Abstract
In this assignment, our main aim is to take any company for its financial analysis and make a comparison of the company with the competitors. Hence to give an abstract of the project, I would like to choose General Electric for the financial analysis from Bloomberg financial information about the companies of US.
I have chosen this company for the financial analysis because of few important and obvious reasons. First of all it is announced as one of the five most active companies of US by volume. This information is given in Bloomberg. Another reason for taking this company for analysis is that it is one of popularly known companies of the world and information and data of this company is easily available on internet for correct and desired access of information.
After the financial analysis of General Electric, we have compared the performance of the companies with its close competitors. Major competitors with whom we will compare the performance of General Electric are Citigroup Inc, Koninklijke Philips Electronics, Siemens AG American Depositary, etc.
We make conclusion of our project depending upon our observation about company's financial performances and comparison of the company's performance with its major competitors and likewise we will provide some recommendations based on the facts.
Contents
Abstract 2
Contents 3
Introduction of the company 3
Financial Summary of General Electric 4
Financial Reports and Analysis 5
Report 1: Last 12 Month Data 5
Analysis of Report 1 6
Report 2: Price Earning Ratios 8
Analysis of Report 2 8
Comparison with Competitors 9
Report3: Direct Competitors Comparison 9
Analysis of Report 3 9
Conclusion 11
Recommendations 12
References 12
Introduction of the company
In the year 1890, Thomas Alva Edison had a huge business interest to form a new corporation, Edison General Electric and at the same time, Charles A Coffin gained a number of patents for his company Thomas Houston. As a result of merger of Thomas Houston and Edison General Electric gave birth to new General Electric in 1892. General Electric commonly known as GE is a company giving varied technology and financial services. It is known for a range of products and services which are mainly aircraft engines, industrial products, products related to the security of the company, consumer financing, lighting products, power generation products, media content and media imaging products. The company has a diversified operational policy which is spread to more than 100 companies all over the world. Headquarters of General Electrical is situated in Connecticut in US.
One of the most recent information about General Electric is that it has been collaborated with Inenergy Wind LL in order to supply 74 Wind Turbines for the wind farm of Illinois. Major advantage of these turbines is that they would expand Grand Ridge Energy Center and provide a new generation capacity to Illinois of 110 megawatts.
GE is one of the five most active companies of US by volume.
Financial Summary of General Electric
It was seen in the past that General Electric has a very decent capacity to payback its debt. In most of the case, this debt returning amount comes from high liquidity of the company. Position of liquidity of General Electric is really nice as it is very much consolidated. Liquidity is not only firm's strength but it is very well supported by beautiful earning tracks of the company in the recent past and also a great ability of the company to go into diverse business streams
General Electric has a total consolidated cash and other equivalents of $ 8.3 Billion and along with this it has a total amount of $ 56 Billion which is contracted by various lending firms or others, hence we can say that company has a total arrangement of over $ 60 Billion with it which can be considered as a total source of liquidity for the company. General Electric is Triple A rated company and because of this fact the company gets frequent borrowing from the lenders and hence maintains good liquidity. Its issuance policy does depend upon the outlook of the market but it depends upon several planned program of issuance in order to help the ongoing programs or the ongoing business in the field of finance
The way at which General Electric manages its finance and its assets is not that good. Because as we will see in the finance report that company General Electric as a company has a total return on assets of 3.01 whereas in case of the total average from the industry, this value goes to 6.10. This suggests that return on assets for General Electric is not that good which means the company is not very good in conversion of investment into profits. Just for quoting an example a short-term bond fund which is taken care by Asset Management of General Electric given back 96 cent at an average over the taken value of 1 US Dollar after having a great loss of about $200 million which was mainly on mortgage-backed securities. This was a disaster for the company because GEAM Trust Enhanced Cash Trust told the investors to take their money back from the company otherwise the loss would mount and there will be further loss to the investors.
Financial Reports and Analysis
Report 1: Last 12 Month Data
(GENERAL ELECTRIC CO (NYSE:GE ))
Analysis of Report 1
From the data in the above table we can have following analysis of financial activities of General Electricals
Gross Profit Margin of the company is 54 percent which means that company has 54 percent gain in the revenue from production cost of the company and earning before interest and taxes for the company in the year 2009 was 18 percent which was quite a less as compared to its earlier performances. Major reason which can be predicted for the same is that end of 2008 and almost three fourth of 2009 was under recession which would have made the company's earning low.
Pretax profit margin for the company was even lower than it was expected. There was a pre tax profit margin of 6.7 percent. Current ratio of the company 2.8 which means that company has current assets of 2.8 time's current liabilities. But the problem with General Electric has always been managing its current asset. As we have mentioned in the financial summary part of this project that General Electric has a poor asset management and because of this there are various problems that company has to face like backing of the investors by investing in the company which is making share price of the company low.
