General Motors Case

By comparing General Motors and Toyota's 2004 and 2005 income statements and balance sheets, one can begin to learn how two companies in the same sector have vastly different financial situations. We will begin by converting the current income statements and balance sheets into common income statements and balance sheets, which will allow us to compare on a percentage basis instead of whole dollars. We will look at both firms profits and any differences. We will analyze any differences that may account for the problems of General Motors relative to Toyota. We will calculate the free cash flows for both firms and compare the findings. We will also provide additional internet research about the differences between the two firms in 2005 and continuing into 2006, as well as an update on how the two companies are performing today.

Figure 3.1 represents a side by side comparison of the 2004 and 2005 income statements for Toyota and General Motors. Both companies reported a positive net income in 2004, however General Motors later reported a negative net income in 2005.

Income Statements Toyota General Motors

For the years ending 2004 and 2005 2004 2005 2004 2005

Sales $163,637 $172,749 $190,812 $190,215

Cost of goods sold 120,262 129,100 144,179 155,264

Gross profit 43,375 43,649 46,633 34,951

Selling, general, and administrative expenses 19,438 18,095 20,394 22,734

Depreciation and amortization 9,177 9,291 14,152 15,769

Operating profit 14,760 16,263 12,087 (3,552)

Interest expense 196 177 11,980 15,768

Nonoperating income 2,269 2,244 3,407 2,984

Extraordinary items 608 (1,297) (1,620) (109)

Taxable Income 17,441 17,033 1,894 (16,445)

Income Taxes 6,446 6,126 (911) (5,878)

Net income

10,995 10,907 2,805 (10,567)

Figure 3.2 represents a side by side comparison of Toyota and General Motors' balance sheets for 2004 and 2005. Interestingly, Toyota's total assets and liabilities are less than 50% of General Motors.

Annual Balance Sheet ($ millions) Toyota General Motors

At 12/31/2004 and 12/31/2005 2004 2005 2004 2005

Assets:

Cash & equivalents $21,258 $19,466 $35,993 $32,142

Accounts receivables 43,063 47,166 180,195 199,407

Inventories 10,250 12,168 32,181 36,219

Other current assets 9,150 9,105 10,794 8,877

Total current assets 83,721 87,905 259,163 276,645

Gross plant, property & equipment 126,429 130,916 124,988 130,226

Accumulated depreciation 75,765 76,948 49,904 51,825

Net plant, property & equipment 50,664 53,968 75,084 78,401

Investments 64,728 77,296 30,614 23,891

Intangibles 0 0 12,089 9,097

Other assets 9,424 7,435 102,653 88,044

Total assets $208,537 $226,604 $479,603 $476,078

Liabilities:

Accounts payable 16,173 17,290 28,830 29,913

Notes payable 20,712 22,179 0 0

Accrued expenses 10,723 12,006 21,103 65,614

Short-term notes 13,036 13,444 93,105 83,747

Other current liabilities 11,245 11,692 0 3,759

Total current liabilities 71,889 76,611 143,038 183,033

Long term notes 40,186 46,698 207,174 203,598

Other long-term liabilities 19,079 19,070 101,665 74,850

Total Liabilities 131,154 142,379 451,877 461,481

Common stock 3,757 3,697 942 943

Paid-in capital 4,685 4,616 15,241 15,285

Retained earnings 68,941 75,912 11,543 (1,631)

Common equity 77,383 84,225 27,726 14,597

Total liabilities and equity $208,537 $226,604 $479,603 $476,078

To convert the income statement to a common income statement, one must convert the dollars reported into percentages of Total Sales. Figure 3.3 shows the common income statement for both firms and Figure 3.4 shows the common balance sheet for both firms.

Toyota

Common-Sized Income Statement 2004 2005

Sales $163,637 100.0% $172,749 100.0%

Cost of goods sold 120,262 73.5% 129,100 74.7%

Gross profit 43,375 26.5% 43,649 25.3%

Selling, general, and administrative expenses 19,438 11.9% 18,095 10.5%

Depreciation and amortization 9,177 5.6% 9,291 5.4%

Operating profit 14,760 9.0% 16,263 9.4%

Interest expense 196 0.1% 177 0.1%

Nonoperating income 2,269 1.4% 2,244 1.3%

Special Items 608 0.4% (1,297) -7.5%

Taxable Income 17,441 10.7% 17,033 9.9%

Income Taxes 6,446 3.9% 6,126 3.5%

Net income 10,995 6.7% 10,907 6.3%

General Motors

Common-Sized Income Statement 2004