General Motors, like any other business, is exposed to interest rate risks related to certain financial instruments, primarily debt, capital lease obligations and certain marketable securities. As per the GM audited financial statements for 2014, it states “we did not have any interest rate swap positions to manage interest rate exposures in our automotive operations. At December 31, 2014 and 2013 the fair value liability of debt and capital leases was $9.8 billion and $6.8 billion. The potential increase in fair value resulting from a 10% decrease in quoted interest rates would be $0.4 billion and $0.3 billion at December 31, 2014 and 2013. At December 31, 2014 and 2013 we had marketable securities of $8.0 billion and $7.2 billion classified as available-for-sale
Automotive Financing — GM Financial Interest Rate Risk Fluctuations in market interest rates can affect GM Financial’s gross interest rate spread, which is the difference between: (1) interest earned on finance receivables; and (2) interest paid on debt, and could be affected by changes in interest rates. Typically consumer finance receivables purchased by GM Financial bear fixed interest rates and are funded by variable or fixed rate debt. Commercial finance receivables originated by GM Financial bear variable interest rates and are funded by variable rate debt. The variable rate debt is subject to adjustments to reflect prevailing market interest rates. To help mitigate interest rate risk or mismatched funding, GM Financial may employ hedging strategies to lock in the interest rate spread. 60 GENERAL MOTORS COMPANY AND SUBSIDIARIES Fixed interest rate receivables purchased by GM Financial are pledged to secure borrowings under its credit facilities. Amounts borrowed under these credit facilities bear interest at variable rates that are subject to frequent adjustments to reflect prevailing market interest rates. To protect the interest rate spread within each credit facility,
These ratios can be used to determine the most desirable company to grant a loan to between Wendy’s and Bob Evans. Wendy’s has a debt to assets ratio of 34.93% while Bob Evans is 43.68%. When it comes to debt to asset ratios, the company with the lower percentage has the lowest risk. Therefore, Wendy’s is more desirable than Bob Evans. In the area of debt to equity ratios, Wendy’s comes in at 84.31% while Bob Evans comes in at 118.71%. Like debt to assets, a low debt to equity ratio indicates less risk in a company. Again, Wendy’s is the less risky company. Finally, Wendy’s has a times interest earned ratio of 4.86 while Bob Evans owns a 3.78. Unlike the previous two ratios, times interest earned ratio is measured on a scale of 1 to 5. The closer the ratio is to 5, the less risky a company is. From the view of a banker, any ratio over 2.5 is an acceptable risk. Both companies are an acceptable risk, however, Wendy’s is once again more desirable. Based on these findings, Wendy’s is the better choice for banks to loan money to because of the lower level of
The CDC/504 commercial loan rates are fixed to an increment that is above the market of U.S. Treasury 's 5-year and 10-year issues.
Thirdly, serial borrowing and repurchase throughout several years is considered. This is essentially the financial policy the company has adopted these years. This policy is less risky measured by coverage ratios and is more acceptable to stockholders. However, UST has imminent challenges and value enhancing objectives to meet. If the company has debt capacity untapped upon, large sum repurchases avoid excessive advisory fee, negotiation time and effort, potentially credit rating charge while immediate significant tax shield benefit is made possible.
Target Corporation: Report on Long-term Financing Policy and Capital Structure with an Acquisition Analysis Introduction This report will be based on the Target Corporation, and will consist of two sections: 1) long-term financing policy and capital structure, and 2) an acquisition analysis. The first section will include: Target's most recent long-term financing decision; an analysis of the economic, business, and competitive background in which the financing occurred; Target's book value and market value; possible changes that would occur to Target's finance policy and capital structure if it was forced to consider re-organization and bankruptcy strategies; and finally discuss Target's international investment and financing opportunities, as well as foreign exchange risks. The second section will be a report to the board of directors that identifies a synergistic acquisition candidate for Target.
In 1993 the Debt to Equity Ratio was .45. In 1994 it was .68 and in 1995 it was .73. This is a trend that Clarkson will have to take into consideration as he refinances his company.
