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Ford Cash Metrics 2021 – Free Cash Flow And Cash On Hand

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

Cash is the lifeline of a business.

It’s even more so for Ford Motor (NYSE:F), a leading automobile company that specializes in the design and manufacturing of cars, trucks and SUVs, since the company is running a capital-intensive business.

Every quarter, Ford spends a considerable amount of cash on factories, equipment, offices, warehouses, and workers.

Although Ford’s business model is asset-heavy that requires a vast amount of cash flow to operate, the company also generates tonnes of operating cash flow and free cash flow.

For example, as of 2Q 2021, Ford’s operating net cash came in at more than $20 billion USD on a TTM basis while free cash flow totaled as much as $15 billion.

In fact, Ford produced an even higher operating cash flow during the age of the COVID-19 pandemic than the pre-COVID time.

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

In this article, we are keeping track of Ford’s several cash metrics, including the cash on hand, free cash flow and net cash from financing activities to see how the company’s cash position has changed over the years.

Let’s go take a look!

Ford Cash On Hand By Quarter

Ford Motor's cash on hand

Ford Motor’s cash on hand

* Ford’s cash on hand is a GAAP measure and consists of the sum of cash and cash equivalents, marketable securities, restricted cash if there is any.

* Data in the chart do not come from recast data and was extracted from the exact quarters reported in Ford’s quarterly and balance sheets.

* Ford’s fiscal year begins on Jan 1 and ends on Dec 31.

Let’s first look at Ford’s cash on hand as shown in the chart above for the period from fiscal 2018 to 2021.

In general, Ford’s cash on hand measured in the chart above consists of all highly liquid assets such as cash and cash equivalents, restricted cash and marketable securities.

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

All told, according to the chart, Ford’s cash on hand looks rather stable over the years and stays above $30 billion USD.

However, in fiscal 2020, Ford’s cash on hand soared beyond $40 billion for the 1st time and even exceeded $50 billion in 2Q 2020.

Ford’s soaring cash position was most likely driven by the COVID-19 pandemic in fiscal 2020.

Going into fiscal 2021, Ford’s cash on hand declined slightly and the figure came in at $40 billion in 2Q 2021 which is nearly in line with the historical amount.

The decrease in Ford’s cash reserves shows that the company has paid back some of the long and short-term debt taken during the COVID age.

Ford Cash On Hand Breakdown

Ford Motor's cash on hand breakdown

Ford Motor’s cash on hand breakdown

* Data in the chart do not come from recast data and was extracted from the exact quarters reported in Ford’s quarterly and annual balance sheets.

* Ford’s fiscal year begins on Jan 1 and ends on Dec 31.

As mentioned, Ford’s cash on hand comes primarily from the company’s highly liquid assets such as cash and cash equivalents, marketable securities and restricted cash.

The breakdown of Ford’s cash on hand which is shown in the chart above depicts the type of liquid assets carried in Ford’s balance sheets.

According to the chart, Ford’s total cash on hand comes primarily from 2 main liquid assets, and are cash and cash equivalents and marketable securities.

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

According to the chart, both liquid assets take up an equal portion of Ford’s total cash position from fiscal 2018 to 2021.

While both assets had remained steady from fiscal 2018 to 2019, they increased significantly in 2020, with cash and cash equivalents reaching slightly more than $30 billion in 2Q 2020.

In the same quarter, Ford’s marketable securities soared to $26 billion, representing a 70% increase from a year ago.

As of 2021 Q2, Ford’s marketable securities have already declined to the pre-pandemic level at roughly $18 billion USD.

In the same quarter, Ford’s cash and cash equivalents still remained at an elevated level of $23 billion USD.

This trend shows that Ford preferred cash and cash equivalents more than it preferred marketable securities as cash is the most liquid form of asset.

Ford Cash On Hand to Current Assets Ratio

Ford Motor's cash on hand to current assets ratio

Ford Motor’s cash on hand to current assets ratio

* Ratio comes from the author’s own calculations.

