Question

Consider Ford Motor Company’s statement that appeared in its 2010 Annual Report:

The company’s four-point plan consists of: balancing our cost structure with our revenue and market share; accelerating development of new vehicles that customers want and value; financing our plan and rebuilding our balance sheet; and working together to leverage our resources around the world.

What are the implications of this strategy for financial management of Ford?

Answer 1

Let's take the 4pt plan and try to see the financial implications:

1) balancing our cost structure with our revenue and market share - this means more focus on cost control as the company may not want to gain market share at the expense of profitability; so higher gross margins than before could be the focus

2)accelerating development of new vehicles that customers want and value - this could mean more spend on market research (to find out requirements of new vehicles), more R&D spend and more CAPEX (for building assembly lines that can produce new vehicles)

3)financing our plan and rebuilding our balance sheet - probably implies more debt to be taken on the books to fund the CAPEX investments (see above); due to higher debt and CAPEX, the company may decide to reinvest all or most of their income and hence dividends may fall

4) working together to leverage our resources around the world - resources could mean manufacturing plant or backend offices across the globe that can be utilized to push towards the above 3 strategical points