Where Lost Money Goes

Mar 2nd, 2009 – 1 Comment

John from Brampton, Ontario writes about what “losing money” actually means: Hi Lou, I listen to your report with John Oakley at 6:55am and was wondering if you could answer the following silly question for me and others like me: When you say that “GM lost $10billion”, what do you mean by “lost”?  How do […]


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John from Brampton, Ontario writes about what “losing money” actually means:

Hi Lou,

I listen to your report with John Oakley at 6:55am and was wondering if you could answer the following silly question for me and others like me:

When you say that “GM lost $10billion”, what do you mean by “lost”?  How do they lose money? And who keeps giving them money to go out and lose? Sorry for the newbie question, but the “losing money” term is just thrown around and I don’t know what it means.

Hi John,

Thanks for asking this question and please never be afraid to ask for clarification of any item that you don’t understand. That’s what learning is all about!

When we say GM Lost $10B it means that their expenses exceeded their revenue by $10B in the period discussed be it the fiscal quarter or the fiscal year. Typically when a company loses money on that scale they have to dip into their assets and borrow more to get to the next period. Unfortunately for GM they have burnt through their assets and cash and have tapped out their ability to borrow and are now leaning on the U.S. Government to provide them with cash to keep the door open.

Not to get into abstractions but there can also be non- cash charges to earnings that result in an quarterly or fiscal year loss when a company writes down the value of their assets. These charges are usually a write down of good will from an asset but don’t drain cash out of the treasury.  If you look at the recent quarterly report from Torstar they wrote down the value of their assets in CTVglobemedia which resulted in a loss for the quarter but no draw on cash.

Happy capitalism!

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