GM Corp - FORD Corp Business Combination Strategic Growth Plan - Research Paper Example

Finance and Accounting Table of Contents Sources of Debt Financing for GM Corporation 3 Sources of Equity Financing for GM Corporation 4 Strategic Growth Plan 5 References 6 There are mainly two sources of financing which companies consider, they are debt financing and equity financing. Here we would be discussing the sources of debt and equity financing of General Motors Corporation and develop a strategic growth plan to support the accusation plans. Sources of Debt Financing for GM Corporation The debt financing of General Motors can be evaluated into two parts, short-term debt and long-term debt.

The short-term debt of the company amounts to $ 1,682 million in 2011, while in 2010 it was $1,616 million. Based on these figures, it can be said that there has been minor fluctuations in the short-term debt of the company. The sub-components within the short-term debt that can be identified through the financial statements of General Motors are Wholesale financing, which amounts to $1,081 million in 2011, and $1,054 million 2010. The second component is capital lease, which amounts to $139 million in 2011 and $129 million in 2010.

So the capital leases have increased in 2011. The other short-term debts and the current parts of the long-term debts was $150 million in 2011, compared to $433 million in 2010. So a considerable decrease has been noticed. The Korean obligatory redeemable preference shares amounted to $312 million in 2011, and since this component was not present in 2010, so the figure is not stated. Now if we evaluate the long term debt of General Motors, we can see that the total long term debt is of $3,613 million in 2011 and $3,014 million in 2010.

Minor increase in long-term debt has been seen in 2011. The components included within the long-term debts of General Motors include HCT notes, which is of $1,141 million in 2011. The Korean obligatory redeemable preference shares amounted to $666 million in 2011, while in 2010 it was $835. So a reducing in this long-term debt component is seen in 2011. The other long-term debt component comprised of capital lease which is of capital lease of $ 853 million in 2011, and 532 in 2010. A considerable hike in capital lease in 2011 is reflected through the financial statement of General Motors.

Other long-term debt amounted to $953 million in 2011 in comparison to 1,647 in 2010 (General Motors, 2012). Sources of Equity Financing for GM Corporation In this section the equity financing of General Motors would be discussed and evaluated. The company has two series of preferred stock, namely series A and series B. The price of series A preferred stock is $25 dollar per share in 2011, with an annual dividend rate of 9 percent, which amounted to $621 million at the end of 2011. In 2010 the series A stock amounted to $810 million, which is higher than 2011.

Similarly the series B stock was $50 dollar per share, and the dividend rate was 4.75 per annum. The series B stock amounted to $243 million in 2011, which was not available in 2010. The holders of the common stock were paid dividend. However, the terms and conditions for the series A and series B stock prohibit the payment of dividends on the common stocks. The company also issued warrants along with the preferred stocks, worth of 136 million shares of common stock. The warrants were first distributed in 2011 to the unsecured creditors.

After issuing these warrants, the shares that are issued would be included within the number of the basic shares that are outstanding that has been utilized in the computation of earnings per share (EPS). The market value of the common stocks is within the price range of $33-$39 dollar per share. The holder would be receiving the variable number of the shares of the common stock with the value equal to liquidation of preference plus the accumulated dividends (Bloomberg, 2012). Strategic Growth Plan General Motors Company LLC is a newly formed company after filing a bankruptcy in the year 2009.

However, Ford Motors has a sustainable position in the market, in comparison to General Motors. Even after restructuring General Motors’ profits reduced in 2011. So somehow the financial condition proves that unsustainable condition of the company still prevails. While Ford Motors has a strong position in the automobile industry in the present scenario. So if General Motors acquires Ford Motors the share prices of General Motors would rise, surely because the investors would be able to rely more on the sustainability of the company, as the goodwill of Ford Motors would work here.

Moreover, the resources of Ford Motors and General Motors would combine to form a powerful combination, as General Motors was also a market leader once (Hoskisson, 2008, p. 241-243). References Bloomberg. (2012). Balance Sheet for General Motors Co. Retrieved from: http://www.bloomberg.com/quote/GM:US/balance-sheet. General Motors. (2012). Investors: SEC Filings. Retrieved from: http://www.gm.com/company/investors/sec-filings.html. Hoskisson, R. E. (2008). Competing for Advantage. (2nd ed.). Connecticut: Cengage Learning.