Investors following a company may want to look at the assets portion since the assets represents the future economic benefits of the company. The rise and fall of certain asset classes in the balance sheets may reflect the financial health of the company. Specifically, investors should pay attention to assets that directly generate cash flow such as receivables, inventory, leasing assets, etc.
In general, a growing company should see its assets growing along with revenue or sales especially for an automaker like General Motors which relies heavily on fixed or hard assets for its business operations.
With that in mind, in this article, we will look at General Motors (NYSE:GM) total assets and track them over a period of time. Besides, we will also look at the breakdown of GM’s total assets and find out what really makes up the company’s total assets. We will also look at some of GM’s valuable assets that has consistently generated revenue for the company.
Let’s dive in!
General Motors’ Total Assets
The chart above shows General Motors’ quarterly total assets over a 5-year period from 2015 to 2020.
As seen from the chart, GM’s total assets over the 5-year period has been on an uptrend, reaching record high as of 1Q 2020 at nearly $247 billion. The growth in total assets was particularly significant between 2015 and 2017, rising 33% from $180 billion in 1Q 2015 to as much as $240 billion in 2Q 2017.
However, GM’s total assets took a beating in 2017, dropping from its high of $240 billion in 2Q 2017 to $212 billion by the end of the year. The decline in assets was primarily due to the sale of its European subsidiary to PSE group during 2017. GM has completed the sale of its GME subsidiary in 4Q 2017.
Nevertheless, GM’s total assets were seen rising steadily again between 2017 and 2020, hitting the $247 billion level by the 1st quarter of 2020. Between 2015 and 2020, GM’s total assets have grown by as much as 37% over the 5-year period.
Analyzing just the total assets may not tell us much about the fundamental of the company. Therefore, we will look at the breakdown of the total assets and find out exactly what has been causing the growth of GM’s total assets from the perspective of long-term and current assets.
General Motors’ Total Long-Term Assets
The chart above shows GM’s long-term assets between 2015 and 2020 on a quarterly basis.
As the chart shows, the trend of GM’s long-term assets looks almost identical to the trend of total assets which was seen in prior discussion.
For instance, GM’s long-term assets grew significantly between 2015 and 2017, rising as much as 60% from $97 billion in 1Q 2015 to $155 billion in 2Q 2017. Since then, GM’s long-term assets has decreased slightly and reached $144 billion in 4Q 2017 before growing again and reached $149 billion as of 1Q 2020.
Based on the trend of GM’s long-term assets, we can safely conclude that most of the growth of total assets was largely due to the growth of long-term assets as seen from the identical trend of both charts.
General Motors’ Total Current Assets
The chart above shows GM’s current assets over the same period from 2015 to 2020 on a quarterly basis.
Between 2015 and 2020, GM’s current assets have been mostly flat as seen from the figures which hovered around the $80 billion level over the 5-year period. However, GM’s current assets were seen rising significantly in 1Q 2020, hitting record high at close to $100 billion.
The dramatic rise in the company’s current assets in 1Q 2020 may have been due to the COVID-19 outbreak which started in 2020 and has caused GM to stock up its working capital, in this case current assets.
GM’s total current assets of $98 billion in 1Q 2020 represents a year over year growth of 22.5% compared to around $80 billion in the same quarter a year ago. If measured sequentially, GM’s current assets grew even more significantly at over 31% compared to $75 billion recorded in 4Q 2019.
General Motors may anticipate a liquidity crunch throughout 2020 caused by the COVID-19 outbreak and has, therefore, increased its current assets significantly as early as the 1st quarter of 2020 so that the company has enough working capital to deal with the worsening business environment that may last through 2020 and possibly 2021.
GM’s Long-Term Assets – Property
Some of GM’s most valuable assets can be found within the long-term assets portion in the balance sheets. One of which is the property which is mostly made up of tangible assets such as factories, land, offices, equipment, etc.
GM’s properties are some of the company’s most important assets and these asset classes help the company to derive long-term economic benefits such as revenue for the company in the long run. Without which, GM would immediately cease operating as these are the assets where the company uses to manufacture cars, trucks and SUVs.
As seen from the chart, GM’s property was seen rising significantly sine 2015 and reached record high at roughly $37 billion in 1Q 2017. The property asset declined slightly throughout 2017 which was mainly due to the sale of GM Europe subsidiary in the same year. However, GM’s property increased steadily since 2017 and reached $38 billion as of 1Q 2020.
Similar to the chart of total and long-term assets, the significant growth of GM’s property occurred between 2015 and 2017, rising as much as $10 billion or 32% in less than 3 years. The substantial growth of GM’s property between 2015 and 2017 shows that the company experienced significant growth in revenue during the same period.
After that, GM’s property was seen staying flat between 2017 and 2020, hovering around the $38 billion figure over the 3 year period. The slow growth in property indicates that GM’s revenue growth has come to a standstill between 2017 and 2020.
In short, GM’s property growth can tell us where the company is heading in future. In this case, if the company anticipates an improving business condition in the near term, we will expect to see an expansion in the property asset in the balance sheet when the company is expanding its manufacturing capabilities by investing more in factories and equipment.
GM’s Cash Generating Assets – Equipment on Operating Leases
The equipment on operating leases asset is one of GM’s cash producing assets. As the name implies, these are hard or fixed assets that GM leases to 3rd parties for leasing revenue and they are primarily made up of vehicles leases to retail customers of GM Financial.
The following snapshot shows the portion extracted from GM’s 1Q 2020 quarterly filing that contains the “Equipment on Operating Leases” information.
