Introduction
General Motors Company is a multinational corporation based in the United States of America and is commonly referred to as General Motors or simply GM (General Motors, 2018). The company was initially known as General Motors Corporation until its bankruptcy and closure in 2009 when it was started again under the name General Motors Company. The company has its headquarters within the city of Detroit, Michigan, the USA. GM is involved in the designing, manufacturing, marketing and the distribution of vehicles and their spare parts across the various states in the United States of America and worldwide (General Motors, 2018). GM also sells financial services to its large client base across the globe. General Motors is involved in various levels of competition from the other designers and manufacturers such as Ford Motor Company (General Motors, 2018). GM has more than 350 facilities across the globe on six continents, which contributes to its global market approach except for a few countries and territories.
Analysis
Company's Capital Structure
GM uses different methods in the facilitation of the payments of the debts that the company has acquired from the financial institutions of the USA. The total debt of the company has had a constant increase in the last five years of the company as follows. The capital of the company has also recorded a continuous growth over the previous five years (Market Watch, 2018).
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| Fiscal year | 2013 | 2014 | 2015 | 2016 | 2017 |
| Total debt (million USD) | 36,183 | 46,841 | 63,111 | 84,628 | 94,219 |
| Capital | 78,790 | 82,298 | 102,982 | 128,464 | 129,220 |
(Source: Market Watch, 2018).
The increase in capital as the debt increases is an indicator of the manageability of the short-term and long-term debt in the company.
Liquidity
General Motors has had a reduction in its current ratio for the last five fiscal years. That has been caused by the constant decrease in the current assets of the company at a time when the current liabilities of the company have been increasing (Market Watch, 2018). The reduction in the current ratio is an indicator of the reduction in the liquidity for GM over time. The quick ratio has generally reduced over the five financial years that have been analyzed. The reduction in the quick ratio has been an indicator of the reduction in the ability of the company to settle its financial obligations and especially the short-term ones using the liquid assets of the firm.
Profitability
The net profit margin has indicated the instability of the profitability of the company in the last five fiscal years. There was a reduction in the net margin from 2013 to 2014, followed by an increase in the net margin in 2015 (Market Watch, 2018). The company recorded a slight reduction of the margin in 2016 compared to 2015 while in 2017 was a steep deceleration of the ratio at GM. The company had its least profitability in 2017 compared to the other years.
Effective Use of Assets
The return on assets (ROA) of GM stood at 2.22% in 2014(Market Watch, 2018). The ROA increased to 4.98% in the fiscal year 2015 due to the increase in the net income of the company and the increase in the total assets of the company (Market Watch, 2018). ROA slightly reduced in 2016 compared to 2015 and stood at 4.25 % (Market Watch, 2018). The ROA of the company was primarily affected by the sudden reduction in the net income of the company in 2017 and stood at -1.82%. The decline of the ROA in the company from 2015 towards 2017 was a visible indicator of the reduction in the effectiveness of the use of assets at GM.
Solvency
The debt to capital ratio in the company had an increase recorded in the five fiscal years that were analyzed for GM. The increase in the debt to capital ratio in GM can be attributed to the over-reliance on debt for the company to handle and fulfill its financial obligations (Morningstar Inc., 2018). Therefore, the increase in the debt to capital ratio is not a commendable trend for the solvency of the company since most of the economic and corporate activities are under-prioritized or rescheduled to help the company focus on the repayment of the debt.
Opinion on the Company's Short-Term and Long-Term Financial Strength
The company's financial strength from the short-term outlook may have challenges since the quick ratio, and the current ratio has indicated a reduction in the company's capability to manage its short-term liabilities with the use of its liquid assets. From a broader long-term perspective, the financial strength of the company may be achieved with the reduction in the total debt of the company (Morningstar Inc., 2018). General Motors Company has to ensure that it integrates the plans that will enable the company to offset its long-term debts, which are hindering its financial operations. Therefore, the company will first encounter challenges in the reduction of the debt to equity ratio before finally becoming stable in the market.
