GE Financial Analysis

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SUBJECT: General Electric Company Financial Analysis
The General Electric Company was founded in 1892 after a merger that involved Thomson-Houston Electric Company of Lynn, Schenectady and Edison General Electric Company. The company’s headquarters was based in Connecticut U.S and had both of its plants operating in New York CITATION Che12 l 1033 (Chesbrough, 2012). The founders of the company were by Thomas Edison and Coffin Charles who were working in the neighboring states and who acquired numerous patents in the companies selling electric devices and after having the feeling that their minds were thinking in the same line. They decided to merge their company in the name General Electrics. After the merge, the company continued to advance its course of incorporating other smaller companies, which eventually lead to it being an internationally recognized corporation.
In its early years, General Electrics concentrated more in the manufacturing of computers. It majorly dealt with GE 100’s and later GE 4010. The company was doing well until it experienced the lack of technical aspects which culminated to the company selling all its computers to another company called Honeywell. At that time, the company operated its businesses in the name of General Electric Information Services. During the time, it continued to incorporate many other companies like RCA for other television networks, in 1986. With the entrance of the 21st century, General Electric Company acquired the unit of Enron Wind dealing with manufacturing and which gave rise the wind energy generation of General Electric Company CITATION Mar15 l 1033 (Markham, 2015).

In 2008, the company acquired Vetco Gray and Smiths Aerospace as well as Hydril Pressure and Control. In 2011, General Electrics continued to acquire more companies like Lineage Power Holdings Incorporation, Dresser Incorporation which now is the main manufacturer of the gas engines and Opal Software.
The company operates its business through various divisions of the company like GE Aviation, GE Power and water, GE Healthcare, GE Capital and GE Home and Business Solutions CITATION Jos12 l 1033 (Joseph & Ocasio, 2012). The business being a large one has embarked on different trading sectors like electrical to energy, General Electrics has tried to work together with academic institutions from different levels and scope, whereby it has assisted in the development of academic curriculum. As at 2013, the company had about three million laborers and generated a revenue of more than $ 146.045 billion. At the end of 2013, the company was leading in the fields of global electrical and energy industry.
The company is worth studying due to its global business success as well as the expansive nature, therefore, presenting an avenue to extensively understand and apply the financial skills learned. The strategies as developed by the company stakeholders may make other companies wish to undertake the same. For instance, the company tries to exit U.S banking sector and is, therefore, making strides in selling some of its stake.
A top-level analysis of the company
The fiscal analysis of the company suggests that the company does well in the industry. The total revenue of the company also makes it clear that it is making efforts. The general electric company is a job order company. Job order company is a company with written instructions on a how a given piece of work should be performed regarding specified requirement and within a specific timeframe and cost approximations. General Electric company professions usually display external job posts all over the world, for the persons interested, but with specified requirement, to apply for the advertised posts all over the world. The submissions of CV for the jobs posted through general electric professionals then passes through the General Electric Company management for approval. The General Electric company is a public company in the sense that its shares are freely traded on a stock exchange market. General Electric company is among the 12 companies which were listed on a stock market index known as “The Dow Jones Industrial Average” in 1896. Later on, it was the only company listed on the stock market and could easily and freely trade its shares in the market. There is centralization of power in general electric company. The business leaders in other geographical areas give report directly to the top leaders in the headquarters. This means that the main aim of the company is to ensure that its operations are strongly integrated with the global policies enhancing freedom to the country heads. In the General Electric company, the new model represents decentralization.
Lately, the company decentralized its Distributed Power business to enable their customers understand their necessities and clarify ways in which the Distributed Power business can address their needs. The General Electric Company measures their costs by considering the attributes of trade items available for sale and the amount of assets available in the company. There are several cost drivers in the General Electric company which includes; Structural Cost Driver which are essential choices made about the structural technologies and the magnitude and scope operations applied to deliver goods and services to customers. Organizational Cost Drivers, which include the choices made about the activities of the company and the activities of persons involved internally or externally in decision making. Activity Cost Drivers who are units of work in specific, carried out with the aim of meeting customers need that consumes resources company or an organization without the demand of products by customers. To satisfy customers demand, there is a need for employees and managers to make decisions and take a variety of actions which in turn leads to the driver of costs.
Financial statements
The financial statements are crucial in disclosing information about a company, at first glance, it is possible to determine the financial position of a company. From the financial statements of the company in 2005 it can be seen that the book value of the company is ($475.948) million. The company currently has $492.692 billion worth of total assets and a total of $16.744 billion worth of intangible assets. Getting the difference between these values drives us to obtain the companies’ value of the tangible assets such as building, office chairs, etc. and, therefore, indicating a very positive picture.
When examining the company from the capability to service its financial requirements, the statement puts the firm in a very good position. Their existing working capital is $ 98.274 billion, and it also has a total of $492.692 billion of current assets, and its total current liabilities is $391.446 billion when these values are compared to the current industrial standards the company can be said to have a sound financial capability. A company is considered to face little financial strain whenever it bears more working capital CITATION Hea12 l 1033 (Healy & Palepu, 2012).
The company seems to have a high amount of debt; this can be computed using the two common ratios on the balance sheet, which are; Debt to Equity Ratio and Debt to Asset ratio.
Table 1

