Ford Motor Cash On Hand And Cash Flow Analysis

Ford River Rouge Complex, Dearborn, MI. Image source: Flickr

Cash is the lifeline of a business.

It is no exception for Ford Motor (NYSE: F), an automaker that specializes in the design and manufacture of cars, trucks, and SUVs.

Cash is even more critical for Ford Motor because the company runs a capital-intensive operation and returns a large amount of cash to shareholders in the forms of dividends and stock buybacks.

Ford spends tonnes of cash on factories, equipment, offices, warehouses, and workers every quarter.

At the same time, the company also generates a massive amount of operating and free cash flow.

Ford’s operating cash flow can come in at tens of billions of dollars while free cash flow is in the billions.

Ford produced an even higher operating cash flow during the COVID-19 crisis, illustrating how incredible the company is in generating cash flow.

Therefore, it is an understatement to say that Ford is a cash cow.

In this article, we are covering several of Ford’s cash metrics, which include cash on hand, operating cash flow, free cash flow, and net cash from financing activities to see how the company’s cash positions have changed over the years.

Cash On Hand

Ford Motor’s cash on hand

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Ford’s cash on hand presented in the chart above consists of cash and cash equivalents, restricted cash, and marketable securities.

Liquid assets such as cash and cash equivalents can be deployed instantly while marketable securities are available for deployment within a year.

Ford’s cash on hand looks rather stable over the years and stays between $30 billion and $40 billion in most quarters.

However, in fiscal 2020, Ford’s cash on hand temporarily soared beyond $40 billion and even exceeded $50 billion in 2Q 2020, most likely driven by the COVID-19 disruption during the onset of the pandemic.

In subsequent quarters, Ford’s cash on hand fell to its pre-COVID levels, which was roughly $40 billion.

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Cash On Hand Breakdown

Ford Motor’s cash on hand breakdown

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Ford’s cash on hand comes primarily from 2 components and they are cash and cash equivalents and marketable securities.

Ford’s restricted cash is negligible and is not shown in the chart above.

Accordingly, the amount of Ford’s cash and cash equivalents is slightly above that of marketable securities in most quarters.

Since 2018, Ford’s cash and cash equivalents have been steadily on the rise, topping $26.4 billion as of 2Q 2023 which was quite a significant number compared to historical results.

On the other hand, Ford’s marketable securities have remained roughly the same in the periods shown.

As of 2Q 2023, Ford’s marketable securities topped only $16.4 billion, one of the record lows ever reported.

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Cash On Hand To Current Assets Ratio

Ford Motor’s cash on hand to current assets ratio

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* Ratio comes from the author’s calculations.

To find out the magnitude of Ford’s cash on hand, we have to inspect it from the perspective of the company’s current assets.

As of 2Q 2023, Ford’s cash on hand to current assets ratio remained high at 35%.

Although the figure was considerably lower than those measured during the COVID period, it was significantly higher than pre-COVID levels.

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Net Cash From Operations

Ford’s operating cash flow

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Ford produces positive net cash from operations in all quarters irrespective of any disruptions, including the COVID-19 crisis, material shortages, an inflationary environment, etc.

Ford produced an even higher net cash from operations during the pandemic which topped nearly $30 billion at one time.

Ford’s solid operating cash flow is certainly a factor that most investors want to see.

As of 2Q 2023, Ford generated as much as $12.8 billion of net cash from operations, though significantly lower than those measured during the pandemic, it was still an incredible feat by all measures.

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Free Cash Flow

Ford Motor’s free cash flow

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Free cash flow is operating cash flow net of capital expenditures.

Here is the equation:

Free cash flow = Net cash from business operations – Capital spending

Ford’s free cash flow has a similar trend as that of the net cash from operations.

More importantly, Ford produces positive free cash flow in all quarters, the same factor that all shareholders want the company to have.

As of 2Q 2022, Ford’s free cash flow came in at $5.3 billion, still a significant figure by all measures.

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Adjusted Free Cash Flow

Ford Motor’s adjusted free cash flow

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Ford’s adjusted free cash flow is primarily the cash flow from the automotive segment and is provided in all quarterly earnings releases.

Here is the equation for Ford’s adjusted free cash flow:

Adjusted free cash flow = Consolidated net cash from operations – Net cash from operations by Ford Credit – Capital spending + Ford Credit cash dividends payable to the company

Ford’s adjusted free cash flow differs from those we saw in prior discussions.

For example, Ford’s adjusted free cash flow nearly dried up during the pandemic but recovered tremendously during post-pandemic times.

The destruction of Ford’s adjusted free cash flow during the pandemic indicates that Ford’s automotive segment was deeply impacted by the COVID-19 crisis.

Nevertheless, Ford’s adjusted free cash flow slowly recovered and reached record highs when the automotive business improved in post-pandemic periods.

As of 2Q 2023, Ford produced an adjusted free cash flow of nearly $10 billion, a record figure over the past 5 years.

Although the adjusted free cash flow result is good, it is highly cyclical and relies mainly on the automotive sector.

If automotive sales were to be negatively impacted, like how it happened in 2020, Ford’s adjusted free cash flow also would succumb.

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Operating Cash Flow Margin

Ford’s operating cash flow margin

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* Operating cash flow margin is the ratio of operating net cash to TTM revenue.

The operating cash flow margin measures Ford’s efficiency in turning revenue into operating cash flow.

The ratio came in at 7.6% as of 2Q 2023 and was much lower than GM’s cash margin and Tesla’s cash margin.

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Free Cash Flow Margin

Ford’s free cash flow margin

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* Free cash flow margin is the ratio of free cash flow to TTM revenue.

Similarly, the free cash flow margin measures Ford’s ability to turn revenue into free cash flow.

At a ratio of less than 5%, it seems that Ford Motor is not very good at converting revenue into free cash flow.

The ratio also is much lower than those of Tesla and General Motors (results can be found in prior discussions).

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Adjusted Free Cash Flow Margin

Ford’s adjusted free cash flow margin

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* Adjusted free cash flow margin is the ratio of adjusted free cash flow to TTM automotive revenue.

Although the ratio is only modest, it has significantly improved after the pandemic.

The rising margin indicates Ford’s recovering automotive business.

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Net Cash from Financing Activities

Ford Motor’s net cash from financing activities

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The net cash from financing activities depicts whether cash is taken for debt repayment (negative numbers) or cash is added from borrowings (positive numbers).

Keep in mind that the data presented in the plot above is net of cash arising from capital returns such as dividend payments and share buyback to rule out the effect of capital returns.

That said, Ford’s net cash from financing activities is mostly positive in most quarters, implying that the company is taking on more debt.

However, Ford paid down a large chuck of its debt during the pandemic between 2021 and 2022.

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Conclusion

Ford produces good cash flow but lacks the efficiency in converting cash from revenue.

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References and Credits

1. All financial figures presented in this article were obtained and referenced from Ford’s SEC filings, earnings reports, news releases, shareholder presentations, quarterly and annual reports, etc., which are available in Ford’s Financials and Filings.

2. Featured images in this article are used under a Creative Commons license and sourced from the following websites: Thomas Hawk and Stefan Kellner.

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Disclosure

References and examples such as tables, charts, and diagrams are constantly reviewed to avoid errors, but we cannot warrant the full correctness of all content.

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