Started in 1903, Ford designs, manufactures, markets, finances, and services Ford cars, trucks, SUVs, and electri vehicles, as well as Lincoln luxury vehicles.
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|Book value of equity per share||$9.20||9.9%||12.1%||—|
|BV including aggregate dividends||18.6%||19.2%||—|
|1 year||5 years||10 years|
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|1 year||5 years||10 years|
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
During the second quarter of 1998, the company completed a spin-off of Ford's 80.7% (279.5 million shares) interest in the Associates First Capital Corporation. As a result of the spin-off of The Associates, Ford recorded a gain of $15,955 million in the first quarter of 1998 based on the fair value of The Associates as of the record date, March 12, 1998. The spin-off qualified as a tax-free transaction for U.S. federal income tax purposes.
On June 28, 2000, Ford distributed 130 million shares of Visteon Corporation ("Visteon"), which represented its 100% ownership interest, by means of a tax-free spin-off in the form of a dividend on Ford Common and Class B Stock. Holders of Ford Common and Class B Stock on the record date received 0.130933 shares of Visteon common stock for each share of Ford stock, and participants in U.S. employee savings plans on the record date received $1.72 in cash per share of Ford stock, based on the volume-weighted average price of Visteon stock of $13.1326 per share on June 28, 2000. The total value of the distribution (including the $365 million cash dividend) was $2.1 billion, or $1.72 per diluted share of Ford stock. As a result of the spin-off of Visteon, Ford recorded an after-tax loss of $2.3 billion in the second quarter of 2000. This loss represents the excess of the carrying value of Ford's net investment in Visteon over the market value of Visteon on the distribution date.
On August 7, 2000, we announced the final results of our recapitalization, known as our Value Enhancement Plan ("VEP"), which became effective on August 2, 2000. Under the VEP, Ford shareholders exchanged each of their old Ford common or Class B shares for one new Ford common or Class B share, as the case may be, plus, at their election, either $20 in cash, 0.748 additional new Ford common shares, or a combination of $5.17 in cash and 0.555 additional new Ford common shares. As a result of the elections made by shareholders under the VEP, the total cash elected was $5.7 billion and the total number of new Ford common and Class B shares issued and becoming outstanding was 1.893 billion.
In March 2001, through a tender offer and a merger transaction, Ford acquired (for a total price of $735 million) the common stock of Hertz that it did not own, which represented about 18% of the economic interest in Hertz.
In 2004, management committed to sell our Formula One racing operations, as these operations were not consistent with our Premier Automotive Group (PAG) Improvement Plan nor our goals to build on the basics and focus on our core business. We recorded a pre-tax charge of $69 million related to the anticipated loss on the sale of the net assets and a pre-tax impairment of goodwill of $204 million. We reclassified $45 million of pre-tax operating losses for the first nine months of 2004 and recorded a pre-tax charge of $23 million related to the write-down of inventory to Operating income/(loss) from discontinued operations. During the fourth quarter of 2004, we completed the sale of our Formula One racing operations and recorded additional pre-tax losses of $8 million.
On August 3, 2007, we completed a conversion offer related to the outstanding 6.50% Cumulative Convertible Trust Preferred Securities, with an aggregate liquidation preference of $5.0 billion (the "Trust Preferred Securities") of Ford Motor Company Capital Trust II. Each Trust Preferred Security is convertible into 2.8249 shares of Ford Common Stock pursuant to the conversion terms applicable to Trust Preferred Securities. In July 2007, we offered to holders of Trust Preferred Securities a conversion premium in the form of 1.7468 additional shares of Ford Common Stock per Trust Preferred Security converted pursuant to this offer. As a result of this offer, which expired on July 31, 2007, 42,543,071 Trust Preferred Securities with an aggregate liquidation preference of $2.1 billion were converted into an aggregate 194,494,157 shares of Ford Common Stock. We will record a one-time pre-tax expense in the third quarter of 2007 equal to $632 million (i.e., 74,314,236 premium shares issued multiplied by $8.51, which was the closing trading price per share of Ford Common Stock on July 31, 2007 on the New York Stock Exchange). The after-tax impact on net income of this conversion is estimated to be $258 million. As a result of this conversion offer, we will no longer incur annual pre-tax interest expense of $138 million related to the Trust Preferred Securities that were converted, and our total stockholders' equity will increase by $2.1 billion.
Pursuant to an exchange offer we conducted, on the settlement date of April 8, 2009, $4.3 billion principal amount of Convertible Notes was exchanged for an aggregate of 468 million shares of Ford Common Stock, $344 million in cash ($80 in cash per $1,000 principal amount of Convertible Notes exchanged) and the applicable accrued and unpaid interest on such Convertible Notes. Upon settlement, $579 million aggregate principal amount of Convertible Notes remains outstanding with a carrying value of $391 million. As a result of the conversion, we estimate that we will record a pre-tax gain of approximately $1.2 billion to Automotive interest income and other non-operating income/(expense), net in the second quarter 2009 financial statements.
On May 18, 2009, we issued 345 million shares of Ford Common Stock pursuant to a public offering at a price of $4.75 per share, resulting in total gross proceeds of about $1.6 billion.
On October 26, 2010, we launched conversion offers ("Conversion Offers") pursuant to which we offered to pay a premium in cash to induce the holders of any and all of our outstanding 4.25% Senior Convertible Notes due December 15, 2036 (the "2036 Convertible Notes") and any and all of our outstanding 4.25% Senior Convertible Notes due November 15, 2016 ("2016 Convertible Notes" and, together with the 2036 Convertible Notes, "Convertible Notes") to convert their Convertible Notes into shares of Ford Common Stock. The Conversion Offers expired at midnight on November 23, 2010 and settled on November 30, 2010. Under the Conversion Offers, each $1,000 principal amount of the 2036 Convertible Notes validly tendered and not withdrawn was exchanged for 108.6957 shares of Common Stock and $190 in cash and each $1,000 principal amount of the 2016 Convertible Notes validly tendered and not withdrawn was exchanged for 107.5269 shares of Common Stock and $215 in cash, plus in each case accrued and unpaid interest. The Conversion Offers resulted in $554 million and $1.992 billion aggregate principal amount of 2036 Convertible Notes and 2016 Convertible Notes, respectively, being tendered and accepted for exchange. As a result, we issued 274,385,596 shares of Common Stock and paid $548 million in premiums and accrued interest to settle the Conversion Offers. These shares have been reflected in our fully diluted earnings p er share calculation since January 1, 2010 and, therefore, do not impact our diluted earnings per share. After settlement, about $25 million and $883 million aggregate principal amount of the 2036 Convertible Notes and 2016 Convertible Notes, respectively, remain outstanding.
On December 4, 2009, we entered into an equity distribution agreement with certain broker-dealers pursuant to which we would offer and sell shares of Ford Common Stock from time to time for an aggregate offering price of up to $1 billion. Sales under this agreement were completed in September 2010. Since inception, under this agreement we issued 85.8 million shares of Common Stock for an aggregate price of $1 billion, with 75.9 million shares of Common Stock for an aggregate price of $903 million being issued in 2010.