I need a 10 page paper on financial analysis of General Electric. The report should include an analysis of the...

Nicole Henry

TREND ANALYSIS

Trend analysis indicates that the company has potential for growth and t

analysis reveals that the current period will have 60% weight-age to address the cu.-...u,I...O"'f - p~~~~t for the last period has been accounted for 30% and t~

+n lk,n~ ~n -;;; ~. d' '1 Or0.l1.~=: . b (,pi\ ~ d!.JC:) -7year peno IS ta en as /0 Impact JD t e cun;ent year. . ( ~f\~ -\1~ Jll\Plu!\ .

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~" n Period Ending ~1;i~d~n~fil~~~1·.·.···3t4)\l~~10. ~X;P¢~'J~3.tL~)ci:·n Jl~m;~H~ Q- Assets Cash And Cash Equivalents Investment Securities Current Recicvables Inventory Net Financial Rccievables Other GECS Recievablcs Net Property, Plant & Equipment Investment in GECC Goodwill Other intangible assets - net All other assets Asset of Businesses held for sale Assets of Discontinued Operations Total Assets

Lia bilities Short Term Borrowings Accounts Payable, Principally Trade Accounts Progress Collections and Price Adjustments accrued Dividends Payable Other GE Current Liabilities Non-recourse borrowings of consolidated securitization entities

Bank Deposits Long Term Borrowings Investment contracts. insurance liabilities and insurance anlluity benet!t;

All other Liabilities Deferred Income Taxes Liabilities of businesses held for sale Liabilities of discontinued operations Total Uabilities

Stockholders' Equity GECC Preferred Stocks Common Stock Investment securities Currency translation adjustments Cash flow hedges Benefit plans Other Capital Retained Earnings Less Common Stock held in treasury Total Stockholder Equity

Noncontrolling interests Total Uabilities & Equity

77.356 48,510 21.500 15,374

258,028 7,961

69,743

73,447 11,987

100,076 211

1,135 685,328

101,392 15,675 10,877 1,980

14,895 30,123 46,461

236,084 28,268 68,676

(75) 157

2,345 556,858

702 677 412

(722) (20,597) 33,070

144,055 (34,571 ) 123,026

5,444 685,328

84,501 47,374 20,478 13,792

279,918 7,561

65,739

72.625 12,068

111,701 711

1,721 718,189

137,611 16,400 1l,349

1,797 14,796 29,258 43,115

243,459 29,774 70,653

(131 ) 345

1,629 600,055

702 (30) 133

(1,176) (22,901 ) 33,693

137,786 (31,769) 116,438

1,696 718,189

78,958 43.938 18,621 11,526

310,055 8,951

66,214

64,473 9,973

96,342 36,887

5,278 751,216

117,959 14,657 11,142

1,563 11,396 30,060 37,298

293,323 29,582 58,844

2,840 16,047 2,307

627,018

702 (636)

(86) (1,280)

(15,853) 36,890

131,137 (31,938) 118,936

5262 751,216

11% 7% 3~iJ

2% 38%

1% 10% 0%

11% 2%

15% 0% 0%

100%

8?t~

3% 2% 0% 3% 5% 8%

42% 5%

12% 0% 0% 0%

100%

0% 1% 1% 0%

-1% -17% 27%

117% -28%

100% 1%

100%

12% 7% 3% 2%

39% 1% 9% 0%

10% 2%

16% 0% 0%

100%

23% 3% 2% 0% 2% 5% 7%

41% 5%

12% 0% 0% 0%

100%

0% 1% 0% 0%

-1% -20% 29%

118% -27%

100% 0%

100%

11% 6% 2% 2%

41% 1% 9% o~'O

9% 1%

13% 5% 1%

100%

19% 2% 2% 0% 2% 5% 6%

47% 5% 9% 0% 3% 0%

100%

0% 1%

-1% 0%

-1% -13% 31%

110% -27%

100% 1%

100%

~

~ d! ~

~~v~

REVENUES Sales of Goods tl'1\~'~ '\~ 62,991 66,875 Sales of Services

Othcr Income GECS earnings from continuing onerahons GECS revcnues from services

Total Revenue

1~~ 27,158 2,563

.), .~pf~ .<A>·44~47 ~' ,.~ _'\ ~ 147,359

27,648 5,064

47,701 147,288

39,625 1,151

48,623 150,211

~% FlU?o ,(;b;;

2% 3%.. 1% ~_---",==::::::­ k, ~ O%_Q'YL' . ()

