General Electric, short as GE, is a leading multi-industrial company involving in energy, appliance, finance and transportation businesses. It has more than 100 years of history, and generally be viewed as one of the most successful product and service providers across continents. GE has gross revenue of more than 147 billion dollars, and is currently ranking No. 6 in Fortune 500 U. S. by revenue. A. Introduction General Electric Company (GE) is a multinational conglomerate corporation headquartered in Fairfield, Connecticut, United States.
Its core business contains four segments, including Energy, Finance, Technology infrastructure, and Consumer and Industrial. GE was founded initially by Thomas Edison, and then merged with Thomson-Houston Electronic Company in 1892. It was one the original 12 companies that were included for Dow Jones Industrial Average calculation in 1896, and is the only one that still being listed as of today. * Name of the Chief Executive Officer: Jeffrey R. Immelt * Corporate Headquarters: 3135 Easton Turnpike, Fairfield, CT 06828 * Ending of last fiscal year: Dec 31, 2011
* Description of the company’s principle products or services: General Electronic contains four major business sectors. GE Energy is constructed by two major departments. The Oil &Gas department is a drill solution and refinery service provider, and the power department is one of the leading manufactures in designing and producing innovative, reliable, efficient, and high-performance jet engines. GE Technology Infrastructure is a business group dealing with machine production for healthcare and transportation.
GE Capital is the financial service provider primarily focuses on loans and leases that it underwrites to hold on its own balance sheet rather than on generating fee by originating loans and leases. GE Home & Business Solutions is another GE major business unit composed of intelligent platforms department and lighting department. The intelligent platforms are involving in producing next generation hardware and software for industrial control, and lighting department mainly engaged in home appliance production and maintenance.
* Main geographic area of activity (in order of revenue significance): United States, Canada, Europe, Asia, Australia, Africa. * Name of Company’s independent accountants (KPMG LLP). Base on the analysis of independent auditor, the GE consolidated financial statements released to the public presented fairly, in a whole, the financial position of GE as the date of Dec 31, 2011 and 2010. Also, the statements of operations and cash flows for the three consecutive years from 2009 to 2011 are conformed to U. S.
generally accepted accounting principles (GAAP). The independent accountants also declared that the GE maintained effective internal control over financial reporting as of Dec 31 2011, according to the criteria established in Internal Control-Integrated Framework issued by COSO. * The most recent price of company’s stock and its dividend per share The current price of GE stock is $20. 62 as of Nov 20, 2012. The most recent dividend payment date was Oct 25, 2012 (record date was Sep 24, 2012) with amount per share of $0.
17. B. Industry Situation and Company Plans GE Energy unit is a product and service provider across different energy industries, including coal, oil, natural gas, nuclear power and renewable energy like wind or solar energy. In general, global energy business experienced a boosting period in the past twenty years due to the economic rapid growth in Asia. Coal, Oil and natural gas are top 3 widely used fossil fuels in energy industry, accounting for 55% of total energy demands.
GE Energy has the advantage of applying advanced technology from drilling and production, liquefied natural gas pipelines and storage to industrial power generation and it is the largest natural gas provider in U. S. Based on GE’s patents on renewable energy, it greatly expands its business cooperation in Asia in the past three years within the countries that have great environmental issues, like China. In 2009~20011, GE acquired two wind turbine companies, Scan Wind and Wind Tower System, and became one of the largest engine manufactures, second only to well-known British company,
Rolls-Royce plc. Healthcare in GE Technology Infrastructure business unit takes the dominant position in the field of diagnostic imaging service and integrated clinical system providers. While it has offices around the globe, the Healthcare department has major regional operation in Europe and Asia. Transportation in GE Technology Infrastructure business unit basically produces locomotive and its accompanied equipment, large electric motors and propulsion systems for mining, oil drilling and engine industries.
Because of its comparative advantage of research and development, the GE Transportation unit experienced a fast expansion in the past several years, and in 2011 they announced plans to build another locomotive factory in Texas to meet the increasing demand. GE Capital has two major parts of services, aviation services, and energy financial services. The aviation service is responsible for the leasing of aircraft and associate equipment to airlines. According to 2005 Airfinance Journal Operating Lessor Survey, GE aviation service department is the largest aircraft lessor in the world by the fleet size.
The success of this business is primarily due to the heavily competition between the airlines, and each airline company intends to lease cheap aircraft to reduce their cost. The capital intensive companies, like GE, has the advantage to meet their needs. Energy financial services department is primarily responsible for auxiliary role such as providing financial and technological investment in energy infrastructure projects around the world, and their major investments are the projects across the different business segment of the General Electric.
