MGT570 Financial Management
Table Contents :
1.Introduction
2 Performance Evaluation
3 Profitability
4 Efficiency
5 Short-term Solvency
6 Long-term Solvency
7 Market-based Ratios
8 Recommendations for Improvements
9 New Project Investment Analysis
10 Decision on Return Earnings
11 conclusions
12.Refrencess
Introduction
Organizations are required to share their budgetary knowledge with accomplices, particularly speculators.
To that aim, companies provide expenditure plans for a year that include all of the organization's cash-
related intricacies (Prihartono & Asandimitra, 2018). These financial plans are used by analysts to forecast
an organization's future profitability and rationality, but the board of directors refines a strategy. This
report aims to identify an organization's financial end outcomes by a thorough examination of its
represented reports. General Motors, a company situated in the United States, has been chosen for study.
In this report, a comprehensive overview of General Motors will be provided, along with its revenue,
adequacy, transitory dissolvability, large stretch dissolvability, and market-based indications. The financial
rundowns of General Motors during the last four years have been studied for this analysis. Similarly,
recommendations will be made to enhance the organization's business while taking assessment into
account. In addition, another hypothesis section will be provided in order to extend the firm by raising
40% of its capital. Unmistakable hypothesis evaluation techniques, such as Net Present Value and
Weighted Average Cost of Capital, will be employed to conduct adventure testing.
About General Motors
General Motors is a global American corporation that pro provides workspaces for automotive parts setup,
planning, transportation, and selling. The organization's management headquarters are in Detroit,
Michigan, USA. By and big, its facilities are located in more than 15 nations under the Cadillac, GMC, Buick,
and Chevrolet brands (GM.com, 2021). General Motors has been in business for almost a century and
aspires to make the world a better, wealthier, and cleaner place. The company employs over 180,000
MGT570 Financial Management
people. Furthermore, General Motors has the most unusual perception and seeks to reduce the intensity
of energy, emissions, freshwater, and waste.
For 77 consecutive years, General Motors handled total average car pay more than any other individual
and is currently one of the top vehicle manufacturers overall in terms of unit revenues (GM.com, 2021).
General Motors operates in the majority of nations through entirely dependable partners. The On Star
assistant GM provides vehicle protection, prosperity, and information organizations. In 2009, General
Motors made a number of changes, including the closure of Saturn, Hummer, and Pontiac.
Since 2010, the company has paid its employees on an annual basis. The contractual commitment for
future payments will be based on previous events. According to the Wall Street Journal, energy decreases
of up to USD 45 billion are expected over the next 20 years for clinical consideration expenses and other
expenditure drives (GM.com, 2021). In 2010, General Motors came in second with 8.5 million motors
distributed worldwide. In 2011, GM originally broadened, taking 11.9 percent of the general vehicle area
piece of the pie, with a total pay of 9.025 million automobiles.
During the basic discussion, President Dan Akerson stated in May 2013 that GM is on pace to re-
appearance of the S&P 500 record. According to CNN Money, as of April 24, 2014, GM's advantage for the
first three months of 2014 has dropped to 108 million dollars. GM has estimated the cost of its 2014
upgrade to be $1.5 billion due to a shortage of starting drives associated with 124 fatalities (GM.com,
2021). This was GM's first effort into ride-sharing, and the round's listed promise plainly indicates that it
is attempting a "related, dependable, and autonomous" transportation future.
Performance Evaluation:
This part consolidates the General Motors assessment by delineating the different introduction measures
in depth.
Profitability
Gross margine 2016 2017 2018 2019
12.75 13.5 9.6 10.18
General Motors' Gross Margin was 12.75 in 2016 and 10.18 in 2019, indicating a 20.15 percent reduction
in Gross Margin (Financial morning star.com, 2020). A negative margin demonstrates a company's failure
to control expenses.
Operating margin
2016 2017 2018 2019
Operating margin 5.7 6.9 3.0 4.0
General Motors' Operating Margin was 5.8 in 2016 and 3.99 in 2019, indicating a decrease of 31.2 percent,
implying that the revenues are less than the cost of products sold and working expenditures.
