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General motors

General motors. Module 3: Market Multiple Valuation. Enterprise operations. General Motors. Client Strategy Template: General Motors . Strategies.

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General motors

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  1. General motors Module 3: Market Multiple Valuation

  2. Enterprise operations General Motors

  3. Client Strategy Template: General Motors Strategies Growth Strategy:Focus on “alternative propulsion strategies” (hybrid, electric, FlexFuel, hydrogen fuel cell) in an attempt to create environmental diversity and fuel efficiency throughout product line Financial Goals & Operating Priorities:Aim to be the industry leader in fuel efficiency, pursue top market share in both domestic and global market Characteristics of the Business Major Business Units: GMNA, GME, GMIO, GMSA, GM Financial Markets: Automotive assembly and manufacturing, financial services (leases, contracts), automotive safety technology Products: Chevrolet, GMC, Buick, Cadillac, OnStar technology, GM Financial services Customers: Auto wholesalers, Rental car agencies, Authorized dealerships Competitors:Toyota, Ford, Nissan Strategic Alliances/Joint Ventures: Mostly concentrated in China Potential Adverse Influences: Constant technology innovation, oil prices, raw material prices, government regulation, dependence on suppliers, product recalls (safety issues)

  4. Markets & products • Auto brands • Chevrolet • GMC • Buick • Cadillac • OnStar (wholly owned sub) • GM Financial • Formerly AmeriCredit Corp • Strategic Alliances • Concentrated in China • JV with SAIC Motor

  5. Reformulation General Motors

  6. EPAT

  7. NFL

  8. NEA

  9. Market multiples General Motors

  10. Step 1: Select summary performance Measure • Enterprise Performance Measures • EPAT • NEA • Equity Performance Measures • Price minus Book Value to R&D • Price minus Book Value to Advertising

  11. Step 2:Select comparable companies • GM • Ford • Toyota • Honda • Are they actually comparable?

  12. Step 3:Compute market multiple Example: Current Market Price per Share X Common Shares Outstanding Market Cap Market Cap + NFL = Enterprise Value Enterprise Value/EPAT = EPAT multiple

  13. Step 3:Compute market multiple Example: Current Market Price per Share X Common Shares Outstanding Market Cap Total SH Equity – preferred – noncontrolling interests Book Value Equity (Market Cap-BV)/RD = Multiple

  14. Step 4:Compute GM’s value using performance measure and market multiple • EPAT Multiple • Enterprise performance measure • Subtract value owed to debt holders (NFL) to get equity value

  15. Step 4:Compute GM’s value using performance measure and market multiple • NEA Multiple • Enterprise performance measure • Subtract value owed to debt holders (NFL) to get equity value

  16. Step 4:Compute GM’s value using performance measure and market multiple • Price Minus BV to R&D Multiple • Enterprise performance measure • Not necessary to subtract value owed to debt holders (NFL) • Just divide by common shares

  17. Step 4:Compute GM’s value using performance measure and market multiple • Price Minus BV to Advertising Multiple • Enterprise performance measure • Not necessary to subtract value owed to debt holders (NFL) • Just divide by common shares

  18. Step 5: Buy, sell, or hold?

  19. Confidence level • Method of comparables • Extremely difficult in reality • Foreign competitors • Financing portion of auto industry • Influence of bankruptcy • Year-end differences • Which stock price should determine market value? • Prevalence of outliers • Unable to find a single metric that lacked outliers • Highly subjective • Role of judgment, estimates

  20. Questions?

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