-'-:ro% " 32% ~~ 100% 100% 100%

Cost & Expenses Cost of Goods Sold

--t~ 56,785 51,455 4(),005 t i~1o 35% 31%

Cost of Services Sold 17,525 16,823 25,708 12% 11% 17% Interests and other Financial 12,508 14,528 15,983 8% 10% 11% Investment contracts, insurance losses and insurancc benefits 2,857 2,912 3,012 2% 2% 2% Provision for losses on financing receivables 3,891 3,951 7,191 3% 3% 5% Othcr costs and expenses 36,387 37,362 38,104 25% 25% 25% Total Costs & Expenses 129,953 127,031 136,003 88,19% 86,25% 90.54"1"

Period Ending .4krM'C-j~<~F~~'lt·· •••·.j)HP~,~,l(Jj)~~~~-1~A12~~4i ••~ "

EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 17,406 20,257 14,208 11.81% 13.75% 9.46% Benefit (provision) for income taxes (2,504) (5,738) (J ,(50) -2% -4% -1%

EARNINGS FROM CONTINUING OPERATIONS 14,902 14,519 13,158 10.11 % 9.86% 8.76% Earnings (loss) from discontinued operations, net oftaxes (1,038) (76) (979) -1% 0% -1%

Net Earnings 13,864 14,443 12,179 9.41% 9.81% 8.11% Less net earnings attributable to noneontrolling interests 223 292 535 0% 0% 0%

NET EARNINGS ATTRIBUTABLE TO THE COMPANY 13,641 14,151 11,644 9,26% 9.61% 7.75% Preferred stock dividends declared (J ,(31) (30O) 0% -1% 0%

NET EARNINGS ATTRIBUTABLE TO GE COMMON SHAREOWNERS 13,641 13,120 11,344 9.26% 8.91% 7.55%

. .

Nicole Henry

COMMON SIZE FINANCIAL STATEMENTS

When evaluating the financial statements it is necessary that the component evaluation is

done for each statement. This component split allows the contribution factor to be evaluated and

to understand how well the company is able to translate the _con;f~~ents in~o performa;ce. Ttte'l \ ~"1"­

income slalement of the company 's evaluated I e c:m~C=-~s~ ~ from GEeS comprise ~he major ~~_~~_--r~~~~::~~-:::~~-" able to cO,ver these: product~ales, the costs of goods sO~COIl1prise the major costs of the companG-?::: ~~e()y, 'K been going up for the company in the last couple of periods and the company will have to ensure .

that the producI sales reach economies of scale. I L.., ,lc\.ll vplA ~ ..~~~ . n(/~~~.b

Along with this, the financial reviews of the compan~'sbook~eveal that the company . . f h w6\d\)..J,\ £1 c.P ------fi . I . I / Th' h h 'd.• J'\ J'('­has a major portIon 0 t e assets comprIse df)TIle financla rec a es. IS means t at t ~ .-{......-­

p~:;;= . "::~~.,,\ \..\ /J1A JN2N.-e.A.. (\~ '--{ ~ company will have to ensure that th~a~les turnover reJluc~s and does not translate into badct~>-lJl..

debts and assets. Along with this, the company's liabilities comprise of the long term receivables ,# ... ,~-----------'-

and hence the company will have '1"0 turn the assets to incorporate its payment structure.

Gross Margin Ratio Operating Margin Ratio

(

Pr It Margin 0

ROA' 'Current Ratio

If '~ Quick Ratio

Cash Ratio Debt Ratio .............' DS

urn on Invested Ca ital De t to Equity Ratio Interest Coverage Ratio fEP~ \, '. 1

Payffilt Ratio Dividend Cover

I ~~~ lJV

2012 49.57% 11.81% 9.26%

11.09% 1.99%

1.12 1.02 0.87 0.81

72.97 1.09% 4.53 2.39 1.35

2.08% 47.97

2011 53.64% 13.75% 9.61%

12.15% 1.97% 0.91 0.84 0.72 0.84

69.48 12.15%

5.15 2.39 1.24

2.27% 44.06

2010

1

Liquidity Liquidity

0.78 Liquidity 0.83 Solvency

67.00 AU & Effi

9.79%~ 5.27 vency 1.89 Solvency 1.18 Financial Mkt

2.38% Financial Mkt 41.93 Financial Mkt

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Nicole Henry

FINANCIAL RATIO ANALYSIS Il . '\ .J

Company financial performance is ofte integrated by stakeholders in the bottom line.

