The purpose of balance sheet is basically to tell the readers about the assets of the organization as well as the funding sources that make it possible to acquire these assets such as debt and equity. In other words, the balance sheet shows what the organization owns and owes. The assets of the company equal the sum of the liabilities and shareholders’ equities, thus, subtracting the liabilities from the assets tells one about stockholders’ equity or the ownership stake owner by the investors (Reeves).
As far as Ford’s balance sheet for the fiscal year 2012 is concerned, there was a slight decline in cash reserves from approximately $17.15 million in 2011 to approximately $15.66 million in 2012 but it was accompanied by an increase in marketable securities from approximately $18.62 million in 2011 to approximately $20.28 million in 2012. It appears that the company might have decided to convert some cash to marketable securities which generate some interest income unlike cash. Ford’s finance receivables increased from approximately $69.98 million in 2011 to $71.51 million in 2012 (Ford, 2012) despite the fact that the company’s total revenues actually declined during the same period. This increase in finance receivables might have been an attempt by the company to boost sales in a difficult economic climate.
It is reasonable to assume that fiscal year 2012 might have been more difficult for the company as compared to the fiscal year 2011 as there was also an increase inventories from approximately $5.9 million in 2011 to approximately $7.36 million in 2012. Overall, the company’s asset grew from approximately $178.35 million in 2011 to approximately $190.55 million in 2012 though not all the factors responsible for increase were encouraging such as rising receivables and inventories level (Ford, 2012).
As far as liabilities are concerned, Ford’s accrued liabilities and deferred revenue increased from approximately $45.37 million in 2011 to approximately $49.41 million in 2012 which supports the hypothesis that the company made generous use of promotional tools include credit to customers in order to boost sales in the face of difficult economic climate as well as rising competition intensity. We also observe an increase in debt from approximately $99.49 million in 2011 to approximately $105.06 million in 2012 (Ford, 2012) which may be due to company’s efforts to expand its scale of operations, especially overseas where there is greater growth potential.
In regard to shareholders’ equity, Ford’s retained earnings increased from approximately $12.99 million in 2011 to approximately $18.08 million in 2012 (Ford, 2012) which is a positive sign. One factor that may have contributed towards it may be the company’s conservative dividend policy. The management may have felt the shareholders would be better off if the funds are reinvested in the company. It is also possible the management may be developing insurance by retaining funds for potentially difficult times in the future.
Overall, the balance sheet tells us that 2012 was a relatively difficult year for Ford as opposed to 2011 which might have been due to a number of reasons. One reason may be the economic crisis around the world since Ford has exposure to a great number of markets. Another reason may be rising competition, not only from American and Japanese automobile manufacturers but also Korean and Chinese automobile manufacturers. Not surprisingly, the company used promotional tools such as credit extension to customers more liberally.
- Ford. (2012). Form 10-K. Delaware: Ford Motor Company. Print.
- Reeves, L. (n.d.). The Purpose of a Balance Sheet & Income Statement. Retrieved May 10, 2014. Web.
