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U.S. Government's Bailouts - Research Paper Example

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General Motors was bailout by the government because the company was facing economic problems and was nearly bankrupt prior to…
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U.S. Governments Bailouts
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U.S. Government's Bailouts

Download file to see previous pages... The debt ratio of the company was 2.11. The firm was highly leveraged which led to the high fixed costs associated with debt financing. The debt of the company was more than twice its total assets.
Providing governmental assistance to corporations such as General Motors is a way for the government to spur economic activity. Governmental assistance can ensure that companies that are facing financial trouble keep their doors open . Prior to the governmental assistance General Motors was near shutting down their operations. In the short run companies get a capital injection that can be used to cover operating expenses which includes both variable and fixed costs. The fixed costs of the company increase in the long run if the assistance that is given is in the form of debt financing. From the perspective of the government the assistance given protects jobs and government tax revenues. In the case of General Motors the long run consequence of the bailout was that the firm had to give up a lot of equity to the government in exchange for the governmental assistance.
General Motors has recovered well since its reorganization in 2008. The current price of GM common stocks is $34.48 (Yahoo, 2014). The organization has a global workforce composed of 1.9 million employees. The firm is a socially responsible organization. Its product portfolio of vehicles includes hybrid / electric cars. The company on November 18, 2010 completed the world’s largest initial public offering, emerging with a solid financial foundation that enabled GM to produce great vehicles for their customers and build a bright future for its employees, partners and shareholders (Gm, 2014). In fiscal year 2013 General Motors generated $155 billion in revenues and it had a net income of $3.8 billion. The net margin of GM in 2013 was 2.45%.
When a company employs directly 1.9 million people it is always worth saving such an organization. ...Download file to see next pagesRead More
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