Ford's CFO Teaches about Leverage and Cash FlowI continue to follow Ford's fortunes (see these prevous posts) in the Alan Mulally era.
Today what caught my eye was an article by Scott Leibs, the editor-in-chief of CFO, about Lewis Booth, a long-time Ford employee who became the company's CFO in November 2008. Of particular interest to me, as someone focused on training, was what Lewis told Seibs concerning his discussions with executives and other operations people about how they can assist the finance department's ongoing efforts to repair Ford's balance sheet.
As Seibs explains, Lewis has made it his business to teach Ford employees about the link between finance and operations.
Within a month of assuming the CFO post, he began to walk Ford's senior-most executives through the grim realities of the company's balance sheet [which was and is heavily burdened with debt]. A month later, he extended that tutorial to an additional 400 Ford managers. "When I was in operations, the balance sheet was really viewed as a finance problem," he says. "We've managed to make it a collective responsibility."In sum, Lewis is giving high priority to communicating to employees the importance of producing products that generate revenue at a pace that enables the company to reduce debt to a more healthy level. He is also explaining specifics of what company employees can do to help strenghthen cash flow.
Booth's aim was not to make Ford more finance-centric but rather to "identify what we thought was an appropriate road map" for restructuring the balance sheet. ... "The goal was to show where we are, where we want to be in three to four years, and what contribution to that effort can come from operations" versus the treasury department.
The message, Booth says, is that "it's not about borrowing more money, it's about making more money so you can pay back some of those debts." Indeed, debt is perhaps the top challenge of Ford now. GM and Chrysler face the same hurdle but to a much smaller degree, thanks to their respective bankruptcy agreements. One analyst estimates that debt servicing adds $1,500 to the cost of every vehicle Ford sells. Booth takes issue with that particular metric, arguing that "it's not particularly helpful to frame debt in $X-per-vehicle terms. I view it more in terms of what you will pay over the period of a given product program, because that excites people and keeps us focused on why we're in debt in the first place: to invest in new products."
For the record, Ford's ratio of long-term debt to total capital was 1.07 as of September 30, 2009.