Ford Motor Co. has seen a sudden 2% drop in earnings, even
though its revenue has increased by 14% (1). Revenue is the value of what a
firm received for goods sold, services performed, and other additional payments
received. If their revenue escalated by
such a large amount than why is Ford seeing a drop in earnings?
This
question is answered by simple accounting equations such as net income or net
loss. Subtracting the total cost of goods sold and operating expenses from the
total revenue gathered throughout the quarter calculate these losses or gains.
What Ford endured was a sudden increase in the cost for commodities, materials,
warranty and freight costs (1). This cost increased by more than $1 billion in
comparison to the previous quarter (1). Ford Chief Financial Officer Lewis Both
said “the commodity costs caused Ford to lower its estimate for automotive
operating margins to 5.7% from 6.5% for the full year” (1).
To account for this decrease, Ford is also planning on
lowering its capital spending to $4.6 billion down to $5-$5.5 billion (1). Mr.
Booth said that Ford will restore the dividend, which has been gone since 2006,
“as soon as our balance sheet can stand it” (1). Ford will continue to lower
its company’s debt, which sits at $12.7 billion but was once at $33 billion in
2009 and is expecting industry sales to be higher than its previous quarters
this year (1).
Sources
(1)http://online.wsj.com/article/SB10001424052970203687504576654740804146776.html#articleTabs%3Darticle
(Image) http://smallbiztrends.com/wp-content/uploads/2009/09/reduce-boost-graph.jpg
1 comments:
I wonder - what could have caused such an increase in costs within ford that profits could drop significantly despite a massive increase in revenue?
In researching trends for the FSIT assignment, many analysts seemed to predict a difficult financial year for Autos... could this be validation of that prediction?
Post a Comment