1 / 27

General motors

General motors. Module 11: Adjusting Accounting Information. Enterprise operations. General Motors. Client Strategy Template: GM. Strategies.

ken
Download Presentation

General motors

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. General motors Module 11: Adjusting Accounting Information

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

  13. Financial Report Analysis General Motors

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

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

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

  17. Accounting Methods General Motors

  18. Adjustment A: Inventory • Footnote 6: No inventory for which GM reports using LIFO

  19. Auto Industry Inventories • Ford  20% of inventory accounted for using LIFO method • Honda  primarily on a FIFO basis • Toyota  “average cost” system, with some LIFO basis disclosed

  20. Adjustment B: Operating Leases GM Financials  No footnote pertaining to lease obligations Instead, look to page 57 of MD&A

  21. Payments Due • From MD&A • Information provided is not sufficient to calculate an implied interest rate • Divide payments equally? • Capital lease PV figure includes additional debt amounts?

  22. Additional Info on Operating Leases • Footnote 17 (Commitments and Contingencies) More detailed breakdown of payments due each year

  23. GM’s Estimated Lease Liability • Using discount rate of 14.54% • Omitted asset and liability related to recording leases as operating rather than capital is $734 million • Increase NEA by $734 • Increase financing liabilities by $734

  24. Effect on EPAT • Removal of operating lease payments (rent expense) • Subtract $477 million • Reclassify as interest expense & depreciation • $734 * 14.54% = $107 interest expense • $477-$107 = $370 depreciation • Net impact on EPAT (remove rent expense, add depreciation expense) • (477 - 370) (1-.37) = 67 • Conclusion  need more detailed disclosures; impact of capitalization does not appear to be substantial to understanding of GM’s enterprise operations

  25. Adjustment C: Special Purpose Entities Asset securitization • Common in financial subsidiaries of manufacturing companies • Important source of liquidity

  26. Adjustment D: Share-Based Compensation • GM stock incentive plan centers on RSUs (Restricted Stock Units) • Hybrid between stock options and restricted stock • Promise to grant restricted stock at some point in future • Still rebuilding this portion of employee benefits following bankruptcy and IPO in 2009

  27. Questions?

More Related