About General Motors

GM, also referred to as General Motors, is a publicly traded business that is listed on the New York Stock Exchange (NYSE). The company is in the business of developing, producing, selling, and distributing cars and their components. It makes vehicles for a number of brands, including Chevrolet, Buick, GMC, and Cadillac (GM, n.d). I chose this business to analyze since I’ve always been interested in automobiles, especially Cadillac models. I was interested in the performance of businesses that deal in high-end automobiles because of the high price of this model and the fact that they cater to the wealthy, therefore serving a niche market. Therefore, General Motors is the business that has been chosen for analysis in this report.

Question 2

The image below shows a screenshot of the investor page of the General Motors website. On the website, investors can gain an impression of the company’s performance by understanding its net revenues and its income before accessing any financial statements.

The financial statements of the firm are available using this link http://www.gm.com/investors/sec-filings.html. The company filed the form 10-K with the Securities Exchange Commission on February 14, 2017.

Question 3

Copies of the financial statement have been downloaded and are available as a separate attached file together with this report.

Question 4

General Motors has provided its operating income for the three previous years, that is, 2014, 2015, and 2016. In 2014, the operating income for the business was $1.53 million. It rose in the year 2015 reaching $4.897 million. The performance has continued to improve given that the 2016 operating income for the business was $9.545 million.

Question 5

GM is a company with global operations meaning it has a large amount of assets. The total assets for the year 2015 as per the balance sheet was $194.338 million, and this amount rose in the year 2016 to stand at $221.690 million.

Question 6

The statement of shareholders’ equity in the balance sheet of the General Motors Company contains five items: common stock at its par value, additional paid-in capital, retained earnings, accumulated other comprehensive losses, and non-controlling interests. According to Demaria (2010), shareholder’s equity refers to the amount of capital that investors bring into a company and any undistributed profits. The shareholder’s equity section of the GM balance sheet contains this information. The par value of the common shares is the capital that investors injected into the business while the retained earnings represent the undistributed profits. Notably, the GM balance sheet shows that the business has other sources for its equity including investors who have a non-controlling stake and some additional capital brought into the firm.

Question 7

A cash flow statement gives the flows of cash in and out of a business for a certain period (Hove, 2006). The cash flow statement presents this information in three categories: operating, investing, and financing. In the GM cash flow statement, information has been divided into the three groups that Hove (2006) states should be present in the cash flow statements. At the top of the statement are the cash flows from operating activities. Money has come into and gone out of the business for various reasons. Items such as net income and foreign currency re-measurement and transaction losses increase the firm’s cash position. On the other hand, pension contributions and OPEB expenses are examples things that reduce its cash. The other sections of the cash flow statement, investing and financing, follow the same approach where cash reduces or rises according to the nature of a transaction. At the bottom of the statement is the total cash. A negative amount indicates a company has to decide how to raise cash for short-term obligations. A large sum may point to idle cash that the business can invest.

Question 8

The statement of cash flows differs significantly from the income statement. The cash flow statement presents the cash position of the business whereas the income statement estimates the profits or losses that the business has made. For the cash flow statement to give the amount of cash the business holds, it only takes into consideration those items that lead to spending or receiving cash. Thus, an item, such as depreciation, that in reality has no impact on the current period’s cash position is added back to the cash flow statement to reflect the true cash position. In the income statement, depreciation is reduced as an expense since the value of assets declines as the business continues to use them. From this information, it is clear that the cash flow statement helps to give the cash position while the income statement indicates the profits or losses that a business makes.

Question 9

Apart from the financial statements contained in General Motor’s form 10-K, there is additional information that aims to present a holistic view of the performance of the company. For instance, the report contains information on the risk factors that face the business. Some of the risks that confront the enterprise include the possibility of the company failing should it be unable to deliver new products, services, and consumer experience as a response to new entrants in the market. In addition, the ability of the company to maintain its profitability depends on the delivery of new and better vehicle models.

The information on risk factors is essential in the form 10-K as it meant mainly for investors. Investors usually conduct investment analysis to enable them make the best decision regarding where to put their money (Pogue, 2010). One of the areas they need to understand is the risk that a business faces. Risks are the problems that an enterprise may encounter in the course of its operations and could affect its ability to achieve its goals. By explaining the risks and measures the company has established to address them a firm can still attract investors.

GM has created strong measures to enable it deal with the risks it faces. Research and development is one of the strategies that the business uses to lower the risk that new entrants will bring new products and services to customers. The company hopes to continue leading in the kind of technology used in the automotive industry. Research and development is also going to help it produce new and improved vehicle models that attract consumers as a way to deal with the risk.

Another section available in the GM report is the legal proceedings that involve the business. Lawsuits are an important consideration for investors since they may involve paying or receiving large sums of money. The amounts can have a substantial effect on the returns investors receive on their investment. Therefore, the information helps them decide whether or not to pursue that investment. Detailed information of the legal proceedings is available from the notes on financial statements. It shows that the business has been the subject of several litigations, for instance, a recent vehicle recall due to faulty ignition switches. Despite the lawsuits, the company’s financial position remains strong.

References

Demaria, C. (2010). Introduction to private equity. Hoboken, NJ: John Wiley & Sons.

General Motors (n.d). Our brands. Retrieved from http://www.gm.com/our-brands.html

Hove, R. M. (2006). Consolidated financial statement: An international perspective. Cape Town, SA: Juta and Company.

Pogue, M. (2010). Corporate investment decisions: Principles and practice. New York, NY: Business Expert Press.