Edmonton Motor Show 2017. Source: Flickr Image
The debt portion of a company is often a hot topic.
The reason is that debt is usually the leading cause of bankruptcy for most companies.
It’s no exception for Ford Motor Company (NYSE: F).
Ford could go bankrupt if it becomes unable to repay its debts.
In this article, we will explore several statistics related to Ford’s debt, including the total debt, debt breakdown, cash, net debt, leverage ratios, capital structure, liquidity, etc.
Notably, we will drill into Ford’s $140 billion debt to determine if this debt level concerns shareholders.
Without any delay, let’s move on!
Please use the table of contents to navigate the page.
Table Of Contents
Debt
A1. Total Debt
A2. Debt Breakdown
A3. Ford Credit Debt
A4. Total Debt Adjusted For Unsecured Portions
Cash
B1. Available Cash
Net Debt
Leverage
Debt Vs Revenue
E1. Adjusted Debt Vs Revenue
E2. Debt Margin
Capital Structure
F1. Capital Structure For Total Debt
F2. Capital Structure For Adjusted Debt
Debt Schedules, Liquidity And Credit Rating
G1. Debt Due
G2. Sources Of Liquidity
G3. Credit Rating
Summary And Reference
S1. Conclusion
S2. References and Credits
S3. Disclosure
Total Debt
Ford total debt
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Ford’s total debt consists of debt from Ford Credit and debt from Company Excluding Ford Credit.
Ford Credit is the captive finance arm of Ford Motor, while Company Excluding Ford Credit refers to subsidiaries excluding Ford Credit but primarily refers to Automotive.
As of fiscal 3Q 2023, Ford’s total debt reached nearly US$143 billion, up 11% over the same quarter a year ago.
Of this amount, US$49 billion was payable within a year, while US$94 billion was long-term debt.
Since the beginning of 2023, Ford’s total debt has significantly risen.
However, Ford’s post-pandemic debt levels were relatively low compared to those recorded during the pre-pandemic periods.
Debt Breakdown
Ford debt breakdown
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The chart above shows the debt breakdown of Ford Motor Company.
Ford’s debt was divided into two segments: Ford Credit and Company Excluding Ford Credit.
Ford Credit is the subsidiary that provides financial services. At the same time, Company Excluding Ford Credit refers to subsidiaries excluding Ford Credit but relates primarily to Automotive that manufactures and markets cars and vehicles.
Accordingly, Ford Credit’s debt forms the biggest portion of the company’s debt, at US$123 billion or 86% as of fiscal 3Q 2023.
On the other hand, Company Excluding Ford Credit’s debt made up only US$20 billion or 14% of the total debt as of Q3 2023.
Compared to the debt level a year ago, Ford Credit’s debt rose the most, at 14% year-over-year in fiscal 3Q 2023.
On the other hand, Company Excluding Ford Credit’s debt remained relatively unchanged as of Q3 2023.
Ford Credit Debt
Ford Credit’s debt
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Long-term debt forms the majority of Ford Credit’s debt, as shown in the chart above.
Within the long-term portion, both unsecured and asset-backed debt accounts equally for the long-term debt, at US$53 billion as of 3Q 2023.
On the other hand, Ford Credit’s short-term debt made up only US$19 billion of Ford Credit’s total debt as of 3Q 2023.
Ford Credit’s asset-backed debt is defined as below:
- Term Asset-Backed Securities (as shown in the Funding Structure table) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements.
The following snapshot shows the assets and liabilities portions of Ford Credit’s asset-backed loans.
Ford Credit’s asset-backed debt
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As shown in the snapshot above, Ford Credit’s asset-backed debt was secured by tonnes of assets, and the asset portions were much greater than the liability portions.
As a result, Ford Credit’s asset-backed debt is relatively safe because the assets backing these loans are readily available.
Unlike unsecured debt, Ford Credit’s asset-backed debt is repaid by cash generated from the respective assets, i.e., finance receivables and operating leases.
On the other hand, Ford Credit’s unsecured loans are repaid by cash generated from its business operations.
Therefore, we should only be concerned with Ford Credit’s unsecured debt.
In this case, Ford Credit held US$53.4 billion of unsecured debt as of 3Q 2023, as presented in the chart above.
Total Debt Adjusted For Unsecured Portions
Ford-Motor-adjusted-debt
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Adjusted for unsecured portions, automotive, and short-term debt, Ford Motor’s total debt came in at US$92 billion as of 3Q 2023, a far lower figure than the original debt figure we saw in the earlier discussion.
Therefore, as outlined in the earlier discussion, we should only be concerned with Ford Motor’s unsecured debt of US$92 billion, not US$143 billion.