As shown in the above snapshot, the expected cash or revenue generated from the equipment on operating leases asset totaled as much as $12 billion over a span of 4 years between 2020 and 2024. You can see why this asset is being emphasized in this discussion and being called cash flow generating asset as they literally produce income for GM.
Coming back to the chart above, most of the growth of this income generating asset occurred between 2015 and 2018. After that, the asset seems to be declining steadily all the way to the 1st quarter of 2020. As of 1Q 2020, GM’s equipment on operating leases totaled around $41 billion, representing a year over year decline of 5%.
As mentioned earlier, the declined of a cash generating asset does not really bode well for the financial health of a company, especially for revenue growth. In GM’s case, the decline of this specific asset may cause leasing revenue to decline in the future.
Nevertheless, leasing revenue represents only a tiny fraction of GM’s total revenue, about 7.5% in 1Q 2020.
GM’s Cash Generating Assets – GM Financial Receivables
GM Financial receivables is another GM’s cash or income generating asset. GM Financial receivables are basically loans given to retail customers as well as commercial dealers. GM is receiving interest incomes on these loans. As such, GM Financial receivables is an important asset class that generates substantial revenue for GM. As of 1Q 2020, the interest income earned from these receivables totaled as much as $1 billion and it represents about 3% of GM’s total revenue in the 1st quarter of 2020.
When we look at the chart above, the long-term trend shows that GM Financial receivables have been increasing over the years, reaching $52 billion as of 1Q 2020.
Over the past 5 years, GM Financial receivables have grown as much as 62.5% since 2015 from $32 billion to $52 billion in the latest quarter of 2020.
You may notice that the asset has taken a hit during 2017 when GM was selling off its European subsidiary, plunging as low as $20 billion in 2Q 2017 when GM reclassified some of these assets as assets available for sale, literally taking this asset off the balance sheets.
However, GM Financial receivables recovered since 2017 and took off to new high at $54 billion in 2Q 2019 before declining slightly to its current level of $52 billion in 1Q 2020.
Unlike the equipment on operating leases asset which has been flat since 2017 and even declined in recent years, GM Financial receivables asset have been steadily increasing over the years. The uptrend is a good sign for GM’s revenue growth and thus, the stock price in the long term.
However, investors need to watch out for the recent decline in this asset especially the 3 consecutive decline which started in 3Q 2019 and persisted all the way to 1Q 2020.
GM’s Total Asset Turnover Ratio
With all the assets accumulated in GM’s balance sheet, how do we know whether the company is using these assets efficiently?
One way to find out is to analyze the company’s asset turnover ratio which is shown in the above chart over a 5-year period from 2015 to 2020.
The asset turnover ratio measures the asset usage of a company and it is derived by dividing the total revenue by total asset. The formula of asset turnover ratio is shown below:
Asset turnover ratio = ( total revenue / total assets ) X 100%
As the above formula shows, the asset turnover ratio measure the total amount of revenue generated with respect to total asset. Indirectly, the ratio tells us how efficient the executives are managing the company’s assets so that these assets can generate a certain amount of return in the form of revenue or sales.
Looking at the chart above, the highest quarterly asset turnover ratio was around 20% which was produced back in 2015 and 2016. On a yearly basis, GM produced an asset turnover ratio of roughly 80% during those periods. At this ratio, GM generated a revenue or sales of $0.80 on every $1.00 of asset on an annual basis.
To find out whether this ratio is good or bad, we can compare it with that of Tesla. In 2015, Tesla’s asset turnover ratio was around 60% on an annual basis as seen in this article: Tesla asset turnover ratio.
Therefore, GM’s asset turnover ratio was slightly better than that of Tesla in 2015. Moving forward to 2020, GM’s asset turnover ratio has dropped to its lowest level at only 13% in 1Q 2020.
Between 2015 and 2020, GM’s asset turnover ratio has been decreasing which means GM’s asset utilization has also been decreasing over the years and produced only 13% return as of 1Q 2020.
While GM’s total assets have slightly increased in recent years, its revenue or sales have deteriorated which has caused the ratio to decline significantly. In other words, GM is generating less revenue despite an increasing number of assets.
In short, the opposing trend between assets and revenue does not give a good sign for the company financial health in the long run. Investors need to keep track of these trends in the future to find out if there is a turnaround plan in place for GM.
General Motors’ total assets have been growing between 2015 and 2020 but the growth has slowed down in recent years. Most of the asset growth occurred between 2015 and 2017, rising to nearly $250 billion in 2Q 2017. As of 1Q 2020, GM’s total assets have again grown to nearly $250 billion. However, the growth was mostly caused by the increase in current asset in 1Q 2020 in the form of cash and cash equivalents.
As of 1Q 2020, GM has been stocking up cash to prepare for a possible liquidity crunch in view of the financial destruction caused by the COVID-19 outbreak all around the world.
Some of GM’s most valuable assets such as those that relate directly to cash flow generation have declined. For instance, GM’s equipment on operating leases have been flat and even declined in recent quarters.
On the other hand, GM Financial receivables are still holding up as of 1Q 2020 and have even increased over the years.
GM needs to improve its asset usage in order to shore up its asset turnover ratio. The company can do this by either improving sales or reducing assets as its respective asset turnover ratio has dropped to its lowest level as of Q1 2020 to only 13%.
References and Credits
1. Financial figures in all charts above were obtained and referenced from financial statements available in GM Annual and Quarterly Results.
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