General Electric has a quick ratio of 2.7. This means that the company is having money in their hand which is 2.7 times that of the current liability in the market. As we have explained in the financial summary of the project that cash in hand or liquidity has always been strength of General Electric. GE has a total liquidity of 8.5 Billion $ and it has an arrangement of 56 Billion $ within the market in terms of cash and other equivalents. However company is having low efficiency in the asset management of the company, still the company has a wonderful record in the management of liquidity. However company is not having much cash in hand but the brand or the market value of the company is so nice that there are many companies or lenders who are ready to give their money to the company. This is very well shown by the fact that company is a Triple A Grade Company.
Company has a leverage Ratio of 6.7 which means that GE is picking up huge amount of money from the market for the investment in the desired activities. This is supported by the above fact that we have described that company has a very good market value.
Working Capital per share of General Electric is $ 29 which means that company has a degraded value of stock at present and from the above analysis we also got to know that the fixed capital for the company is much better than its working capital. This means total capital budgeting of the company is nice because strength of fixed capital over powers the weakness of working capital
Report 2: Price Earning Ratios
Analysis of Report 2
From the above report we can have the following analysis:
Current price to earning ratio is 16.2 which mean that price paid for the share by the company is around six times more than the profit from that particular share.
Till the last of the year the price to earning ratio of the stocks of the company increased
We can see from the above report that price to earning ratio of the company is continuously increasing from the last 12 months. This means that company is coming out of the recession effects
Comparison with Competitors
Report3: Direct Competitors Comparison
(General Electric Co. (GE): Competitors, 2010)
Analysis of Report 3
We can see from our above Report 3: Direct Competitors Comparison there are mainly 12 issues in which we are comparing General Electric with three of its main competitors, Citigroup Inc, Koninklijke Philips Electronics NV and Siemens AG. We now begin with our financial comparison:
Market Capture of General Electric is more than that of all the three companies who are its main competitors. This gives an edge to the company to take few risky decisions as well in order to accomplish its capital budgeting requirement over any of its competitors. (General Electric Company-Finance and strategic analysis, 2010)
Among the four companies, General Electric has maximum number of employees but in case of comparison with Citigroup Inc. it is not much more but market capture is almost double. This means that General Electric is performing much better than Citigroup Inc.
We can see from the third parameter that quarterly revenue growth for the last quarter for all the firms is negative; this date is provided for the year 2009. This negative term may be identified as a result of recession over the companies but as far as the comparison of General Electric from all its competitors are concerned this company has a higher negative value which means that company was in greater fall than its competitors in the last quarter of the year 2009 (Bloomberg, 2010)
Total Revenue generated for General Electric is far more than Citigroup Inc. This is quite reasonable for the case of comparison between General Electric and other two competitors except Citigroup but Citigroup is a much larger firm but its revenue generation is not up to the mark. This suggests that General Electric has generated considerable revenue in the year 2009 but in the last quarter it had a considerable fall.
We can see from the above report that General Electric has a big gross margin of 32% but if we compare this date with its competitors, they all have the same rate of gross margin and in fact Koninklijke Philips Electronics NV has greater gross margin than General Electric of 35%. This similarity in the gross margin suggests that there is an equality of prices for the companies. (Financial Analysis of General Electric, 2010)
Operating margin is the ratio of operating income which is earning before interest and taxes and total revenue. We can see from the above report that General Electric has higher operating margin as compared to its competitors this means that General Electric has a higher earning
Net income of Citigroup Inc. is in negative and we can see that net income of General Electric is over 10 Billion $. This means that as we compare the net income generated by the companies, in the year 2009, we can conclude that it was not at all a good year for electric companies but still General Electric has generated a decent amount of net income which is quite impressive.
As obvious earning per share of the competitors are negative as their net earning was negative but earning per share of General Electric is not that much high as compare to its past performances. We can directly relate this to the fact that world was going through recession in the year 2009 and the same was the effect on this company as well.
Price per earning of General Electric is 16.4 and we can see that in the next five year, there is an expected growth of 1.83 times in price per earning of the company which is quite a good growth rate. We can conclude this fact by saying that it would be an after recession gets over impact when there will be a good increase in the financial condition of the company. This expected growth is much more than that of the competitors which means that General Electric is going to come out of this recession effect very fast.
Conclusion
We can conclude from our above analysis that General Electric is one of the finest electric companies of the world but in spite of this fact the company is having a poor efficiency in the management of assets of the company. This is the major drawback of the company which can lead to some of the serious problems in the future.
We have also seen from our analysis that General Electric because of wonderful brand value in the market maintains a very nice liquidity. This is one of the biggest achievements of the company that it maintains around 9 time's cash from the market than it original has.
Another conclusion that we can make from the above analysis is that the company is maintaining a nice value of price per earning of the stock which means but this nice value has come at the last of the year 2009. Earlier the value had gone really down. This shows that recession effects are getting over.
Recommendations
There is only one recommendation that I would like to give about General Electric Company that this is one of the finest companies in the world and it is ranked fifth by volume in US according to Bloomberg, but still company has a bad asset management. hence I would like to recommend that company should focus on the capital asset management so that I future there will much better profits as customers would not even think of taking their investment back
Another Recommendation for the company would be that along with the fixed capital, company should more concentrate over its working capital so as to improve capital budgeting of GE.
