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PAULA CASINI

PAULA CASINI. AGENDA. Industry Background Ford Motor Company Reformulated Financial Statements Accounting Adjustments Forecasts Cost of Capital Valuation Models: DCF, REI, AGR Buy/Hold/Sell Recommendation. Auto Manufacturers - Major. Automotive Industry. Recent Performance.

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PAULA CASINI

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  1. PAULA CASINI
  2. AGENDA Industry Background Ford Motor Company Reformulated Financial Statements Accounting Adjustments Forecasts Cost of Capital Valuation Models: DCF, REI, AGR Buy/Hold/Sell Recommendation
  3. Auto Manufacturers - Major
  4. Automotive Industry Recent Performance Past five years extremely volatile Lingering effects from the financial crisis US market is recovering Strong growth in China
  5. Automotive Industry FutureGrowth Expected growth in emerging markets US, Japan, South Korea are expected to be stagnant Revenue is forecasted to grow 2.5% annual -> $2.5 trillion in revenue by 2018 worldwide
  6. Automotive Industry
  7. Automotive Industry Four Key Challenges will Shape the Industry 1. Complexity and Cost Pressure: more platform sharing and modular systems, regulatory pressures, established markets expected to be flat 2. Diverging Markets: regional supply and demand is changing, which impacts supply chains and product portfolios  growth opportunity 3. Digital Demands: customers want connectivity, increasingly using digital sources in making purchase decisions 4. Shifting Industry Landscape: changing technologies, innovative safety solutions, restructuring in Europe, emerging competition in China
  8. Ford Motor Company Company Overview Founded in 1903 in Dearborn, Michigan Today: 164,000 employees & 69 plants Brand name vehicles are the Ford and Lincoln Financial performance has struggled lately due to the financial crisis Did not file for bankruptcy during the financial crisis Recovered slightly in 2013 Global market share in 2013 = 5.6%
  9. Ford Motor Company Company Structure Automotive Sector – sale of vehicles, service parts and accessories Ford North America Ford Europe Ford Asia Pacific Africa Ford South America Financial Services Sector Ford Motor Credit Company – vehicle related financing, leasing and insurance Other Financial Services – holding companies and real estate
  10. Ford Motor Company STRENGTHS WEAKNESSES OPPORTUNITIES THREATS Positive attitude toward ‘green’ vehicles Increasing fuel prices New emission standards Growth through acquisitions Decreasing fuel prices Rising raw material prices Intense competition Fluctuating exchange rates Strong position in US market ECOnetic initiative Sound financial performance ‘One Ford’ approach Significant growth in China Poor environmental record High cost structure Unprofitable Europe operations
  11. Mark Fields is expected to be named the new CEO
  12. Computation of Net Enterprise Assets
  13. Computation of Net Financial Liabilities
  14. Computation of Enterprise Profit After Tax
  15. Computation of Financing Expense After Tax
  16. Accounting methods did not significantly impact the valuation $64 million in pensions not on the balance sheet 0.03% of balance sheet 20% of inventory is valued based on LIFO Inventory is less than 4% of total assets and change in NEA and EPAT is less than 1% Small amount of operating leases Impact on NEA, NFL and EPAT about 1% Change in NFL & EPAT due to stock compensation less than 1%
  17. Forecasts Industry Factors Recovering from recession Stagnant established markets Growth comes from China and emerging markets Company Specific Factors One Ford Plan 2013 was a good year Launching 23 all-new or significantly revamped vehicles this year
  18. Forecasts
  19. Cost of Debt RNFL = 2.36% Bloomberg = 2.00% Long Term Interest Rate = 4.00% Cost of Equity Beta = 1.5 Risk Free Rate = 3.52% Market Risk Premium = 5.00%
  20. Beta Estimates Beta used for WACC = 1.5 Mean Beta from other sources = 2.00 Beta Range from other sources = 0.73 to 2.6 Bloomberg Raw Beta = 1.241 Beta Confidence Interval from Regression - 1.19 to 3.29
  21. Weighted Average Cost of Capital Cost of Debt = 4% Cost of Equity = 11.2% Value of Debt = $77,710 Value of Equity = $62,961 WACC = 7.22%
  22. Discounted Cash Flow
  23. Residual Enterprise Income Growth
  24. Abnormal Enterprise Income Growth
  25. Buy/Hold/Sell Recommendation Current Market Cap = $63,515 Mid Year Adjustment increases value to $86,554 BUY
  26. QUESTIONS?
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