General Motors - Financial Ratio Analysis

General Motors - Financial Ratio Analysis

I. General Motors History Highlights

In its early years the automobile industry consisted of hundreds of firms, each

producing a few models. William Durant, who bought and reorganized a failing

Buick Motors in 1904, determined that if several automobile makers would unite,

it would increase the protection for the group. He formed the General Motors

Company in Flint, Michigan, in 1908.

Durant had bought 17 companies (including Oldsmobile, Cadillac, and Pontiac) by

1910, the year a bankers' syndicate forced him to step down. In a 1915 stock

swap, he regained control through Chevrolet, a company he had formed with race

car driver Louis Chevrolet. GM created the GM Acceptance Corporation (auto

financing) and acquired a number of businesses, including Fisher Body,

Frigidaire (sold in 1979), and a small bearing company, Hyatt Roller Bearing.

With the Hyatt acquisition came Alfred Sloan, an administrative genius who would

build GM into a corporate colossus.

Sloan, president from 1923 to 1937, implemented a decentralized management

system, now emulated worldwide. The auto maker competed by offering models

ranging from luxury to economy, colors besides black, and yearly style

modifications. By 1927 it had become the industry leader.

GM introduced a line of front-wheel-drive compacts in 1979. Under Roger Smith,

CEO from 1981 to 1990, GM laid off thousands of workers as part of a massive

companywide restructuring and cost cutting program.

In 1984 GM formed NUMMI with Toyota as an experiment to see if Toyota's

manufacturing techniques would work in the US. The joint venture's first car was

the Chevy Nova. GM bought Ross Perot's Electronic Data Systems (1984) and Hughes

Aircraft (1986). In 1989 the company bought 50% of Saab Automobile.

In 1990 GM launched Saturn, its first new nameplate since 1926, reflecting a new

companywide emphasis on quality. Two years later it made the largest stock

offering in US history, raising $2.2 billion. Culminating a period of boardroom

coups (relating to the company's lagging effort to reduce costs) in the early

1990s, John Smith replaced Robert Stempel as CEO.

NBC apologized in 1993 for improprieties in its expose alleging that GM pickups

equipped with "sidesaddle" gas tanks tended to explode upon side impact. The

government nonetheless asked the ...

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...improved.

The stock holders equity has increased dramatically indicating the

better management of the companies equity.

The EBIT has improved for the last two year mainly because the level of

interest paid has decreased due to the reduction of liabilities.

Profitability

The Gross Profit Margin has increased from 1993 to 1994 as the cost of

goods sold did not increase at the same level that the sales increased. The

Operating Profit Margin ratio was stable in 1995 when compared to 1994 and the

Net Profit Margin has also been improving for the last two years.

The Return on Total Assets has increased due the increase in the

companies profitability, while Return on Equity has decreased on the last two

years as the stockholders equity increased

Overall

It is clear that the profitability of the company has been increasing

for the last 2 years, mainly due to the decrease in liabilities, improvement in

accounts receivable and better management of the company debt..

The company also demonstrates that the profitability can be improved

even further by having better inventory management and productivity maximization

on their fixed assets.