Analysis Of Ford Motor Companys Balance Sheet - Assignment Example

BALANCE SHEET- FORD MOTOR COMPANY The balance sheet, currently known as a ment of financial position, refers to a financial statement that indicates the worth of business at one point in time. It shows the financial position of an enterprise at a specific moment usually at the end of the month, quarter or year (Ittelson, 2009).  Statement of the financial situation often sums up the obligations (short term liabilities, debts and other long-term liabilities), economic resources (assets) and the owners’ capital at a specified point of time.

Assets refer to things that have value, for instance, cash n hand and at bank, equipment, or real estate. Liabilities are money a business owes others, for instance, debts to suppliers, bank loans, accrued payroll and taxes and mortgage on the property. Equity refers to the difference between total assets and total liabilities (Fridson et al 2011). Purpose of the balance sheet The main purpose behind the preparation of financial statements is to allow major decision makers to assess the present condition of the company and make changes as needed.

Balance sheet, therefore, gives users an idea of the companys financial position along with presenting what the company owes and owns. It also indicates how the economic resources contribute by shareholders and lenders are used in the business. It helps investors to determine the financial standing of a company (Fridson et al 2011). . Creditors and banks use the balance sheet to make decisions on loans to be extended to the company. Also, stock investors use statement of financial position to uncover whether the business represents a good investment.

Balance sheet indicates trouble areas for the company such as back taxes owed or chronic late payment fees for bills (Peterson & Fabozzi, 2012).  How it reflects the company’s financial status Statement of financial position often sums up the liabilities, assets and the owners’ capital as a specified point of time. Analysis and review of the balance sheet shows the current financial health of a company. Subtracting total liabilities from total assets results into stockholders’ equity, this is the net worth of the company.

Balance sheet, therefore, shows the value of the company (Ittelson, 2009). Analysis of Ford Motor Company’s balance sheet from its 2012 Annual Report There are several calculations that are performed to provide a better understanding of the company. Such ratios are leverage and liquidity rations, for instance, current ratio, quick ratio, working capital ratio and debt/worth ratio. Ford Motors company had a total assets value of $ 190,554, 000,000, total liabilities value of $ 174,243,000, 000, this results into a net worth of $16, 311, 000, 000 (190,554,000,000-174,243,000,000).

Current ratio It measures the financial strength of Ford Motors Company. Current is arrived at by dividing current assets by current liabilities. Current ratio= 125174/19308= 6.48. Ford Motors has a high current ratio implying that it is able to meet its near-term obligations with lots of ease. However, such a high ratio implies that the cash is not being used in an optimal way. Quick ratio Quick ratio measures the liquidity of the company. Quick ratio= 125174-7362)/19308= 6.05 Ford Motors Company has a high quick ratio indicating that its most liquid assets are high enough to meet its short-term liabilities.

This indicates the company might be under-leveraged implying that it is paying its bills too slowly, collecting its receivables quickly, or growing its sales with lots of ease. Debt/worth ratio This ratio indicates solvency of the company ((Fridson et al 2011). Debt/worth ratio= total liabilities/net worth 174243/15989= 10.90 A high debt/worth ratio implies that Ford Motors Company depends heavily on debt financing (borrowings. It has more debts than equity. References Ittelson, T. R. (2009).

 Financial statements: A step-by-step guide to understanding and creating financial reports. Franklin Lakes, NJ: Career Press. Fridson, M. S., Alvarez, F., & FinancePro. (2011). Financial statement analysis: A practitioners guide, fourth edition. Hoboken, N.J: John Wiley & Sons. Peterson, D. P., & Fabozzi, F. J. (2012). Analysis of financial statements.