Analysis of General Motors

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“General motors” is an automobile manufacturing company, based in USA, which manufactures and sells luxury brands of car like Chevrolet, GMC and Cadillac.

Profitability Ratios:

General Motors had maintained stable profit margins ratios from 2014 to 2017 with slight improvement from 2014 onwards. However, due to increase in cost of goods and doing business, profit margins shrank slightly in 2018. Gross profit margin increased from 8.8 in 2014 to around 12 and remained almost constant for the next three years before dropping to 9.5 in 2018. Same scenario occurred with operating profit margin and EBIT margin. However, net income margin showed a rather inconsistent behavior throughout the tenure due to varying amount payable in taxes.

Return on assets and return on equity followed the pattern of previous profitability ratios. Increasing slightly from 2014 levels, remaining stable for the next three years and then falling down slightly in 2018.

Fall in profitability ratios in 2018 can be attributable to increasing costs of raw material like steel, warming up trade tensions with China, tough competition from eco-friendly car manufacturers like Tesla, and overall slowing down of global economy.

Efficiency Ratios:

During the tenure of 2014 to 2018, General Motors has drastically improved its inventory turnover ratio which shows that the company has managed its inventory pretty efficiently. The ratio increased from 10.4 in 2014 to 13.5 in 2018.

On the other side, account receivables, another measure of company’s efficiency, has remained on the decreasing side, which demonstrate that the company has facing delays in collecting its receivables. The ratio decreased during the tenure from being at 6 in 2014 to 4.4 in 2018. This may also have caused liquidity problems and shrinkage in current ratio of the company.

Liquidity Ratios:

Current ratio of General Motors has been under 1 during the tenure with the only exception in 2014, which may indicate liquidity management problem. However, keeping in mind the long cycle of account payables in automobile industry and the reputation of General Motors, this doesn’t demonstrate any serious threat to the operations of GM. Moreover, GM has been maintaining a good operating cash flow per share which shows the availability of enough cash to keep the operations continue without any hassle.

In last two years, General Motors has increased its debt which is visible by its increasing debt to equity ratio; debt to equity ratio increased to 2.6 in 2017 from being at 1.7 in 2016.

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