Income statement is also referred to as profit and loss statement because it tells the readers about the profitability of an organization during a particular period of time. These periods may vary in duration such as a quarter or a year. The two major sections in the income statement are revenues and expenses. The difference between revenues and expenses determine to a great extent whether the firm is profitable or not and if it is, then by what extent (Reeves). Income statement and balance sheet are related because certain items affect both balance sheet and income statement such as depreciation expense and net income.

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As far as Ford is concerned, the company’s net revenues slightly declined from approximately $136.26 million in 2011 to approximately $134.25 million in 2012 which may be due to one or more factors such as challenging economic climate on a global scale as well as rising competition from both domestic and Asian automobile manufacturers. This might have led Ford to increase its spending on sales and promotion activities as evident by a higher selling, administrative, and other expenses in 2012 (approximately $12.18 million) as compared to 2011 (approximately $11.58 million). It is also highly likely that one of the tools the company used in 2012 to boost sales was generous customer credit policy which may also explain why the financial services provision for credit and insurance losses jumped significantly from negative $33 million in 2011 to $86 million in 2012 (Ford, 2012).

Even though total expenses were lower in 2012 at approximately $127.96 million as compared to approximately $128.50 million in 2011, the expense to revenue ratio was higher in 2012 which is not uncommon during difficult competitive environment as companies increase expense to support sales activities. Though not related to main operations, Ford’s overall performance was helped by gains in marketable securities and divestures of certain operations as evident by approximately $1.19 billion in automotive interest income and other income which was $360 million higher than the 2011 level. This income was significant to Ford’s overall annual performance during the fiscal year 2012 as it accounted for over 20 percent of annual net income of approximately $5.67 billion (Ford, 2012).

If one looks at the net income figures for the fiscal years 2011 and 2012 only, the tremendous decline from approximately $20.21 billion in 2011 to approximately $5.67 would be a cause of serious concern but upon closer look, it is clear that the highly impressive performance in 2011 was mostly the result of a rare and unusual event like benefit from income taxes. But the management does share some credit for devising a strategy that helped reduce the company’s tax liability such as reinvesting income from foreign operations in foreign operations instead of repatriating income to U.S. Headquarter (Ford, 2012).

But even if exclude the effects of unusual events like huge gain from income taxes, the net income in the fiscal year 2012 was still slightly below the fiscal year 2011. Just as the balance sheet provided us hints, and the income statement confirms it, the year 2012 was challenging for Ford. One of the measures the company should take is to improve receivables management so as to minimize bad debt in the future. Similarly, the company may continue to reduce tax expenditure by reinvesting income generated from international operations in international markets where the real growth will come from.

  • Ford. (2012). Form 10-K. Delaware: Ford Motor Company. Print.
  • Reeves, L. (n.d.). The Purpose of a Balance Sheet & Income Statement. Retrieved May 10, 2014. Web.