GE Home & Business Solutions is composed of GE Lighting and GE Intelligent Platforms. GE Lighting is well known for its household appliance traced back from Thomas Edison’s work on lighting. Because of its dominant position in the business, lighting department generates descent amount of the revenues for the whole group. In 2011 the gross revenue for GE Lighting is about 3 billion. Intelligent Platforms departments designs, manufactures, and supplies hardware and software products for industrial control and automation.
Their hardware products including programmable logic controllers (PLCs), programmable automation controllers (PACs), as well as software products including supervisory control and data acquisition (SCADA) has good reputation in the market, its major role is to provide research and development support for other GE business units to evolve their products. The revenue in Intelligent Platforms is about 135 million, and is not a huge profit resource for the whole group. C. Financial Statements All the accounting information presents here are accumulative numbers across all the GE business unites for 2010 and 2011.
Income Statement (number in million dollars): | 2011| 2010| change in 2011| Gross profit| 20,098| 14,085| + 42%| Income from operations| 14,366| 13,052| + 1314| Net income| 14,443| 12,179| +2264| In 2011, GE experienced a spectacular growth in profit. Its major business, like energy and transportation expanded across the continents, and become more profitable due the economic recovery of 2009 recession. Balance Sheet(number in million dollars): | Assets| Liabilities| Stockholder’s Equity| 2010| 747,793| 623,595| 124,198| 2011| 717,242| 599,108| 118,134| Statement of Cash Flows (number in million dollars):
| Net Income| Cash Flows from Operations| Difference| 2010| 12,179| 11,644| Positive in favor of cash flows| 2011| 14,443| 14,151| Positive in favor of cash flows| Judging from the financial status of GE, the group is financial healthy. Its assets decreased in 2011 compared to 2010, while the net income experienced a significant increase in 2011, which indicates the operation of the GE group as a whole became more efficient. Cash flows from operations accounts for more than 95% of the company’s net income indicate that the profitability of the GE is continuous and stable.
In 2011, the GE group sell their GE Real Estate to Everbank may account for the partial reason of shrinkage of its asset. As for the different business units within GE, the general summary of the performance are listed: * Energy sector had a revenue increase about 16% (6. 2 billion), which is composed of 5. 8 billion from acquisitions and weaker of US dollar (0. 9 billion), and also partially offset by lower prices (0. 5 billion). * Aviation business realized a 7% growth in revenue in the year of 2011, about 1. 2 billion, due to high volume ($1. 1 billion), and high price ($0.2 billion), offset partially by lower other income ($0. 1 billion).
* HealthCare business unit had a revenue increased by $1. 2 billion also, primarily due to the higher volume ($1. 0 billion) and weaker of U. S. dollar ($0. 4 billion), partially offset by lower prices($0. 3 billion). * Transportation increased their revenue by $1. 5 billion, about 45% compared to 2010. Due to the recovery of world economy, transportation demand dramatically increased. As a result, locomotive and railway equipment product was boosted in 2011, and as one of the major producer, GE enjoyed a boosted growth in this department.
Based on the summary information above, the 2011 fiscal year for GE is definitely viewed as a successful year. All major business sectors achieved significant amount of increment compared to 2010. Statements of Financial Position (number in million dollars): Cash and cash equivalents| 2010| 2011| | 78,943| 84,501| As for a gigantic company, like GE, it remains a significant percentage of cash and cash equivalent around 11% (84,501/717,242) indicates that GE’s operation is smooth and robust. D. Accounting Policies Accounting Principles Our financial statements are prepared in conformity with U. S.
generally accepted accounting principles (GAAP). Revenue Recognition GE recognize revenue on agreements for sales of goods and services under power generation unit and uprate contracts; nuclear fuel assemblies; larger oil drilling equipment projects; aero derivative unit contracts; military development contracts; locomotive production contracts; and long-term construction projects, using long-term construction and production contract accounting. And they recognize revenue upon delivery for sales of aircraft engines, military propulsion equipment and related spare parts not sold under long-term product services agreements.
Delivery of commercial engines, non-U. S. military equipment and all related spare parts occurs on shipment; delivery of military propulsion equipment sold to the U. S. Government or agencies thereof occurs upon receipt of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment Cash and Equivalents Debt securities and money market instruments with original maturities of three months or less are included in cash equivalents unless designated as available-for-sale and classified as investment securities.
