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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

slide3

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
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?

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

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