The auto industry is highly capital-intensive (FXD), and auto companies tend to utilize debt extensively. At the end of the most recent reported quarter, 3Q15, debt formed 54.4% of General Motors’ (GM) capital structure. This is far less than its peers Ford (F), Volkswagen (VLKAY), and Fiat Chrysler Automobiles.
As seen in the above chart, all major automakers except Fiat, have a negative net debt to EBITDA (earnings before interest, tax, depreciation, and amortization) for their automotive segments. This suggests that General Motors currently has sound financial health.
Net debt can be calculated by deducting cash and cash equivalents from total debt. Significantly high debt may make a business’ earnings highly volatile and could increase its risk profile.
Here are some of the recent developments that investors should know ahead of GM’s earnings release:
- As of January 13, 2016, the company raised its 2016 adjusted earnings per share (or EPS) outlook range to $5.25–$5.75 from its previous guidance of $5.00–$5.50.
- General Motors (GM) increased the funds allocated to its share buyback program to $9 billion. This amounts to 19.3% of its total market cap. The company also increased its quarterly dividend to $0.38 per share effective 1Q16.
- On January 5, 2016, GM revealed that sales to rental customers fell by 11% in 2015. The deliveries to commercial customers rose by 12%, which should help the company to boost its profit margins.
- In early January 2016, General Motors announced that it would launch the Maven car-sharing service in 1Q16. This service is intended to capture the growing demand of the mobility-on-demand market. Reportedly, this new service would allow users to book vehicles by location or car type using a mobile app.