Financial Trends Paper - Essay Example

The trend was a fall before the rise. The same could be observed in the behavior of net income of the company for the same three-year period, that there was a fall and an improvement after the fall. Net profit margin measures the company’s profitability performance (Bernstein, 1993) and is computed by dividing net income over the total revenues. In case of general motors a consistent 0.01 net profit margins were observed for the three year period. This indicates a rather lack of improvement in the company’s performance for the past three years despite the seeming increase in revenues from total sales for 2005 of US$192.

6 billion to US $207.3 billion for 2006. This means the cost of the company was very high for the company which needs a deeper analysis as shown below: It would appear the company was still having some mark-ups from revenues, hence it may deduced that it is selling at above is production cost as evidenced by the positive gross profit rate from 2004 through 2006. The loss was felt only in 2005 when operating loss showed a rate of negative 0.01 value. This means that the company has higher operating expenses for 2005 compared with 2006 and 2004.

Further analysis revealed that 2005 has high selling and administrative expenses in addition to the decline in revues from 2004 to 2005. Over all 2005 operation was a losing year by the company. When the three year ratios above are analyzed in relation to the trends established earlier in the behavior of the revenues and net income, it may be observed that there was big improvement in the return on equity (Meigs and Meigs, 1995) of the company from 2004 to 2006 although there was a deterioration in the return on assets from 0% in 2004 to -1% in 2006.

This means that changes made were beneficial to the stockholder and that having too many assets are not necessarily better for the company if it will result to a better return to equity.