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A Financial Evaluation of General Electric Corporation David B. Preston, Sr. Tampa College, Pinellas Campus Florida Metropolitan University Running Head: GENERAL ELECTRIC CORPORATION General Electric Corporation 2 Abstract General Electric Corporation (GE) from a financial analysis presents itself as a strong corporation. The historical data reviewed revealed that it hash a stable past, with strong earnings and growth that has been consistent and which the company has been able to reproduce year after year. With recent changes in the focus of many companies, including globalization and management styles, General Electric has been in the forefront of innovation and change to accommodate to such challenges. General Electric Corporation 3 Certification Statement I hereby certify that this Directed Study Project will constitute my own work product.
Where the language of another is set forth, quotation marks will so indicate. Appropriate credit will be given where I have used language, 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 an evaluation of a company, there were many companies to choose. I had recently begun to invest in the stock market, unfortunately with minimal education and understanding of the ways to evaluate a company and its strengths and weaknesses.
I therefore saw it as appropriate to research and evaluate a firm that I currently hold stock in. The original purchase price 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, 1999 was $ 112. 00 per share of a current portfolio value of $ 1456. 00. this represents a net profit of $ 465. 75 or a profit of forty-seven (47) percent index months time.
General Information General Electric Company is considered a conglomerate. This means that it is engaged in many different types of business under the general name of General Electric Company. There are numerous holdings which the company has. There are currently fourteen (140) divisions within the corporation. Several of these include: Aircraft Engines General Electric currently have engine orders for American Airlines, Continental Airlines, Delta, Finnair, Northwest Airlines, US Airways, and Civil Aviation Administration of China. In General Electric Corporation 5 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 products available, including GE smart water filtration and softening, several newlines of dishwashers, outdoor grills and stainless steel built in refrigerators. G. E. is in a joint venture called General Domestic Appliances 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 which acts as a finance company for automobiles and homes. Lighting which includes the well known division that produces and sells light bulbs for the home and for industry. Medical systems where G. E.
has a joint venture with Picker in offering medical imaging equipment including C. T. scanners, x-ray machines, M. R.
I. s, diagnostic Ultrasound and mammography. Television including owning NBC and in joint ventures in the ownership of CNBC and MSNBC. Plastics mainly the manufacturing of plastics. Power systems mainly the manufacturing of gas, steam and hydraulics. 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 diesel freight locomotives in North America. General Electric Corporation 6 Marconi electric systems which deals with avionics, radar, defense, space systems, and underwater systems. (GE Home Page) General Electric Corporation s statement of purpose reads: Corporation is a high technology company applying its leadership in intelligent election systems supplying solutions for customers in global markets and building value for shareholders. (GE Home Page) General Electric Company currently operates in more than 100 countries, it has 250 manufacturing plants in twenty-six different nations, employs 276, 000 people worldwide and employs 165, 000 people in the United States. (GE Annual Report - 1997) John Welsh has been the chief executive officer of General Electric Company 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 and Thompson-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 andante the global market. GE divested itself of $ 10 billion of marginal businesses and made $ 19 billion in acquisitions to strengthen the world class business that would lead GE into the nineties. (GE Home Page) General Electric Company 7 Financial 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 rose 13 % to $ 6. 63 billion due mostly in part to aircraft engines, NBC and transportation 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 last fifteen years. The following are the current ratios for General Electric Company compared to the industry standards: GE Industry PE Ratio 35. 93 31. 96 Long tern debt to equity 1. 55 1. 17 Total debt to equity 4. 43 3. 21 Gross margin 55. 34 47. 21 Net profit margin 9. 25 8. 47 Return on equity 26. 20 24. 42 Receivable turnover. 84 2. 92 424. 52 days 125. 00 days Inventory turnover 7. 40 6. 93 49. 32 days 52. 66 days Quick ratio 1. 75 0. 65 Current ratio 1. 75 1. 32 (Yahoo Market Guide) General Electric Company 8 Overall, General Electric is well within the guidelines of the industry averages. It appears that there is a slightly higher debt to equity ratio, button margin levels appear to be above the industry standard. The receivable turnover is quite a bit above the industry standard, but I will assume that they are comparing General Electric to other conglomerates who may not have such items as in their conglomerate as jet engines and locomotives which are a larger ticket item than food products or smaller manufactured items.
Interestingly, one share of General Electric stock purchased before 1926 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 Dow Jones Industrial Index today that was also included in the original index in 1896. (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 the 1980 s and in need of dramatic remedies, including restructuring and spin-off s. So while others wrote-off Europe, GE invested heavily, buying new companies and expanding their existing presence. Following restructuring of its industrial and financial structure, as well as a dose of the powerful export medicine of a devalued currency, Europe is now recovering and GE in Europe is now a $ 24 billion operation. Revenues more than doubled from 1994 through 1997, net income tripled to moreton $ 1. 5 billion, with growth accelerating as European recovery progresses.
General Electric Company 9 Mexico in the mid- 1990 s was similar to Europe with dislocation, uncertainty and turbulence. Reacting to the peso crisis of 1995 and its aftermath, GE moved by acquiring ten companies and investing more than $ 1 billion in new and existing operation. This resulted in revenue growth of 60 % and doubling of earnings in two years following the crisis. With the Asian crisis at hand, GE is prepared to continue to follow this philosophy.
It has already acquired Toho Mutual Life and renamed it to GE Edison Life in Japan and has acquired Japan s Lake Corporation, a consumer loan business with $ 6. 2 billion in assets. (GE Annual Report - 1997) Corporate Culture General Electric Corporation began a corporate program based on their Sigma Quality system several years ago. They believe that this is the major cause of their growth over the past several years. This philosophy includes; Defining, Measuring, Analyzing, Improving, and Controllingprocesses. All members of the General Electric team have been trained today on this philosophy and their entire company runs its day to day operation with this as a basis of their business. They believe that such a philosophy improves their customers productivity and reduces their capital outlays while increasing the quality, speed and efficiency of GE s operations.
Finally, GE uses a cultural initiative call work-out, which they call boundless behavior. This is a business behavior that tramples and demolishes all barriers of rank, function, geography and beurocracy in an endless pursuit of the best idea. This has opened the door for any person General Electric Corporation 10 within the company to make a substantial contribution to the corporation with ideas and innovation. (GE Annual Report 1997) Discussion With a corporate culture of growth and expansion, and a solid history which dates back from 1896, along with a strong financial statement, General Electric corporation presents itself as a stable company, willing to accommodate to the changes which have occurred over the many years oils existence. It is no wonder that GE is considered a strong buy recommendation among the financial experts in todays volatile market.
I personally believe that I have made a wise choice in the investment decision owning shares of this stock and would recommend future investment inches company. General Electric Company 11 Bibliography web GE Home Page: Internet web Yahoo Market Guide Comparison Report for General Electric Company (GE). web Stocksheet s Media General Quick source Data. web General Electric -Annual Report- 1997. web General Electric Annual Report- 1998. 328
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