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General motors

General motors. Module 5: Valuation Using Cash Flows. Enterprise operations. General Motors. Client Strategy Template: GM. Strategies.

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General motors

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  1. General motors Module 5: Valuation Using Cash Flows

  2. Enterprise operations General Motors

  3. Client Strategy Template: GM 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. NEA

  8. Parsimonious Forecasting General Motors

  9. Break down RNEA Enterprise Profit Margin (EPM) Enterprise Asset Turnover (EATO) Measure of profitability: How much operating profit does the firm earn from each sales dollar? Measure of efficiency: What level of sales does the firm realize from each dollar invested in enterprise assets?

  10. Cross sectional & Time-Series Comparison • 2012 • Highest EPM in peer group • Highest EATO in peer group • 2011 • Lowest EPM in peer group • Negative EPAT in 2011 • Highest EATO in peer group

  11. Parsimonious: Revenues • Extremely volatile • Bankruptcy restructuring in 2009 • Average: 3.00% • IBIS Industry Average Prediction: 2.40% • Assumption  2.70%

  12. Parsimonious: EPM (from Sales) • EPM  3.86% • EPM (from Sales)  7.53% • Closer to industry average • Removed effect of large goodwill impairment in 2012 • Assumption  5.70%

  13. Parsimonious: EATO • EATO average  9.83 • 2012 Peer Group Average  3.2 • Competition all below 2.0 • Assumption  6.50 • Reasonable given 2.27 decrease in 2012

  14. Parsimonious assumptions

  15. Valuation using cash flows • FCF = EPAT - ∆NEA • Discount rate  10% • Enterprise Value = 133,895

  16. Questions?

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