* Ford’s fiscal year begins on Jan 1 and ends on Dec 31.

The absolute value of Ford’s cash on hand may not depict the real situation of the company.

The absolute value may have increased but the growth could come from the normal expansion of the company’s businesses instead of a deliberate effort that scaled up the liquidity.

To really see Ford’s has indeed worked on its cash on hand, it’s best to see it with respect to the company’s current assets.

For this reason, a plot above is created to show the ratio of Ford’s cash reserves to current assets.

The ratio measures how Ford’s total cash on hand changes with respect to current assets, and it gives a comparative view on how these highly liquid assets change relative to the company’s current assets.

All told, the chart above shows that the ratio did increase significantly since fiscal 2020.

Prior to 2020, the ratio remained at slightly above 30%, but it started to grow in 1Q 2020 and stayed above 40% for the rest of 2020, a notable 10 percentage points higher than the figure in 2019.

As of 2Q 2021, this ratio remained steady at 40%, indicating a considerable higher cash position in fiscal 2021 compared to pre-pandemic time.

In other words, Ford has indeed put an effort to increase its cash position relative to current assets in preparation for a possible liquidity crunch.

Ford Free Cash Flow – TTM

Ford Motor's free cash flow

Ford Motor’s free cash flow

* Free cash flow is the difference between operating net cash and capital spending.

* TTM free cash flow comes from the author’s own calculation and is based on the sum of the quarterly figures on a trailing 12-month or 4-quarter basis.

* Ford’s fiscal year begins on Jan 1 and ends on Dec 31.

While Ford may have boosted its cash reserves notably in 2020, how do we know if these figures are sufficient for the company’s cash burn or cash outflow?

To figure this out, we may look at Ford’s free cash flow which is shown in the chart above for the period from fiscal 2018 to 2021.

In general, free cash flow is measured using the following equation:

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

According to the chart, Ford’s TTM free cash flow has been increasing in the last 3 years and increased even more in fiscal 2021.

Between fiscal 2018 and 2021, Ford had been having positive free cash flow, which means the company’s business operations had been able to generate sufficient cash to support its expenses, including capital spending.

Ford’s free cash flow dipped considerably to only $5.8 billion in Q1 2020, but it recovered swiftly in the following quarter and even reached multiple new highs throughout fiscal 2020.

As of 2Q 2021, Ford’s TTM free cash flow came in at $15 billion USD, a year-on-year growth of nearly 100%.

The results show that Ford’s cash flow generation capability had only been minimally impacted by the COVID-19 pandemic which was limited to only the 1st quarter of 2020.

For the rest of fiscal 2020 and 2021, Ford’s free cash flow had recovered and even exceeded its pre-pandemic figures, illustrating the powerful cash generation capability of the company during the COVID-19 age.

Since Ford had been able to generate tonnes of free cash flow from its core operations, we can conclude that Ford’s cash reserves or cash position had been sufficient to cover its cash burn or cash outflow.

Ford Adjusted Free Cash Flow – TTM

Ford Motor's adjusted free cash flow

Ford Motor’s adjusted free cash flow

* Adjusted free cash flow is a non-GAAP measure and is obtained from the company’s quarterly and annual reports.

* TTM adjusted free cash flow comes from the author’s own calculation and is based on the sum of the quarterly figures on a trailing 12-month or 4-quarter basis.

* Ford’s fiscal year begins on Jan 1 and ends on Dec 31.

What is Ford’s adjusted free cash flow?

For your information, Ford’s adjusted free cash flow is a non-GAAP measure and is vastly different from the GAAP free cash flow which we discussed earlier.

To make things simpler, Ford’s adjusted free cash flow considers 2 extra cash items and they are:

1. Ford Credit’s operating cash flow
2. Cash dividends that come from Ford Credit

The free cash flow equation has now become something like the following:

Adjusted free cash flow = Net cash from business operations – Net cash from Ford Credit operating cash flow – Capital spending + Ford Credit cash dividends

Therefore, according to the formula, Ford Credits’s operating cash flow is subtracted in the equation while cash dividend payments from Ford Credits are added.

