General Motors Income Statement and SCF
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See attached annual reports containing financial statements for the year 2006 pertaining to:
General Motors Corporation http://www.gm.com/corporate/investor_information/docs/fin_data/gm06ar/index.html
a. The Balance Sheet
b. The Income Statement
c. The Statement of Cash Flows
Based on the general organization of General Motors Corporation, I need an opinion on which of the above statements is more useful for the company: Net income or Cash from Operating Activities (please explain your opinion).
Also, please make a prediction about the company based on the additional information found in the annual report from the attached statements.
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Solution Summary
The solution details which report is more useful-the statement of cash flows or the income statement and why.
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First, think about the general organization that is GM today versus the GM of yesteryear. GM is like many large, American 'blue chip' manufacturers (think IBM or General Electric). All these companies have in common that they were formed decades ago as large manufacturers and are facing global pressures in the manufacturing segment such that they are forced to diversify into the service segments to remain competitive.
At one time, all GM did was manufacture cars. Then, they acquired other smaller manufacturers (like Delphi that produces car parts and Fisher that produced car bodies). Acquiring these smaller companies helped to streamline the costs to build cars. Instead of having to buy bodies from Fisher, for example, GM bought Fisher and could thus produce a car more cheaply. (Like when Standard Oil acquired railroads to transport oil).
However, as global economies opened (especially China), manufacturing companies in America have faced special challenges. Chinese firms have lower labor wages and steel prices and are difficult to compete with. So, like many large US manufacturing firms, GM got into the lending and insurance business (GMAC). IBM, Ford, GE, and other 'blue chip' firms have done the same thing in ...
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