Can anyone explain this article on GM?

[oestek]

I just got this news update, and I don't claim to understand corporate finaces. I've seen the reports of record losses, but what does "diluted shares" mean?

Below is a press release from GM.



General Motors (GM) has reported a net income of $46 million for its fourth quarter 2007 fiscal results, a $134 million differentiation compared to the same period a year ago. In its year-end results, the automaker announced an adjusted net loss of $23 million, or $0.04 per diluted share. However, GM’s core automotive business posted record revenue in 2007 of $178 billion, a $7 billion improvement over 2006. GM officials attribute this largely to growth in emerging markets and favorable foreign exchange rates against a weaker U.S. dollar. While the U.S. faces an impending recession, GM indicates it expects improved pre-tax automotive earnings in 2008 against 2007. The automaker also indicates it expects to see improvement in its earnings and cash flow by 2010-2011, due to a host of new products and continued profitability in emerging markets.

[jknight16]

The most simple explanation for your question would be...Diluted shares are the number of shares of stock currently outstanding after taking into account the number of shares that may be added through executives exercising their stock options. (they are given options, which they can convert to shares once the options become vested).

For those that want more detail or context:
Diluted shares is essentially a more accurate representation of shares outstanding than "basic" since there are a number of options outstanding that are available for exercising (and once they are, there will be more shares outstanding). Public firms report their earnings per share (EPS) both ways, diluted and basic, but there is usually not more than a $0.01 per share difference between the two.

In the case of GM's release above, they are describing the "adjusted" earnings per share during the full year 2007 (Adjusted earnings are equal to your normal operating earnings in a period, adjusted by some certain items that affected your results during the period but are not expected to be recurring or are not a part of your core operations). So you would have [Net income in 2007/the number of shares outstanding] Since the market prefers "diluted" shares to be used in the denominator, that's what you see.

[trapin]

I just want to know if I'm getting a profit sharing check this year. Because that's what I'm all about you know, it's all about the coin. I just wanna get paid is all I'm saying.

Where's my money?

[jknight16]

Well...I'm not sure how they calculate your profit sharing, but unfortunately, GM actually generated a $722 million loss during the fourth quarter, which after $768 million worth of items are excluded from results (these include charges associated with Delphi's restructuring, pension benefits to Delphi employees, and other restructuring related charges) you end up with a "paper income" of $46 million. But on an economic basis, they're still running at a loss.

Interestingly, GMAC even ran at a loss during 2007, $2.3 billion, due to investment losses tied to the housing and mortgage collapse. This division has been a nice source of earnings for them in the past.

Full year results include an adjusted net loss of only $23 million, but when we look at the actual economic losses, we see $38.7 billion in losses.

So one guess would be...no profits, no profit-sharing, but I sincerely hope for you and your family's sake that they have a different way of calculating your profit sharing $$. I'm rooting for GM whole-heartedly, but as Wagoner said "we have more work to do".

[trapin]

So I'm not gettin' any money? You're tellin me no money?

Where's my money? I want my money.

.....OK I'll shut up now.

[bigvegan]

Tony, I wish you the best of luck.

GM is something else.

Here's something I'd like explained to me: How does a company that's worth $15.06 Billion (http://finance.yahoo.com/q?s=gm) manage to lose $38.7 Billion? (http://www.breitbart.com/article.php...how_article=1)

That seems a little odd to me.

I just wish the articles on GM would stop talking about how the North American market is becoming less and less important to GM.

It's bad enough that the communist Chinese get RWD Buicks and we don't.

[jknight16]

Hmmm...interesting. Well, my previous statement about their full year economic losses being $38.7 billion may have been inaccurate. That article you linked to stated that the firm took a charge to writedown tax loss-carryforwards in the amount of $39 billion, which is really just an accounting loss on paper and not nearly as important as losses from operations or other types of asset impairments (buildings, inventory, technology, etc.).

To your question, GM, a company valued at $15 billion today, wrote off $39 billion in tax loss-carryforwards that had been amassed over a period of time, in this case probably a couple years (just a guess). These carryforwards are generated when the company runs at a loss and are designed so that they can be applied against earnings in future periods as a tax break when the company returns to profitability. However, in this case, GM does not feel that it will be able to return to a level of profitability that will allow them to use these tax assets anytime soon, so they took the impairment all at once, in 2007.

These tax assets really don't play a huge part in how the market values the firm, so that's how you end up with a big disconnect between the $15B market cap and a $38.7B loss that was generated by writing down tax assets. These things are not plant, property, or equipment type assets, nor are they cash flows (future or present), they are very intangible and simply an accounting-based line item in the firm's books (which is still very important mind you, but not so much in valuing the company) , so they don't really play into GM's valuation as much as you might think.

Edit: I hope I'm not being annoying by providing these long-winded responses, but if you guys really are curious about this kind of stuff then I'm happy to try to explain this stuff to the best of my abilities. I am not intimately familiar with the inner-workings of GM though...so I'm approaching this from a fairly high-level.

[killer69]

And there you have it.................... i'm lost!!! all i know is if my business was to run at a loss for more than about 3 weeks i would be looking for a new job!!! WAY over my head how a company can loose BILLIONS year after year and still survive??? lets see you explane that one!! for us laymen.

[jknight16]

Hahaha, well said. It's truly amazing how they do that isn't it? I can sympathize with your confusion, it is somewhat illogical.

When you've got investors, banks and average joes that are still willing to lend you money, buy your stock, and buy the bonds you're issuing, I suppose that's how they stay afloat.

One thing that GM did in the first 9M of the year that is not entirely dissimilar to how most people might try to keep their business afloat in bad times is that they generated $3.8 billion in cash from operations, $5.3 billion in cash from selling off businesses and added $0.7 billion in cash from long term debt lines. Without going into any further detail, I think that's how they fund their capital expenditures, keep the lights turned on and their employees checks from bouncing. So despite reporting HUGE losses on the income statement, the business keeps running...Cash is King!!

[YoungGun]

As far as the 38 Billion! Its not operating money thats lost at all, its paper really!

Top US automaker General Motors said Tuesday it had lost 38.7 billion dollars in 2007, reflecting a huge accounting charge taken in the third quarter. The loss mostly reflects the nearly 39-billion-dollar writedown in accumulated tax credits in the third quarter last year when the company realized it might not be able to earn enough money to use them before they expire.

So! Ready? If you lose money one year, you get tax credits, which are an ASSET to use in the next year you MAKE money. So it reduces a positive years tax liability. HOWEVER...this ASSET has a shelf life and that life ran out, so GM could no longer claim it as an ASSET and wrote it down.

Nothing was lost operationally, just reduction in a possible future tax asset.


WHOOPS EDIT: I saw JKnight already answered the question! Sorry!

Tim

[jknight16]

Yep, that's a very good way of describing what happened.

[rocketman]

I think alot of there #'s are fake.

[bigvegan]

Awesome! Thanks for the info!

[MarkM66]

They need another John DeLorean to turn things around.

[LowBuckX]

So I'm not gettin' any money? You're tellin me no money?

Where's my money? I want my money.

.....OK I'll shut up now.

Actually if GM made negative profit and you make possitve income you owe them...