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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

General motors

Module 10:

A More Detailed Analysis of the Financial Statements


Enterprise operations

Enterprise operations

General Motors


General motors

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)


Markets products

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


Parsimonious forecasting

Parsimonious Forecasting

General Motors


Break down rnea

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?


Parsimonious assumptions

Parsimonious assumptions


Valuation using cash flows

Valuation using cash flows

  • FCF = EPAT - ∆NEA

  • Discount rate  10%

  • Enterprise Value = 109,146


Cost of capital valuation

Cost of capital & valuation

General Motors


Cost of enterprise capital

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%


Valuing gm

Valuing GM

  • Estimate of Enterprise Cost of Capital = 11.89%

  • Enterprise Value = 89,184


Rei model

REI Model

  • Assumptions remain the same:

    • 2.82% sales growth

    • 4.73% EPM

    • 5.7 EATO

    • 11.89% WACC

  • Enterprise value matches


Agr model

AGR Model

  • Assumptions remain the same:

    • 2.82% sales growth

    • 4.73% EPM

    • 5.7 EATO

    • 11.89% WACC

  • Enterprise value = 89,184


Checking our figures

Checking our figures

  • Enterprise value remains $89,184 throughout all models


Financial report analysis

Financial Report Analysis

General Motors


Sales revenue

Sales & Revenue

  • GM Financial experiencing huge growth after acquisition of Ally Financial’s international operations


Gm financial receivables

GM Financial Receivables

  • Increase in GM Financial’s receivables accounts for large portion of increase in NEA

  • Provides insight into company’s fluctuating EATO


Impact of gm financial growth

Impact of GM financial Growth

  • Increase Enterprise Assets  Increase NEA  Lower EATO  Lower entity value

    (Sales remaining relatively constant)


Equity income and gain on investments

equity income and gain on investments

  • Prior classification: Finance activity

  • Switch to Enterprise activity would increase NEA and EPAT


Deferred taxes

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


Goodwill

goodwill


Pensions

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)


Other retiree benefits

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)


Property

Property

  • Does this reflect company strategy of consolidation?


Other expansions

Other expansions

General Motors


Marketable securities

Marketable Securities


Inventories

Inventories


Intangible assets

Intangible assets


Long term debt

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%


Areas for further investigation

Areas for Further investigation

  • Tax rate

  • Research and development

  • Advertising expenses

  • Litigation issues

    • Current recall and class action lawsuit


Questions

Questions?


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