EBITDA margin
2016 2017 2018 2019
MGT570 Financial Management
EBITDA margin 12.40 11.50 15.20 14.28
General Motors' EBITDA Margin in 2016 was 12.4042, and it was 14.2811 in 2019, indicating a 15%
increase in EBITDA Margin, implying that the organization has less working use and more meaningful
remunerations, indicating that General Motors has a sensible level of pay over which to pay its working
expenses.
Net profit margin
2016 2017 2018 2019
Net profit margin 5.67 -2.67 5.38 4.80
General Motors' Net Profit Margin was 6.319 in 2016 and 4.7954 in 2019, indicating a fall of 24.11 percent,
demonstrating that the firm is generating less money than it is expenditure (Financial morning star.com,
2020).
Return on equity
2016 2017 2018 2019
Return on equity 22.52 -9.84 21.43 2
In 2016, General Motors' Return on Equity was 22.52, and in 2019, it was 16.32, indicating a 31 percent
decrease in Return on Equity, indicating that there is a difficulty rather than the expansion of immense
value to its investors. This is a portion highlighted for theorists and administrators to attempt as difficult
as possible to protect crucial positive methods from a lower return
Return on Assets
2016 2017 2018 2019
Return on Assets 4.53 -1.79 3.60 2.89
General Motors' Return on Assets was 4.53 in 2016 and 2.89 in 2019, indicating a fall of 30.07 percent,
implying that the corporation has likely to have more capital invested or generate a lesser profit (Financial
morning star.com, 2020).
Return on investment
2016 2017 2017 2018
Return on 8.41 -2.88 6.02 4.76
investment
MGT570 Financial Management
General Motors' Return on Investment in 2016 was 8.41, and it was 4.76 in 2019. This implies that the
return on investment declined by 38.6 percent, indicating that the expenditure lead to reduction in
returns and General Motors now has less than they'd have had due to lack of management of
investment expenses (Financial morning star.com, 2020).
Efficiency
Asset Turnover Ratio
2016 2017 2018 2019
Asset Turnover 0.80 0.67 0.67 0.60
Ratio
In 2016, General Motors' Asset Turnover Ratio was 0.80, and in 2019, it was 0.60, indicating that their
Asset Turnover Ratio decreased by 4.3 percent in the last four years, demonstrating that General Motors
is turning over 4.3 percent of a more visible measurement of its assets into values (Financial morning
star.com, 2020).
Inventory turnover ratio
2016 2017 2018 2019
Inventory 10.53 10.31 12.98 12.19
turnover ratio
General Motors' Inventory Turnover Ratio was 10.53 in 2016 and 12.19 in 2019, implying that General
Motors' stock turnover extend has increased by 0.5 percent over the past 4 years. They are better prepared
to sell their stocks throughout the year than they were in 2016. Regardless of the fact that it is not very
efficient, it is taking more time to convert stock into finished goods.
Account Receivable Turnover Ratio
2016 2017 2018 2019
Account 5.73 4.82 4.74 4.11
Receivable
Turnover Ratio
The Receivable Turnover Ratio was 5.73 times in 2016 and 4.11 times in 2019, implying that the Receivable
Turnover Ratio has declined by 31.6 percent. The business is consistently improving
its receivables time, which really is beneficial to the organization. They are taking less time to cover its
debts.
Account Payable Turnover Ratio
MGT570 Financial Management
2016 2017 2018 2019
Account Payable 64.16 73.71 63.45 64.13
Turnover Ratio
The Payable Period in 2016 was 64.16 days and in 2019 it was 64.13 days, indicating that the improvement
for average Payable Turnover. It shows the connection is developing between suppliers or creditors and
company. There is similar number of days in 2016 and 2019 (Financial morning star.com, 2020).
These data demonstrate that the firm is operating well, which is beneficial to the organization.
Short-term Solvency
Current Ratio
2016 2017 2018 2019
Current Ratio 0.89 0.89 0.92 0.88
In 2016, General Motors had a current ratio of 0.8946, and in 2019 it had a current ratio of 0.8832, implying
that its current ratio has declined by 1.27 percent in the last four years, implying that General Motors has
a higher level of failure to manage its current assets
Long-term Solvency
Debt to Capital Ratio
2016 2017 2018 2019
Debt to Capital 0.538 0.487 0.517 0.5892
Ratio
The Debt to Capital Ratio for General Motors was 0.538 in 2016 and 0.5892 in 2019, suggesting that it has
climbed by 9.55 percent, showing the company's financial vulnerability and its impact are expected to
quickly raise the firm's risk (Financial morning star.com, 2020).
