1 / 19

General motors

General motors. Module 7 : Valuation Using Residual Enterprise Income. Enterprise operations. General Motors. Client Strategy Template: GM . Strategies.

lynna
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 7: Valuation Using Residual Enterprise Income

  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) 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?

  7. Parsimonious assumptions

  8. Valuation using cash flows • FCF = EPAT - ∆NEA • Discount rate  10% • Enterprise Value = 100,629

  9. Cost of capital & valuation General Motors

  10. “Government motors” • June 2009: filed Chapter 11 bankruptcy • July 2009: emerged from bankruptcy with ownership split between: • US Federal Government • United Auto Workers Association • Canadian Government • GM bondholders • November 2010: GM shares returned to the NYSE at $33 per share

  11. Cost of enterprise capital • rEnt = (rD * VD/VEnt) + (rEq * VEq/VEnt) • For GM: • VD = (5,419)  NFL • VEq = 52,482  Market cap • Implied VEnt = 47,063 • Calculated WACC = 13.83%

  12. WACC: Bloomberg

  13. Valuing GM • Estimate of Enterprise Cost of Capital = 10.1% • Enterprise Value = 99,264

  14. Residual enterprise income General Motors

  15. REI Model • Assumptions remain the same: • 2.7% sales growth • 5.7% EPM • 6.5 EATO • WACC = 10.1%

  16. DCF Check • Same enterprise value

  17. Module 8 Practice Problem • Depreciation = 1800 • Value = 7974

  18. Module 8 Practice Problem • Depreciation = 2400 • Value = 7974

  19. Questions?

More Related