Our First Day at General Motors (NYSE:GM)
I normally focus on small company turnarounds. These are companies with sales between $5 million and $50 million. So, I am going to put myself on the line, and comment on one of the biggest public turnarounds in recent history. General Motors (NYSE:GM) is in big trouble. It has had what we in the turnaround business would consider a "trigger event". A trigger event is when something happens and the client finally decides they need a turnaround artist.
In GM's case, this was a downgrading of GM's bonds to "BB" which now makes them "junk bonds". Pretty clear term if you ask me. Of course, GM is a large company with lots of contacts and analysts, so they knew that this "trigger event" was coming. This allowed them to act "somewhat" in advance and hire a new CEO, Rick Wagoner, to turn them around.
Based on the "BB" bond rating, by definition, Standard and Poor's is estimating that in the next four years, GM has about a 10% chance of failing and defaulting on its bonds. They are also saying there is a negative outlook, and that GM bonds may downgraded again in the future. Of course, that is exactly what you would expect of a company that has a 10% chance of default. It will either get better and their rating will be upgraded, or they will get worse and face downgrade after downgrade as they flush themselves down the toilet.
So, let's put ourselves in the shoes of Rick Wagoner and see what we would do first to turnaround this company. We have arrived on our first day, everyone in the financial community and the media is watching us, and our bonds are going to be downgraded very soon.
First thing we need to do is make sure that all financial information is available to us. We will ask our financial team for the following laundry list of statements:
1) Income Statement, Balance Sheet, and Cash Flow Statements for the Last 20 Quarters - pretty obvious why we need to see where we stand, and how we got there.
2) Financial Ratios for the Last 20 Quarters Including Graphs of Trend Lines - Financial ratios are more than just numbers on a page. Their effect on a business is very real. When we analyze them, we are looking for their absolute values as well as their trends. Leverage ratios are great for us when our business is on the rise, but equally disastrous when our business is in decline.
3) Financial Ratios for the Last 20 Quarters Including Graphs of Trend Lines for Our Competitors - Who knows what the proper and best value for these ratios to have? Try looking at our profitable and unprofitable competitors for clues. If we see ratios that are working for our competitors, we might be wise to see if we can put ourselves in position to achieve similar ratios. If you are a small business, you might have to research more carefully to find companies that operate similar to yours, but it can be done.
4) Common-Sized Financial Statements - These common sized statements are the regular financial statements viewed as percentages instead of dollar figures. Generally they are either a percentage of sales, or a percentage of assets. I should have a crack financial team here at GM, so I will ask for common sized statements in both formats.
5) Common Sized Financial Statements for Our Competitors - These common sized statements allow for different companies to be compared side to side, which is exactly what we will need to do. If you are a small business, developing common sized statements for your competitors is again difficult, but very worthwhile.
6) 80/20 Analysis of Major Products, Product Lines, and Divisions - This is much harder to generate and takes more time. Many times when businesses are failing, this is the information that they don't have and never thought to look at. Of course we would all expect a large company like GM to have done this analysis over and over, but I for one would not be shocked if they hadn't. We all know the 80/20 rule and it applies in business very well. What are the top 20% of products that make us 80% of the money? Top divisions? Top performing plants? This will be very helpful as we restructure the company.
7) All Internal Reports, Spreadsheets and Analysis - In a company the size of GM, this is probably ridiculous, but lets ask for them anyway. When we look at these statements we ask - Why did someone at our company take the trouble to track and identify these metrics in the first place? Since I have a team beneath me, they will categorize this data into junk and valuable, and then again to the categories of analysis they represent. If we run into a question in our larger analysis, perhaps we can drill down into these statements for more detail.
posted by Cliff Rayman @ 10:17 AM
4 comments
4 Comments:
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