ASBU

DEPARTMENT OF
BUSINESS ADMINISTRATION

BUS206: FINANCIAL ACCOUNTING

CASE STUDY

Ford Otosan (Ford Otomotiv Sanayi A.Ş.)

Submitted to Ecenur Uğurlu Yıldırım

Abdullah Zencirci

170204010

Sema Aykaç

170204027

Mert Karakçı

170204029

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 A. Economic Outlook: Turkey1

Turkey is an upper middle-income country with a population of 82 million, and

according to its gross domestic product and Purchasing Power Parity GDP figures, Turkey has
the 11th largest economy in the world and the 4th largest in Europe. Turkey's impressive
economic and social development performance since the early 2000s has increased
employment and income levels, making Turkey an upper-middle-income country. However,
the increase in economic fragility and the emergence of a more challenging external
environment in the last few years threaten these achievements.

For most of the time since 2000, Turkey has focused on the implementation of
ambitious reforms in many areas from a long-term perspective, and government programs
have targeted vulnerable groups and disadvantaged areas. The poverty rate fell more than half
between 2002 and 2015, while extreme poverty fell even faster.

During this time, Turkey has urbanized dramatically, implemented strong

macroeconomic and fiscal policy frameworks, opened up to foreign trade and finance,
harmonized many of its laws and regulations with European Union (EU) standards, and
greatly increased access to public services. Meanwhile, it has recovered well from the effects
of the 2008/2009 global crisis.

Figure 1. GDP Per Capita (2003-2020)

1
Source: World Bank, Turkey’s Economic Outlook April 2021, https://www.worldbank.org/tr/

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 The economy is expected to grow by 5.0 percent in 2021 and 4.5 percent in 2022 and
2023. Despite the expected slow quarter growth performance in 2021 - because monetary
policy is still tight and foreign demand is weak - GDP in the second quarter will be higher
than in the same period last year, when the COVID-19 outbreak brought the Turkish economy
to a halt. These estimates are based on the assumption that the cautious reopening continues
and there is no uncontrolled epidemic process that could disrupt growth in Turkey or in key
export markets.

As a result of the replacement of the CBRT Chairman, the sharp depreciation in the
Turkish lira will affect inflation. In 2021, the average inflation is expected to rise to 15.5
percent and the current account deficit to decline to 3.7 percent of GDP. As the need to
provide additional support to buffer against the economic and social impacts of the pandemic
continues, the general government deficit will be 3.5 percent of GDP in 2021, and then 3
percent in 2022, with the withdrawal of temporary tax cuts and other supports, it is expected
to decline to 1 and 2.6 percent in 2023.

Figure 2. Turkey GDP Annual Growth Rate (2012-2020)

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 However, there has been a slowdown in reforms in some areas in recent years, and
this, together with economic vulnerabilities, risks losing some of the progress achieved to
date.

The overall macroeconomic outlook is more fragile and uncertain, given rising
inflation and unemployment, shrinking investment, increasing fragility in the corporate and
financial sector, and the dispersion in implementing corrective policy actions and reforms.
There are also significant external problems due to the ongoing geopolitical tensions in the
region.

B. Industry: Motor Vehicles and Automotive Products2

The automotive industry in Turkey plays an important role in the manufacturing sector
of the Turkish economy. In 2015, Turkey produced over 1.3 million motor vehicles and
became the 14th largest manufacturer in the world.

Table 1. Spending and Employment Rates (2009-2017)

The automotive industry has been an important part of the economy since the late
1960s. Companies operating in the sector are predominantly located in the Marmara Region.
With a group of automakers and parts suppliers, the Turkish automotive industry has become
an integral part of the global network of production bases, exporting over $ 22.94 billion in
motor vehicles and parts in 2008.
2
Report of Ministry of Trade, Republic of Turkey, https://trade.gov.tr

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 Turkish automotive companies such as TEMSA, Otokar and BMC are among the
largest van, bus and truck manufacturers in the world.

