start and locate their cars via their smartphones (Company, 2015).
Corporate Social Responsibility
Ford Motor Company recognizes investing in surrounding communities as smart business. They work to build partnerships with communities in order to help address difficult challenges that people face in their lives. Ford’s corporate social responsibility is aligned with the company’s goals and their One Ford plan. The company’s goal is to connect with their neighboring communities more closely by engaging in projects that advocate for things such as human rights, driving safety and access to clean water. They also help communities get their basic needs, support development programs, improve education opportunities and assist in disaster response. All these help in the achievement of the key objective of One Ford, which is to build a better world (Ford, 2014)
As Ford’s business expands globally, the company also expands community investments and volunteering work. The company invests in communities through corporate charities, their community investment arm known as the Ford Fund and through the Ford Volunteer Corps. The company’s efforts to strengthen communities is depicted on their strategies to alleviate hunger and poverty. It also focuses on improving infrastructure, supporting the elderly and disabled in society as well as other marginalized populations.
Taxation
Ford Motor income tax expense for the year 2015 was an increase from the previous year. The component of income tax expense that represents income taxes paid as per the enacted taxation laws (current) increased from $365 million in 2014 to $664 million. On the other hand, the other element of income tax expenses known as deferred also rose from $791 million in 2014 to $2,217 million in 2015. The provision for income taxes by December 2015 was at$2,881 which was also an increase from the previous year.
The effective tax rate, which is a ratio calculated by division of the reported income tax expense for continuing operations by GAAP-basis pre-tax income from continuing operations, reported a slight decrease. In 2014, the effective tax rate was at 37.70% but dropped to 28.10% in 2015.For the case of gross deferred tax assets, Ford reported a significant decrease of $21,724 million from $21,790 in 2014. There was also a decrease in net deferred tax assets from $20,186 million in 2014 to $19,893 million in 2015.
Audit Issues
Ford Motor Company just like any other company is subjected to audits for their financial statements which was done by PricewaterhouseCoopers. Upon completion of the audit, it was confirmed that Ford’s financial position as at December 2015 was correctly and fairly presented. It was also confirmed that the results of their operations and the cash flows for the ended year were in accordance with the GAAP in the United States. However, there was an issue regarding an alteration of the accounting principle for recognition of retirement income and other employee benefits. According to PricewaterhouseCoopers, the selection of one accounting method over another fro employee benefits had not been addressed in any accounting literature. However, after reading the reasons for the change in accounting principle provided by the management, the change was accepted. The auditing company also made it clear that they were not responsible for reviewing and auditing of income statements, equity and cash flows for the year ended December 31st, 2013 and was therefore not in a position to provide any assurance on those statements (Company, 2015)
References
Company, F. M. (2015). Form 10K. United States Securities and Exchange Commission.
Ford. (2014, December 30). Ford’s community Projects around the World. Retrieved from Ford Motor Company Website: http://corporate.ford.com/microsites/sustainability-report-2014-15/communities-projects.html
Motor, C. F. (2015, December 31). Ford. Retrieved from Ford Motor Company Web site: http://corporate.ford.com/company.html
