DETROIT -- With all the loose talk on Wall Street about a possible General Motors bankruptcy, analysts paid as much attention last week to GM's cash reserves as they did to the company's $8.55 billion net loss for 2005.
Sure enough, GM burned through a boatload of cash, but it still has plenty on hand. As of Dec. 31, the automaker had $20.5 billion in cash, down from $23.3 billion a year earlier. GM also has access to more than $50 billion in credit lines and other cash sources.
One might think that would be enough to stifle all those bankruptcy rumors, but Wall Street senses trouble. Jon Rogers, senior auto analyst at Citigroup in New York, says falling revenues produced "a huge cash burn."
Last year, GM had a negative cash flow on operations of $5.9 billion, compared with a positive cash flow of $4.2 billion a year earlier. That's a stunning $10.1 billion swing.
Cash flow is important because it demonstrates a company's ability to pay its day-to-day bills, invest in new products and keep the business solvent. And it's especially important for the auto industry because a sales downturn can consume cash quickly.
"It's a good barometer of how their operations deteriorated in 2005," Rogers says.