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GM’s Total Cash On Hand Reached $30 Billion

Will General Motors (NYSE:GM) restore its suspended dividends payment?

Does the company have enough cash to support its operations and business activities?

How about paying down debts that will come due soon?

These questions are related to GM’s cash flow.

Therefore, by looking at how GM uses its cash, we can find out if GM has a strong cash flow and what it means for investors.

In this article, we will explore General Motors’ several cash-related metrics, including its cash on hand or cash position, net cash from operations and investment, free cash flow, and net cash from financing activities.

Let’s move on!

GM’s Cash On Hand

GM total cash on hand

GM total cash on hand

* Cash on hand data is adjusted by the author and consists of cash & cash equivalents, marketable securities and restricted cash extracted from GM’s balance sheets.

Let’s first look at GM’s cash on hand or cash reserves which are shown in the chart above for the period from 2015 to 2020.

GM’s cash on hand is calculated using the following equation:

Total cash on hand = Cash and Cash equivalents + Marketable Securities + Restricted Cash (only short-term portion)

Basically, the formula considers only GM’s highly liquid assets such as cash or near cash assets that are reported in the balance sheets.

The snapshot below shows an example of what makes up GM’s cash assets:

GM high liquidity assets

GM high liquidity assets

From the snapshot, GM’s majority of cash and cash equivalents are invested in fixed deposits, US government bonds, corporate and sovereign debts which are relatively safe in nature.

For GM’s marketable securities, they are also invested in US government bonds, corporate and sovereign debt as well as a small amount of mortgage-backed securities.

Not only do these investments produce interest incomes for General Motors, but they are also highly liquid assets that can be converted to cash immediately whenever the company needs them.

All told, GM’s cash on hand has been quite stable prior to 2020, hovering around $26 billion.

However, the company’s total cash position rose significantly beyond $30 billion in 1Q 2020 and reached as high as $48 billion in this quarter alone.

In subsequent quarters, GM’s cash position declined slightly from its peak but still hovered around the $40 billion levels.

As of 4Q 2020, GM’s cash position had declined to $31 billion, which was still significantly higher than its historical average.

General Motors’ higher-than-average cash reserves in 2020 were largely due to the impending COVID-19 outbreak.

In 1Q 2020, GM started to shore up its cash assets in preparation for a negative business condition.

GM’s Cash On Hand Breakdown

GM cash on hand breakdown

GM cash on hand breakdown

* Cash on hand breakdown data is adjusted by the author and consists of cash & cash equivalents, marketable securities and restricted cash extracted from GM’s balance sheets.

The chart above shows the breakdown of GM’s cash on hand into its respective components.

As seen, GM’s cash and cash equivalents made up the biggest portion of the company’s total cash on hand, at an average ratio of 60%.

The 2nd largest component of GM’s total cash position goes to its marketable securities, at an average ratio of about 30%.

Lastly, the restricted cash made up about 10% of GM’s total cash position.

Both GM’s marketable securities and restricted cash have remained relatively unchanged in the last 6 years, even in 2020.

However, GM’s cash and cash equivalents rose significantly in 2020, to an amount almost twice as much as its historical average.

As of 2020 4Q, GM’s cash and cash equivalents declined to about $20 billion from its peak figure of $40 billion reported in 1Q 2020.

GM’s Ratio of Cash On Hand to Current Assets

GM cash on hand to current assets ratio

GM cash on hand to current assets ratio

* Ratio is calculated by the author using GM’s total cash on hand and total current assets obtained from the company’s balance sheets.

The chart above shows the ratio of GM’s total cash reserves with respect to current assets for the last 5 years.

GM’s ratio of cash on hand to current assets has been on a steady increase from 2015 to 2020.

GM’s total cash position was only 30% of its current assets in 2015.

However, the ratio has risen to about 35% in 2019.

In 2020, GM’s ratio of cash on hand to current assets was the highest at nearly 50% in the 1st quarter but had declined to about 40% by the 4th quarter.

At a ratio of 40%, GM’s total current assets were mostly made up of highly liquid assets.

GM’s Net Cash From Operations and Investment

GM’s net cash from operations and investment consists of net cash from operating and investing activities.

Net cash from operating activities relates to the changes in working capital such as inventories purchase, receivables, prepaid expenses, accrued liabilities, etc.

On the other hand, net cash from investing activities is the cash collected and spent not only on capital expenditures but also on receivables such as loans as well as the purchase of leased vehicles.

The related investment activities are shown in the snapshot below:

GM cash flow from investing activities Q4 2019

GM cash flow from investing activities Q4 2019

Aside from capital expenditures, GM spent a considerable amount of cash on loan receivables and the purchase of leased vehicles.

GM’s loan receivables and leased vehicles are part of the assets of the company and they are vital for the future growth of the company.

These assets generate recurring interest income and leasing revenue for General Motors.

In short, the net cash from operations and investment can be summed up by using the following formula:

GM’s net cash from operations and investment = Operating Cash Flow – Capital Expenditures – Purchase of Finance Receivables + Collections from Finance Receivables – Purchase of leased vehicles + Sales of leased vehicles

Chart of GM’s Net Cash From Operations and Investment (Quarterly)

GM net cash from operations and investment (quarterly)

GM net cash from operations and investment (quarterly)

* Net cash from operations and investment is calculated by the author using GM’s operating net cash and net cash from investment obtained from the company’s statements of cash flow.