Global automakers with production factories include Fiat/Tofaş, Oyak-Renault,

Hyundai, Toyota, Honda and Ford/Otosan. Turkish automotive companies such as TEMSA,
Otokar and BMC are among the largest van, bus and truck manufacturers in the world. TOGG
is a new Turkish automotive company established in 2018 for the production of electric
vehicles.

Table 2. Global Market Demand Forecasts (2010-2018)

Turkey's annual automobile exports, including trucks and buses, exceeded 1 million
units in 2016 for the first time, as foreign automobile manufacturers invested in new models
and the recovery in the European market increased shipments. According to the Automotive
Industrialists Association or the OSD industry group, Turkey exported 1.14 million units in
2016, an increase of 15% compared to the previous year. Automobile exports reached a
record level for the fourth year in a row. Production rose 9% year on year to 1.48 million units
in 2016, setting a new record for the second year in a row. Approximately 80% of the vehicles
produced in Turkey were exported.

C. Company: Ford-Otosan3

Ford Otosan (Ford Otomotiv Sanayi A.Ş.) is a public company (18%) in which Ford
Motor Company * (41%) and Koç Holding (41%) have equal shares. Ford Otosan, which has
been among the top 3 exporting companies in Turkey since 2004, demonstrates the success of
being the export champion of the automotive sector for the last 10 years and the export
champion of Turkey for the last 6 years. In 2020, Turkey became the export champion with

3
https://www.fordotosan.com.tr

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the export of vehicles and parts worth $ 4.9 billion. Operating in 3 main centers with Gölcük
and Yeniköy Plants in Kocaeli, Eskişehir Factory in Eskişehir, Sancaktepe R&D Center and
Spare Parts Warehouse in Istanbul, Ford Otosan employs more than 12,500 people. Ford
Otosan is the most valuable automotive company in Borsa Istanbul.

Ford Otosan, which exports engineering with 1,413 R&D employees, has the largest
R&D organization in the Turkish automotive industry. The global engineering center of
Ford's heavy commercial vehicles and related diesel engines and engine systems is the
support center for Ford's light commercial vehicle design and engineering. Ford Otosan has
all the necessary knowledge, skills and infrastructure to design, develop and test a complete
vehicle, including its engine, from white paper to product.

Founded in 1959, Ford Otosan is the largest commercial vehicle production center of
Ford Europe, thanks to its production capacity of 455 thousand commercial vehicles and 70
thousand engines and 140 thousand powertrains by the end of 2020. Kocaeli and Eskişehir
Factories are shown among Ford's "Best Vehicle Production Centers" in the evaluations
between Ford factories.

Ford Otosan, which has a long-standing business partnership relationship with its
dealers, is represented all over Turkey by strong names that have embraced this partnership
and add value to it. Again, it provides maintenance, repair and service services through expert
authorized services all over Turkey. Ford Otosan assigns distributorships and dealerships
abroad, together with the Ford Trucks business unit, and provides service and spare parts
services through its dealerships.

Standing out with its sensitivity to social responsibilities, Ford Otosan contributes to
the economic development of our country and to increasing its competitive power on an
international scale; In line with the understanding of corporate citizenship, it carries out social
responsibility studies in many areas such as education, health, culture-arts and sports in order
to achieve the Sustainable Development Goals. In line with this purpose, it contributes to
increase the quality of education by building schools in the activity regions, establishing
laboratories for vocational schools, providing equipment and scholarships. In 2019, Ford
Otosan launched a Turkey-wide project that aims to bring together the dreams of children
with limited resources with science in line with the objectives of Quality Education, Reducing
Inequalities and Partnerships for Goals, which are among the United Nations Sustainable

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Development Goals. In addition, the company also conducts awareness studies on gender
equality within the scope of the Equality at Work declaration signed in 2013.

