Tuesday, August 5, 2008

General Motors’ Pathetic Balance Sheet

Karen De Coster and Eric Englund speak truth to Wall Street, about the desperate state of GM's financial situation:

For Wall Street analysts to claim “surprise” at GM’s massive deferred tax asset writedown, during fiscal year 2007, and to finally discuss (in mid-2008) General Motors’ financial condition in terms of a possible bankruptcy, indicate that low-level fluff is easily passed on to Main Street “investors” under the guise of serious analysis. At the very least, earnest auto industry analysts should have been sounding the negative-outlook alarm after General Motors published its December 31, 2006 annual report – yet Wall Street was shouting “buy, buy, buy.” One must wonder, again, if any of Wall Street’s analysts are even capable of reading a financial statement. If the answer is affirmative, then honest analysts would have drawn the same conclusion as Eric Englund did in his July 9, 2007 essay. Here is an excerpt:

To analyze General Motors’ 12/31/06 FYE financial statement is to understand that this once great company is likely heading towards bankruptcy. Here are the gruesome details:

GM’s "as stated" net worth is negative $5.4 billion

By fully discounting intangible assets, which includes deferred tax assets, GM’s net worth is arguably negative $48.5 billion (refer to Note 13 of GM’s 12/31/06 financial statement)

GM’s as stated working capital is negative $3.7 billion

By fully discounting current deferred tax assets, GM’s working capital drops to negative $14 billion

General Motors’ total liabilities amount to a staggering $190.4 billion
GM’s net loss, in 2006, was nearly $2 billion

With GM’s September 30, 2007 third-quarter writedown of $38.3 billion in deferred tax assets, GM’s financial condition – at fiscal year-end December 31, 2007 – validates Eric’s above-shown analysis. Accordingly, GM’s 12/31/07 as stated working capital and net worth positions stood at negative $10.2 billion and negative $37.1 billion, respectively. Then, at March 31, 2008 (GM’s most recent filing), the company’s financials reveal a negative net worth of $41 billion. To compound this company’s downward spiral, with the latest quarterThese are the financial indices of a company on the verge of bankruptcy.ly loss of $15.5 billion, GM’s net worth arguably stands at negative $56.5 billion.

Their full commentary is here.

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