All inventories are stated at the lower of cost or realizable values. Cost for a significant portion of GE U. S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is determined on a first-in, first-out (FIFO) basis. LIFO was used for 38% and 41% of GE inventories at December 31, 2011 and 2010, respectively. GECS inventories consist of finished products held for sale; cost is determined on a FIFO basis. Investment Securities We report investments in debt and marketable equity securities, and certain other equity securities, at fair value.
Unrealized gains and losses on available-for-sale investment securities are included in shareowners’equity, net of applicable taxes and other adjustments. We regularly review investment securities for impairment using both quantitative and qualitative criteria. GECS Investment Contracts, Insurance Liabilities and Insurance Annuity Benefits Certain entities, which we consolidate, provide guaranteed investment contracts, primarily to states, municipalities and municipal authorities.
For short-duration insurance contracts, including accident and health insurance, we report premiums as earned income over the terms of the related agreements, generally on a pro-rata basis. For traditional long-duration insurance contracts including term, whole life and annuities payable for the life of Investments in Debt and Equity Securities When available, we use quoted market prices to determine the fair value of investment securities, and they are included in Level 1. Level 1securities primarily include publicly-traded equity securities.
Cost and Equity Method Investments
Cost and equity method investments are valued using market observable data such as quoted prices when available. When market observable data is unavailable, investments are valued using a discounted cash flow model, comparative market multiples or a combination of both approaches as appropriate and other third-party pricing sources. Depreciation and Amortization The cost of GE manufacturing plant and equipment is depreciated over its estimated economic life. U. S. assets are depreciated using an accelerated method based on a sum-of-the-years digits formula; non-U. S. assets are generally depreciated on a straight-line basis.
The cost of GECS equipment leased to others on operating leases is depreciated on a straight-line basis to estimated residual value over the lease term or over the estimated economic life of the equipment. E. Financial Analysis Numbers in millions of Dollars unless otherwise specified | 2011| 2010| Comments and Significance| Liquidity Ratios| Working capital| 11,339| 9,739| Representing GE current asset less GE current liability, increased $1. 6 billion at December 31, 2011, compared to December 31, 2010 due to increases in receivables and inventory, and lower progress collections, partially offset by increased accounts payable.
| Current ratio| 2. 50| 2. 96| A liquidity ratio calculated as current assets divided by current liabilities. GE’s current ratio improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011, indicating that this GE’s debts payable ability in 2011 was bad than 2010. The average of its industry in 2011 is 1. 23, GE exceeded it. | Receivable turnover| 8. 05times| 8. 62times| GE current receivables turnover was 8. 05 in 2011, compared with 8. 62 in 2010. The overall increase in current receivables was primarily due to the higher volume and acquisitions at Energy Infrastructure ($1. 1 billion).
The average of its industry in 2011 is 6. 58, GE exceeded it. | Days’ sales uncollected| 45. 34days| 42. 34days| An activity ratio equal to the number of days in the period divided by receivables turnover. GE’s Days’ sales uncollected deteriorated from 2010 to 2011. And the industry average is 55 days. | Inventory turnover| 6. 92times| 8. 75times| A ratio equal to the cost of goods sold divided by average inventory. The inventory for GE totaled to $13. 7 billion at December 31, 2011,up $2. 3 billion from the end of 2010.
This increase reflected higher inventories at Energy Infrastructure, partially due to acquisitions ($1.0 billion), Aviation and Transportation. And the industry average is 5. 91 times, GE exceeded it. | Days’ inventory on hand| 52. 74days| 41. 71days| An activity ratio equal to the number of days in the period divided by inventory turnover over the period. GE’s average inventory processing period improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011. And the industry average is 62 days. | Payables turnover| 6. 69times| 8. 62 times| An activity ratio calculated as revenue divided by payables. GE’s payables turnover declined from 2010 to 2011.
And it’s better than industry average of 9. 52. GE’s payable turnover indicate that the credit terms receives from its suppliers are good. | Days’ payable| 54. 55 days| 42. 34days| An estimate of the average number of days it takes a company to pay its suppliers; equal to the number of days in the period divided by payables turnover ratio for the period. GE’s average payables payment period increased from 2010 to 2011, and better than industry average of 38 days. | Operating cycle| 98. 08 days| 84. 05days| Equal to average inventory processing period plus average receivables collection period.
GE’s operating cycle increased from 2010 to 2011, and much better than the industry average about 117 days. | Financing Period| 43. 53 days| 41. 71 days| A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations. GE’s cash conversion deteriorated from 2010 to 2011. But still much better than the industry average about 79 days. | Profitability Ratios| Profit margin| 9. 89%| 12. 32%| The profit margin shows the percentage of each sales dollar that results in net income.
