Ford Motor Company plans to spend $7 billion to develop more trucks and sport-utility vehicles (SUVs). The company’s CEO, Jim Hackett, is making the sizable investment in response to a rapid shift in customer tastes away from sedans toward vehicles with greater space and utility. He also supported the cash outlay because trucks and SUVs earn higher margins than sedans.
As you’ll learn in Chapter 11, return on investment (ROI) is a function of margin multiplied by turnover. In Ford’s case, its trucks and SUVs offer an attractive margin and turnover. Margin is calculated as net operating income divided by sales, whereas turnover is a function of sales divided by average operating assets. Hackett also plans to reduce materials and engineering costs across the company’s vehicle lineup by $14 billion over five years.
Ford Motor Company’s CEO Jim Hackett tied financial metrics to corporate strategy. This strategic initiative/move worked to Ford’s benefit. You can read about this on Ford’s website and learn how Hackett did this in previous positions which he occupied. You can begin reading about this at https://blog.notesmatic.com/ford-motors-strategic-analysis/
Perform more scrutiny as to how and what Hackett did. Try to discover what metrics or financial ratios were used in Hackett’s strategic initiative at Ford or other companies in which he worked. He was a master at linking metrics with corporate strategy.
Disclose your research findings. Include supporting information from websites to examine and illustrate the linkage of financial metrics with corporate strategy. Answer the following questions:
- How does Ford Motor Company routinely use financial metrics to drive changes in corporate strategy? Provide examples of collaborating information from corporate websites to support your response.
- Differentiate which financial ratios are commonly used for continuation of corporate strategy? Which ratios are specifically used for changes in corporate strategy? Is there any differentiation for continuation vs. changing strategies and reported ratios?
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