General Motors Case
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By comparing General Motors and Toyotas 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
Sales
$163,637
$172,749
$190,812
$190,215
Cost of goods sold
120,262
129,100
144,179
155,264
Gross profit
43,375
43,649
46,633
34,951
Selling, general, and administrative expenses
19,438
18,095
20,394
22,734
Depreciation and amortization
9,177
9,291
14,152
15,769
Operating profit
14,760
16,263
12,087
(3,552)
Interest expense
196
11,980
15,768
Nonoperating income
2,269
2,244
3,407
2,984
Extraordinary items
608
(1,297)
(1,620)
(109)
Taxable Income
17,441
17,033
1,894
(16,445)
Income Taxes
6,446
6,126
(911)
(5,878)
Net income
10,995
10,907
2,805
(10,567)
Figure 3.2 represents a side by side comparison of Toyota and General Motors balance sheets for 2004 and 2005. Interestingly, Toyotas total assets and liabilities are less than 50% of General Motors.
Annual Balance Sheet ($ millions)
Toyota
General Motors
At 12/31/2004 and 12/31/2005
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
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
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
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
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
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
9,291
Operating profit
14,760
16,263
Interest expense
196
Nonoperating income
2,269
2,244
Special Items
608
(1,297)
-7.5%
Taxable Income
17,441
10.7%
17,033
Income Taxes
6,446
6,126
Net income
10,995
10,907
General Motors
Common-Sized Income Statement