FINANCE

Financial Accounting and Management Accounting Analysis



Part 11

A)Position & Performance of General Motors Based on Ratio Analysis1

Liquidity Ratios1

Current Ratio1

Quick Ratio1

Profitability Ratios2

Gross Profit Margin2

Net Profit Margin3

Return On Equity (ROE)4

Return on Assets (ROA)4

Stock Valuation Ratios5

Earnings per Share5

Price to Earnings Ratio6

Debt Ratio6

Debt to Equity6

Concluding Remarks7

B)Accounting Policies of General Motors With Respect to GAAP8

Valuation of Deferred Tax Assets8

Impairment of Long-Lived Assets11

Part 212

A)Development of Balance Score Cards over the Last 20 Years12

The Learning and Growth Perspective14

The Business Process Perspective14

The Customer Perspective14

B)Issues in Implementing BSC & Recommendations for Overcoming these Issues15

Cascading Balance Scorecard15

Poorly Defined Metrics15

Effective Data Collection and Reporting Lacking16

Formal Review Structure Lacking16

References17

Financial Accounting and Management Accounting Analysis

Part 1

Position & Performance of General Motors Based on Ratio Analysis

Liquidity Ratios

Current Ratio

GM's current ratio has shown gradual increasing trend since 2008 to 2012, i.e. from 0.59 to 1.30 (59% to 130%) in a given period of time. The current ratio of GM (2012) is 130%, which has increased 55 percent since last five years. Where, the current ratio of GM is calculated by dividing current assets to current liabilities, where total current assets of GM has increased from 44,267 million to 69,996 million, since 2008 to 2012, respectively, and the total current liability has decreased gradually in last four years before 2011, than slightly increased in 2012, i.e. decreased from 75,608 million to 48,932 million, 2008 to 201, then increased to 53,992 in 2012 (Y Charts, 2013, n.d).

So, overall the total current assets of GM have been increasing while total current liabilities have been on decreasing trend on average. Therefore, the main reason behind current ratio enhancement is the increase in total current assets of General Motors while decrease in the total current liabilities on average. The current ratio of General Motors, i.e. 130% or 1.30, shows that the company has enough cash to be able to pay its short-term debt.

Quick Ratio

The quick ratio of GM has also been on increasing trend since 2008, but shows a slight decline in 2012, i.e. increased from 0.29 to 0.85 since 2008 till 2011, but decreased to 0.78 in 2012. The quick ratio of General Motors as per 2012 is 102%, increased by 0.56 since its last 5 years (i.e. 0.29 in 2008). Quick ratio is calculated by dividing total quick assets to total current liabilities, where quick assets are current assets minus inventory (cash + short term marketable investments + account receivables).

The main reason behind this increase in quick ratio is the increase in total current assets which is mainly attributed to the increase in receivables. Though the current liabilities of General Motors have also increased from 2011 to 2012, but this increase is slight, less than total current assets. Further, the inventory has also increased in 2012 i.e. it was 13,195 in 2008 but increased to 14,714 in 2012. Thus, the increasing trend of current assets and decreasing trend of current liabilities has resulted in increasing trend of quick ration, where the last year's decrease (2012) is due to the increase in current liabilities as well as ...