Annual ReportAnnual Report

General Motors CorporationGeneral Motors Corporation

Natalie WilliamsNatalie Williams

ACG2021.0H1ACG2021.0H1

Executive SummaryExecutive SummaryI believe that General Motors Corporation is in the process of overcoming I believe that General Motors Corporation is in the process of overcoming

difficult times. Benefit costs for employees have left GM with an difficult times. Benefit costs for employees have left GM with an overwhelming expense burden. If finances worsen bankruptcy is a overwhelming expense burden. If finances worsen bankruptcy is a

definite possibility. General Motors Corporation needs to reduce the definite possibility. General Motors Corporation needs to reduce the amount of health care expenditures for retired employees and amount of health care expenditures for retired employees and

significantly reduce the number of current employees. Although it is significantly reduce the number of current employees. Although it is unfortunate, these things must take place in order for GM to survive. unfortunate, these things must take place in order for GM to survive.

Among other things, GM also needs to continue introducing new products Among other things, GM also needs to continue introducing new products to the market, allowing for increase in profits. In order to maintain its to the market, allowing for increase in profits. In order to maintain its position as the leading producer in the automotive industry General position as the leading producer in the automotive industry General

Motors Motors

GM Annual Report (HTML)GM Annual Report (HTML)

GM Annual Report (PDF)GM Annual Report (PDF)

IntroductionIntroduction

Chief Executive OfficerChief Executive Officer: : G. Richard (Rick) Wagner Jr.G. Richard (Rick) Wagner Jr.

LocationLocation: : 300 Renaissance Center Detroit, Michigan 300 Renaissance Center Detroit, Michigan 48265-300048265-3000

Ending date of latest fiscal yearEnding date of latest fiscal year: : December 31, 2005December 31, 2005

The products and services that General Motors provides The products and services that General Motors provides are “automotive production and marketing and financing are “automotive production and marketing and financing and insurance operation” (GM Annual Report, page 43).and insurance operation” (GM Annual Report, page 43).

Main geographic area of activityMain geographic area of activity: : North America- North America- Canada, Mexico, and the United StatesCanada, Mexico, and the United States

Audit ReportAudit Report

General Motors Corporation Independent Auditors: General Motors Corporation Independent Auditors:

Deloitte and Touche LLPDeloitte and Touche LLP

Using the generally accepted accounting principles, the accounting firm Deloitte Using the generally accepted accounting principles, the accounting firm Deloitte and Touche LLP stated that, to the best of their knowledge, the financial and Touche LLP stated that, to the best of their knowledge, the financial statements presented to them by the General Motors Corporation were statements presented to them by the General Motors Corporation were

acceptable. They did, however, report on March 28,2006 the fact that there acceptable. They did, however, report on March 28,2006 the fact that there had been a misstatement in 2005 by management (internal control) dealing had been a misstatement in 2005 by management (internal control) dealing

with operating lease with daily rental car entities.with operating lease with daily rental car entities.

Stock Market InformationStock Market InformationMost recent price of GM stock:Most recent price of GM stock: $31.78$31.78

Twelve month trading range of GM stock:Twelve month trading range of GM stock: $18.33 - $34.00$18.33 - $34.00

Dividends per share:Dividends per share: ““Cash dividends per share of GM $1 2/3 par value common stock were Cash dividends per share of GM $1 2/3 par value common stock were

$2.00 in 2005, 2004, and 2003. At the February 6, 2006 meeting of the GM Board of $2.00 in 2005, 2004, and 2003. At the February 6, 2006 meeting of the GM Board of Directors, the board approved the reduction of the quarterly dividend on GM$1 2/3 Directors, the board approved the reduction of the quarterly dividend on GM$1 2/3 par value common stock from $0.50 per share to $0.25 per share, effective for the par value common stock from $0.50 per share to $0.25 per share, effective for the first quarter of 2006, which was paid on March 10, 2006 to holders of record as of first quarter of 2006, which was paid on March 10, 2006 to holders of record as of February 16, 2006” (GM Annual Report).February 16, 2006” (GM Annual Report).

Date of the above information:Date of the above information:October 10, 2006 (Most Recent Price, 12-Month Trading Range); October 10, 2006 (Most Recent Price, 12-Month Trading Range);

February 6, 2006 (Dividends per share)February 6, 2006 (Dividends per share)

In my opinionIn my opinion, I believe that it would be a good decision to hold your shares of GM , I believe that it would be a good decision to hold your shares of GM stock. I would recommend carefully watching the price of GM stock to see if it stock. I would recommend carefully watching the price of GM stock to see if it

continues to stay in the $30 range or if it increases or decreases. However, GM does continues to stay in the $30 range or if it increases or decreases. However, GM does show potential growth as you can see from the twelve month trading range of the show potential growth as you can see from the twelve month trading range of the

stock. If the price of the stock declines, sell it- this shows a loss in confidence of the stock. If the price of the stock declines, sell it- this shows a loss in confidence of the General Motors Corporation by other investors.General Motors Corporation by other investors.