In GM’s case they used a passive hedging policy in which they hedged 50% of all significant foreign exchange exposures arising from cash flows associated with ongoing business. Passive hedging is used by highly risk-averse companies that would like to be completely certain of their future cash flows through hedging a significant portion of their risk exposure. This can be achieved by locking in a specific price either through long- term contracts between a supplier and buyer, or through a derivatives contract such as futures, forward or swaps, which are available on most leading commodity exchanges. In the case of GM, they used forward contracts to hedge exposure arising within six months. GM’s longer-term strategy is that of options, which allows them to either buy or sell in the spot market without necessarily being committed to hedge contract. But such a method imposes a heavy hedging cost in the form of option premiums which have to be paid up front at the time of hedging.
The first thing to analyze is GE’s capacity to pay its debts as they come due or in other words its liquidity. GE consolidated liquidity position is adequate. GE’s liquidity is supported both by the firm’s consistent earnings track record and its ability to quickly divest business or assets to fit its strategic goals. Consolidated cash and equivalents were $8.3 billion. On a consolidated basis GE had a total of around $56 billion of contractually committed lending arrangements as well as numerous other sources of liquidity. General Electric, a triple-A rated, frequent borrower, is in a stable position with regards to liquidity. Its issuance policy is not based on market outlook but rather on a planned program of issuance to support its ongoing financial businesses and its addition of assets.
only make up 16.7% of the capital structure. Thus, the credit risk for any credit commitment was not too high
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
The implications of these findings are as follows. The works of these academics highlight the important point that there is higher volatility of capital charges for better quality credits (Goodhart & Taylor, 2004). This is because these credits face a steeper risk curve, as the movement within the ratings scale (from one rating to another) is much greater.
General Motors Company (GM) is an American multinational corporation that manufactures, designs, markets and distributes vehicles and vehicle parts, and sells financial services. GM produces vehicles in 37 countries, selling and servicing them through thirteen brands such as Alpheon, Chevrolet, Cadillac, Holden and Wuling (Our Company, 2014). GM is among the world 's largest automakers by vehicle unit sales. It employs about 212,000 people working in 396 facilities touching six continents and has 21,000 dealers around the world (Our Company, 2014).
The automotive industry is one of the most important sectors of the economy for every country in the world. It involves a large number of corporations and institutions engaged in the manufacturing process of motor vehicles including designing, developing, manufacturing, marketing, and selling. It contributes to the global economic growth by generating a significant return and creating a ripple effect on supporting the supply chain as well as providing job opportunities for the skilled workers (ACEA, 2016).
Ford is a well-established American organization that faces many competitors from around the world, such as Toyota, Hyundai, Mazda, and Chevrolet, among other competitors. In the Forbes “The Largest Companies in the World” (2016), Ford is in the seventh position. The information given in Forbes confirms that Ford is a strong competitor in the car industry, since it applies strategies that allow itself to be competitive and profitable. Being a profitable company not only implies to gain a lot of money in revenue; it also implies to analyze the competitive forces a company must face in the industry. Ford is a profitable company because it has well defined and analyzed the business professor Porter’s
In this day and age, the majority of people get places they need to be by driving a car. Think about how much time you spend driving my sister and I around. This is why when I turn sixteen years old, a car would be an important tool. During my teenage years, I have been responsible and mostly independent. Having a car of my own would teach some of these conditions, but overall would compose me to extra accountable. There are an abundant amount of pros as well as cons to buying me a car of my own, but in the end, the pros by far outweigh the cons.
Barra Airways has an interest coverage ratio (ICR) of 18; this means that Barra Airways is not burdened with a large amount of interest payments on existing debts. Therefore, using debt does appear to be an attractive source of finance. This is because Barra Airways existing interest burden is low, meaning that to increase it would have a reduced effect on the company’s net profit. However, EasyJet has an ICR of 30.88, considerably larger than that of Barra Airways [5]. Lenders may look at this data and conclude that Barra Airways is a riskier company to lend too than others in the same industry; this will result in a higher interest rate on any debt taken out.