Capital is a critical component of business success. The term "capital" is another way of saying access to cash from debt or equity. Companies without access to the capital markets may be headed for bankruptcy, or worse. In June 2009, Ford Motor Company (NYSE: F) borrowed $5.9 billion from the government. Approximately $600 million was due within a year, and the rest was to be paid off by June 2022. The government was the lender of last resort because Ford could not get this funding from the capital markets. The Obama administration made the loan because other forms of funding had simply dried up. Unlike General Motors Company (NYSE: GM), Ford was not a part of the original automakers bailout. To understand more about how the company’s capital structure compares against its peers in 2016, analysts like to look at market capitalization, debt capitalization and enterprise value. These measures provide insight about the risk/reward profile of an investment in Ford.

Market Equity Capitalization

Ford's stock price, which traded at around $13 in mid-April 2016, once traded as high as $32 in December 1998. From December 2014 to December 2015, market capitalization declined from $62 billion to $56 billion, while the number of shares outstanding remained relatively flat. In December 2014, the number of fully diluted shares outstanding was $4.055 billion; in December 2015, that number increased slightly to $4.058 billion. The decline in equity capitalization is due to a drop in price rather than a real change in equity capital structure.

Enterprise Value

Enterprise value is another way to look at capital structure. It is calculated by adding debt and other forms of long-term debt not included in total debt, such as pension liabilities, to market capitalization, and then cash is subtracted. Enterprise value is popular among those looking for a total cost of ownership on a particular company. Ford's enterprise value declined from $165 billion to $154 billion, along with market capitalization. There is a large difference between Ford's enterprise value and its market capitalization, which was $57 billion as of mid-April 2016. The difference is primarily debt, though the company also has a large cash position. In December 2015, Ford had $35 billion in cash and $133 billion in total debt.

Debt Capitalization

Debt capitalization did not remain flat over the same time frame. In December 2014, total debt was $119 billion, consisting of $39 billion in short-term debt, $16 billion in revolving loans, $7 billion in term loans and $85 billion in bonds. In December 2015, the total debt increased to $133 billion, consisting of $41 billion in short-term debt, $22 billion in revolving credit, $5 billion in term loans and $93 billion in bonds. Ford has one of the most diverse portfolios of debt, which is not surprising given the company’s recent past.

The Bottom Line

The automobile industry has been through a lot in the past 10 years, and capital is a critical component of any recovery plan. For some automakers, capital resources dried up, and government funds were required to continue operations. As a result, market debt-to-equity (D/E) ratios are higher for some automakers than they are for others. Not surprisingly, Ford's market-debt-to-capital ratio is extremely high, at 233%, compared to GM at 121%, or Tesla Motors Inc. (NASDAQ: TSLA) at 5%. The market debt-to-capital ratio for the automobile industry as a whole is only 32%. Ford remains in risky territory, which is not surprising for a company seven years removed from borrowing $5.9 billion. While an investment in Ford debt or equity may pay off, investors should have a high tolerance for risk because the company is operating under a highly aggressive capital structure.

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