This requires that the company indicates strong performance in the financial perspective keeping /f.

the ~ntrols and setting the strategic direction to increase revenues. However, for

stakeholder management it is integral that the actual performance is reported instead of inflated

performance. This ensures that the real picture is communicated to ensure that the investment

decision by the stakeholders is in the right direction.

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Gross Profit Margin , J\.MJ U ~ I, ~ \ 'PO,A\'" CDS' ,~ ilAJY'.. \)"U v--- . '1,; ~ rfl" D.-"<v~ ­

The basic dimension where an investor eyes the company is this ratio." This is p~~ily- the actual scenario which depicts how well the company's product is moving in the market. The

real picture is covered from the company's cost of goods sold and the revenues generated from

the base (Drake, Fabozzi, 2010). Th~ financial figures reveal that for GEthe pe10~I1fe duriqg 1\ j (t \-\OWCW \vvk",,~ cZtilt \~ ,?Yc{()..Ab ,/t\6\-tk.t~~~

w taking a set down where the companlwas able to generate over 50% in its

- J J V

-:L dA~1'~.,-...u Gt.- sotd~t.l o .. ~ Q..o .............'¥'-~ sales of financial assets w . ch have slowed down over the period. This decrease in the sales of ~

financial assets and other income from subsidiary portions has impacted the decrease in

profitability position of the company.

t last decade is

gross profits. However, the company has taken a dip primarily because the costs of products over -

the period have inc~impacting the actual position of the profitability of the

company. The evident change in the company's sales is visibltt fre~ t?e drift in the chan.se in

Nicole Henry

Net Profit Margin

For any organization the bottom line is the key to the future successes. The net income

ratio indicates how well the efforts and strategy of the company is working to be able to charge a

premium from the market. The stronger the position of the company, the greater is the

management and stakeholders in the position to take risks. Without the company showing

stability and growth in the profitability, the future risks will have to be hedged. The growths in

the net profit ratio of the company from below 8% to well over 125 basis points indicate that the

company is seeking growth with controlled risk factions taken. This means that the company will

be able to take greater risks in the current position. This is primarily because the company has ~¥ been able to control the cost factions of the company and has diverted more of the effortt0 " y'" /1, towards investing into getting the goods and services to the markets. ~~~~

~ Operating Profit Margin

The operating profits define how well the company is able to utilize the operational

activities within the company to translate the product into sales. With products and services both

integrated into one line of business, it is evident that the challenge will continue to persist in

developing operating profits (Lundholm, Sloan, 2012). This is primarily because the profitability

driven in the services sector is based on the square units of space being occupied while the

product sales remain the key parameter for the businesses in product lines. However, when

analyzing General Electric, it is visible that the company's operating margins continued to

flourish. Although in double digit growth, the operating margins have also seen a set off in the

current period.

~

sales to ensure that t e Du Pont rati

~

Nicole Henry

Return on Equity (ROE)

Investment into a company done by a stakeholder is only on the premise that the client

expects to generate an anticipated rate or return or probably higher. These expectations set forth

by the investor sets the drive and the target for the company. This belief by the investor has to

translate into how the company drives the strategy. This has to be set forth in a manner that the

company exceeds the budget settings of the stakeholders. For a company with such global

presence and strong product lines, the achievement to the stakeholder expectations is important. L\.lfV-

This has been visible in the last three years where the company has b~able to ~ase the ~~~ return to its investors into the double digit numbers. However, his grilling of performance is ~ .., visible where the company grew to over 12% of return on its invested equity which has taken off ~

I .A. J v.)~ci,~~-\-6 ~+ a settling in the current per~ to just over the 11 % mark. W ~u::*t o-\. '-1.O\.L ~S('ffi ~

N V~01t1\-l StDc'f:-0A~ ---V\\ (,v1'\ b~~~ fI' J,~

Return on Assets (Du Pont Ratio) ......-r- Sl\.:ct d ylY\.l ~~ \.l ~ \ 0 LVI' C Vh~~ ():.

The invested capital in a company is utilized into developing assets for th~ company.

These asset build ups are the key parameters which build up to the future revenue generation.

