Running head: FINANCE 1
FINANCE 2
FINANCE
(Author’s name)
(Institutional Affiliation)
QUESTION 1
General Electric Company
General Electric Company is a multinational company that is American incorporated. Its headquarters are in Connecticut (Zhu, 2016). The company operates through various segments such as Aviation, Medical Services, Financial services, and Life sciences, Automotive, Engineering and Software Development. General Electric is ranked sixth largest corporation by gross revenue and as number four in terms of profitability. The company’s two employees have won Nobel Prize. General Electric has been trading its shares in the New York Stock Exchange Market. General Electric’s stock has been up more than 30% since August last year an indication of good performance in the market. The stock indeed continues to look impressive to stock holders. General Electric Company has signed agreements to sell its capital assets at $125 billion which is ahead of the divestiture target of $100 billion (Zhu, 2016). These are good news for the investors and shareholders as it is in line with their expectations. Divided pay -out ratio is expected to increase by 3% in year 2016.
Analyzing Financial Ratios for General Electric
Current ratio=Current Assets/Current liabilities
Current ratio Current ratio Current Assets Current liabilities
Dec 2013
0.90
=
42,232
÷
46,947
Dec 2014
0.94
=
45,152
÷
47,931
Dec 2015
0.59
=
47,679
÷
80,587
G.E General Industrials
Dec 2013
0.90
1.17
Dec 2014
0.94
1.19
Dec 2015
0.59
0.77
Current ratio for G.E has been increasing since 2013 to 2014 then there was a sharp decrease which might be due to increased liabilities or decreases current assets. Current ratio for G.E is slightly lower than the industrial ones. Similarly quick ratio has been increasing from year 2013 to year 2015 though there is a slight drop in 2015 which is due to increased quick investments.
Earnings per share increased in year 2014 as compared to year 2015 but dropped in year 2015 due to decrease in profit in year 2015 (Henderson & Evans, 2015).Operating profit margin also decreased in year 2015 while in year 2014 and 2015 remained constant at 18%.Dividends have been increase with 2013 a dividend of $ being paid and in 2014 a dividend of $0.89 being paid. In 2015 this divided increased to $0.92 (Henderson & Evans, 2015)
Book value per share has been on increase in 2013 and in 2014.However, in 2015the book value per share decreased. The pay- out ratio has been increasing tremendously and in year 2015 it increased sharply. Earnings before tax have been increasing in the 2013 and 2015 then there was a slight decrease in year 2015.Free cash-flow per share has also been on increase except in year 2015 when it just slightly dropped to$1.08.Working capital has been on increase in the two years of 2013 and 2014 but declined sharply in 2015.Avarage financial performance has been at its lowest point (Henderson & Evans, 2015)
Quick ratio = Total quick assets/Current liabilities
G.E
2015 2014 2013
Quick ratio1
0.31
0.57
0.53
Industry
0.44
0.75
0.73
Financial Ratios for General Electric Company
2013 2014 2015
Revenue ($ mill)
146,045
148,589
117,386
Gross Margin (%)
47.2
45.3
29.6
Operating Income
26,267
26,711
16,862
Operating Margin (%
) 18.0
18.0
14.4
Net Income
13,057
15,233
-6,126
Earnings Per Share
1.27
1.50
-0.61
Dividends
0.79
0.89
0.92
Payout Ratio %
54.7
59.5
180.4
Shares Mil
10,289
10,123
10,016
Book Value Per Share
12.20
13.42
11.86
Operating Cash Flow
28,579
27,710
19,891
Cap Spending
-13,458
-13,727
-7,309
Free Cash Flow
15,121
13,983
12,582
Free Cash Flow Per Share
1.32
1.44
1.08
Working Capital
255,083
249,856
64,797
Other key ratios for G.E
2013 2014 2015
Margins % of Sales
Revenue
100.00
100.00
100.00
COGS
52.82
54.72
70.45
Gross Margin
45.28
29.55
29.09
SG&A
25.34
24.78
26.04
Other
3.30
6.73
—
Operating Margin
17.99
17.98
14.36
Net Int Inc & Other
-6.93
-6.38
-7.39
EBT Margin
11.06
11.60
6.97
Profitability
Tax Rate %
2013
4.19
2014
10.29
2015
79.23
Net Margin %
8.94
1 0.25
-5.23
Asset Turnover (Average)
0.22
0.23
0.21
Return on Assets %
1.95
2.33
-1.08
Financial Leverage (Average)
5.03
5.06
5.01
Return on Equity %
10.30
11.78
-5.42
Return on Invested Capital %
4.79
5.33
-1.07
Interest Coverage
2.60
2.82
3.36
Interest coverage has been increasing in the three years. This might be due to increased loan interests. Return on equity has been increasing which is due to increased value in stock. However, in 2015 there was a negative performance of the equity. Return on assets also has been increasing in the two years of 2013 and 2014 while it declined in year 2015 to a negative 1.08%.Retun on invested capital also increased in two years except in 2015 when it declined. Assets turnover increased for the two years of 2013 and 2014 before it declined in year 2015 due to decrease in assets. Gross margin was so high in year 2013 but dropped in year 2014 and year 2015.
Conclusion
From the financial analysis and the comparison with the industry General Electric Company is faring well except in year 2015 due to decline in revenue and assets. In 2016 there is an expected improvement given that the company plans to sell some of its capital assets. In fact some of these assets by 2015 have been sold at higher prices than planned which indicates an improved performance of the company.GE is trying to divest its non-core financial assets in an attempt to grow the industrial earnings by 90% of its total income by 2018 from 57% by year 2014.The remaining business will be easier to evaluate and results to higher earnings. Given this scenario, investors should hold in General Electric Company to reap more benefits.
References
Henderson, K. M., & Evans, J. R. (2015). Successful implementation of six sigma: benchmarking General Electric Company. Benchmarking: An International Journal, 7(4), 260-282.
Zhu, J. (2016). Multi-factor performance measure model with an application to Fortune 500 companies. European journal of operational research, 123(1), 105-124.
