Introduction
Ford Motor Company is the fourth largest car and truck manufacturer in the world in terms of sales. Although the firm has had financial difficulties in the past, the management has implemented various strategies to ensure that the company stays afloat in the current difficult economic environment.
Ford aims to resume profitability by the end of 2009 despite the loss of $14.6 billion suffered in 2008. In response to the increase in demand for vehicles, Ford plans to increase the volume of the units produced in the third and fourth quarters of 2009. In comparison to 2008, there is an increase in manufactured units of 15% in the third quarter and 33% in the fourth quarter. The focus is on manufacturing fuel-efficient vehicles which are more attractive to the consumer in today’s market. Ford’s sustainability report emphasizes community and environmental issues. This includes the conservation of natural resources and philanthropy. Financial planning will support the above objectives by ensuring that funds and resources are distributed appropriately and control measures are taken.
The financial loss
In 2008, the Ford Motor Company had total revenue that amounted to $146.2 billion and a gross profit of $9.4 billion. However, the operating expenses of $23.3 billion resulted in a net loss of $14.6 billion. This was about seven times the loss made the previous year. 2007 was a better year with total revenue of $172.4 billion and a gross profit of $18.9billion. The net loss was 2.7 billion.
General Motors
One of the main competitors of Ford is General Motors. In 2008, General motors had revenue of $148.9 billion and a gross loss of $1.6 billion. The net loss was $53.3 billion. The revenue in 2007 was 181.1 billion while the gross profit was 14.8 billion and the net loss was 68.4 billion. From the above, Ford Motor Company’s financial performance is better than that of General Motors. In both 2007 and 2008, Ford Motor Company performed better than General Motors. This is in terms of revenue and net income.
The financial performance
The profit and loss and the revenue and expenditure accounts are primarily used to show the profit or surplus that a company has at the end of a financial period. The gross profit is the excess of the sales over the cost of goods sold and the net profit is the excess of gross profit over expenses. The balance sheet is used to show the financial position of a business in terms of assets, liabilities, and capital. Assets are on the debit side while liabilities and capital are on the credit side of the balance sheet. The financial information from the balance sheet and profit and loss account is used to verify the financial performance of Ford.
Costing is essential for the classification and appropriate allocation of costs to determine the cost of products by a firm. It involves establishing flexible and fixed budgets and standards. This information is used by management for planning and decision-making. A cost unit is the unit of production about which costs can be ascertained. A cost center is a location of an item or equipment or is a collection place for certain costs. Direct costs can be traced back to the product that is being analyzed. This includes direct material costs, direct labor costs, and other direct costs. Costing is very important to ascertain the financial performance of a company.
Conclusion
Investors should invest in Ford’s shares because it performs better than other companies in the industry such as General Motors. The shares are likely to increase in value in the future thus investors will enjoy capital gains.