On a quarterly basis, GM’s net cash from operations and investment was mostly negative, suggesting the company’s inability to generate sufficient operating cash flow to cover the respective cash outflow for capital expenditures and investment.

In 2020 4Q, GM’s net cash from operations and investment totaled about $700 million, a seemingly small figure compared to the cash deficit that could reach as much as $8 billion in some quarters.

Chart of GM’s Net Cash From Operations and Investment (TTM)

GM net cash from operations and investment (ttm)

GM net cash from operations and investment (ttm)

* Net cash from operations and investment is calculated by the author using GM’s operating net cash and net cash from investment obtained from the company’s statements of cash flow.
*TTM net cash is the sum of the quarterly data on a trailing 12-month or 4-quarter basis.

The TTM plot above is used to observe the trend and smooth out the quarterly plot.

From a trailing 12-months (TTM) standpoint, General Motors is making good progress towards positive net cash from operations and investment.

In fact, GM’s cash deficit from operations and investment has been narrowing and even turned to positive figures starting in 2019.

While GM still experienced a cash deficit from operations and investment in 2020, the figures were much smaller compared to those reported prior to 2020.

GM’s Cash On Hand vs. Net Cash From Operations and Investment

GM cash position vs. net cash from operations and investment

GM cash position vs. net cash from operations and investment

* Cash on hand and net cash from operations and investment are obtained from the figures computed in prior charts.

To get a glimpse of how GM’s total cash on hand stacks up to the net cash from operations and investment, I combined both into a single chart as shown above.

In most quarters, GM’s cash position has been more than sufficient to cover the cash deficit (if there is any) between 2015 and 2020.

In fact, GM’s cash position is multiple times higher than the net cash from operations and investment.

For instance, GM’s average cash reserves are $28 billion whereas the average net cash from operations and investment is -$9 billion for the last 6 years.

The comparison shows just how much cash balance GM has in its bank and the existing amount will be more than enough to pay for both business activities and investments in multiple quarters in the future.

In short, GM should not have any liquidity problem in the near term considering its gigantic cash reserves.

Keep in mind that the shown GM’s total cash position has not even taken into consideration the company’s available liquidity through its credit facilities.

Chart of GM’s Free Cash Flow (TTM)

GM free cash flow

GM free cash flow

* Free cash flow is a non-GAAP measure and is computed by the author using GM’s net cash from operations and capital expenditures obtained from the company’s statements of cash flow.
* Free cash flow consists of net cash from operations minus capital expenditures.
*TTM free cash flow is the sum of the quarterly data on a trailing 12-month or 4-quarter basis.

While GM has been consistently running into a cash deficit in net cash from operations and investment, what about its free cash flow?

As shown in the chart above, GM’s free cash flow has been positive in all quarters, indicating that GM has been strong in free cash flow generation.

In fact, GM’s free cash flow reached a record high at nearly $12 billion as of 2020 4Q, beating all prior records.

GM’s Net Cash from Financing Activities

Despite consistently having a cash deficit as seen in its net cash from operations and investment, GM still managed to maintain its cash position at a relatively stable amount.

In fact, GM’s cash balance figure has even slowly increased since 2015.

The question is how and where does the company get its sources of cash?

The answer can be found in GM’s net cash from financing activities which is shown in the chart below.

GM net cash from financing activities

GM net cash from financing activities

* Net cash from financing activities is a GAAP measure and is obtained from GM’s statements of cash flow.

The result in the chart above is GM’s net of cash from financing activities, meaning that the figures reported have already considered all cash inflow and outflow in financing activities.

A positive figure in the chart implies that GM has raised cash either by taking on more debt or issuing equities whereas a negative number in the chart means that GM has repaid its debt.

Having said that, GM’s net cash from financing activities has been mostly positive in all financial periods except in 2019 and 2020.

In other words, GM has been raising cash between 2015 and 2020 either through debt issuance or equity offerings.

According to the chart, GM raised the most cash in 1Q 2020 at nearly $25 billion, most likely in preparation for the COVID-19 outbreak which has only started in the same quarter.

In most parts, GM has notably raised cash from 2015 to 2020 in all financial periods, with 2020 being the worst offender.

However, GM is seen repaying its borrowings in the 2nd half of 2020 at nearly $20 billion cumulatively.

Now, we have already found the answer to the question of why GM has been able to keep its cash on hand at a relatively stable balance while having a cash deficit from operations and investment.

Summary

In summary, General Motors’ cash on hand was at an all-time high of nearly $50 billion in 2020, largely driven by the COVID-19 pandemic which has caused the company to keep a large balance of cash reserves in preparation for a possible liquidity crunch.

GM has reduced its cash balance as of 2020 4Q to $30 billion.

On a different note, GM’s net cash from operations and investment has been in deficit over the last few years, implying that the company had used more cash than it could generate from its business operations.

Even so, the company’s cash position was more than enough to cover the cash deficit multiple times and the company could possibly survive for a minimum of 1 year, relying mostly on the existing liquid assets.

Additionally, GM has a very strong free cash flow generation as seen from its near $12 billion record-high free cash flow reported in 4Q 2020.

GM financed its expansion mainly by using debt or equity as seen from the positive net cash from financing activities and this explains the company’s stable cash position all this while.

References and Credits

1. All financial figures in the charts were obtained and referenced from GM’s quarterly and annual reports which can be found on the Investor Relation website: General Motors SEC filings.

2. Featured images in this article are used under creative commons license and sourced from the following websites: raymondclarkeimages.

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