Analysing the GM motors by ratios
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4. CheckPoint: Financial Ratios
· Resource: The General Motors Web site
This CheckPoint is based on financials of the 2004 annual report
for General Motors, which was just discussed in this weekʼs discussion questions.
· Due Date: Day 5 [Individual forum]
· Compute the following four ratios for General Motors Corporation based on the
information at http://www.gm.com/company/investor_information/stockholder_info/:
o Current ratio
o Debt ratio
o Return on equity (ROE)
o Return on investment (ROI)
Analyze the ratios in relation to profitability, liquidity, and financial leverage. If you are assigned to the lender cluster, state whether you would choose to accept or reject a loan of several million dollars to this company. If you are assigned to the investor cluster, state whether you would purchase this company's stock.
Note: Total debt on the General Motors Financials is the line labled Total Liabilities plus the line labeled Minority interests.
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Solution Summary
The solution contains the financial ratios for the analysis of the financial performance of GM motors and subsidiaries in the view of lender and investor byacid test ratio, debt ratio, long term debt to total capitalisation, return on total assets, return on common equity,net working capital, gross profit ratio, net profit ratio, cash ratio
Solution Preview
See ratio computations in attached Excel file.
As a lender to the company, the banker has to consider the current ratio of the company. The standard ratio is 2:1.here,
GM motors has the current ratio of less than 1
Further, banker has to consider the liquidity ratio.
Here, standard liquidity ratio is 1:1.But liquidity position of GM motors is less than 1.Therefore, banker needs to be careful in the
Discharge of the loan.
However, the ratio of long term debt to total asset is high which means that the company has low long term loans. Therefore, banker can give the long term loan instead of short term loan.
Further, the return on total asset is also less.
The other factors which are to be ...
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