Ford Cash Metrics 2022 – 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 2022, Ford’s operating net cash came in at more than $12 billion USD on a TTM basis while free cash flow totaled as much as $6 billion.

In fact, Ford produced an even higher operating cash flow during the age of the COVID-19 pandemic than in 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’s cash on hand is a GAAP measure and consists of the sum of cash and cash equivalents, marketable securities, and 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.

Let’s first look at Ford’s cash on hand as shown in the chart above for the period from fiscal 2018 to 2022.

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 2022, Ford’s total cash on hand declined slightly and the figure came in at $37 billion in 2Q 2022 which is nearly in line with the pre-COVID 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

* 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.

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 2022.

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 2022 Q2, Ford’s marketable securities have already declined to the pre-pandemic level at roughly $17 billion USD.

In the same quarter, Ford’s cash and cash equivalents also remained at the pre-COVID level of $19.5 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

* Ratio comes from the author’s own calculations.

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 increase in 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 of 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 2022, this ratio remained steady at 37%, indicating a considerably higher cash position in fiscal 2022 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 Operating Cash Flow – TTM

Ford’s operating cash flow

* TTM operating 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.

In terms of operating cash flow, Ford’s latest figure came in at around $12 billion as of Q2 2022, one of the lowest numbers ever reported in the last 5 years.

A trend worth mentioning is that Ford Motor’s operating cash flow has been on a decline after reaching its peak at nearly $30 billion in 1Q21.

Ford Operating Cash Flow Margin – TTM

Ford’s operating cash flow margin

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

As shown in the chart above, Ford’s operating cash flow seems to have weakened considerably in 2022.

The number came in at only 8% in 2Q 2022 and was below 10% for the first time in 2022, well below its historical average of roughly 12%.

Also, Ford’s operating cash flow margin measured in 2Q 2022 was smaller than that of GM’s cash margin and Tesla’s cash margin.

Ford Free Cash Flow – TTM

Ford Motor’s free cash flow

* 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.

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 look at Ford’s free cash flow which is shown in the chart above for the period from fiscal 2018 to 2022.

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 on a decline after peaking out in 1Q21 at $24 billion.

As of 2Q 2022, Ford’s TTM free cash flow came in at $6 billion USD, a year-on-year decline of 60%.

Ford Motor’s declining free cash flow has not been looking good.

Ford Free Cash Flow Margin – TTM

Ford’s free cash flow margin

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

Since Ford’s free cash flow figures have been on a decline, the margin has also been on a decline.

As of 2Q 2022, Ford’s free cash flow margin reached only 4%, one of the lowest numbers ever seen since 2018, and it is well below GM cash and Tesla cash.

Ford Adjusted Free Cash Flow – TTM

Ford Motor’s adjusted free cash flow

* 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.

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, Ford’s adjusted free cash flow has been on a steady rise.

Going into 2022, Ford’s adjusted free cash flow recovered considerably and reached as much as $13 billion USD as of fiscal 2022 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 Adjusted Free Cash Flow Margin – TTM

Ford’s adjusted free cash flow margin

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

Similarly, Ford’s adjusted free cash flow margin totaled 9% as of 2Q 2022, a record high in the last 5 years.

The ratio has been growing since 2020 after dipping to the negative figures at -5% in 2Q20.

Ford 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.

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 prior to 2021 as reflected by the positive figures in the chart.

Post 2021, Ford has been repaying the debt as reflected by the negative figures.

As of 2Q 2022, Ford’s net cash from financing activities totaled -$14 billion USD, indicating that the company has been repaying its debt.

Conclusion

Ford’s cash on hand soared during the COVID age in fiscal 2020 but normalized to $37 billion USD in fiscal 2022 Q2 when its automotive business recovered.

Despite having a smaller cash position in fiscal 2022, Ford’s cash on hand to current assets ratio was still relatively high at 37% as of 2Q 2022 compared to the historical ratio which stood at 30%.

On the other hand, Ford’s free cash flow tumbled to only $6 billion as of 2Q 2022 as a result of the dwindling operating cash flow.

However, Ford’s adjusted free cash flow or automotive free cash flow soared and reached $13 billion as of 2Q 2022, underscoring the recovery in Ford’s automotive sector.

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

Nevertheless, Ford paid back most of the capital raised in the past as of fiscal 2022.

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.

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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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