Financial Statement Analysis

A. Common Size Income Statement

When we check the financial accounts of Ford Otosan A.Ş between 2015 - 2019, we
realized that the company began to increase profit value and it has a good situation on the
automobile sector. In the Turkey, this sector manufacturers many intermediate goods with
other companies such as Persan Makine Parçaları Sanayi A.Ş, Bosch Fren Sistemleri Sanayi
Ticaret A.Ş and DİTAŞ Doğan Yedek Parça İmalat ve Teknik A.Ş. Yet, these companies
cannot satisfy the demand exactly, and Ford Otosan A.Ş needs to import some goods, too.
Because of that, the company has currency stock and exchange risk. Yet, sector is growing
day by day and company when the trends of the components in the common size income
statement are analyzed, no huge deviations are recognized and company can keep the layout
on the hands. Company can invest to new areas and protect themselves from the risks.

B. Common-Size Balance Sheets

Analysis of the common size balance sheets provides us an overview of what Ford
Otosan A.Ş has done in last 5 years and how it reflects it on its balance sheets. In 2015, we
can see that there is a high cash amount and current ratio in 2015 is 1.05%, in 2016, it is
1.09%, and 2017 it is 1.13%. After these years, current ratio increased instead of 2018
Turkish Economic crisis. In 2018 it is 1.02% as I mentioned before, yet, when we check to
2019 and 2020 these were high with 1.17% and 1.41%.
It has been increasing because the company could fix to sales on the growing sector
and Ford Otosan A.Ş clarified higher profit rather than expectation.
Moreover, Ford Otosan A.Ş could profit in bull market with stock certificates.

C. Cash Flow Interpretation of Ford Otosan A.Ş.

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 Cash flow is a kind of calculation for cash and money. Firms purpose it periodically
because it shows that the company can get paid and add power to accounts. People working in
financial department would like to equate with cash and profit.

For this reason, companies can check the financial situation in short time as weekly;
companies should have cash reserve; finance managers should be careful about payment and
repayment dates; also, they should be careful expenses, too.

When we analyze the Cash Flow of Ford Otosan A.Ş in 2015 to 2016, we see that
company has increased it. Net amount of cash has increased almost 10% we can say that
company could use the cash in operating activities and current stock.

In 2016 to 2017, cash flow of Ford Otosan has been increased almost 60% and the
company has been according to be strong about cash.

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 In 2017 to 2018, cash flow of Ford Otosan has been increased almost 2% and
company could not take money.

In 2019, cash flow of Ford Otosan has increased 45% and company began to fix
accounts.

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Ratio Analysis of Ford Otosan A.Ş and Otokar
A. Liquidity Ratio Analysis

Liquidity ratio of Ford Otosan A.Ş move in consistency with each other instead of
2018 and it has almost increased because in 2018, Turkey faced with a crisis and government
needed to take money from companies and people with tax or other ways. This dollar crisis
affected to market badly but some companies could dispose of it soon.

2015 2016 2017 2018 2019

Otoka Otoka Otoka Otoka Otoka
Ford r Ford r Ford r Ford r Ford r
Current Ratio 1,05 1,3 1,09 1,36 1,13 1,52 1,02 2,08 1,17 1,87
Quick Ratio 0,78 0,11 1,06 1,19 1,09 0,5 0,98 0,79 1,13 0,45
Average Collection 153, 116, 126,2 130,8 218,5 139,3 167,4
Period 4 115,9 2 137,2 9 2 6 1 3 149,6
Liquidity Ratios 0,73 0,75 0,79 0,9 0,87 1,14 0,64 1,28 0,87 1,13
Table 3. Liquidity Ratios of Ford Otosan A.Ş. and Otokar (2015 - 2019)

Current Ratio: Although the Ford Otosan A.Ş has a lower current ratio than the Otokar in
2015. When we check the other ratios, we see that the company lived some liquidity
problems.

After the years, the company could increase the current ratio. For instance, it was 1,09 in
2016; 1,13 in 2017; 1,02 in 2018 and 1,17 in 2019, yet it could never pass to Otokar.

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Quick Ratio: This ratio trend has a peak point in 2019, before the year, it differs from yearly
as we can see in 2018 because of the exchange crisis. These shows differences in years
because the company strength the inventors and did not borrow. By this way, company could
have better financial ratio.

