Week 3 stock and flows

Week 3: System Dynamics

Introduction

A stock is the substance of any system. Stocks refer to the systems element which one can measure, see, count, or feel at any particular time. A stock system refers to a quantity, a store, an accumulation of information or material which has developed over time. Stocks change with time via the flow action. Flows are draining and filling, sales and purchase, decay and growth, withdrawals and deposits, as well as failures and successes. In this regard, stock is the current memory of the history of the altering flow in the system. When a stock grows by bounds and leaps or swiftly decline, when it is held in a particular range irrespective of what else is happening around it, it is probable that there is mechanism of control at work. The mechanism works via a feedback loop. This feedback loop is the reliable pattern of behavior for a lengthy period which is the initial hint of the feedback loop existence. A feedback loop is created when stock changes impact the out or in flow of that same stock (Meadows, 2008). This section focuses on evaluating the stock and flow of the Ford Motor Company and also any positive or negative feedback loop in the company.

Stocks and Flows

Ford Motor Company stock is highly comprised of its revenue, assets and inventories. The company’s total revenue for the last 3 years from 2013 to 2015 was $146.917 million dollars on 2013, $144.077 million on 2014 and $149.558 million on 2015. The stock out flow for those three years which is related with the company expenses associated to revenue generation were $123.050 million in 2013, $127.724 million in 2014 and $126.495 million in 2015. This reduced the company’s stock to $23.867 million in 2013, $16.353 million in 2014 and $23.063 million in 2015 (Nasdaq, 2016). Other expenses that include interest expenses, income taxes and other expenses reduced this amount to net earnings of $11.953 million in2013, $1.231million in 2014 and $7.373 million in 2015. Ford other stocks include its current and long term assets which comprises of net receivables, short-term investments, cash equivalents, inventory, long term investments, deferred assets charges, good will, fixed assets and intangible assets. This amounted to a total of $202.179 million in 2013, $208.615 in 2014, and $224.925 million in 2015. The company stock has also been reduced by company’s liabilities that include short-term and long-term debts, deferred liability charges, miscellaneous stocks, minority interest, and account payables. The total company’s outflows through liabilities are equivalent to $176.067 million in 2013, $184.177 million in 2014, and $196.283 million in 2015. The company’s equity which adds to its stock for the three years was recorded as $26.112 million in 2013, $24.438 million in 2014, and $28.643 million in 2015. This demonstrates the company’s stock and flows for a period of three years (Nasdaq, 2016).

Feedback Loops

Ford Motor Company is a publically traded company which has released a good part of its shares in the market. The price of the company shares highly depend on the company financial performance. When the financial performance is good, the company valuation goes up and thus the shares prices increases. This also increases their demand in the market, an aspect that increases the company’s earnings and hence its stock. However when the company financial performance is low then the company share prices goes down as well as their demand, and hence reducing company’s earning. Another feedback loop in the company is founded on the company’s investments. The high rate of investments increases the investment related returns which include interest from the cash banked in different financial institutions. The company has managed to make a number of short-term and long-term investments which are anticipated to bring in extra earnings to the company either through appreciation, interest generation or generation of any other form of income. The two feedback loops will provide the company an opportunity to grow exponentially. Nevertheless, the company also has both short-term and long-term debts which can highly increase the company’s expenses. This can act as a negative feedback loop where the company will be expected to pay more money to the lender as interest rate based on the debt quantity and the payment duration (Kobayashi-Solomon, 2016).

Recommendation

The company stock highly determines its ability to survive and to overcome financial challenges. It is therefore important to understand the in-flow and out flow of the company’s stock. This will assist in establishing ways to improve the company’s operation strategies to reduce the outflows and increase the inflows. The company’s feedback loop on the other hand enables the management to understand the positive feedbacks and to be able to differentiate them with negative feedbacks. This enhances the management decisions during strategizing to be able to establish the best way to increase the company financial worth and to minimize losses through negative feedbacks.

Supporting Research

The above discussion is supported by the following research work:

Kobayashi-Solomon, E. (2016). A step-by-step valuation of Ford Motor Co. (F). Retrieved from < http://www.forbes.com/sites/erikkobayashisolomon/2016/02/16/a-step-by-step-valuation-of-ford-motor-co-f/#68edd93c2f33>

Meadows, D. H. (2008).  Thinking in systems: A primer. White River Junction, VT: Chelsea Green.

Nasdaq. (2016). F company financials. Retrieved from < http://www.nasdaq.com/symbol/f/financials?query=income-statement>