Industry Situation and Company Industry Situation and Company PlansPlans

General Motors Corporation has a positive outlook on the automotive industry and I have a positive outlook on GM. GM General Motors Corporation has a positive outlook on the automotive industry and I have a positive outlook on GM. GM is the leading automotive company in the world, whose sales increased from 2004 to 2005. The United States is the leading automotive company in the world, whose sales increased from 2004 to 2005. The United States

represents the largest sales market for GM. While automobile sales are high, GM plans to surpass its’ numbers represents the largest sales market for GM. While automobile sales are high, GM plans to surpass its’ numbers and continue to grow exponentially. Health care benefits for its’ employees, however, have taken a toll on GM. The and continue to grow exponentially. Health care benefits for its’ employees, however, have taken a toll on GM. The

cost of health care has drastically increased. The employee benefits expense has increased by over one million cost of health care has drastically increased. The employee benefits expense has increased by over one million dollars since 2004, yet GM is still looking ahead and planning for the future to overcome these costs.dollars since 2004, yet GM is still looking ahead and planning for the future to overcome these costs.

GM’s main focus for the future is to make North American operations profitable once again. GM has a plan to turn it’s GM’s main focus for the future is to make North American operations profitable once again. GM has a plan to turn it’s market around.market around.

GM North America’s 4-Point Turn Around Plan:GM North America’s 4-Point Turn Around Plan:

Health Care Cost Reductions-Health Care Cost Reductions- “This agreement with the United Auto Workers is projected to reduce retiree health “This agreement with the United Auto Workers is projected to reduce retiree health care liabilities by about $15 billion, and cut the company’s health care expense by about $3 billion, before taxes” (care liabilities by about $15 billion, and cut the company’s health care expense by about $3 billion, before taxes” (

http://www.mindfully.org/Industry/2005/GM-Cut-30000-Jobs21nov05.htmhttp://www.mindfully.org/Industry/2005/GM-Cut-30000-Jobs21nov05.htm).).

Product Renaissance-Product Renaissance- “GM North America will continue with its aggressive product assault on all vehicle segments. “GM North America will continue with its aggressive product assault on all vehicle segments. To target key growth segments with the right products, GM earlier this year increased capital expenditures, with the To target key growth segments with the right products, GM earlier this year increased capital expenditures, with the

vast majority of that increase going toward future car and truck…To help drive additional sales in the future, the vast majority of that increase going toward future car and truck…To help drive additional sales in the future, the product plan includes a heavy emphasis on high-growth segments, such as "crossovers," compact and luxury product plan includes a heavy emphasis on high-growth segments, such as "crossovers," compact and luxury

SUVs, large pickups and entry luxury cars” (SUVs, large pickups and entry luxury cars” (http://www.mindfully.org/Industry/2005/GM-Cut-30000-Jobs21nov05.htmhttp://www.mindfully.org/Industry/2005/GM-Cut-30000-Jobs21nov05.htm).).

SalesSales and and Marketing-Marketing- This strategy includes strengthening GM's automotive brands, marketing that emphasizes This strategy includes strengthening GM's automotive brands, marketing that emphasizes the inherent value of GM cars and trucks, completing GM's distribution channel strategy, and aggressively the inherent value of GM cars and trucks, completing GM's distribution channel strategy, and aggressively

targeting markets where GM has underperformed against the competition” (targeting markets where GM has underperformed against the competition” (http://www.theautochannel.com/news/2005/11/21/148682.htmlhttp://www.theautochannel.com/news/2005/11/21/148682.html).).

Income StatementIncome Statemento The format of the General Motors Corporation Income Statement is The format of the General Motors Corporation Income Statement is

most like a multi-step format.most like a multi-step format.o There is a decrease in Gross Profit from 2004 to 2005. There is an There is a decrease in Gross Profit from 2004 to 2005. There is an

extremely large amount of net loss in the Income from Operations extremely large amount of net loss in the Income from Operations Account and the Net Income Account.Account and the Net Income Account.