Debt to Equity Ratio
2016 2017 2018 2019
Debt to Equity 1.27 1.92 1.88 1.60
Ratio
MGT570 Financial Management
The D/E Ratio in 2019 was 1.27 and in 2016 it was 1.60, suggesting that the D/E ratio climbed by 29.3
percent, indicating that the business is expanding its financing by receiving money, which puts the
relationship at significant risk if its cost of purchasing turns out to be excessively low (Financial morning
star.com, 2020).
Market-based Ratios
Book Value per Share
Book Value per 29.81 30.17 27.19 31.82
Share
General Motors' Book Value per Share was 29.81 in 2016 and 31.82 in 2019, implying that the Book Value
per Share increased by 11.7 percent. This is indicating that the shares of General Motors have more
liquidation respect than they had in the previous four years.
Operating Cash Flow per Share
2016 2017 2018 2019
Operating Cash 10.57 9.56 9.72 10.43
Flow per Share
General Motors' Operating Cash Flow per Share was 10.57 in 2016 and 10.43 in 2019, indicating a 1.32
percent decrease. This is indicating that the business could not maintain meeting the expenditure without
investing or employing resources.
Free Cash Flow per Share
2016 2017 2018 2019
Free Cash Flow -8.59 -9.80 -6.95 -3.92
per Share
For General Motors, the Free Cash Flow per Share was -8.59 in 2016, but in 2019, the Free Cash Flow per
Share was -3.92, representing a 54.36 percent decrease (Financial morning star.com, 2020). This is
suggesting that the firm needs to focus on reducing their cash expenses and try to focus on increasing
their cash receipts.
Recommendations for Improvements
Gross Margin
The following are some suggestions for increasing the gross profit margin:
MGT570 Financial Management
• • Profit margins must be evaluated on regular intervals.
• • Prices must be raised of products to boost the sales.
• • Discounts must be given to the customers to attract more number of customers
• • Price should never be a matter of competition (Alexopoulos, Kounetas & Tzelepis, 2018).
• • They should try to get as much reduction from suppliers as possible so that cost can be deducted.
• • They should use inventory management system for better management of overall stock as well
as to reduce the inventory cost
Operating Margin
The following are some suggestions for increasing the operating margin:
• • Company needs to focus on preventing the discounting to customers.
• • They need to focus on reliable operations and reduced production costs
• • The average order value must also rise in a particular time period.
• • They should try to improve supplier relationships so that they can get discount on material
purchase (Yuniningsih, Pertiwi & Purwanto, 2019).
• • Company should try to motivate the employees to put extra effort
• • They should recognize and eliminate waste of resources as much as possible
Net Profit Margin
Every business works to raise its net margin. If a company's net margin is higher than the industry average,
it has a bigger strategic advantage than other companies engaged in comparable operations (Parsekian,
2018). While typical net margins vary greatly across sectors, how companies may obtain a competitive
edge continues to develop, regardless of whether revenues are increased or costs are lowered. They need
to follow below suggestions:
• • They should focus on hiring more talented and skilled managers and staff managers so that they
can make more effective strategies to boost the sales.
• • In addition they must focus on eliminating their overall expenses in an effective manner so that
their revenues can increase
Return on Equity
A company's ROE may be increased in a variety of ways. Some methods are suggested below:
• • They should try to increase their financial leverage.
• • Company should focus on increasing their profit margins.
MGT570 Financial Management
• • In addition they need to improve their asset sales
• • Idle cash must be dispersed to improve asset sales
• • The ability to pay taxes should be low as much as possible
Return on Assets
Increased or maintained asset development is one of the most important actions for managing the
majority of the large corporation (Krylov, 2018). This is due to the fact that the majority of owners,
potential investors, and boards of directors, management teams, and workers are engaged in this
percentage. Nevertheless, investors are the key participants who are concerned with the return on assets.
