General Electric Financial Accounting Analysis General Electric Co Finance Essay

GE is a diversified pudding stone holding involvements in aircraft engines, power coevals, concern every bit good as consumer funding and industrial merchandises. The companies concerns are spread in more than 100 states. The company was founded by Thomas Edison, a mastermind in its ain right with 100s of patents in his crease. With true entrepreneurial spirit, the company spearheaded multi dimensional growing and development in myriad of Fieldss.

Merchandises and Industries: GE has a varied and extremely diversified merchandise list get downing from Appliances, Consumer Electronics, Aviation, Lighting, Health Care, Media, Entertainment, Energy, Finance, Water Business and many more.

Section II: Fiscal Statements and Financial Ratios

As a determination shaper, we need to cognize about the company ‘s fiscal strength when we have to do any investing in the company, or we have to cognize how the company is doing in footings of liquidness or how the company can honor to its stockholders or for that affair how company is presently executing compared to the old old ages. All this can be known through fiscal analysis. One can do a good estimation for any house by analyzing their fiscal statements, fiscal ratios and when they are compared with industry norms, it can give a good apprehension where the company stands in the market place.

For any company we can analyze following fiscal statements which can give us most of the information necessary to do our determinations whether that pertains to investing, employment or as a provider to safeguard our receivables etc.

Net income and Loss or Income Statement

Cash Flow Statement

Balance Sheet

Net income and Loss Statement gives us the information how the company fared during the given fiscal twelvemonth. When compared with old old ages ‘ net income and loss figure, we can rapidly happen whether the company has made any advancement or non. If the company is traveling downside so that besides can be found from the income statement. When these figures are compared with the industry norm, it can be found how the company is making against its rivals.

Cash Flow Statement is a step of company ‘s liquidness strength. It may be that the company is demoing net income in their income statement but still its hard currency flow may be non healthy or even sometimes negative. Obviously, such companies will hold trouble in paying back its debt when due. Cash flow rich companies reward its stockholders liberally and increasing dividend declared is a mark of the good hard currency flow generated by the company.

Balance Sheet is an indicant of the company ‘s position at given point. Normally, it shows its fiscal position at the terminal of the fiscal twelvemonth. This fiscal statement displays a cumulative strength of the company twelvemonth after twelvemonth. All the accumulated modesty from so many old ages of operation can be seen through this statement.

We can come to the decision rapidly by happening or cognizing the fiscal ratios depending upon what sort of the determinations we want to take sing the company.

It would be worthwhile to look into some of the fiscal informations and ratio of the General Electric.

Important Financial Ratios

( Based on latest balance sheet for the twelvemonth ended 12/31/2010 )

Asset Turnover is a good step of the use of company ‘s assets in doing the gross revenues in a competitory market. It is an indicant of how efficiently resources are made usage of.

Asset Turnover = Sales/Average Total Assets ( Drake, Pamela )

= 150,211/751,216 =0.20 %

This does non bode good with GE, when compared with the industry norm as it comes to first twentieth percentile. ( GE, Financials )

Similarly, when GE ‘s profitableness ratios are calculated, they are found to be as follows.

Tax return on Assets= 1.28 %

On comparing with industry norm, it comes between 20th and 40th percentile. ( GE, Financials )

Tax return on Capital= 1.59 %

On comparing with industry norm, it comes between 20th and 40th percentile. ( GE, Financials )

Tax return on Equity= 10.55 %

On comparing with industry norm, it comes between 40th and 60th percentile. ( GE, Financials )

When border analysis is done, they are found to be as follows.

Gross Margin- 35.51 % ; Industrial comparing puts it at 60th and 80th percentile. ( GE, Financials )

EBITDA Margin- 18.26 % ; Industrial comparing puts it at 60th and 80th percentile. ( GE, Financials )

Asset Turnover Analysis

Entire plus Turnover= 0.2x ; Industrial comparing puts it at first 20th percentile.

Fixed Assets Turnover=12.0x ; Industrial comparing puts it at 80th and 99th percentile.

Credit Ratio Analysis

Debt/Equity is found as 385.4 ; Industrial comparing puts it at 80th and 99th percentile

Current ratio comes to 3.0 ; Industrial comparing puts GE at 80th and 99th percentile.

Industry norms can inform us how worth the company is for investing at the given monetary value when compared with equal companies in the same field. ( GE, Financials )

Section III: Standard Costss

It is a preset cost under the current operating conditions. The major defect with the Standard cost is that it does non take into history the variables that are found to be important in fabrication. Standard cost system speaks about assorted operations-driven yesteryear when goods are produced in big volumes through intensive labour.

Advantages with the Standard Cost Model

If the costs remain within criterions, directors can concentrate on other issues of operations. When costs are significantly outside the criterions, directors are alerted to take action.

When criterions are acceptable by labour force, it helps set efficiency degrees. They are taken as bench grade for an person to judge their efficiency degrees.

It simplifies the cost allotment as everything is accounted as per the criterion costs.

For a company like GE which is a multiproduct company, standard cost theoretical account helps stream line procedures. Decisions are quicker and discrepancies can be calculated based on the criterion cost which eventually helps to take disciplinary action.

However, standard cost theoretical account has a defect while confronting international competition. Standard cost theoretical account leads to a complacence in the organisation. The companies following standard cost of production do non acknowledge rapidly that competition has achieved a lower cost of production through intensive efficient steps or through some just-in-time procurance doctrine. GE needs to concentrate on these facets, peculiarly where the company is confronting the international competition. Simply following standard cost theoretical account in all the merchandise lines can non function in company ‘s benefit in the long tally ; nevertheless, all factors of possible discrepancies should be taken into the history to better the efficiency farther. Bettering quality on a uninterrupted footing is a major standard when merchandises are marketed internationally and so lodging to the criterion cost theoretical account is non an appropriate scheme. ( Standard Costing… )

Section IV: Net Present Value

Net Present value can be used to cipher the benefit from the all future investings. This is a traditional method but still it is really effectual if the difference between the present value of all the future benefits and the present value of all the hereafter costs is positive so it is feasible to set about the undertaking.

GE is ever on the enlargement and investing fling. NPV theoretical account of investing can be applied for really big undertakings such as the air current energy and likewise, where big uncertainness on the undertaking benefits does non predominate. NPV theoretical account is non really flexible once the undertaking determination is taken.

Another drawback with NPV is that it is unable to mensurate intangible benefits. Still for the first manus showing of the undertaking, NPV patterning can really good be applied.

In fact, GE used this NPV theoretical account to cipher the benefits to the authorities emanating from the big air current farm undertaking in 2007.

GE Energy Financial Services estimated that air current farms built in 2007 can lend for the US authorities as per the followers.

• $ 1.9 billion in NPV of revenue enhancements charged to project income

• $ 540 million in NPV through income revenue enhancement charged to persons rewards

• $ 280 million in NPV through income revenue enhancement charged to sellers net incomes

• $ 30 million in NPV of income revenue enhancement on royalties and rental payments to landholders

( Taub, Steve 2007 )

Here one demand non to state that NPV theoretical accounts are used to convert the authorities for under taking community undertakings where big benefits are percolated over a long period of clip.

Therefore GE can really good use the net present value method to get at the determination whether to set about the undertaking based on all future watercourses of benefits and costs discounted to the present value even the undertaking is modified or downsized.