Average Collection Period: This ratio shows that period represents the average number of
days between the date a credit sale is made and the date the purchaser pays for that sale. A
company's average collection period is indicative of the effectiveness of its accounts
receivable management practices. In 2015, 2018 and 2019, Otokar could take the from
costumers easily than Ford Otosan A.Ş, yet, in 2016 and 2017, Ford Otosan A.Ş could show
better ratio and days about it.

A: Leverage Ratio Analysis

Debt Ratio: Total Liabilities/ Total Assets

The first debt of ratio ensures an idea about an entity’s financial leverages. If this ratio
is less than 1, the total liabilities will be lower than the assets that later refer that the
agreement is financially healthy. According to this table, Ford Otosan has always kept its debt
ratio below 1. The debt ratio increased from 2015 to 2019. It had the highest debt ratio in
2019. Ford Otosan is a company with high financial investments, thus managing both bank
loans and equity correctly. The company can easily cover its equity debt in any negative
situation.

A: Leverage Ratio
FORD-OTOSAN OTOKAR
Analysis
YEARS 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015
Debt Ratio 0.72 0.70 0.69 0.66 0.64 0.76 0.83 0.86 0.86 0.86
Debt to Equity Ratio 2.51 2.38 2.25 1.93 1.75 0.32 0.49 0.60 0.63 0.55
Long-Term Ratio 0.35 0.30 0.33 0.32 0.30 4.58 0.56 0.40 0.64 0.67
Times Interest Earned
2.18 1.67 2.89 3.14 2.38 2.44 2.62 2.79 2.66 3.15
Ratio
Table 4. Leverage Ratio Analysis

Debt to Equity Ratio: Total Liabilities/Total Shareholder’s Equity

In this ratio shows the firm's risk according to the relationship between shareholder
and creditor. Firms with a high debt ratio should have a stable cash inflow. If the debt-to-
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equity ratio is less than 1.0, then the firm is generally less risky. Otokar has a debt-to-equity
ratio of in 2019, 0.32 it means that it uses 32 piastres of debt financing for every 1TL of
equity financing. Ford Otosan uses more debt than equity to fund its operations, as its rates
are greater than 1.0. However, Otokar uses more equity than debt. Therefore, as the
shareholders' equity increases, the debt-to-equity ratio also increases.

Long-Term Debt of Ratio: Long term debt / (Long term debt + Preferred Stock + Common
Stock)
Businesses will be able to renew their debts as long as they meet their interest
obligations. When we look at the results, we can see that our company's long-term debt ratio
is low. Accordingly, it has a stronger financial structure against the investments it will make,
long-term financial crises, and employment. In this way, it will be able to continue to grow
without declaring a loss even in sales with low-profit margins. It can be said that 30% of Ford
Otosan investments are made by borrowing in the long term. Otokar company regularly
received government incentives every year. Finally, Otokar experienced an increase in the
ratio of long-term debt in the case of increasing its long-term debt and stocks in 2019.

The Times interest earned rate (TIE) rate is a measure of a company's ability to fulfill
its debt obligations based on its current income. When we look at the rates of the companies,
we see that they are higher than 1 and this shows that they can easily meet the interest costs.
Ford Otosan reflected its lowest rate in 2018 at 1.67, which can be said by looking at the table
that the company's interest expense increased compared to other years. The two companies
had the highest rates when interest expenses fell, such as Ford Otosan showed 3.14 in 2016,
while Otokar showed 3.15 in 2015. Also, Otokar is less risky and both companies should have
no problem accepting bank credit.

B. Profitability Ratio Analysis

Gross Profit Margin: Gross Profit/Net Sales*100

Gross profit margin can be used to measure how well a company generates revenue
and to manage costs. The higher the gross profit margin, the better. When we look at the table,
we see that Ford Otosan falls behind on according to Otokar. 10.8% of gross margin at Ford
Otosan in 2017 and 2018 means that 10.8% of total revenue profit. Sales made by the cost +

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profit method in exports affected gross profit margin. Due to increased costs, gross margin (in
2019: 10.2%) decreased by 0.2 percentage points year-on-year.