2004 (in millions)2004 (in millions) 2005 (in millions)2005 (in millions)

Gross ProfitGross Profit $193,517$193,517 $192,604$192,604

Income From Income From OperationsOperations

$1,186$1,186 $ -16,931$ -16,931

Net IncomeNet Income $2,804$2,804 $ -10,567$ -10,567

Balance SheetBalance Sheet

Total Liabilities and Minority Interest both increased from 2004 to 2005. Total Liabilities and Minority Interest both increased from 2004 to 2005. Total Stockholder’s Equity and Total Assets both decreased. The Total Stockholder’s Equity and Total Assets both decreased. The

Minority Interest Account and the Total Stockholder’s Equity Minority Interest Account and the Total Stockholder’s Equity Account changed the most.Account changed the most.

2004 (in millions)2004 (in millions) 2005 (in millions)2005 (in millions)

Total LiabilitiesTotal Liabilities $452, 164$452, 164 $460,442$460,442

+ Minority Interest+ Minority Interest $397$397 $1,039$1,039

+ Total Stockholder’s + Total Stockholder’s EquityEquity

$27,360$27,360 $14,597$14,597

= Total Assets= Total Assets $479,921$479,921 $476,078$476,078

Accounting PoliciesAccounting Policieso Relating to revenue recognition GM accounting policy is as Relating to revenue recognition GM accounting policy is as

follows, “sales are generally recorded when products are follows, “sales are generally recorded when products are shipped (when title and risks and rewards of ownership have shipped (when title and risks and rewards of ownership have passed), or when services are rendered to independent passed), or when services are rendered to independent dealers or other third parties” (GM Annual Report, page 107).dealers or other third parties” (GM Annual Report, page 107).

o The GM accounting policy for cash is as follows, “Cash and The GM accounting policy for cash is as follows, “Cash and cash equivalents are defined as short-term, highly-liquid cash equivalents are defined as short-term, highly-liquid investments with original maturities of 90 days or less” (GM investments with original maturities of 90 days or less” (GM Annual Report, page 108).Annual Report, page 108).

o At GM “Inventories are stated generally at cost, which is not At GM “Inventories are stated generally at cost, which is not in excess of the market” (GM Annual Report, page 119).in excess of the market” (GM Annual Report, page 119).

o There are no other significant accounting policies relating to There are no other significant accounting policies relating to short-term investments or property and equipment.short-term investments or property and equipment.

Accounting PoliciesAccounting PoliciesTopics of The Notes to the Financial StatementsTopics of The Notes to the Financial Statements

1) Significant Accounting Policies1) Significant Accounting Policies2) Acquisition and Disposal of 2) Acquisition and Disposal of

Business Business 3) Discontinued Operations3) Discontinued Operations4) Asset Impairments4) Asset Impairments5) Post-Employment Benefit Costs5) Post-Employment Benefit Costs6) Investments in Non-Consolidated 6) Investments in Non-Consolidated

AffiliatesAffiliates7) Marketable Securities7) Marketable Securities8) Variable Interest Entities8) Variable Interest Entities9) Finance Receivables and 9) Finance Receivables and

SecuritizationsSecuritizations10) Inventories10) Inventories11) Equipment on Operating Leases11) Equipment on Operating Leases12) Income Taxes12) Income Taxes13) Property-Net13) Property-Net14) Goodwill and Intangible Assets14) Goodwill and Intangible Assets15) Other Assets15) Other Assets

16) Accrued Expenses, Other 16) Accrued Expenses, Other Liabilities, and Deferred Income Liabilities, and Deferred Income TaxesTaxes

17) Long-Term Debt and Loans 17) Long-Term Debt and Loans PayablePayable

18) Pensions and Other Post-18) Pensions and Other Post-Retirement BenefitsRetirement Benefits

19) Commitments and Contingent 19) Commitments and Contingent MattersMatters

20) Stockholder’s Equity20) Stockholder’s Equity21) Earnings (Loss) Per Share 21) Earnings (Loss) Per Share

Attributable to Common StockAttributable to Common Stock22) Derivative Financial Instruments 22) Derivative Financial Instruments

and Risk Managementand Risk Management23) Fair Value of Financial 23) Fair Value of Financial

InstrumentsInstruments24) Stock Incentive Plans24) Stock Incentive Plans25) Other Income25) Other Income26) Segment Reporting26) Segment Reporting27) Subsequent Events27) Subsequent Events

Financial AnalysisFinancial AnalysisLiquidity RatiosLiquidity Ratios

2004 2004 (in millions)(in millions)Working Capital:Working Capital:

$55,515 - $74,947 = $ -19,432$55,515 - $74,947 = $ -19,432

Current liabilities exceed current assets.Current liabilities exceed current assets.

Current Ratio:Current Ratio:

$55,515 / $74,947 = 0.7407$55,515 / $74,947 = 0.7407

GM has $.74 of current assets for each $1.00 of current GM has $.74 of current assets for each $1.00 of current liabilities.liabilities.

