Ford: The Last Brutal Quarter

In the near term, it won't be pretty. Ford likely burned through another $4 billion or $5 billion in the just-completed quarter and will probably burn another $4 billion to $5 billion over the next nine months before we get anywhere near break-even. Assuming Ford burns through $8 billion this year, then it will still have more than $8 billion in working capital at the start of 2010. (My math appears conservative, as Credit Suisse sees Ford with far higher cash balances in 2010.)

More than likely, Ford is four to six quarters away from a break-even quarter -- perhaps longer -- and the automaker is unlikely to report a profit before 2011. But don't underestimate the power that steadily shrinking losses have with creditors. Ford's existing and new lenders would be likely to take a soft approach if it appeared that Ford was well on its way toward moving back into the black.

And that should allow for additional re-jiggering of the balance sheet, without the need to massively dilute the equity. (Ford already took out $9.9 billion in long-term debt in a recent restructuring in exchange for $2.4 billion in cash and 468 million new shares, which expanded the share count by 20%.)

The lenders will want to see a solid rebound in EBITDA margins before opening up more credit, and that should be the case in 2010. In the 1990s, Ford's EBITDA margins handily exceeded 10% most years. Last year, the EBITDA margin actually turned negative, but it could rebound above 4% next year on only modestly improving sales and could approach 6% to 7% in 2011, thanks to the myriad cost cuts. EBITDA margins are crucial in another respect: They historically have determined an appropriate enterprise-value-to-sales multiple. As the margin rate rises, the EV multiple can expand as well.

All of these above-cited metrics will be fodder on Friday morning's conference call. Since first-quarter industry sales were quite weak, Ford will not have a good story to tell. But as investors better understand the potential for improvement in these metrics in these quarters ahead, the stock's value will come into sharper focus.

I will provide a fresh run through the numbers when Ford reports results Friday morning.

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Know What You Own: Other automakers include Toyota Motor(TM Quote), Honda Motor(HMC Quote), Daimler(DAI Quote) and Tata Motors(TTM Quote).