On each dollar of net sales, GE makes almost 10 cents in 2011. GE’s operating margin deteriorated from 2010 to 2011 about 2. 43%. | Asset turnover| 0. 44 times| 0. 46times| An activity ratio calculated as net sale divided by average total assets. GE. ‘s total asset turnover deteriorated from 2010 to 2011. And it’s lower than the industry average about 0. 73 times. | Return on assets| 6. 49%| 5. 32%| A profitability ratio calculated as net income divided by average total assets. GE’s ROA improved from 2010 to 2011. For each dollar invested, GE’s assets generate 6. 5 cents of net income.
And lower than the industry average about 7. 19%. | Return on equity| 12. 15%| 9. 79%| Earnings from continuing operations before accounting changes divided by average GE shareowners’ equity, excluding effects of discontinued operations. GE earned 12. 15 cents for every dollar invested by stockholders on 2011, improved 2. 36% than 2010. | Long-Term Solvency Ratios| Debt to equity ratio| 10%| 9%| A solvency ratio calculated as total debt divided by total shareholders’ equity. GE’s debt-to-equity ratio improved from 2010 to. Much lower than the industry average about 48%.
Indicated that GE receives its financing more from creditors than from investors. | Interest coverage| 15. 75 times| 9. 54 times| A solvency ratio calculated as Earnings before interest and tax divided by interest payments. GE’s interest coverage improved from 2010 to 2011, exceeding industry average level about 12. 60 times. | Cash Flow Adequacy| Cash flow yield| 2. 06 times| 2. 79times| The cash flow should exceed 1 for most companies. GE performed much better than this minimum, even though this metric somewhat declined in 2011 compared to 2010.
Which a cash flow yield of 2. 06 times in 2011, GE generated about $2. 06 of cash for every dollar of net income. | Cash flows to sales| 32. 3%| 32. 6%| This is a ratio of net cash flows from operating activities to sales. It is indicates that GE generated positive cash flows to sales of 32. 3% in 2011 which is a little bit of decrease from 2010. This is a positive measure which demonstrates that every dollar of sales generated 9. 5 cents in cash. | Cash flows to assets| 6. 14%| 6. 35%| This is a ratio of net cash flows from operating activities to average total assets.
GE’s cash flows to assets in 2011 indicated that for every dollar of assets, the company generates 6. 14 cents, almost the same with 2010 year. This is not an excellent but a good indicator. | Free cash flow| 9,512| 12,951| Free cash flow is the cash flow available to GE’s suppliers of capital after all operating expenses have been paid and necessary investments in working and fixed capital have been made. GE’s FCFF declined from 2010 to 2011. It is a positive free cash flow, means that GE has met all of its planned cash commitments and has cash available to reduce debt or to expand.
Therefore, GE does not have to borrow money to expend. | Market Strength Ratios| Price/earnings ratio| 14. 39Times| 18. 99Times| The P/E ratio tells analyst how much an investor in common stock pays per dollar of current earnings. It is a measure of investors’ confidence in a company’s future. GE’s P/E ratio increased from 2009 to 2010 but then declined significantly from 2010 to 2011, and even lower than Industry average about 15. 03 times. | Dividends yield| 3. 41%| 2. 53%| The dividend yield is the sum of a company’s annual dividends per share, divided by the current price per share.
By investing in companies with stable and high dividend yields, investors can secure a relatively stable cash flow. GE’s dividends yield increased from 2010 to 2011, it indicated GE had profitable operations in 2011. | Reference . www. ge. com . http://www. ge. com/ar2011/index. html#! section=ge-2011-annual-report . http://www. ge. com/ar2010/index. html . http://www. ge. com/ar2009/index. html . Jeff Immelt and the New GE Way: Innovation, Transformation and Winning in the 21st Century, David Magee, 2009, McGraw-Hill, .
General Electric: From Jack Welch to Jeffrey Immelt, Stewart Thornhill, Ken Mark, Apr 18, 2008, Harvard Business Review . Growth as a Processes: An Interview with Jeffrey, R. Immelt, Case Study Material from Harvard Business Review, Link: http://www. ge. com/files/usa/company/investor/downloads/harvard_business_review_ge. pdf . Financial Accounting; Belverd E. Needles, Jr. , Marian Powers, South-Western Cengage Learning, 2008. . The Analysis and Use of Financial Statements, Gerald I. White, Ashwinpaul C. Sondhi, Dov Fried, John Wiley & Sons, 2002.