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General motors

General motors. Module 10 : A More Detailed Analysis of the Financial Statements. Enterprise operations. General Motors. Client Strategy Template: GM . Strategies.

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General motors

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  1. General motors Module 10: A More Detailed Analysis of the Financial Statements

  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. Parsimonious Forecasting General Motors

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

  7. Parsimonious assumptions

  8. Valuation using cash flows • FCF = EPAT - ∆NEA • Discount rate  10% • Enterprise Value = 109,146

  9. Cost of capital & valuation General Motors

  10. Cost of enterprise capital • rEnt = (rD * VD/VEnt) + (rEq * VEq/VEnt) • Cost of equity = 12.6% • Cost of debt = 1.92% • Calculated WACC = 11.89%

  11. Valuing GM • Estimate of Enterprise Cost of Capital = 11.89% • Enterprise Value = 89,184

  12. REI Model • Assumptions remain the same: • 2.82% sales growth • 4.73% EPM • 5.7 EATO • 11.89% WACC • Enterprise value matches

  13. AGR Model • Assumptions remain the same: • 2.82% sales growth • 4.73% EPM • 5.7 EATO • 11.89% WACC • Enterprise value = 89,184

  14. Checking our figures • Enterprise value remains $89,184 throughout all models

  15. Financial Report Analysis General Motors

  16. Sales & Revenue • GM Financial experiencing huge growth after acquisition of Ally Financial’s international operations

  17. GM Financial Receivables • Increase in GM Financial’s receivables accounts for large portion of increase in NEA • Provides insight into company’s fluctuating EATO

  18. Impact of GM financial Growth • Increase Enterprise Assets  Increase NEA  Lower EATO  Lower entity value (Sales remaining relatively constant)

  19. equity income and gain on investments • Prior classification: Finance activity • Switch to Enterprise activity would increase NEA and EPAT

  20. Deferred Taxes • Reported on balance sheet: • Deferred tax asset = 33,085 • Deferred tax liability = 0 • Net = 33,085 • Reported in footnotes: • Deferred tax asset = 32,081 • Deferred tax liability = (397) • Net = 32,081 • Implied additional asset = 1,004

  21. goodwill

  22. Pensions • Pension benefits: • FV plan assets  64,166 • Benefit obligation  71,480 • Funded status  (7,314) • Recognized as noncurrent asset  0 • Recognized as current liability  (131) • Recognized as noncurrent liability  (7,183) • Net amount recognized = (7,134)

  23. Other Retiree Benefits • Other retiree benefits: • FV plan assets  0 • Benefit obligation  5,110 • Funded status  (5,110) • Recognized as current liability  (368) • Recognized as noncurrent liability  (4,742) • Net amount recognized = (5,110)

  24. Property • Does this reflect company strategy of consolidation?

  25. Other expansions General Motors

  26. Marketable Securities

  27. Inventories

  28. Intangible assets

  29. Long term debt • Once again, see growth in GM Financial • 2 new credit facilities • $7.3 billion effect from acquisition • Bloomberg Cost of Debt = 1.92%

  30. Areas for Further investigation • Tax rate • Research and development • Advertising expenses • Litigation issues • Current recall and class action lawsuit

  31. Questions?

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