Six Reasons Why GM’s Free Cash Flow is a Problem

GM’s Yahoo Finance Summary page is dynamic and features an interactive chart and the GM ticker on the trading graph. The company’s dividend yield is also above industry average. Despite GM’s current financial issues, the company’s forward PE ratio is seven. It’s worth a look.

GM’s liquidity ratios are still below the industry average

GM’s liquidity ratios are a sign that the automaker is in a precarious financial position, and that it must consider its options carefully before taking any action. The quick and current ratios are used to assess the company’s short-term liquidity. GM’s quick ratio, which is still below the industry average, measures how liquid GM is in terms of its current assets and liabilities.

GM’s current ratio declined to 0.90 in 4Q19, indicating that it had insufficient liquid assets to cover its short-term liabilities. This is considered low, but GM was still able to settle its liabilities when they became due. Even if inventory levels grew faster than the company’s cash inflows, it still would not be able to cover its current liabilities.

GM’s free cash flow is a problem

GM’s free cash flow has been a serious problem for years. It has lost its focus on market share and revenue, and has invested in too many assets. While this is necessary for market focus, the portfolio proliferation has been detrimental to the cash flow of GM. The result is a massive cash loss. In fact, GM needs the help of the government to stay in business. Here are six reasons why GM’s free cash flow is a problem:

General Motors has faced a number of challenges in the past three years, including a six-week UAW strike in late 2019 and factory closures related to the COVID-19 pandemic in 2020. Despite these challenges, the automaker managed to post record earnings and positive free cash flow in 2021. Looking forward, the automaker is forecast to report another strong year in 2022, with record sales and free cash flow.

Six Reasons Why GM’s Free Cash Flow is a Problem

GM’s dividend yield is above the industry average

GM’s dividend yield is well above the industry average, which is impressive, considering its history. GM’s board of directors makes the call on whether to raise or cut the dividend on a quarterly basis based on an active discussion of all relevant issues. Some analysts expect a cut due to GM’s financial issues and labor union demands, but that is not yet confirmed. According to Bank of America auto analyst Ron Tadross, GM’s dividend yield is better than the industry average.

GM’s current valuation is below the industry average. This is not necessarily a bad thing. While GM is not cheap, it does have a high fixed cost base and will need to sell a lot of cars to break even. Many automakers have cut dividends and cut spending on future programs during recessions, and left dated models in showrooms when buyers returned in the early stages of recovery.

GM has a forward PE ratio of 7

When looking at the valuation of General Motors, we find that it trades for about 6.3x next year’s expected profit. The company recently guided for a 12.5% increase in adjusted EPS for next year. That means that shareholders should expect a rise in GM’s share price in the near future. But there are also some concerns about this company’s future. Despite its high valuation, GM is still dirt-cheap relative to its peers.

GM shares are trading for six times next year’s earnings estimates, and a slight discount to book value. The company has been forecasting 23% growth in revenue this year. Given this, investors should be cautious about buying GM stock at this price. The company is expected to maintain its dividend. And while GM shares are cheap, the stock will continue to appreciate. In addition to that, forward PE ratio is low, so investors can buy these shares for income and capital appreciation.

GM’s stock is not a ‘buy’ now

Some investors on the Yahoo Finance message board are questioning why GM’s stock is not a buy now. While most people know that GM’s stock isn’t a ‘buy’ right now, some are seriously delusional. One poster named “previewmgt” said last week that he was glad he had bought the stock because he believed that GM’s share price would rebound. However, others are speculating that GM’s stock has a higher upside than the market currently believes.

GM shares started off at $33 on November 17, 2010 and have dropped as low as $31 in 2020. At this point, GM’s stock is down 45% year to date. In contrast, Tesla, Ford and Stellantis have all fallen by more than 40% this year. It seems that the price of shares hasn’t been a strong factor in driving up its share price.

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