From the Table 1 above it can be observed that the company has a debt to equity ratio of (398.32%) in 2015. It implies that the creditors supply $398.32 for every $1 provided by shareholders. The company is large enough and still has several other projects in future and therefore it does not matter much when it is highly leveraged.
Table 2

Table 2 give the companies’ Debt- to-Asset Ratio between the years of 2013 to 2015. In 2015 the percentage of General Electric assets that came from the creditors of one type or another was 79.55%, this is a decline compared to the values in 2014 at 80.42%.
Liquidity Ratio
In order to determine whether the company is capable of paying off its short-term debts, it is important to analyze the liquidity ratios. A higher margin indicates that the company has a larger margin of safety to cover its short-term debts CITATION Bog12 l 1033 (Bogdan, Bareša, & Ivanović, 2012). These determinants are; current ratio, Quick ratio, and working capital, which have been worked out as shown in the table below.

Ratio Calculations Result
Current Ratio $170.827/$246.956 .612
Quick Ratio (Acid Test) $170.827 – $22.515
$246.956 .600
Working Capital $170.827-$246.956 ($76.129)
From the table summary, the company has a current ratio of .612, which is very low. When a corporation has a current ratio that is below 1, it indicates that the firm may not be capable of paying off its obligations when it is due. The company has a quick ratio of .600; the value is closer to current ratio with a slight margin. When the liquid ratios are very small as evident with General Electric, it is risky for the investors since in case the company fails then it may not liquidate its assets and cover the costs.
Profitability ratio
The profitability ratio entails measurements assess a company’s ability to generate earnings and making a comparison to their expenses and other costs during a specified duration CITATION Bog12 l 1033 (Bogdan, Bareša, & Ivanović, 2012). They include a Net profit margin, Return on Assets and Return on equity.
Ratio Calculations Result
Ratio Calculations Result
Net Profit Margin $ 15.233 / $117.386 12.98%
Return on Assets $ 15.233 / $492.692 3.01%
Return on Equity $ 15.233 / $98.274 15.5%
The company indicates good profitability values which can be a good sign for the investors. It gives a positive picture that the firm is making profits with the money that is provided by the investors. It is however not good to use ROE as a measure of the management performance; it is a less accurate measure with for instance in some cases different companies may be using leverage to calculate their ROE, which may give a higher percent.
The company indicates a ROA of 3% which is not attractive compared to the competing companies; this may be an influence against an investor who may wish to venture in the company. However, since the value is not below 1% it indicates that the company is performing well in the industry. The net profit margin of the company stands at 12% percent which is also another sign of good performance in the market. However, a lot has to be put in place to ensure that the company can match its position in past when it was recording higher margins compared to their competitors.
Stock and Dividends Evaluation
General Electric indicates positive performance in the stock market with an increasing trend over the past five years except for a slump in the year 2011. However, the company seems to have picked up on a positive note in trading it shares as shown by the graph below from the Yahoo financeCITATION Gen16 l 1033 (Yahoo, 2016).
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From the dividends graph, it is evident that the company has been paying its shareholders an increasing dividend over the past years. Recently the company’s Board of Directors approved a quarterly dividend of $0.23 per share of the common stock. This is a lucrative deal that may attract more investors as evident in their continual increased performance in the market.
18986524955500
-14287529527500Revenue Share