These assets have to be the levers which will grow the organization in terms of revenue and the

expectations set forth by the stakeholders. When we review the volumetric figures of the

company, the performance ofjust around 2% return on assets would appear to be substantially

low. However, the industry average has been substantially low. Comparing to the overall (5-v...~-hu-~

industry is not feasible primarily because of the diversified business portfolio that the company ~~

maintains. This holds high that the company has been able to raise the bar for performance ofth~ --t'W the company will have to increase the revenue per product and .l-.()

~0\)"e.A.." v-l \ " goes up. . . ~~~~ ,

~~~ ~~ ':.. ,3; ~Dl \'" ~.~ '1tf\A- .~~- ~c:\ U) ~ '7. ' ~ r~~~tlJ{\ CJf\ ~J ,

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~ \: J...<fV'-~cole Henry ;;" J,*oV-'{"'cf,srfl'~ F

Curren! Ra!io Ir...\V-j)~ ~\f Liquidity is a key parameter which is a point of confern for large organizatiorP In general

situations, it is the key parameter that the company is evalJated on. When the analysis is done,

the figures for performance of profitability may appear to be exciting for stakeholders; however,

the actual performance may appear to be weak due to reduced liquidity. The consideration for

growth requires that the company may move forward to continue credit sales, This will mean that r " \ i ,.l·

the liquidity for the company may become a pressing issue and reduce the actual position of the r'VV' company (Bodie, Kane, Marcus, 2011). When evaluating the position of General Electric, the

""7....., liquidity position was considered to be weak during t e flowing period; wever, over the period

the company has been able to raise the bar to over 1. This means that with the current assets in

hand the company will be able to payoff the current debts that the company holds. ~

7 \.\ ~-\ /JY'. -\iu~~ ~ J.-\1v-1" ~. I'"nn W .

Inventory Turnover Ratio -- v >­T v or any organization, it is necessary that the company moves its assets continU~IY. '7L ovl<.\-t1-P

~A~~U .~'S-\~-' tJ.' Sf\. u..~4 Without t assets inventory in a stagnant position, the worry for the comp9ny ~ill incnGse. r

cause the assets of the company would be in a stagnant position and the product would have

become stale. The company cannot carry stale products on its assets line because this would

show an inflated asset book which would actually not reap any returns. Slow moving inventory

indicates that the company will have to review the product line within the market and address the

needs of the market urgently. Without the right kind of review, the organization will not be able

to identify and strategize the products concurrently. Often there is a situation pressed with the

company where the product is well ahead of the time to market. Keeping this situation, the

Nicole Henry

organization may not be able to generate sales and will have to let go of the innovation used.

However, in a situation where the organization is in a product and service industry, it has to

ensure that the product sales do compliment the services that the company offers and vice versa.

Specifically in a financial assets market, the products have tended to move slowly since the

changing economic times after the slump. This has led to the fact that the sales of newer products

in the markets are being taken with care and immediate investment drive from the market is not

happening. When we evaluate General Electric's position in the company's inventory turnover

has coherently slowed down over the period. The profitability of the company has continued to

grow but the amount of sales undertaken and the time taken for the product to reach out of the

inventory status into the market has substantially increased. From just above 58 days, the

organization is now facing a challenge where the time period has gone over 75 days. This has

beeIl.a·retSttko£.the slow growth in the financial product sales. Increasing the sales of the i\ MO~ /// ~~~)~c;:J~~~WJr' /c7

financial products will !lot be the only key factor but also include that the company creates b()l o-c ­

Assets Turnover ,........

The turnover of assets indicates how well the company is able to turn the assets of the

company into sales. Indicative of the fact, this movement and ratio indicates how well the

company has strategized its direction. When we evaluate the company's turnover of assets it is

visible that the company has been able to translate its assets into a greater revenue generating

position. Although this looks in contrary to the inventory turnover of the company, but the usage

of assets build up of the company represent a better figure with a growth from around 20% in

2010 the company has been able to raise the bar to above 21. 5%.

Nico Ie Henry

Deht Ratio

Companies have different strategies of financing their operations. Generally all the

investments are not directed from a single source of funding. The ratio of debt indicates that the

amount ofleverage an organization has taken in order to build up the assets. It is important to

understand and continually monitor the level of debt that the company maintains. This is because

with low liquidity and unplanned debt the company may not be able to translate its sales efforts

into coherent success stories. When evaluating the company's debt levels it is integral that the

risk exposure and the interest costs are evaluated. For General Electric having such a massive

product portfolio and a global presence it may not be visibly difficult for the organization to

manage the debts and interest levels. The company has already reduced the debt levels which

hovered around the 83% mark has reduced substantially to around the 81 % mark.