Government Motors – An Automatic UNLeveling of the Economic Playing Field?

In the context of corporate financial reporting, the income statement summarizes a company’s revenues (sales) and expenses quarterly and annually for its fiscal year. The final net figure, as well as various others in this statement, are of major interest to the investment community.  There are a variety of ways to document this information, but here are two that are reasonably understandable:

Two basic formats for the income statement are used in financial reporting presentations – the multi-step and the single-step, which are illustrated below in two simplistic examples:

Multi-Step Format Single-Step Format
Net Sales Net Sales
Cost of Sales Materials and Production
Gross Income* Marketing and Administrative
Selling, General and Administrative Expenses (SG&A) Research and Development Expenses (R&D)
Operating Income* Other Income & Expenses
Other Income & Expenses Pretax Income
Pretax Income* Taxes
Taxes Net Income
Net Income (after tax)*

In the multi-step income statement, four measures of profitability (*) are revealed at four critical junctions in a company’s operations – gross, operating, pretax and after tax. In the single-step presentation, the gross and operating income figures are not stated; nevertheless, they can be calculated from the data provided.

This information is taken from “Investopedia – Understandinig the Income Statement

The reason for looking at this is to understand how the cost structure of Government Motors will compare to its Private Sector rivals.

The principle thing that leaps out at you is the fact that currently private sector auto companies pay about 30% of their revenue in taxes to the GOVERNMENT.  However, Government Motors will pay NO taxes to anyone, giving them a 30 to 60% cost advantage in the marketplace.

This means, for exactly the same vehicle, Government Motors can prices it 30% (or more) less than its competitors and still “make money”.

The primary conclusion that can be drawn is that Government Motors will be able to drive its competitors out of business at any time it wishes.

That’s why they make license plates in prisons, by the way …

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