Comparison of the Company to the Industry Average and Its Closest Competitor
The performance of GM in the automotive market in the United States of America can be compared to the nearest competitors such as Ford Motor Company (Morningstar Inc., 2018). The levels of competition between the two companies have increased exponentially in the last half a decade and have been majorly fueled by the advancement in technology alongside the increase in the potential markets for the automotive equipment that is designed and manufactured by the two American multinational firms.
Past Three Years of Stock Price Data
Looking at the price of a single share at GM, the company may be doing better in the stock price data than Ford at present. The closing price of the GM stocks is currently at $33.67 while that of Ford closes at $ 9.23 (Value Line, 2018). The closing stock price for GM in 2017 was at $ 44.52, which indicates a decline. At the end of 2016 fiscal year, GM closes its shares at $ 28.18 (Yahoo Finance, 2018). On the other hand, Ford closed its 2017 shares at $ 12.67 per stock. Ford’s stocks are performing poorer in the present than in the past. The 2016 shares in the company closed at $ 12.24 (Yahoo Finance, 2018). Looking at the two companies, the year 2017 was a good year for their stock prices with both of them having reductions in 2018.
Comparison of the Ratios for GM Vs. Ford
Current ratio.
The current ratio of Ford has averagely been increasing in the last half a decade compared to that of GM (Yahoo Finance, 2018). That is an indicator of more economic ability at Ford to finance the short-term financial obligations using the liquid assets.
Quick ratio.
The quick ratio at Ford has also increased in the five years compared to the scenario at GM (Yahoo Finance, 2018). Therefore, it is clear that the ability of the company to take care of its short-term financial obligations has reduced compared to that of Ford.
Debt to capital ratio.
The ratio at Ford has recorded stagnation at relatively the same figure against the increasing debt to capital ratio at GM. That has indicated a decline in the financial performance at GM (Yahoo Finance, 2018).
Profit margin.
The trend of the profit margin at Ford has indicated an unpredictable change in the same with an increase recorded in the last year of analysis (Yahoo Finance, 2018). The scenario in GM has stated a consistent reduction in the profitability of the company.
Operating margin.
The operating margin at Ford has had a decrease from the fiscal year 2015, and the trend was recorded in 2014 from 2013(Yahoo Finance, 2018). The margin is also considerably lower than that of GM, which is an indicator of the former being at the forefront of profitability.
Timeliness in the Company versus Its Competitors
The federal safety officials have tried pinpointing the mistakes of the faulty ignition switches on the GM’s cars. General Motors had to act on the issue in good time to avoid being fined by the authorities (Healey, 2014). On the other hand, Ford was faced with a similar problem with the National Traffic Safety Administration (NHTSA) back in 1999 where the company had to rectify their cars with faulty ignition switches (NHTSA, 1999). On average, GM had higher timeliness than Ford.
Financial Strength
The financial strength of GM is considerably lower than that of Ford when considering the revenue generated by the two companies in 2017. GM had revenue of more than 145 billion dollars (Sec.gov, 2017). In the same year, Ford had revenue of around 156 billion dollars (Sec.gov, 2017). The increasing revenue at Ford coupled with the reduction in the costs of goods sold at Ford has been linked with the company's economic prowess regarding the net income. That has given General Motors a competitive approach in the automotive sector of the USA where the company has continuously aimed at being the best in the market.
Price Growth
The growth of the price of the company has been considerably higher in GM compared to Ford. Having a closer look at the stock prices in the company, GM has had a stock price of almost four times that of Ford in half a decade since 2013 to the present (Yahoo Finance, 2018). The price growth at GM has also been maintained with slight reductions in the growth, which have then been rectified to ensure price growth at the company. Ford has maintained a stagnation in the price growth over the years, although the company has performed poorer than its main competitor has, General Motors Company has.
Persistence
Both GM and Ford have had failures in the automotive industry of the United States (Lape, 2016). The companies have also been able to get back on their feet after the failures and secure their local and international market (Lape, 2016). Ford’s financial journey has not been a smooth one in the USA, and therefore the leadership of the company has been found to be more persistent than that of GM due to the latter's collapse in the year 2009 owing to bankruptcy-related reasons.
