Ford's (NYSE:F) recovery has hit some impressive milestones recently. Consider:

  • Profits! A billion dollars worth of operating income in the third quarter, including $446 million from "automotive," meaning the business of selling cars and trucks.
  • North American profits! Ford's North American operations were profitable for the first time since 2005 -- $357 million worth of pre-tax profits, to be exact. In fact, of Ford's major operational and financial divisions, only Volvo -- which is in the process of being sold (probably to China's Geely Automotive) -- lost money.
  • Credit upgrade! After pondering Ford's latest quarter, Standard & Poor's upgraded the company's debt rating a notch to B-. That's still junk bond territory, but it's a big psychological step up from the "highly speculative" CCC+ rating they had before. Moody's (NYSE:MCO) announced a similar upgrade the day before.
  • Consumer Reports! The venerable consumer watchdog might not be ready to declare Ford's products quite equal to quality kings Toyota (NYSE:TM) and Honda (NYSE:HMC), but they have made a point of acknowledging that Ford has made tremendous strides and is, finally, in the neighborhood -- and eclipsing its U.S. rivals in the process.

CEO Alan Mulally and his management team are moving the company through its turnaround plan in impressive style. If they keep it up, Ford's turnaround will be a legend for the ages -- or at least, a key MBA case study for decades.

But how are they really doing?

A deeper look at the numbers
Let's start with some basics. Ford's market cap is roughly $26 billion. They have $23.8 billion of gross cash on hand (up from $21 billion last quarter). On the other side of the balance sheet, what they call "total automotive debt" is $26.9 billion, up from $24.2 billion at the end of 2008.

Ford Credit's financials are more complicated, but long story short: They're making money and have reduced their leverage, meaning the ratio of assets on hand to equity. Leverage is a key metric when evaluating banks, and it can be calculated a couple of different ways depending on how one accounts for certain derivatives, but in this case, the more conservative calculation puts it just under 10, which is good.

Good thing, too, because they're going to need a steady cash flow to service all of that operational debt.

About that debt ...
On Tuesday, Ford announced the sale of $2.5 billion in "senior convertible notes" -- bonds that mature in 2016 with a 4.25% coupon or are convertible to common stock at $9.30 a share. Ford is also planning on issuing more common stock, up to $1 billion worth.

These issues will dilute the value of the common stock -- by about 7%, according to a Goldman Sachs (NYSE:GS) estimate, of course that was before Ford increased the sale by $500 million and allowed and underwriters option of an addition $375 million. But I don't expect them to be a significant drag on the stock's performance going forward.

Ford's also doing some more restructuring of its existing debt, specifically a $10.1 billion revolving credit line due to be repaid in December of 2011. They've asked lenders to extend the due date to 2012 "in exchange for reducing lenders' commitments and increasing interest margins and fees." This and a couple of related deals are the "mother of all subprime mortgages" -- the credit line that was set up by Goldman Sachs, Citgroup (NYSE:C), and JPMorgan Chase (NYSE:JPM) for Ford back in 2006, shortly after Alan Mulally's arrival. Why the nickname? Because the debt is secured by pretty much everything of value that Ford owns.

But I think this round of restructuring will go forward without too much trouble. I expect that the lenders, having watched General Motors' and Chrysler's debt holders get taken for a ride during those companies' bankruptcy proceedings, will be very happy to work something out with Ford.

The upshot
You really only need to look at one number -- $26.9 billion in debt -- to know that Ford is still a very sick company. I'd say it's still in intensive care, though the priest who came by to give the last rites has probably been sent home. They are executing very well on their extremely ambitious turnaround plan, but some key questions remain. Here they are as I see them:

  • Will Ford survive without bankruptcy in the near term? If they keep executing on their plan, and if the economy doesn't take a sharp turn for the worse, yes.
  • Will they be able to pay down that gruesome debt load? Yes, eventually, assuming they reach a sustainable level of profitability by 2011, as they are currently predicting, though we may see more restructuring (or re-restructuring) of their debt in the next year or two.
  • Should I buy or sell the stock right now? I wouldn't sell -- I'm a Ford shareholder and I'm not planning to sell anytime soon. But whether it's a buy at current prices is a more complicated question, one I'll take a closer look at once Ford releases its complete third-quarter numbers.

Meanwhile, what do you think? Is Ford a buy? Leave a comment and let me know.

Fool contributor John Rosevear owns Ford preferred shares. Moody's is a Motley Fool Stock Advisor pick and a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has the great-uncle of all disclosure policies.