In my opinion as long as we realize that a firm is not only buildings and equipment but also a name we can realize why the GCA ratio is very important as a new way of thinking. We should make sure that this ratio only increases.
5) I have already referred to a measure that is affiliated with stockholders, the Stockholders Comparable Utility. I justified the creation of this measure by saying that it is very important to monitor on a constant basis the utility of our stockholders which derives from the dividend that we give to them. The question that can arise out of this statement and could be partially answered by the creation of the last measure is, ?how much power do the stockholders actually have over the corporation — or put another way, how important is it to keep them happy?? It can be said that the larger our need to find cash in order to expand the larger the importance of investors for us. However, such a measure would refer to future investors and not to the ones that already have claims over the assets of the business. In order to see the actual power that the latter have over the corporation we have to consider the Claims of the Stockholders Ratio which is equal to: Number of Shares Outstanding / Number of Shares Issued. For example for 1993 the CSR was equal to: 1,707,302 / 1,853,128 = 92.1%, for 1994: 1,705,967 / 1,857,013 = 91 % and for 1995: 1,666,512 / 1,857,013 = 89.7%.16 From the above facts it is obvious that the stockholders? equity is decreasing over the years and, consequently, so is the control that they have over the corporation. The question that arises is what is going to be affected because of that and how is it going to be affected. The answer is given in the following hypothesis.
As we know the corporation issues shares of stock if the cash available for investments is not enough for the planned expansion of the company. If GE manages to have better cash flow results, then it will not have the need to issue a many shares of stock as before. At the same time GE will be able to buy some portion of its outstanding common stock (as mentioned in footnote 16, GE does not have any preferred stock) and, therefore, reduces the stockholders? equity over the assets of the company. If this procedure continues successfully during the next few years, then it will be obvious that GE does not ?need? its stockholders or the potential investors that much. On the other hand, we know that when a company wants to attract more investment has to offer a high dividend to its stockholders. Thus, if the corporation does not need to attract as much investment, and can rely more on its own power to invest, then the amount of money given to the stockholders should be decreased.
To close we can say that if the CSR is a simple measure based on the simple supply – demand convention.
I hope that the five measures that I have created will be useful to you, Members of the Board of Directors, in planning for the future of GE. I have confidence that the firm is going to continue putting forth its best efforts towards growth and expansion, which will bring outstanding results. I believe that the measures that I have suggested will help in that direction, and will be crucial in attaining our future goals. Thank you.