B: Profitability Ratio
FORD-OTOSAN
Analysis OTOKAR
201 201
YEARS 2019 2018 2017 2016 2015 2019 2018 2017 6 5
10.2 10.4 10.4 11.4 11.1 37.8 35.8
Gross Profit Margin % % % % % % % 26.4% 25% 26%
19.1 13,8 12,60
Operating Profit Margin 6.2% 6.9% 6.7% 6.1% 6.2% % % % 11% 10%
14.5
Net Profit Margin 5.0% 5.1% 5.9% 5.2% 5.0% % 9.8% 5.6% 4.2% 6%
42.0 43.2 40.3 30.2 27.5
ROE % % % % % 55% 42% 35% 29% 32%

ROA 0.12 0.13 0.12 1.02 1.00 0.13 0.07 0.05 0.04 0.05
Table 5. Profitability Ratio Analysis

Operating Profit Margin: Operating Profit / Net Sales * 100

Operating profit margin is used to describe the extent to which the main activities of
the business have become profitable. A high operating profit margin indicates that the main
activities of the enterprise are profitable and efficient, while the tendency of this ratio to
decrease indicates that its profitability and efficiency are declining. Ford Otosan is lower than
Otokar's percentages. Looking at the table, according to 2015 and 2016, while the activity rate
increased in 2017 and 2018, it can be said that the reason for its decline in 2019 is due to the
exchange rate and inflation. When we compare the table, we see that the Otokar company is
more profitable and efficient.

Net Profit Margin: Net income/revenues, or net profits/sales

Net profit margin shows how much of each amount in revenue collected by a company
translates into profit. This table shows that in 2016 and 2017, Ford Otosan's net profit margin
was higher than Otokar. However, while Ford Otosan experienced a decline in 2018-2019,
Otokar's net profit margin increased significantly compared to previous years. The reason for
the decrease in Net profit margin may be the increase in depreciation and the rate of inflation.
In addition, the exchange rate and financing expenses decreased compared to the previous

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year, which affected the rate. Otokar may perform better in a product line that does not supply
expectations or during periods of economic contraction.

ROA: Net Income / Total Assets AND ROE: Net Income / Shareholders’ Equity

Return on assets is an indicator that shows how profitable a company is relative to its total
assets. The table shows that Ford Otosan has similar properties to Otokar in 2019, but Ford
Otosan created more profit in other years. In 2019, compared to other years, Otokar became
more leveraged, which led to an increase in both ROA and ROE. In 2019, Ford Otosan earned
0.42 TL for every 1 TL in return on equity ratio. However, in 2019, Otokar has lagged Ford
Otosan in the ratio of return on equity, earning 0.55 TL for every 1 TL. In addition, Otokar
has started to use return on assets more efficiently in 2019, and Otokar surpassed Ford Otosan
by 0.01%. However, I think we look in general, Ford Otosan has a higher return on assets and
uses its assets more efficiently.

B. Operating Efficiency Ratio Analysis

Account Receivable Turnover

In this ratio is the number of times per year that a business collects its average
accounts receivable. In the table, Otokar is far behind Ford Otosan because of the low net
sales. Ford Otosan is high accounts receivable turned over 26 times in 2015, which means that
the average account receivable was collected in over 13-14 days. Otokar Company collected
its receivables as 9.54 and 10 in 2015, which means that it was collected in 36.5 days. Otokar
may be experiencing some problems while collecting its receivables. Otokar Company needs
to increase its net sales, otherwise we see that it falls under the competitor's company.

