CHAPTER ONE

Introduction

The report will focus on General Motors and Honda Motors Company that deal in the manufacturing of motor vehicles, leasing of vehicles to commercial and consumer fleet companies and the sales and distribution of automobiles worldwide through their respective retail dealers. The report will also compare the finances of both companies and figure out why General Motors is not performing well financially as compared to Honda Motors Company. It will provide a summary of the financial position of both companies upon which a valuable decision can be made to make sound and progressive investment projects approvals and future developments.

Honda Motor Company Limited was founded in 1946 and is headquartered in Tokyo, Japan. In collaboration with its subsidiaries it engages in the development, manufacture and distribution of motorcycles, automobiles and power products worldwide. The company also sells spare parts and provides after sales services through retail dealers, retail lending and leasing to customers as well as wholesale financing to motor vehicle dealers. General Motors Company on the other hand manufactures designs and markets cars, crossovers, trucks and automobiles worldwide. The company also sells cars and trucks to dealers for consumer retail sales, as well as fleet customers including the daily car rental companies, governments, leasing companies and commercial fleet companies. The company was founded in 1908 and is based in Detroit, Michigan.

CHAPTER TWO

A comparison of the financial situation reveals that General Motors shares at the stock market are at $28.22 compared to General Motors at $39.05. This shows that the investors are very wary of General Motors shares and hence are not buying more stock but selling their current stock in the market. The revenue for General Motors for the year ended 2012 was $152.3 billion compared to Honda at $280 billion. The earnings per share were $2.92 for GM compared to USD 0.50 for Honda. The net income attributable to the stockholders of General Motors was $4.9 billion compared to $8.94 billion. The cash flow from operating activities for General Motors was $4.3 billion compared to Honda at $9.42 billion. The success of Honda Motors Company Limited is attributed to the recovery from the Thai flood, the introduction of the new model that led to an increase in automobile business operations, cost reduction efforts and currency fluctuations that had a positive effect in production and sales increase.

The change in accounting policies such as depreciation method from declining balance to the straight line method has enabled the company to be more flexible and adopt a versatile production arrangement which the management believes reflects the future economic benefit from the usage of plant, property and equipment. General Motors on the other hand is lagging due to increased and uncontrollable costs of production, reduced value to customers as witnessed by unfavorable special items in the fall of stock prices and faulty vehicle parts that increased the costs for the company due to rectification repairs and transportation costs for the returned vehicles.

CHAPTER THREE

The gross profit margin for General Motors is derived by the formula: Gross profit÷sales×100 which in this case is $10,375,000÷$152,256,000×100=6.184% and that for Honda is given by $77,500,000÷$280,000,000×100=27.67%. This shows the efficiency in which management produces each unit of a product by reducing the costs of sales. The management of Honda Motors based on the gross profit margin is quite efficient compared to that of General Motors. The dividend yield is given by dividend price per share divided by the market price per share multiplied by 100(DPS÷MPS×100) (Madura, 2003). The dividend yield for General Motors is $2.92÷$28.22×100=10.34% and the dividend yield for Honda is $0.50÷$39.05×100=1.28%. This is the percentage return that the company pays out as dividends each year relative to its share price.  In the above calculation, General Motors pays much in form of dividends to the stockholders compared to Honda Motor Company. The stockholders of General Motors are getting more money for each dollar invested in an equity position.

The debt to equity ratio for General Motors is given by the formula: long term debt ÷ shareholder’s equity (Magoon, 2008). The debt to equity ratio for General Motors is 59,186,000÷36,244,000=1.63. The ratio for Honda Motors Company is given by 46,156,000÷53,498,000=0.86. This indicates that General Motors assets are heavily financed by debt than by shareholder’s equity compared to those of Honda Motors and this trend in the long run can lead to bankruptcy if the debt outweighs equity and the shareholders are at a great risk of losing everything. The net present value for both companies is positive as shown by their profits of $152.3 billion for General Motors and $280 billion for Honda Motors Company. The shareholders of both companies can expect a greater return from their investments based on the net present value due to increased market value of the firm in the stock market and the overall increase in share holder’s wealth.

CHAPTER FOUR

The report is very significant since it shows the various financial management concepts  applied to real life examples to make relevant decisions and reveal company flaws that would have been otherwise overlooked. The report is also quite important in making future predictions based on continuous trends concerning the direction that the company will take and how can the company increase in growth, sales, employment opportunities and profit generation. The report is quite meaningful especially to company finance managers as it helps them to make value based decisions and also to appraise projects in order of their returns.

The financial managers are also able to know which investments are viable and can generate the most returns for the investors who are the stockholders of the company. The managers are able to make a comparison of their company with companies of a similar nature so that they can discover their strengths and weaknesses and decide what to improve upon and what to discard. The financial management decisions are vital for achieving company growth and objectives and enabling a competitive business environment as well as increasing the value of the firm and that of its shareholders.

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