General Motors vs. Volkswagon

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GENERAL MOTORS CORPORATION
& THE VOLKSWAGEN GROUP

INTERNATIONAL FINANCIAL STATEMENT ANALYSIS

Group Members
Jose Cervantes
Hilda Patricia Moreno
Aracelis Nass
Keila Urdaneta

Florida International University
ACG 6255 International Accounting
Professor Leonardo Rodriguez
Summer 2008

TABLE OF CONTENTS

Objectives ………………………………………………………………………………………………………………………………………………………3 The Automotive Industry ……………………………………………………………………………………………………………………………….4
The Automotive Industry in the United States …………………………………………………………………………………..5
The Automotive Industry in Germany ……………………………………………………………………………………………….7 Company Backgrounds ………………………………………………………………………………………………………………………………….8
General Motors Corporation …………………………………………………………………………………………………………….9
The Volkswagen Group ……………………………………………………………………………………………………………………10 Environmental Factors …………………………………………………………………………………………………………………………………11
German Legal System ……………………………………………………………………………………………………………………..11
United States Legal System ……………………………………………………………………………………………………………..12
German Economic Environment ………………………………………………………………………………………………………13
United States Economic Environment ……………………………………………………………………………………………. 14
German Social and Business Environment ……………………………………………………………………………………….15
United States Social and Business Environment ………………………………………………………………………………16 Accounting and Auditing Standards Used by GM and VW …………………………………………………………………………….16
Consolidation Methods ……………………………………………………………………………………………………………………17 Foreign Currency Translation Methods ……………………………………………………………………………………………18
Auditing Standards ………………………………………………………………………………………………………………………….19 Translation Method ……………………………………………………………………………………………………………………………………..20 Financial Ratios Analysis ……………………………………………………………………………………………………………………………….23

Liquidity Ratios: Short-Term Solvency ………………………………………………………………………………………………26
Activity Ratios: Liquidity of Specific Assets ……………………………………………………………………………………….27
Leverage Ratios: Debt Financing and Coverage ………………………………………………………………………………..28
Profitability Ratios: Overall Efficiency and Performance …………………………………………………………………..29 Conclusion ……………………………………………………………………………………………………………………………………………………32 International Financial Statement Analysis

OBJECTIVES
The purpose of this paper is to determine from the perspective of an investor interested in international capital markets what companies are better to invest in. The companies analyzed in this project are General Motors Corporation (GM) based on the United States and the Volkswagen Group (VW) based on Germany. Even though the two companies belong to the automotive industry they are influenced by different legal, social, and economic environments, which have an impact on the final performance of the corporations. In addition, it is important to analyze the differences and similarities in the accounting and auditing standards that were used by each company to prepare their consolidated financial statements in 2007. Since the two companies financial reports are stated in different currencies the Volkswagen financial statements will be translated to dollars using the current-rate method. Finally, a complete analysis of GM’s and Volkswagen’s financial ratios will be used to determine which company has a more efficient use of its resources and which one is more profitable.

THE AUTOMOBILE INDUSTRY
Today most families own a vehicle and it is projected that as the 21st century began, foreign carmakers continued to make inroads in the worldwide and North American markets. For instance, in 2000 foreign manufacturers outsold U.S. companies in worldwide automobile sales, although sales of light trucks, including sport utility vehicles (SUVs), kept U.S. companies dominant in total sales of vehicles. It is expected that the trends of global trade and manufacturing flexibility continue. Most cars are built after an evaluation of all the different parts are taken into...
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