The individuals want to know how well corporate top management handles the company's assets. The
greater ratio fundamentally suggests that the funds are properly managed and that the expenses are low
in terms of efficiency in comparison to company and competitors.
The following are the major factors that management should address in order to achieve high returns
or expand assets to goal levels
• They need to reduce total assets in order to improve return on assets.
• • They should focus on increasing their current assets so that their short term expenses can be
managed
• • In addition they must try to eliminate expenses on overall assets so that return can be increase
Return on Investment
The capacity to handle funds and assets as a business owner is critical for increasing return on investment
(Woo & Kim, 2019). The following recommendations are made to enhance the return on investment:
• • They should try to examine
• examine those elements of cost which are higher than estimation or standard costing.
• • Company should focus on organizing the departments of the company for better management
of income and expenses
• • They should make invest in compound interest opportunity so that return value can increase.
• • The emphasis should be on innovation of new ideas and concept to attract more investors
Inventory Turnover Ratio
When inventory is maintained properly, it leads to higher cash flow since it satisfies the demands of its
customers and facilitates the selling process (Arulmurugan & Anandakumar, 2018). When earnings are
optimized, the sales process becomes more creative and adaptable. Several methods for adjusting the
stock sales ratio to enhance the sales strategy are listed below:
MGT570 Financial Management
• Company should focus on implementing effective stock management system to cut the expenses of
stock.
• They should hire more skilled employees who can convert raw material into finished goods in less time.
• They need to manage their overall resources and should apply JIT method for better utilization of
resources in an effective manner. The rate at which a corporation can resell stock is an important indicator
of corporate performance. Companies who transfer product out more quickly consistently outperform.
The earlier a product is stored, the greater it’s retaining cost, and much less reasons customers would have
to come into the store for new things.
• It may enable smaller businesses make better judgments about how often merchandise to buy, well how
analyse how stock is doing, as well as how to plan future product costs. Such technology might well be
adjusted to some extent, although it may never be applicable to all sorts of products.
Short-term Solvency
Management must concentrate on a variety of ways to improve the current ratio, including current
liabilities and assets that are not one-time occurrences (Hannachi, Cressault, Teulet & Béji, 2018). Firms
are often expected to keep a baseline liquidity assets of 2 to 1, meaning indicates that their current assets
must be times as large as their current liabilities. In reality, a company may indeed be legally compelled to
maintain a combined value that is higher than the minimum specified in its lending arrangements. The
percentage seems to be a reasonable approximation around whether cash balance and as well as money
to really be recovered from receivables as well as inventory sales will just be available to repay the
obligations coming in the following month. It
must be checked at all times of the year. The following are some strategies for boosting short-term
solvency:
• They should focus on reducing short term expenses so that current assets can manage the expenses.
• Company need to convert accounts receivables into cash in quick time
• They should sell those assets which are not useful and it will lead to increase in current assets
Long-term Solvency
Businesses can take actions to lower and enhance their debt-to-capital ratios. Strategies that can be taken
include increased competitiveness, enhanced asset management, and debt consolidation (Prudius,
Karpunin & Vlasov, 2019). Certain occurrences, however, may raise the danger of insolvency, particularly
in well-established businesses. In the banking context, the imminent expiration of a patent might
jeopardise solvency by allowing rivals to manufacture the property in issue and resulting in a reduction of
related royalty fees. Changes in some rules that have a direct influence on a consumer's intention to
remain solvent might also constitute a problem. Both market participants may face solvency concerns if a
substantial judgement is rendered by them as a result of a lawsuit. If the pricing strategy is appropriate,
they are combined with the price rise for their products or services. The technique employed to decrease
this mixture will be more beneficial to each other.
MGT570 Financial Management
• They should try to increase their revenue as much as possible
• They should restructure their capital structure in an effective manner by adding debt and equity
in an effective proportionate.
