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Essay on Analysis of Honda and General Motors
General Motors and Honda are two dominant names in the automobile industry. The world market is now exhibiting a strategic shift in the automobile industry, which is governed by the local politics, unstable economies, increased import taxes and various protectionist policies. (ward’s autoworld, 2002)
GM is listed on the NYSE. Automobile is regarded as the poor industry of the US and has been trailing for 5- and 10-years. Moreover, GM’s stock and its performance have exhibited rather poor results as oppose to its other competitors for the past 10 years.
However, GM is showing improvements since the last five years. The net income of GM is steadily taking an upward trend (Reuters, 2005). Moreover, the persistent strength and weakness, opportunities and threats of the industry, however, indicates the efficiency of the automobiles industry and the quality of a company's management.
The 2005 stock's price/sales ratio of GM of 0.1 is considerably low, as oppose to other companies in both the broad market and companies in the auto industry. Analyst view a low price/sales ratio as an indicator that the company’s stock might be of good value, however, this is not the sole financial valuation criterion for company’s performance. Price/sales serves as a useful measure if other valuation ratios like price/earnings are not available.
Contrarily, the financial valuation ratios of Honda show a different picture. Honda’ forward earnings yield of 9.43% shows the annual return the company will manage to generate given its profits remain fixed and the company pays put all its earnings as dividends. This figure is consistent with other companies in the auto industry. This shows that Honda, in order to generate moderate returns for its stocks investors and stake holder, it just has to realize moderate level of growth in earnings or to have a higher valuation from the market....
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