In short, Ford’s adjusted free cash flow is almost identical to the free cash flow generated by Ford Automotive alone.

All told, Ford’s adjusted free cash flow had been a total disaster as reflected in all the negative figures shown in the chart.

For example, Ford’s adjusted free cash flow was entirely in the red throughout 2020, with the worst figure reported in 2Q 2020 at -$6.8 billion USD on a TTM basis.

For your information, Ford Automotive was impacted the most during the COVID-19 pandemic due to factories closure and supply chain disruptions.

Therefore, Ford’s adjusted free cash flow plunged to negative figures in all quarters in 2020.

However, going into 2021, Ford’s adjusted free cash flow recovered considerably and was seen reaching as much as $2.7 billion USD as of fiscal 2021 Q2, a record high since fiscal 2020.

In short, Ford’s adjusted free cash flow is highly cyclical and depends critically on the Automotive sector.

If automotive sales were negatively impacted like what happened in 2020, Ford’s adjusted free cash flow will suffer.

Ford Net Cash from Financing Activities

Ford Motor's net cash from financing activities

Ford Motor’s net cash from financing activities

* TTM net cash from financing activities comes from the author’s own calculation and is based on the sum of the quarterly figures on a trailing 12-month or 4-quarter basis.

* Quarterly net cash from financing activities is a GAAP measure and is obtained from the company’s quarterly and annual statements of cash flow.
* Data is net of cash outflow for cash dividends and stock buybacks.
* Ford’s fiscal year begins on Jan 1 and ends on Dec 31.

Ford’s net cash from financing activities which is shown in the chart above depicts Ford’s capital raise on a TTM basis.

The data in the chart above is net of the cash outflow for cash dividends and stock buyback.

Therefore, the effect of cash dividend payments and stock buyback does not come into the picture for the net cash from financing activities shown in the chart.

A positive figure in the chart means a capital raise whereas a negative figure means capital being paid back.

The capital raise can be in the form of equity issuance or debt offerings or both.

All told, according to the chart, Ford was seen raising capital in most fiscal quarters as reflected by the positive figures in the chart.

Although Ford had raised cash in most quarters, the amount had been small, coming in at around $2 billion on a TTM basis.

However, Ford was seen raising the most cash during fiscal 2020, with the biggest one reported in 2Q 2020, notably at $19 billion on a TTM basis.

In fiscal 2021, Ford was seen paying back the cash raised in 2020 as shown in the negative net cash from financing activities which totaled as much as -$31 billion reported in 2Q 2021.

Conclusion

Ford’s cash on hand soared during the COVID age in fiscal 2020 but normalized to $40 billion USD in fiscal 2021 when its automotive business recovered.

Despite having a smaller cash position in fiscal 2021, Ford’s cash on hand to current assets ratio was still relatively high at 40% as of 2Q 2021 compared to the historical ratio which stood at 30%.

On the other hand, Ford’s free cash flow soared to new highs in fiscal 2020 and 2021 compared to pre-COVID time.

However, Ford’s adjusted free cash flow or automotive free cash flow plunged to the red in fiscal 2020, underscoring the huge impact that the pandemic has on Ford’s automotive sector.

While Ford’s automotive free cash flow plunges, its overall free cash flow was still able to hold up, helped primarily by the free cash flow generated from other business sectors such as Ford Credit.

In terms of net cash from financing activities, Ford raised the most cash in fiscal 2020 when the COVID-19 pandemic started to hit.

Nevertheless, Ford paid back most of the capital raised in the past in fiscal 2021.

In short, Ford’s automotive sector was highly cyclical and therefore, its free cash flow is extremely vulnerable to external events, including a pandemic.

References and Credits

1. All financial data such as cash on hand, free cash flow, etc., were obtained and referenced from Ford’s quarterly and annual statements which can be found in Ford’s Financials and Filings.

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

Statistics For Other Companies

Disclosure

The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.

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