General Electric is a globally recognized company with several ventures in different continents. Their main investments are concentrated within the United States which from their financial data of 2015, earned the company 45% of the total revenue. Europe comes in second with a financial share of 14%, and Asia, Middle East and Africa, sharing the remaining portion.
Evaluation of the management position
The management of General Electrical maintains their position to the shareholders that in future more profits will be made. They use several indicators to point out their expectations of an increase in the profit margins since as it stands its performance is below the other major competitors. As an established company it collaborates with the shareholders effectively to come up with modalities on how to improve the risky position that may put the company in a position that may deter more shareholders.
Going by the fact that GE is an established company with a largely predictable revenue stream and a deeper involvement in financial services it is not imperative to judge the value of the company by their physical assets. Therefore, the smaller ratios obtained should not be a major concern to any investor prospecting to be a shareholder in the company. Normally it is a trend for the company management to defend the financial positions of their firms despite showing results that may not be pleasing to investors as well as possible investors. However, the company shows results that are average but not very lucrative for a person who wants to make more out of the energy industry.
The overview of capital investment history of the General Electric Company.
The company came up with the idea of creating a simple and prized company on 10 April 2015, by reduction of the size of the company’s financial services and selling most of its assets. It is expected that the General Electric Capital will release nearly $35 billion in shares due to sales of capital assets. Additionally, the company came up with a plan to sign contracts with buyers on 31 December 2015, on ending net investment. An amount of $20.4 billion resulted from Retail Finance business to holders of General Electric common stock.
Completion of acquisition of Alstom’s thermal renewable and Rid businesses occurred on 2 November 2015. This was followed by regulatory approval of the deal over more than 20 regions and countries. The company made an announcement on 7 December 2015 on the termination of the agreement to sell business Appliances to Electrolux.
In conclusion, as manager, I would recommend the General Electric Company to purchase stock worth $1,000,000 from NextEra Energy Company based in the USA, which is an investment company whose main aim is generating power. As a manager, I would recommend my company to invest with this company to increase the economies of scale and to spread the risks of the company. Additionally, investment enables the company to save money that the company might be in need of in the future.
A financial projection.
Rate of return= profit as a percentage of investment.
Profit= total revenue-total expenses
Profit= $117.386-$11.649
=$105.737
Rate of return= ($105.737/$1,000,000*100%)
=$0.0105%
Years Ending value One                            $800Two                            $1,500Three $2,000Four $3,500
Five                             $4,000
        

References
BIBLIOGRAPHY l 1033 Bogdan, S., Bareša, S., & Ivanović, S. (2012). Measuring liquidity on the stock market: Impact on liquidity ratio. Tourism and Hospitality Management, 18.
Chesbrough, H. (2012). GE’s Ecomagination Challenge. California Management Review, 140-154.
Healy, P. M., & Palepu, K. G. (2012). Business Analysis Valuation: Using Financial Statements. Cengage Learning, 20-21.
Joseph, J., & Ocasio, W. (2012). Architecture, attention, and adaptation in the multibusiness firm: General Electric from 1951 to 2001. Strategic Management Journal, 633-660.
Markham, J. W. (2015). A financial history of modern US Corporate Scandals: From Enron to Reform. Routledge.
Yahoo, F. (2016, November 4). General Electric Company. Retrieved from Yahoo Finance: https://finance.yahoo.com/quote/GE/history?period1=1288904400&period2=1446670800&interval=1mo&filter=history&frequency=1mo