Receivable Turnover:Receivable Turnover:

$161,545 / ($21,336 + $20,532) / 2 =$161,545 / ($21,336 + $20,532) / 2 =

$161,545 / $20,884 = 7.7353$161,545 / $20,884 = 7.7353

GM turns its receivables approximately 7.7 times a year.GM turns its receivables approximately 7.7 times a year.

Avg. Days’ Sales Uncollected:Avg. Days’ Sales Uncollected:

365 / 7.7353 = 48.2071365 / 7.7353 = 48.2071

GM turns its receivables approximately 7.7 times a year, for GM turns its receivables approximately 7.7 times a year, for an average of every 47.2 days.an average of every 47.2 days.

Inventory Turnover:Inventory Turnover:

$159,957 / ($12,247 + $11,602) / 2 = $159,957 / ($12,247 + $11,602) / 2 =

$159,957 / $11,924.5 = 13.4141$159,957 / $11,924.5 = 13.4141

GM turned its inventory over approximately 13.4 times.GM turned its inventory over approximately 13.4 times.

Avg. Days’ Inventory on Hand:Avg. Days’ Inventory on Hand:

365 / 13.4141 = 27.2101365 / 13.4141 = 27.2101

GM turned its inventory, on average, every 27.2 days.GM turned its inventory, on average, every 27.2 days.

20052005 (in millions) (in millions)Working Capital:Working Capital:

$54,082 - $74,818 = $ -20,736$54,082 - $74,818 = $ -20,736

Current liabilities exceed current assets.Current liabilities exceed current assets.

Current Ratio:Current Ratio:

$54,082 / $74,818 = 0.7228$54,082 / $74,818 = 0.7228

GM has $.72 of current assets for each $1.00 of current GM has $.72 of current assets for each $1.00 of current liabilities- a slight decrease from 2004.liabilities- a slight decrease from 2004.

Receivable Turnover:Receivable Turnover:

$158,221 / ($15,578 + $21,336) / 2 =$158,221 / ($15,578 + $21,336) / 2 =

$158,221 / $18,547 = 8.5301$158,221 / $18,547 = 8.5301

GM turns its receivables approximately 8.5 times a year.GM turns its receivables approximately 8.5 times a year.

Avg. Days’ Sales Uncollected:Avg. Days’ Sales Uncollected:

365 / 8.5301 = 42.7897365 / 8.5301 = 42.7897

GM turns its receivables approximately 8.5 times a year, for GM turns its receivables approximately 8.5 times a year, for an average of every 42.8 days.an average of every 42.8 days.

Inventory Turnover:Inventory Turnover:

$171,033 / (14,354 + $12,247) / 2 = $171,033 / (14,354 + $12,247) / 2 =

$171,033 / $13,300.50 = 12.8591$171,033 / $13,300.50 = 12.8591

GM turned its inventories over approximately 12.9 times.GM turned its inventories over approximately 12.9 times.

Avg. Days’ Inventory on Hand:Avg. Days’ Inventory on Hand:

365 / 12.8591 = 28.3846365 / 12.8591 = 28.3846

GM turned its inventory, on average, every 28.4 days.GM turned its inventory, on average, every 28.4 days.

Financial AnalysisFinancial AnalysisProfitability RatiosProfitability Ratios

2004 2004 (in millions)(in millions)

Profit Margin:Profit Margin:

$2804 / $193,517 = 0.0145 = 1.45 %$2804 / $193,517 = 0.0145 = 1.45 %

On each dollar of net sales GM made 1.45 On each dollar of net sales GM made 1.45 cents.cents.

Asset Turnover:Asset Turnover:

$161,545 / ($479,921 + $448,507) / 2 = $161,545 / ($479,921 + $448,507) / 2 =

$161,545 / $464,214 = 0.3479$161,545 / $464,214 = 0.3479

GM produces approximately $.35 in sales for GM produces approximately $.35 in sales for each $1.00 invested. each $1.00 invested.

Return on Assets:Return on Assets:

$2,804 / ($479,921 + $448,507) / 2 = $2,804 / ($479,921 + $448,507) / 2 =

$2,804 / $464,214 = 0.0060$2,804 / $464,214 = 0.0060

For each dollar invested, GM assets For each dollar invested, GM assets generated .60 cents of net income.generated .60 cents of net income.

Return on Equity:Return on Equity:

$2,804 / ($27,360 + $25,268) / 2 = $2,804 / ($27,360 + $25,268) / 2 =

$2,804 / $26,314 = 0.1065$2,804 / $26,314 = 0.1065

GM earned 10.65 cents for every dollar invested GM earned 10.65 cents for every dollar invested by stockholders.by stockholders.

