Question

Explain the capital structure of General Motor's. Do they rely more heavily on debt or equity? What are their structure weights (%’s)? How does this structure contribute to the overall risk of your firm? Do you feel they have chosen an ideal capital structure? What would you do to improve their structure if you could be CEO for a day?

Update in response to a question: General Motors Company, commonly referred to as General Motors, is an American multinational corporation headquartered in Detroit that designs, manufactures, markets, and distributes vehicles and vehicle parts, and sells financial services. www.gm.com

Answer 1

General Motor's capital structure is made up of debt and equity. They rely heavily on debt. The debt equity ratio is 118%. The capital structure is the balance between the different sources of capital like debt, equity, preferred stock, retained earnings etc. If the debt component is high then the risk involved will also be more. So the overall risk of the firm is high due to more debt in capital structure.

No, the capital structure of General Motor's isn't ideal. If I was their CEO, then I would have increased the equity component of the capital structure. This will reduce the risk for the company .