Automotive Industry
Essay Preview: Automotive Industry
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The publicized bail out of the automotive industry in December 2008 was the largest bailout in American history. General Motors, (GM) received $17.4 billion to ensure operating costs would be covered, allowing the auto maker to continue to employ workers and produce products for sale.
The importance of evaluating the last few years of GM balance sheets is critical to understanding the ability of GM to re-pay the bail out. GM has showed improved financial performance by decreasing liabilities while increasing assets. The analysis of GM performance ranges from 2008 through 2012. Four years of recovery should be reviewed by evaluating multiple components of the balance sheet.
Assets, Liabilities and Shareholders equity are separated for further granularity. Within each of the sections of the balance sheets are accounts giving more clarity to analyze the performance of GM for the 2008 to 2012 period.
Assets are improving and liabilities are decreasing showing a positive trend for GM to not only repay the bail out in stock worth but for future performance as GM is considered one of the “Big Three” automakers which accounts for a significant amount of the GDP for America.
Each section of the balance sheet, assets, liabilities and shareholders equity are analyzed and reviewed. Starting with assets, deduction of liabilities and remaining the shareholders equity. In the case of GM that means the ability for GM to pay back the bail out money borrowed from the federal government. Lets take a look and see how GM has performed in the last four years since the bailout.
Companies are required to list assets on the balance sheet in the order in which they expect to convert them to cash. General Motors lists their assets in this order, starting with cash, cash equivalents, and marketable securities because they are the easiest to convert. The next is restricted cash and marketable securities, these assets are available, but are set aside to be used for special projects or funding. Accounts and notes receivable follow next, then inventories, equipment, and then all other current assets.
Assets are also listed by different classifications. General Motors uses three different classifications when preparing their balance sheet. The first classification is automotive current assets, followed by automotive non-current assets, and automotive financial assets.
Automotive non-current assets are assets that cannot be readily converted to cash. Usually this means that it would take more than one operating cycle to convert these assets. Goodwill is listed as a non current asset on GMs balance sheet. This intangible asset is valuable, but can only be related to the specific business, so it cannot be sold off.
The last category of assets listed on the balance sheet is the automotive financial assets.
Assets, investment securities that are short-term, have high credit quality and are highly liquid. Cash equivalents are one of the three main asset classes, along with stocks and bonds. These securities have a low-risk, low-return profile. Cash equivalents include U.S. government Treasury bills, bank certificates of deposit, bankers acceptances, corporate commercial paper and