General Electric Essay, Research Paper
A Financial Evaluation of General Electric Corporation David B. Preston, Sr. Tampa College, Pinellas CampusFlorida Metropolitan University Running Head: GENERAL ELECTRIC CORPORATION General Electric Corporation2AbstractGeneral Electric Corporation (GE) from a financial analysis presents itselfas a strong corporation. The historical data reviewed revealed that it hashad a stable past, with strong earnings and growth that has been consistentand which the company has been able to reproduce year after year. Withrecent changes in the focus of many companies, including globalization andmanagement styles, General Electric has been in the forefront of innovationand change to accommodate to such challenges. General Electric Corporation3Certification StatementI hereby certify that this Directed Study Project will constitute my ownwork product. Where the language of another is set forth, quotation markswill so indicate. Appropriate credit will be given where I have usedlanguage, ideas, expressions, or writing of another. Signed: David B. Preston, Sr. General Electric Corporation 4 Introduction While contemplating which company to choose for the project of anevaluation of a company, there were many companies to choose. I hadrecently begun to invest in the stock market, unfortunately with minimaleducation and understanding of the ways to evaluate a company and itsstrengths and weaknesses. I therefore saw it as appropriate to research andevaluate a firm that I currently hold stock in. The original purchase priceof fourteen (13) shares of General Electric at $75.25 per share was$990.25 on 24 September 1998. The current price as of 20 March, 1999was $112.00 per share of a current portfolio value of $1456.00. thisrepresents a net profit of $465.75 or a profit of forty-seven (47) percent insix months time.General Information General Electric Company is considered a conglomerate. This meansthat it is engaged in many different types of business under the generalname of General Electric Company. There are numerous holdings whichthe company has. There are currently fourteen (140) divisions within thecorporation. Several of these include:Aircraft Engines – General Electric currently have engine orders forAmerican Airlines, Continental Airlines, Delta, Finnair, NorthwestAirlines, US Airways, and Civil Aviation Administration of China. In General Electric Corporation5 1997, G.E. had greater than seventy (70) percent of the world s large commercial engine orders awarded to their company.Appliances – General Electric Corporation has several new productsavailable, including GE smartwater filtration and softening, several newlines of dishwashers, outdoor grills and stainless steel built inrefrigerators. G.E. is in a joint venture called General DomesticAppliances which includes such companies as Hotpoint, RCA,Monogram, Creda, Cannon Industries, Epelair, and Red Ring Electric.Capital Systems – which is a diversified financial services division whichacts as a finance company for automobiles and homes.Lighting – which includes the well known division that produces andsells light bulbs for the home and for industry.Medical systems – where G.E. has a joint venture with Picker inoffering medical imaging equipment including C.T. scanners, x-raymachines, M.R.I. s, diagnostic Ultrasound and mammography.Television – including owning NBC and in joint ventures in theownership of CNBC and MSNBC.Plastics – mainly the manufacturing of plastics.Power systems – mainly the manufacturing of gas, steam andhydraulics.Electric distributions and control – manufacturing items to distribute,protect and control electricity, including circuit breakers, switches,transformers and meters.Transportation – G.E. manufactures more than one half of the dieselfreight locomotives in North America. General Electric Corporation6Marconi electric systems – which deals with avionics, radar, defense,space systems, and underwater systems. (GE Home Page) General Electric Corporation s statement of purpose reads: GECorporation is a high technology company applying its leadership inintelligent election systems supplying solutions for customers in globalmarkets and building value for shareholders. (GE Home Page) General Electric Company currently operates in more than 100countries, it has 250 manufacturing plants in twenty-six different nations,employs 276,000 people worldwide and employs 165,000 people in theUnited States. (GE Annual Report -1997) John Welsh has been the chief executive officer of General ElectricCompany since 1981. The company uses stock issues to build its equity.History General Electric Company began operations in 1892 and was formed bythe consolidation of Edison General Electric Company andThompson-Houston Company. Between the years of 1947 and 1977,General Electric became a leader in jet air transportation, data processing,space expansion and electronic. General Electric underwent a dramatic
