Question

Access the annual report or 10-K for General Motors.Post a short report that lists the following information as a reply to this thread.

https://www.sec.gov/Archives/edgar/data/1467858/000146785817000028/gm201610k.htm

Describe the inventory costing method that is used. Why do you think the company chose this method rather than the other acceptable methods? Are the inventory costs are rising or falling?

Calculate the gross profit percentage at the end of the current and prior periods, and explain any change between the two years.

Calculate the inventory turnover ratio for the current and prior years, and explain any change between the two years. (To obtain the beginning inventory number for the prior year, you will need the prior year's annual report.)

Calculate the receivables turnover ratio for the current and prior year, and explain any change between the two years. (As noted above, to obtain the beginning accounts receivable number for the prior year, you will need the prior year's annual report.)

Answer 1

1. Gross Profit percentage:

	2016	2015
Net sales and revenue(a)	166,380	152,356
Automotive cost of sales(b)	136,333	128,321
Gross Profit(c=a-b)	30,047	24,035
Gross Profit%(d=c/a)	18.06%	15.78%

There has been an increase in the Gross profit % due to the increase in sales. The sales have increased by 9.2% but the increase in cost of goods sold is only 6.24% leading to an inrease in Gross profit. It states that the production process is getting more efficient due to which there is a decline in per unit cost of product sold. Also, there is spare capacity which is not put to use and become more efficient.

2. Inventory turnover:

Automotive cost of sales(a)	136,333	128,321
Beginning inventory(b)	13,764	13,642
Closing inventory(c)	13,788	13,764
Average inventory(d=[b+c]/2)	13,776	13,703
Inventory Turnover(e=a/d)	9.90	9.36

There has been an increase in the Inventory turnover due to the increase in cost of sales. The cost of sales have increased by 6.24% but there is hardly any change in average stock in two years leading to an inrease in inventory turnover. It means that the company is maintaing low level of inventory which will help reduce the godown space and storage costs.

3. Receivables turnover ratio:

Net sales and revenue(a)	166,380	152,356
Beginning accounts receivables(b)	8,337	9,078
Closing accounts receivables(c)	9,638	8,337
Average accounts receivables(d=[b+c]/2)	8,988	8,708
Receivables Turnover(e=a/d)	18.51	17.50

There has been an increase in the Inventory turnover due to the increase in sales. The sales have increased by 9.2% but there is only 3.2% increase in average accounts receivable leading to an inrease in receivables turnover. It means that the company is recovering from its debtors at a face pace or delaing more in cash sales.