Corporate Finances General Motors vs. Honda Motor C

GM v Honda

In FY 2010, General Motors earned revenue of $135 billion and earned profit of $6.17 billion on this. The 2010 FY figures are distorted because of the impact of the government bailout, but in prior years GM was losing over $30 billion per year, despite recording higher sales ($177 billion in 2007 and $147 billion in 2008). Sales hit their nadir in 2009 with just $104 billion, so part of the company's success in 2010 was that sales began to rebound. Sales thus far in fiscal 2011 are higher again, with the company on pace for around $149 billion. Net income is also stronger, the company having recorded almost $8.5 billion in net income in the first three quarters of fiscal 2011.

Honda's revenue and profit figures show a similar trend, where the company had stronger profits in 2007 and 2008, only to slump in 2009 and 2010. The company's fiscal 2011 showed a slight increase. It is worth noting that while GM's fiscal year end is Dec 31, Honda's is March 31, so Honda's FY is 9 months head of GM's. This is why Honda's revenues bottomed out in FY 2010 while GM's bottomed out in FY 2009. Honda's net income, however, has been consistently stronger than that of GM. The company has earned a profit in each of its last five fiscal years. The struggles of GM pre-bailout were a result of pension expenses, and it was bailout-era pension restructuring that allows GM to turn a profit now, compared with steep losses before the bailout. The company still has some pension obligations (Shepardson, 2012).

GM today has a relatively healthy balance sheet, with a current ratio of 1.12 and a debt/equity ratio of 2.83. The bulk of the liabilities are classed as "other," totaling $43.4 billion. These are the remaining pension liabilities that GM is considering buying out. The company has $26 billion in cash. Honda's balance sheet is stronger, with a current ratio of 1.31 and a debt/equity ratio of 1.6. While Honda's balance sheet has not undergone dramatic change recently, GM's has. Post-bailout, the company had a current ratio of 0.58 and had negative equity. For GM, the past few years have been about using the bailout -- and getting out of the pension obligations -- to rebuild the company's financial strength. It appears they are doing that, although at present GM does not have the same strength that Honda has.

GM today has a gross margin of 12.1%, its best level is several years. The net margin is 4.55%. By comparison, Honda has a gross margin of 27.3%, and has not seen this metric drop below 25% even when the firm saw reduced revenues during the global economic slowdown. The net margin for Honda is 5.9%, again higher than that of GM. The gross margin figure being distinctly superior for Honda seems to indicate that the company has a combination of better pricing and more efficient production, but GM has rolled its pension payments into its "cost of sales," distorting that number and bringing it to a level that is much worse than that of Honda.