Safety
The financial safety of Ford has been depicted to be stronger than that of General Motors. In November 2016, the sale of the Ford f-series PU trucks was more than 72000 trucks (Seeking Alpha, 2016). That represented a 10.6% increase from November 2015 (Seeking Alpha, 2016). In the same month, the Chevrolet Silverado PU sales were recorded to be slightly above 45000 trucks (Seeking Alpha, 2016). That was a 0.6% increase from November 2015 (Seeking Alpha, 2016). The increase in the growth of the truck's sales indicated that the Ford Motor Company might be safer than General Motors in the financial aspects due to the maintenance of a considerable growth rate.
Price Stability
Both automotive leaders GM and Ford have been reported to have a low price to book ratios. The dividends in the two companies have also been said to hold steady in the market (Seeking Alpha, 2018). The two companies have had a plan underway to come up with the electric vehicles that will usher them into the modern world of technology integrated into the automotive engineering (Seeking Alpha, 2018). However, the price stability has suggested that General Motors is better than Ford Motor Company is. The trend was maintained thus making the former being at the forefront of excellent sock performance.
Earnings Predictability
The earnings of General Motors have been predicted to be lower than those of the Ford Motor Company in the automotive industry have. To begin with, GM has generated less revenue from its automotive sales and financial services provision compared to Ford which has proven to be the leader in the market locally and favorably competing on the global platform.
Recommendation and Reasoning for Buying the Stock
The stocks of General Motors Company are not advisable to buy. The income of the company has taken a nosediving trend in the last five year, which could be a cause of concern among the leaders of the company. The stock performance of the company has also not been stable, and the company has not compared favorably with its competitors such as the Ford Motor Company on many financial aspects.
References
General Motors. (2018). About GM. Retrieved from https://www.GM.com/our-company/about-GM.html
Healey, J. R. (2014, April 3). Feds sifting GM 'timeliness' info for evidence of delay. USA Today . Retrieved from https://www.usatoday.com/story/money/cars/2014/04/03/GM-nhtsa-timeliness-recall-switches-fine/7282555/
Lape, B. (2016, May 25). Henry Ford's bankruptcies offer lessons in persistence, myHorizon . Retrieved from https://www.myhorizontoday.com/bankruptcy101/henry-Fords-bankruptcies-offer-lessons-in-persistence/
Market Watch. (2018). General Motors Co . Retrieved from https://www.marketwatch.com/investing/stock/GM/profile
Morningstar Inc. (2018). General Motors Co GM . Retrieved from http://financials.morningstar.com/ratios/r.html?t=GM
NHTSA. (1999, March 15). Settlement with Ford Motor Company . Retrieved from http://www.nhtsa.gov.edgesuite-staging.net/About+NHTSA/Press+Releases/1999/Settlement+with+Ford+Motor+Company/
Seeking Alpha. (2016, December 6). Ford versus General Motors . Retrieved from https://seekingalpha.com/article/4028548-Ford-versus-general-motors
Seeking Alpha. (2018, February 23). Ford or GM - It's an easy choice . Retrieved from https://seekingalpha.com/article/4150251-Ford-GM-easy-choice
Sec.gov. (2017). Ford Motor Company . Retrieved from https://www.sec.gov/Archives/edgar/data/37996/000003799618000015/f1231201710-k.htm
Sec.gov. (2017). General Motor Company . Retrieved from https://www.sec.gov/Archives/edgar/data/1467858/000146785818000022/GM201710k.htm
Value Line. (2018). General Motors . Retrieved from https://research.valueline.com/research#list=recent&sec=company&sym=GM
Yahoo Finance. (2018). General Motors Company (GM). Retrieved from https://finance.yahoo.com/quote/GM/
Appendices
| Return on assets at General Motors Company | ||||
| ROA= net income/ total assets | ||||
|
2014 |
||||
| ROA = 3949000000/177501000000*100 | ||||
|
2.224776 |
||||
|
2015 |
||||
| ROA = 9687000000/194338000000*100 | ||||
|
4.984614 |
||||
|
2016 |
||||
| ROA = 9427000000/221690000000*100 | ||||
|
4.252334 |
||||
|
2017 |
||||
| ROA = -3864000000/212482000000*100 | ||||
|
-1.81851 |
||||
