Free Essay: Financial Engineering to Enhance Shareholders' Value

Published: 2022-11-04 21:41:25
Free Essay: Financial Engineering to Enhance Shareholders' Value
Type of paper:  Report
Categories: Automotive industry Financial management
Pages: 3
Wordcount: 706 words
6 min read
143 views

With the current technological advancement and general globalization, it has with time become fashionable to blame the pursuit of shareholder value for any growing company. Investors and managers are now obsessed with the failure of investing in the long term and the next quarter's result. Some of the strategies that can be used to increase shareholder value include merge/acquisitions, capital expenditure, dividend policy, stock repurchases, reduction of debt, bringing out new products and general expansion into a new market. In this case, all the financial engineering mentioned will be applied for Ford Company. Ford is recognized as a multinational company with the headquarter based in Dearborn, Michigan. The product line for the firm is commercial vehicles which are under the brand of Ford. The firm also sells luxurious cars having a brand of Lincoln. The multinational firms also own the SUV vehicles with operations in Brazil, Toilers and the Australian performance manufacturers. The company has in the recent past produced automotive components and tractors. In managing the company operation, it is important to note that Ford impacts the stakeholder groups through its business activities. On the other hand, the stakeholders are important because since they have a great impact on the company through their sociopolitical pressure and their purchases.

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Capital expenditure

Capital expenditure involves the money ford is spending on maintaining or acquiring fixed assets for example equipment, buildings, and land. In increasing stakeholders value, it is important to note that Ford company. Looking at the capital expenditure, what comes out clearly is that Ford Company has achieved an average capital expenditure which is doubling of 149.68%. However, Ford can still improve the capital expenditure by reducing the capital spent in inventory and directing the funds in the production section. From the shareholders' perspective, a high current ratio could mean that the company has a lot of money tied up in non-productive assets, such as excess cash or marketable securities. The high value can also be an indication that there are large inventory holdings, which might become obsolete before the company decides to dispose of them. Thus, shareholders might not want a high current ratio.

Merger/Acquisition

Merges/acquisition involves the consolidation of assets or companies and it can include various numbers of different transactions such as acquisition, merges, tenders, consolidation, and management acquisition. Considering the general performance of Ford, it is important to note that Ford has records a quick ratio of 1.08 which is higher than the industry 1.04. Ford has strengths to meet its short-term debts. However not very strong the value recorded by ford is enough to enable the firm to hold on to the turbulent times of liquidity. Hence without other income or sales, Ford will end up risking of liquidation in order to pay off the existing current liability. On the other hand in the case of GM, GM has weakness in meeting its short-term debt. The risk of a lower quick ratio for GM is that GM does not have enough assets to cover its short-term liability. GM has a lower current ratio of 0.94 than ford's 1.19. Both companies' current ratio is lower than industries. Lower current ratio means Ford and GM have done a better job to utilize their current asset. Considering the general performance in future, GM and Ford can merge so as to boost their marketing strategy and to push funds together for general development.

Stock Repurchases

It is important to note that stock repurchase involves the repurchasing of stock and shares by the company that issued them. Ford company can handle this by they handle the whole process by issuing Fords company paying their shareholders market per value and reabsorbing the portion of its ownership. From the general stock performance, the assumption is that Ford, we assume that Ford will have a negative growth rate for the next year, which is the g used for the first stage. However, the next five years growth rate is positive, coming to the assumption that Ford will endure a drop and have a constant growth of 10.7% after the drop. rs=15.99%.Ford company can handle this by they handle the whole process by issuing Fords company paying their shareholders market per value and reabsorbing the portion of its ownership

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