The operating activities section of the statement of cash flows for General Motors Corporation is provided below for three recent years.
General Motors Corporation Operating Activities Section-Statement of Cash Flows (annotated) For the Years Ended December 31, 2004, 2003, 2002 (in millions)
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2004
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2003
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2002
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Net income
Selected adjustments to reconcile income to net cash provided by operating activities:
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$ 2,805
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$ 2,862
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$ 1,975
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Depreciation and amortization expenses
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14,152
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|
13,513
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11,569
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|
Pension contributions
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(13,511)
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(24,704)
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(9,490)
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Pension and retiree health benefit expense
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7,023
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|
8,011
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5,888
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Change in other operating assets and liabilities
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(1,628)
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(2,277)
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(3,391)
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Other
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4,220
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|
5,551
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4,524
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Net cash provided by operating activities
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$ 13,061
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$ 2,956
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$11,075
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A large expense for General Motors is its pension expense. Under pension accounting, the pension expense is recognized in the period that the pension is earned. However, the company has latitude regarding the funding of the pension benefit. That is, the expense and the related cash flow to fund the future benefit need not occur in the same period.
1. Calculate General Motors' ratio of cash flow to net income for all three comparative years. Round to two decimal places.
2. Interpret the magnitude and year-to-year changes in the ratio.