Can Ford Motor Company (F) Sustain Its Debt?

Financing costs have fallen throughout the market over the past year, as interest rates fall and corporate bond yields decrease. Indeed, financing rates across these three companies have dropped between 2010 and 2011, making borrowing cheaper. Ford has made use of this by reducing debt, while GM has marginally increased debt, and Volkswagen has significantly increased debt.

The comparison between debt issuance and reduction is staggering.

Ford has been reducing debt in large quantities every year since 2008. Volkswagen has been increasing debt at regular amounts of $10 billion a year since 2008 apart from 2010, when it brought back a small amount. GM’s large debt issue in 2009 was a debt refinancing, resulting in no real increase in the company’s net debt position.

Conclusion

So overall, Ford’s debt has been a problem in the past, but compared to its competitors the company is not in any real difficulty. Ford is reducing its debt pile, while competitors are increasing their debt, which makes Ford look like the better company.

In addition, Ford’s debt is relatively low in relation to the company’s EBITDA, and financing costs are only around 10% of the company’s EBIT.

All in all, Ford’s debt seems manageable, and GM has a net cash balance. Volkswagen is rapidly increasing its debt, and this could affect the company in the future.

Data Source: Saxo Capital Markets, Marketwatch

The article Can Ford Sustain Its Debt? originally appeared on Fool.com.

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