Available Cash
Ford-Motor-available-cash
(click image to expand)
As of 3Q 2023, Ford Motor had US$41 billion in cash, roughly in line with the figure recorded in the same quarter a year ago.
Of this amount, US$26.4 billion was cash and cash equivalents, while US$14.7 billion was marketable securities.
Investors interested in the statistics of Ford’s cash flow and cash on hand may visit this page: Ford Cash Flow And Cash On Hand.
Adjusted Debt Less Cash
Ford net debt
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Ford’s net debt equals adjusted total debt less available cash, as shown in the following equation:
Ford’s Net Debt = Adjusted Total Debt – Available Cash
Ford’s adjusted total debt is the total debt adjusted for secured debt, as presented in prior discussions.
That said, Ford’s net debt came in at US$51 billion as of 3Q 2023 after adjusting for the available cash, up 21% over the same quarter a year ago.
Despite the considerable rise in net debt in fiscal 2023, the figure was still relatively low compared to those recorded in pre-pandemic periods.
On a side note, Ford would have over $100 billion in net debt if we account for its asset-backed debt.
Debt To Equity Ratio
Ford debt to equity ratio
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Ford’s debt-to-equity ratio equals the ratio of adjusted total debt over total equity, as shown in the formula below:
Debt to equity ratio = adjusted total debt / total equity
As of 3Q 2023, Ford’s debt-to-equity ratio totaled only 2.1X, slightly above the ratio recorded a year ago.
Ford’s latest debt-to-equity ratio was much lower than the results recorded in pre-pandemic periods.
In short, Ford’s debt leverage was considered modest, with a ratio of only 2.1X.
Adjusted Debt Vs Revenue
Ford-Motor-debt-vs-revenue
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Ford’s revenue has considerably grown in post-pandemic periods since fiscal 2021.
In contrast, Ford’s adjusted debt has slightly decreased during post-pandemic periods, suggesting manageable and moderating debt levels.
Therefore, the trends are favorable for Ford Motor Company and its shareholders, as they indicate improving fundamentals and business prospects.
Debt Margin
Ford-Motor-debt-margin
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Ford’s debt margin equals adjusted total debt divided by TTM revenue.
As of 3Q 2023, Ford’s debt margin was 53%, the lowest ratio ever recorded since 2017.
In addition, Ford’s debt margin also has significantly declined since 2020, implying an improving financial health in the post-pandemic periods.
Capital Structure For Total Debt
Ford-Motor-capital-structure-for-total-debt
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Ford’s capital structure or debt structure equals total debt divided by total assets.
As of 3Q 2023, Ford’s total debt comprised about 53% of the company’s total assets, the lowest since 2017.
This ratio indicates that roughly half Ford’s assets comprise debt, and the other half are liabilities and equity.
Although the debt ratio is relatively high, it has significantly declined in post-pandemic periods compared to pre-pandemic results, implying a reduction in debt with respect to total assets.
Capital Structure For Adjusted Debt
Ford-Motor-capital-structure-for-adjusted-debt
(click image to expand)
Similarly, Ford’s capital structure or debt structure for adjusted debt equals the adjusted debt divided by total assets.
As of 3Q 2023, Ford’s adjusted debt made up only 34% of the company’s total assets, also the lowest since 2017.
Therefore, Ford’s assets mainly comprise secured debt, with unsecured debt making up only a small fraction, as indicated by this ratio.
Since the ratio is relatively low, investors should not be concerned too much with Ford’s debt.
Debt Due
Ford’s payments due data are obtained from the 2022 annual report dated 31 Dec 2022.
| Fiscal Year | Payments Due (US$ Millions) | ||
|---|---|---|---|
| Company Excluding Ford Credit | Ford Credit | Total Company | |
| 2023 | $4,034 | $33,263 | $37,297 |
| 2024 – 2025 | $5,667 | $52,647 | $58,314 |
| 2026 – 2027 | $8,031 | $17,333 | $25,364 |
| Thereafter | $24,249 | $7,060 | $31,309 |
The table above depicts Ford’s payments due between fiscal 2023 and 2027.
Keep in mind that the payments due shown in the table above are consolidated figures. They include various types of payments, including debt, interest expenses, leases, pension funding, and off-balance sheet items such as purchase obligations.
That said, Ford’s payments due are separated into two categories: Company Excluding Ford Credit and Ford Credit.
Ford Credit’s payments appears to account for the majority of the total due.
That said, Ford’s total payments due in 2023 total US$37 billion, while that between fiscal 2024 and 2025 total US$58 billion.
