Now Where Did I Put That Cash Flow? (GM, F, GE)

Includes: F, GE, GM
by: Belvedere

It’s a story well-covered by the Wall Street Journal already but worth a little emphasis on a few points. It seems like some firms have developed failing memories when it comes to figuring out where the left their cash flows.

Think of it this way: a firm sells inventory on credit, creating an account receivable - an investment - that is effectively a use of cash. It’s related to a current sale of goods, making necessary the classification of the increased investment as an item affecting cash flow from operations. So, put it in operations. No argument there.

Suppose your firm is a car manufacturer, and you sell cars from inventory on credit - long-term credit. The answer should be no different when it comes to the cash that’s being tied up in the long-term receivables; it should be shown as an item affecting cash flow from operations. The sale of the auto from inventory affected cash from operations, and so did the investment required to move it off the factory parking lot. So put it in operations. Unless you forget.

Auto firms have been misclassifying this for years as an increase in investment cash flows. The SEC issued a letter to “certain registrants