GM’s Cash Metrics – Free Cash Flow And Cash On Hand

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

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

How about paying down debts that will come due soon?

Is the company returning cash to investors?

These questions primarily boil down to GM’s cash flow.

Therefore, by looking at how GM generates and uses its cash, we can find out whether the firm has a strong cash flow and can afford a capital return for investors which is usually in the form of cash dividends and stock buybacks.

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

Let’s start with the following topics.

GM’s Cash On Hand

GM’s cash on hand

Let’s first look at GM’s cash on hand or cash reserves which are shown in the chart above for the period from fiscal 2015 to 2021.

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

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 was seen hovering around $26 billion USD on average prior to fiscal 2020.

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 in fiscal 2021, GM’s cash position has declined slightly from its peak but was still significantly high at more than $30 billion USD.

As of 4Q 2021, GM’s cash position clocked at a massive $32 billion, which was significantly above its historical average.

General Motors’ higher-than-average cash reserves in 2020 and 2021 were largely due to the COVID-19 pandemic which has prompted the company to shore up its cash assets to maintain a more liquid position.

GM’s Cash On Hand Breakdown

GM’s cash on hand breakdown

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

As seen, GM’s cash and cash equivalents make up the biggest portion of the company’s cash position, averaging around $20 billion or 60% of total cash.

The 2nd largest component of GM’s cash position goes to its marketable securities, at an average amount of $8 billion or 30% of total cash.

Lastly, GM’s restricted cash (only the current portion) makes up about $3 billion or 10% of the firm’s total cash position.

Both GM’s marketable securities and restricted cash have remained relatively unchanged in the last 6 years, even in fiscal 2020 and 2021.

However, GM’s cash and cash equivalents rose significantly in 2020 to nearly $40 billion, an amount that was almost twice as much as its historical average.

As of 2021 4Q, GM’s cash and cash equivalents came in at $20 billion, down significantly from its prior highs.

While cash and cash equivalents were significantly down from their prior highs as of fiscal 2021, they were still on the high side at more than $20 billion as opposed to the historical figure which clocked in at only $18 billion on average.

GM’s Ratio of Cash On Hand to Current Assets

GM’s cash on hand to current assets ratio

The chart above shows the ratio of GM’s total cash reserves or cash on hand with respect to current assets for the last 6 years.

GM’s ratio of cash on hand to current assets has been on a steady rise from fiscal 2015 to 2021.

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

However, the ratio has hit nearly 40% as of 2021 4Q.

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 and has remained at this level since then.

At a ratio of 40% in fiscal 2021, GM’s total current assets were mostly made up of highly liquid assets such as cash and cash equivalents as well as marketable securities.

GM’s growing cash asset ratio shows that the company is growing its working capital which is usually a result of an expanding business operation.

GM’s Net Cash From Operations

GM’s net cash from operations

GM may have a massive cash position that totals more than $30 billion as of 4Q 2021.

However, the company’s huge cash pile would not mean anything if it is bleeding cash on a massive scale.

That said, we have to look at GM’s net cash from operations to see if the company is generating or consuming cash from an operational perspective.

According to the chart above, GM has quite a strong cash flow from operations as reflected by all positive figures shown in the chart.

On average, GM generates about $15 billion of net cash from operations on a TTM basis, a rather massive amount for a company with a market cap of only $60 billion as of March 2022.

During the onset of the COVID-19 pandemic, we can see that GM’s net cash from operations dived significantly to less than $10 billion USD in 2Q 2020 for the 1st time since fiscal 2015.

While GM’s operating net cash had suffered during the COVID outbreak, it recovered quickly in subsequent quarters and reached a record high of more than $25 billion in fiscal 2Q 2021.

As of fiscal 2021 Q4, GM’s net cash from operations came in at about $15 billion, roughly in line with the historical average.

In short, GM’s business operations have been able to not only sustain itself but also produce positive net cash.

GM’s Operating Cash Flow Margin

GM’s operating cash flow margin

On average, GM’s operating cash flow margin comes in at around 10% on a historical basis and the figure has been on a rise as of fiscal 2021.

Despite having a host of issues plaguing the automotive industry, including the microchip shortages, GM’s operating cash flow margin continues to grow and reached 12% in fiscal 2021 Q4 on a TTM basis.

The steady rise of the operating cash flow margin shows the growing capability of GM’s operating cash flow despite a slowdown in revenue growth.

GM’s Free Cash Flow

GM’s free cash flow

Similar to the net cash from operations, GM’s free cash flow also looks incredibly strong as shown by all the positive figures in the chart above.

On average, GM produces about $7 to $8 billion of free cash flow on a TTM basis.

While GM may have been a cash cow, it’s not without its weaknesses.

As seen in the chart, GM’s free cash flow dived to only $2 billion in 2Q 2020 when the COVID-19 outbreak just started to hit.

Despite the plummeting free cash flow in early quarters, GM’s business operations recovered strongly in subsequent quarters and the strong recovery has led to strong free cash flow generation.

GM’s free cash flow is seen rising in all quarters in fiscal 2021 and reached nearly $8 billion as of 4Q 2021 on a TTM basis, one of the highest figures ever seen.

GM’s Free Cash Flow Margin

GM’s free cash flow margin

For free cash flow margin, GM’s figure averages around 5% historically.

However, GM’s free cash flow margin surged significantly in fiscal 2021 and reached as much as 15% in 2Q 2021, a record high for the company.

As of Q4 2021, GM’s free cash flow margin hovered at 6%, still an impressive figure from a historical perspective.

GM’s free cash flow margin reported in 4Q 2021 was lower than that of Tesla which was more than 10%.

A trend worth mentioning is that GM’s free cash flow margin has holding quite firmly over the years despite the declining total revenue.

GM’s Net Cash from Financing Activities

GM’s net cash from financing activities

Net cash from financing activities presented in the chart above is excluding the effect of cash outflow as a result of cash dividend payment and stock buyback.

Therefore, the net amount presented in the chart comes purely from the result of capital inflow and outflow.

A positive figure in net cash from financing activities means that GM is having a capital inflow as in debt offering and/or stock issuance.

In contrast, a negative figure in net cash from financing activities means that GM is repaying the capital back.

That said, GM is seen raising capital in most quarterly results except for the recent quarters in fiscal 2021.

On average, GM raises $15 billion USD on a TTM basis through a combination of debt and/or stock issuance.

However, this amount decreased significantly to less than $5 billion in fiscal 2019 but rose again in fiscal 2020 to more than $20 billion.

In fiscal 2021, GM has been paying back the capital raised in prior years, notably at $15 billion on a TTM basis.

In short, GM has been raising capital historically despite having a relatively strong cash flow.

Summary

In summary, General Motors’ cash on hand was more than $30 billion as of 4Q 2021, which was slightly lower than its prior highs recorded during the onset of the outbreak.

On a long-term basis, GM’s cash position has been slowly creeping up, in part due primarily to the growing working capital which is usually a result of business expansion.

On a different note, GM has a very strong cash flow generation, operating net cash and free cash flow in particular.

As shown in the chart, GM’s operating net cash margin reaches as much as 12% as of 4Q 2021 while free cash flow margin reaches 6%.

These ratios have been holding steadily over the years despite the slowdown in revenue growth.

While GM comes with strong cash flow capability, GM still resorts to capital raising through debt and/or stock issuance as shown in all positive net cash from financing activities in the chart.

References and Credits

1. All financial figures in this article 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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