restructuring in the 1980 s to become a part of global competition andenter the global market. GE divested itself of $10 billion of marginalbusinesses and made $19 billion in acquisitions to strengthen the worldclass business that would lead GE into the nineties. (GE Home Page) General Electric Company7Financial In the fiscal year 1998, General Electric Company s revenues rose to$100.5 billion from $71.83 billion the year before. Earnings increased 13% to $9.3 billion. Earnings per share grew 14% to $2.80. Net income rose13% to $6.63 billion due mostly in part to aircraft engines, NBC andtransportation holdings. The total return of a share of GE stock rose 51%in 1997, rose 40% in 1996, and rose 45% in 1995. In April, 1997,shareholders approved a two for one stock split, the fourth in the lastfifteen years. The following are the current ratios for General Electric Companycompared to the industry standards: GE IndustryPE Ratio 35.93 31.96Long tern debt to equity 1.55 1.17Total debt to equity 4.43 3.21Gross margin 55.34 47.21Net profit margin 9.25 8.47Return on equity 26.20 24.42Receivable turnover .84 2.92 424.52 days 125.00 daysInventory turnover 7.40 6.93 49.32 days 52.66 daysQuick ratio 1.75 0.65Current ratio 1.75 1.32 (Yahoo Market Guide)General Electric Company8 Overall, General Electric is well within the guidelines of the industryaverages. It appears that there is a slightly higher debt to equity ratio, butthe margin levels appear to be above the industry standard. The receivableturnover is quite a bit above the industry standard, but I will assume that they are comparing General Electric to other conglomerates who may nothave such items as in their conglomerate as jet engines and locomotiveswhich are a larger ticket item than food products or smaller manufactureditems. Interestingly, one share of General Electric stock purchased before1926 is now worth 1536 shares at $112.00 per share with a value of$172,032.00. Also, General Electric is the only company listed in the DowJones Industrial Index today that was also included in the original index in1896. (Stocksheet s)Philosophy of Business General Electric s philosophy of globalization has been very innovative. GE believed that Europe looked a lot like the United States did in the1980 s and in need of dramatic remedies, including restructuring andspin-off s. So while others wrote-off Europe, GE invested heavily,buying new companies and expanding their existing presence. Followingrestructuring of its industrial and financial structure, as well as a dose of thepowerful export medicine of a devalued currency, Europe is nowrecovering and GE in Europe is now a $24 billion operation. Revenuesmore than doubled from 1994 through 1997, net income tripled to morethan $1.5 billion, with growth accelerating as European recoveryprogresses. General Electric Company9 Mexico in the mid-1990 s was similar to Europe with dislocation,uncertainty and turbulence. Reacting to the peso crisis of 1995 and itsaftermath, GE moved by acquiring ten companies and investing more than $1 billion in new and existing operation. This resulted in revenue growthof 60% and doubling of earnings in two years following the crisis. With the Asian crisis at hand, GE is prepared to continue to follow thisphilosophy. It has already acquired Toho Mutual Life and renamed it toGE Edison Life in Japan and has acquired Japan s Lake Corporation, aconsumer loan business with $6.2 billion in assets. (GE Annual Report -1997)Corporate Culture General Electric Corporation began a corporate program based on thesix Sigma Quality system several years ago. They believe that this is themajor cause of their growth over the past several years. This philosophyincludes; Defining, Measuring, Analyzing, Improving, and Controllingprocesses. All members of the General Electric team have been trained todate on this philosophy and their entire company runs its day to dayoperation with this as a basis of their business. They believe that such aphilosophy improves their customers productivity and reduces their capitaloutlays while increasing the quality, speed and efficiency of GE soperations. Finally, GE uses a cultural initiative call work-out , which they call boundryless behavior . This is a business behavior that tramples anddemolishes all barriers of rank, function, geography and beurocracy in anendless pursuit of the best idea. This has opened the door for any person General Electric Corporation10within the company to make a substantial contribution to the corporationwith ideas and innovation. (GE Annual Report – 1997)Discussion With a corporate culture of growth and expansion, and a solid historywhich dates back from 1896, along with a strong financial statement,General Electric corporation presents itself as a stable company, willing toaccommodate to the changes which have occurred over the many years ofits existence. It is no wonder that GE is considered a strong buyrecommendation among the financial experts in todays volatile market. Ipersonally believe that I have made a wise choice in the investment decisionin owning shares of this stock and would recommend future investment inthis company. General Electric Company11Bibliography http://www.ge.com/ibhis0.htm. GE Home Page: Internet http://yahoo.marketguide.com/mgi/ration/3737N.html. Yahoo MarketGuide – Comparison Report for General Electric Company (GE). http://www.stocksheet.com/cgi-bin/getbigreport?Ticker=GE. Stocksheet s Media General Quicksource Data. http://www.ge.com/annual97/share/index/index.htm. General Electric -Annual Report- 1997. http://www.ge.com/annual98/share/index.htm. General Electric AnnualReport- 1998.