• Company should manage their stock and revenues in an effective way so that need of debts can
be reduced
Operating Cash Flow per Share
Many factors contributed to the negative cash flow. Customers may fail to pay or budget properly for their
transactions (Zolfani, Yazdani & Zavadskas, 2018). Operating cash flow, among other accounting
statements, is beneficial in analysing the financial status and competency. Shareholders, customers, as
well as big businesses might make educated decisions affect the company as well as its prospects by
analysing the same. This operational cash calculation, unfortunately, does not give much information to
new investors. As a consequence, this is generally utilised by businesses to evaluate overall maximum
productivity. It is advised that negative operational cash flow per share be reversed from the following
ways:
• Company should try to modify terms and condition to provide credit to customers and to collect debts
from them.
• They need to overcome cash expenses lower as much as possible
• Company should emphasis on those opportunities which can lead to more cash receipts elements.
New Project Investment Analysis
For the organization, a new project investment analysis is provided in which the initial investment is
$400,000 and the WACC is assumed to be 12%, resulting in the computation of net present value.
Year Cash flow PV factor Discounte
d cash flow
0 -400000 1 -400000
1 75000 0.892857 66964.28
2 120000 0.797194 95663.26
3 180000 0.71178 128120.44
4 250000 0.635518 158879.52
5 350000 0.567427 198599.40
248226.91
MGT570 Financial Management
Because the NPV is $248227 and the WACC is 12%, the corporation should invest in the project. This is so
because the value of NPV is favorable and it indicates that project will be successful for company.
Advantages of the Net Present Value Method
The calculation of net present value (NPV) is a typical method used by corporate executives to assess the
profitability of various projects. It is founded on the notion that income raised in the future is presently
worth less than money in the present (Gaspars-Wieloch, 2019). The NPV's fundamental feature is that
future cash flows are restricted to present values. The net present value (NPV) method generates a
monetary figure that reflects the value of the company's venture. Shareholders can observe how a project
contributes to the company's worth. The discount rate of a firm's capital expenditure is used into the NPV
calculation. This is the normal return rate for investor investment to the firm.
When analysing the financial status of a project or a new venture, Net Present Value offers various
advantages that are important to consider.
• It considers the fact that a dollar now is worth more than a dollar tomorrow.
• The net present value can be considered in the risk factor analysis (Basher & Raboy, 2018).
• Capital expenses and risk concerns are both considered in this method.
• The outcomes of a project may be determined in an accurate manner using net present value.
• It takes into account all of a project's financial flows.
• The net present value reveals whether or not expenditure will generate interest.
• The net present value method is straightforward
• for the common investor; it is not the reinvestment assumption (Kärenlampi, 2019).
Capital
Capital of Company 137,237
40% of Capital 54894.8
Retained Earnings 26,860
Since the firm's capital is greater than its retained profits that is $137,237, and its capital is 40% greater,
$54,895, which is also greater than retained earnings, $26,860. The company should use its capital rather
than retained earnings.
MGT570 Financial Management
Decision on Return Earnings
Dividends are a portion of business profits that is distributed to shareholders. They might be in the form
of cash, stock shares, or other property payments (Obaidat, 2018). Dividends can be paid out in a variety
of timeframes and amounts. Traditionally, corporations do not pay dividends since it is more economically
prudent to reinvest funds in assets during important development times. Even well-established businesses
frequently reinvest their profits to fund new ventures, buy other businesses, or pay off debts. All of this
activity helps to raise the stock price.
General Motors Statistics
According to the data, the dividends paid in 2019 are $2,350, thus the corporation must not return the
dividends to shareholders, but rather invest in initiatives that will strengthen the company's ability to
function efficiently (Financial morning star.com, 2020). As seen by the ratio values, there are lots of areas
which need to improve. Hence the business must put the money in those activities so that they can deal
with the issues and enhance their effectiveness, which will boost the firm's share value and old and new
stockholders will put the money in the entity and the organization will make higher revenue, resulting in
an increase in the stockholders' dividend
Conclusion
The financial ratios study of General Motors reveals that the firm has a lot of areas to improve as their
performance is not so effective. The analysis shows the unfavorable outcome since its revenues are
declining and its capacity to service its debt is also declining. Moreover, the company faces a considerable
chance of default due to its poor performance. So the company should consider these problems since they
are problematic for shareholders, and with little or no investment, the firm may suffer liquidity issues.
General Motors must also consider investing its dividends in order to maintain the firm functioning
smoothly; otherwise, it will soon suffer a downfall.
