General Electric Company (GE) is a diversified technology, media and financial services company. With products and services ranging from aircrafts engines, power generation, water processing and security technology to medical imaging, business and consumer financing, media content and industrial products, it serves in more than 100 countries. This analysis will use financial ratios to see just how GE is performing as a Fortune 500 company.
The first thing to analyze is GE’s capacity to pay its debts as they come due or in other words its liquidity. GE consolidated liquidity position is adequate. GE’s liquidity is supported both by the firm’s consistent earnings track record and its ability to quickly divest business or assets to fit its strategic goals. Consolidated cash and equivalents were $8.3 billion. On a consolidated basis GE had a total of around $56 billion of contractually committed lending arrangements as well as numerous other sources of liquidity. General Electric, a triple-A rated, frequent borrower, is in a stable position with regards to liquidity. Its issuance policy is not based on market outlook but rather on a planned program of issuance to support its ongoing financial businesses and its addition of assets.
The next thing to analyze is the way GE is managing its assets. If you look at the numbers GE as a company has a 3.01 return on assets, while the industry has 6.10 return on assets. It seems that GE is not very efficient in converting its investments into profits. For example a short-term bond fund run by General Electric Co.'s GE Asset Management returned money to investors at 96 cents on the dollar after losing about $200 million, mostly on mortgage-backed securities (1). The GEAM Trust Enhanced Cash Trust, a short-term bond fund with about $5 billion in assets, told non-GE investors that they could withdraw their money before losses mounted. Enhanced cash funds usually offer higher yields than money- market funds by investing in riskier assets. I believe that GE should spin off its assets to boost its return on assets and its stock price. Its size and complexity is working against investor interest in the stock and has contributed to further appraisal erosion. GE's complex structure has been a distraction and that spinning off the units would create a more focused company that investors could more easily understand.
GE’s finical leverage rating has been downgraded by many analysts, but yet is still stable and proficient. The downgrade is based on actions reflect increased uncertainty as to GE's longer-term commitment to the reinsurance business in general. Despite over $2.4 billion in capital infusions from GE over the past two years and significant utilization of third-party aggregate stop-loss reinsurance protection, the group's overall risk-adjusted capitalization has deteriorated to a level that is no longer supportive of a Superior rating (2). GE Global financial leverage--debt as a percent of total adjusted capital--was 19.2% and more than adequately supports its current debt rating (3). While statutory dividend capacity and coverage of fixed charges have been weak in recent years, the expectation is that these debt service coverage’s will improve in the medium term as the insurance subsidiaries begin to re-generate surplus from earnings.
GE has experienced an increase in net income, revenue growth, notable return on equity and expanding profit margins. These strengths are expected to outweigh the company’s generally poor debt management. Third-quarter profit increased 14% to $5.54 billion, while EPS increased 8.7% 54 cents a share. GE has demonstrated a pattern of positive EPS growth over the past two years, and this trend is expected to continue. Revenue rose 12% to $42.5 billion, short of the industry average of 14.7%. The company recently forecast 2008 earnings growth of at least 10%. Debt management combined with liquidity and asset management has a profound effect on GE...
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