C: Operating Efficiency
FORD-OTOSAN OTOKAR
Ratio Analysis
YEARS 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015
Account Receivable
Turnover 18.98 19.27 19.30 22.88 26.53 3.10 2.41 3.08 4.17 9.54
Inventory Turnover 18.8 19.6 20.4 15.6 18.6 2.07 1.97 2.90 2.65 14.56
Fixed Asset Turnover 6,51 6.06 5,17 4.06 3.76 3.76 3.82 5.01 3.55 2.49
Total Asset Turnover 2.65 2.64 2.48 2.06 2.13 0.97 0.78 0.94 0.96 1.00
Table 6. Operating Efficiency Ratio Analysis

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Inventory Turnover Cost of goods sold/average inventory

Calculating the cost of goods sold focuses on the value of these companies' inventory.
How much the product came to us and how we evaluate and sell it is important. Generally, a
high inventory turnover rate means sales are successful, but in some cases, it may also
indicate that the business is holding an insufficient amount of inventory. Conversely, a low
stock turnover rate may indicate that sales are not at the desired level, and may serve specific
purposes such as holding stocks and selling at the right time due to business policies. A high
inventory turnover rate can profit not only from sales but also from negotiations with
suppliers and shipping companies. Looking at the table, Otokar company fell behind Ford
Otosan but made the highest inventory turnover rate in 2015. It can be said that the reason for
this is the cost of the high goods sales it makes. In 2018, Otokar's inventory turnover rate
decreased because it experienced a decrease in the cost of goods sales. Looking at Ford
Otosan, we can say that both the cost of high goods sales and the inventory at the beginning
and end of the period are excessive. Ford Otosan may be the reason for the decline in
inventory turnover rate in 2016, providing little inventory at the end of the period. In addition,
when looking at 2019, the inventory at the end of the period decreased compared to the
beginning of the period, which affected the inventory turnover rate. Otokar has a serious
inventory error, so the wheels (cost of goods sold) also remain low.

Fixed Asset Turnover Net Sales/Average Net Fixed Assets

Fixed asset turnover helps determine the level of investment made in fixed assets. a
decreasing tendency of the rate indicates that the capacity utilization rate has decreased and
fixed assets cannot be used efficiently, while the increase in the rate indicates that the capacity
utilization rate has increased and that the enterprise uses its fixed assets efficiently. In general,
it is considered sufficient for this ratio to be 2 in industrial enterprises. Look at this table for
Ford Otosan, although 2015 was the lowest year, the increase in sales had a positive impact
on other years. The reason for the high-rate gap between Otokar and Ford Otosan is the sales
differences. The increase in sales in Otokar has also positively affected the company, but
since Ford also sells more commercial and small vehicles, there may be differences between
fixed assets. It can be said that Ford Otosan is more efficient in using its fixed assets.

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Total Asset Turnover= Net Sales/Average Total Assets

Total asset turnover rate measures the ability of a company to efficiently generate sales
of its assets. A company with a high total asset turnover ratio is considered effective in
making money using its assets. When we look at the table, we see that Ford Otosan has higher
rates than Otokar. This is because of both net sales and fixed assets. While Otokar Financial
did not invest in 2018, Ford Otosan made a financial investment of TL 12.408. In addition,
there is a serious difference between property, plant and equipment, and this has affected total
fixed assets. This detail in the rate account means that Ford Otosan uses all its assets (asset
base) to sell efficiently, and this makes Ford Otosan better than Otokar. Ford Otosan has
increased its net sales and total assets every year, increasing its total assets turnover rate well.

CONCLUSION

As a result, the two companies are in the automotive and industrial sectors but differ in
the vehicles they sell. Because of this, we have seen differences between rates in several rate
analyses. For example, Otokar is more of a bus and minibus brand, as well as the defense
industry, but Ford sells the smallest and commercial vehicles, so institutions such as public
institutions prefer Ford Otosan more. In addition, the two companies have progressed by
raising profitability rates, and based on these rates, we can say that the companies are well
managed. Both companies can easily survive a sudden moment of crisis. From the perspective
of the investor, both companies are successful. If we were an investor, we would prefer to
invest more in Ford Otosan companies, taking into account the ROA and ROE ratios.

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