Assignment: Project Financing

 General Motors Company financial analysis 

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Liquidity ratios are financial ratios that determine the ability of the firm to pay up its current and long-term liabilities. The liquidity ratios are the current ratio, quick ratio and cash ratio. The three ratios have been in decline in the last three years from 2015 to 2017 an indication that the ability of the firm to pay its debts has been reducing. The liquidity ratios are below the industry liquidity ratios (Fridson & Alvarez, 2011). 

The second financial ratios are asset turn over ratios that show the ability of the firm to use its assets and equity to generate income for the company. Receivable turnover of the company is on the rise and indication that the firm is becoming efficient in the collection of its debts. There is room for attaining more success to reach the industry ration. There is an increase in the inventory ratio over the past years. The increase in the inventory ration shows that the firm has increased its sales thus generating more revenue to meet the obligations of the company. The company is collecting the debts from the customers within a short time to boost the financial ability of the firm to pay its current liabilities.

Financial leverage ratios include debt ratio, debt to equity and interest coverage. The ratios determine the number of liabilities which are used in the company and the ability of the firm to pay up the acquired debts before they go overdue. Debt ratio determines the rate of the leverage of the company. The debt ratio of General Motors has been in the rise and indication that the company is becoming riskier for the investors. The increase in debt to equity ratio from 3.86 in 2015 to 5.04 in 2017 shows that the firm uses more liabilities to finance the operations of the firm. In case the interest expenses increase the firm stand a high chance of default on the obligations acquired.

Interest coverage ratio is the financial ratio that is used to determine the ease at which the company can pat its interest on the outstanding debts. General Motors have an interest coverage ratio which is above 1.5 and an indication that it can pay the accumulated interest on the outstanding debts (Fridson & Alvarez, 2011). 

Profitability ratios are financial ratios that are used by organizations to evaluate the ability of the firm to generate income in comparison to the expense that has to be paid within the accounting period. The profitability ratios are gross profit margin, return on assets and return on equity. Gross profit margin. The gross profit margin of the firm has remained between 13.4% and 13.9% which is far much below the industry gross profit margin at over 30%. The return on assets and return on equity had dropped to negative 2% and negative 11% respectively. The income generated by the assets and equity are consumed by the expenses thus creating a negative return. The negative returns indicate an increase in the cost of production hence failure to enjoy the economies of scale by the company (Gertler & Kiyotaki, 2010).

The last is the dividend policy ration that comprises of dividend yield and payout ratios. There is a slight increase in the dividend yield that shows that the firm but very low thus reducing the returns for the investors. The payout ratio of 2017 reached a negative mark indicating that the firm could not pay the dividends. Dividend yield and payout ratios are used by the investors to determine the ability of the firm to pay its dividends (Gertler & Kiyotaki, 2010).

References

Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner's guide (Vol. 597). John Wiley & Sons.

Gertler, M., & Kiyotaki, N. (2010). Financial intermediation and credit policy in business cycle analysis. In Handbook of monetary economics (Vol. 3, pp. 547-599). Elsevier.