Therefore, the total amount due between fiscal 2023 and 2025 is US$96 billion, and it averages about US$32 billion per annum from 2023 to 2025.
Can Ford Motor afford the payments due?
We will find out in the next discussion.
Sources Of Liquidity
Ford’s liquidity data are obtained from the 3Q 2023 quarterly report dated 30 Sept 2023.
| Sources Of Liquidity | US$ Billions | |
|---|---|---|
| Committed Capacity | Available Capacity | |
| Company Excluding Ford Credit | ||
| Company Cash | – | $29.1 |
| Total Borrowing Capacity | – | $50.6 |
| Total Company Excluding Ford Credit | – | $79.7 |
| Ford Credit | ||
| Cash | – | $11.6 |
| Total Borrowing Capacity | $44.7 | $15.3 |
| Total Ford Credit | – | $26.9 |
| Cash Flow | ||
| Consolidated Operating Cash Flow | – | $15.7 (estimated) |
| Total Liquidity | ||
| Total | – | $122.3 |
Ford Company Excluding Ford Credit’s sources of liquidity include cash, borrowing capacity, and cash provided by operating activities.
Similarly, Ford Credit’s sources of liquidity include cash, borrowing capacity, and cash provided by operating activities.
On a consolidated basis, Ford’s liquidity totaled US$122 billion as of 3Q 2023.
With this level of liquidity, Ford can easily cover its payments, which average only US$32 billion per year between 2023 and 2025, as shown in the previous section.
Even without including operating cash flow, Ford’s liquidity is over US$100 billion and can cover upcoming payments for the next three years.
In short, Ford Motor has sufficient liquidity to meet all payment obligations through at least fiscal 2025.
Credit Rating
Ford’s credit rating as of 30 Sept 2023.
| Ratings For Ford Motor Company | ||||
|---|---|---|---|---|
| Rating Agencies | Types Of Debt | Outlook | ||
| Issuer Default/Corporate | Long-Term Senior Unsecured | |||
| DBRS | BBB (Low) | BBB (Low) | Stable | |
| Fitch | BBB- | BBB- | Stable | |
| Moody’s | – | Ba1 | Stable | |
| Standard & Poor’s | BB+ | BB+ | Positive | |
| Ratings For Ford Credit | ||||
|---|---|---|---|---|
| Rating Agencies | Types Of Debt | Outlook | ||
| Long-Term Senior Unsecured | Short-Term Unsecured | |||
| DBRS | BBB (Low) | R-2 (Low) | Stable | |
| Fitch | BBB- | F3 | Stable | |
| Moody’s | Ba1 | NP | Stable | |
| Standard & Poor’s | BB+ | B | Positive | |
On September 6, 2023, Fitch upgraded the credit ratings for Ford and Ford Credit to BBB- from BB+ and revised the outlook to stable
from positive.
Ford Motor Company and Ford Credit obtained investment-grade ratings for its long-term senior unsecured debt from DBRS and Fitch while getting non-investment-grade ratings from Moody and Standard & Poor’s.
DBRS credit rating definitions can be found here – DBRS.
Fitch credit rating definitions can be found here – Fitch.
Moody’s credit rating definitions can be found here – Moody’s.
Standard & Poor’s credit rating definitions can be found here – Hargreaves Lansdown.
Summary
Although Ford’s debt reached US$143B as of 2023, the unsecured portion totaled only US$92B, a far lower number than the total debt.
Moreover, Ford’s debt-to-equity ratio remains relatively low at 2.1X when looking solely at the unsecured debt.
After adjusting for cash, Ford’s net debt came in at only $51 billion, a much smaller figure than the total debt.
Therefore, Ford’s debt leverage is relatively low when considering only the unsecured portions.
Besides that, Ford’s business prospects also has improved much during the post-pandemic periods, as seen in the rising revenue and decreasing debt margin.
In addition, Ford’s latest liquidity is far higher than the debt amount due.
For example, Ford’s total liquidity of US$122 billion, measured as of 3Q 2023, is sufficient to cover all payments due through 2025.
Additionally, Ford and Ford Credit obtained investment-grade ratings from at least two major credit agencies for its senior unsecured debt as of 30 Sept 2023.
Is Ford Motor’s $140 billion debt a cause for concern?
In my opinion, Ford’s $140 billion debt as of 3Q 2023 should not be a concern based on the factors discussed.
References and Credits
1. All financial figures presented in this article were obtained and referenced from Ford Motor’s earning releases, shareholders letters, investor presentations, quarterly and annual reports, etc., which are available in Ford Earnings Releases and Presentations.
2. Featured images in this article are used under a Creative Commons license and sourced from the following websites: IQRemix and Alan Cleaver.
Disclosure
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