20052005 (in millions) (in millions)

Profit Margin:Profit Margin:

$10,567 / $192,604 = 0.0549 = 5.49 %$10,567 / $192,604 = 0.0549 = 5.49 %

On each dollar of net sales GM made 5.49 On each dollar of net sales GM made 5.49 cents- an increase from 2004.cents- an increase from 2004.

Asset Turnover:Asset Turnover:

$158,221 / ($476,078 / $479921) / 2 = $158,221 / ($476,078 / $479921) / 2 =

$158,221 / $477999.5 = 0.3310$158,221 / $477999.5 = 0.3310

GM produces approximately $.33 in sales for GM produces approximately $.33 in sales for each $1.00 invested- a slight decrease from each $1.00 invested- a slight decrease from 2004.2004.

Return on Assets:Return on Assets:

$10,567 / ($479,921 + $476,078) / 2 = $10,567 / ($479,921 + $476,078) / 2 =

$10,567 / $477,999.5 = .0221 = 2.21 %$10,567 / $477,999.5 = .0221 = 2.21 %

For each dollar invested, GM assets generated For each dollar invested, GM assets generated 2.21 cents of income- an increase from 2.21 cents of income- an increase from 2004.2004.

Return on Equity:Return on Equity:

$10,567 / ($14,597 + $27,360) / 2 =$10,567 / ($14,597 + $27,360) / 2 =

$10,567 / $20,978.5 = 0.5037 = 50.37 %$10,567 / $20,978.5 = 0.5037 = 50.37 %

GM earned 50.37 cents for every dollar invested GM earned 50.37 cents for every dollar invested by stockholders- an increase from 2004.by stockholders- an increase from 2004.

Financial AnalysisFinancial AnalysisSolvency RatiosSolvency Ratios

2004 2004 (in millions)(in millions)

Debt to Equity:Debt to Equity:

$452,164 / 27,360 = 16.5265 $452,164 / 27,360 = 16.5265 = 1652.65 %= 1652.65 %

GM has an extremely high debt to GM has an extremely high debt to equity ratio. This means that much equity ratio. This means that much

of the company’s assets are of the company’s assets are financed by creditors. GM has a financed by creditors. GM has a lower chance of surviving hard lower chance of surviving hard times in the world’s economy, times in the world’s economy, because they must continue to because they must continue to

pay creditors.pay creditors.

20052005 (in millions) (in millions)

Debt to Equity:Debt to Equity:

$460,442 / 14,597 = 31.5436$460,442 / 14,597 = 31.5436 = 3154.36 %= 3154.36 %

Once again, GM has an extremely Once again, GM has an extremely high debt to equity ratio. The ratio high debt to equity ratio. The ratio has also greatly increased since has also greatly increased since 2004. Much of GM assets are 2004. Much of GM assets are

financed by creditors. They must financed by creditors. They must continue to repay these creditors continue to repay these creditors

even when the world’s economy is even when the world’s economy is in poor shape, making GM’s rate in poor shape, making GM’s rate

of survival even lower.of survival even lower.

Financial AnalysisFinancial AnalysisMarket Strength RatiosMarket Strength Ratios

Current Market Strength RatiosCurrent Market Strength Ratios

Price/Earnings Per Share:Price/Earnings Per Share:

$31.78 / $-21.046 = -1.51$31.78 / $-21.046 = -1.51

Since the market price is -1.51 times earnings, the investors of GM are paying a Since the market price is -1.51 times earnings, the investors of GM are paying a relatively low price in relation to earnings. This tells us that the investor’s relatively low price in relation to earnings. This tells us that the investor’s

confidence in GM is also relatively low.confidence in GM is also relatively low.

Dividend Yield:Dividend Yield:

$.25 /$ 31.78 = 0.0078 = .78 %$.25 /$ 31.78 = 0.0078 = .78 %

The current return to the investor’s in the form of dividends is .78%. The current return to the investor’s in the form of dividends is .78%.

(I was unable to locate any information pertaining to 2004 stock price, earnings per share, or dividends.)(I was unable to locate any information pertaining to 2004 stock price, earnings per share, or dividends.)

2005 GM Financial Statements (PDF) 2005 GM Financial Statements (PDF) 2005 GM Financial Statements (HTML) 2005 GM Financial Statements (HTML)

2004 GM Financial Statements (PDF) 2004 GM Financial Statements (PDF) 2004 GM Financial Statements (HTML) 2004 GM Financial Statements (HTML)