ACCOUNTI

NG

Group project

ancial Statement analysis: General Electric Company

Members Group :

CONTENT

Overview
Horizontal Analysis
Vertical Analysis
Benchmark
Financial ratios
Conclusion
Learning point

OVERVIEW
Founded: In 1892 by merger of Edison General
Electric and Thomson-Houston Company.
Products:
Appliances,
Aviation,
Consumer
electronics,
Electrical
distribution,
Energy
Entertainment, Finance, Gas, Healthcare, Lighting,
Locomotives, Oil, Software, Water, Weapons .
Subsidiaries:
GE
Energy,
GE
Technology
infrastructure, GE Capital, NBC Universal, GE Home
and Business Solutions.
Industry: Conglomerate

HORIZONTAL ANALYSIS: BALANCE SHEET

GENERAL ELECTRIC
December 31, 2009 and 2008 (In millions of USD)

2009

Assets
Current assets:
Property, plant and equipment
All other assets

Liabilities
Current liabilities:
Long-term liabilities

Stockholder's equity
Common stock

2008 Amou Percent

nt
age
781,81 797,76 (15,95
8
9
1) (2.00)%
496,055 503,325 (7,270) (1.44)%
69,212 78,530 (9,318)(11.87)%
216,551 215,914
637 0.30%

656,68 684,15 (27,47

2
7
5) (4.02)%
(39,500
179,476 218,976
)(18.04)%
477,206 465,18112,025 5.61%

125,13 113,61
6
211,524 10.14%
702
702
0 0.00%

Accumulated other comprehensive income - (15,265(21,853

net:
))

6,588 (30.15)%

HORIZONTAL ANALYSIS: INCOME STATEMENT

GENERAL ELECTRIC
Year Ended December 31, 2009 and 2008 (In millions of USD)

2009

Total revenue
Costs of goods and services sold:
Gross Profit
Operating and other expenses:
EBIT
Interest and other financial charges
Income (loss) from continuing operations
before income taxes
Benefit (provision) for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss)
Less net income attributable to noncontrolling
interests
Net Income attributable to the Company

200 Amoun Percenta

ge
8
t
156,78 182,51 (25,732
3
5
) (14.10)%
75,921 83,772 (7,851) (9.37)%
(17,881
80,862 98,743
) (18.11)%
51,749 52,752 (1,003) (1.90)%
(16,878
29,113 45,991
) (36.70)%
18,769 26,209 (7,440) (28.39)%
10,344 19,782 (9,438) (47.71)%
1,090 (1,052)

11,434 18,730 (7,296) (38.95)%

(193) (679)

11,241 18,051 (6,810) (37.73)%

216
641

11,025 17,410 (6,385) (36.67)%

HORIZONTAL ANALYSIS: INCOME STATEMENT

2008 2007
182,51 172,48
Revenue
156,783
5
8
Gross profit 80,862 98,743 99,363
Net
income
11,241 18,051 23,124

350,000
300,000
250,000
200,000

2009

150,000
100,000

Net
income
Gross
profit

50,000
0
2009

2008

2007

In a general picture, GE's business performance in 2009 presented

a great decrease compared to year 2008. All the numbers are
decreased, including revenue, gross profit and net income. Total
revenue decreased 14%, gross profit decreased 18%, net income
decreased 38%. One of the reason might be the economic
degradation in 2009.

VERTICAL ANALYSIS: BALANCE SHEET

GENERAL ELECTRIC
December 31, 2009 and 2008 (In millions of USD)

2009

Assets
Current assets:
Property, plant and equipment
All other assets

Liabilities
Current liabilities:
Long-term liabilities

Stockholder's equity

2008

Amoun Percent Amou Percent

t
age
nt
age
797,76
781,818
100%
9
100%
503,32
496,055 63.45%
5 63.09%
69,212 8.85% 78,530 9.84%
215,91
216,551 27.70%
4 27.06%

684,15
656,682 83.99%
7 85.76%
218,97
179,476 22.96%
6 27.45%
465,18
477,206 61.04%
1 58.31%

113,61
125,136 16.01%
2 14.24%

VERTICAL ANALYSIS: BALANCE SHEET

2009

2008

Total current assets; 36%

Total current assets; 37%

Total liabilities; 49%

Total current liabilities; 13%

Total liabilities; 49%

Total current liabilities; 16%

1. Liquidity position of the company is good since total current

assets always exceeded far from total current liabilities
2. Long-term liabilities is high, the company seems to invest
in expanding its operation for a long-term

VERTICAL ANALYSIS: INCOME STATEMENT

GENERAL ELECTRIC
Year Ended December 31, 2009 and 2008 (In millions of USD)
2009

2008

Amount Percentage

Total revenue
Costs of goods and services sold:
Gross Profit
Operating and other expenses:
EBIT
Interest and other financial charges
Income (loss) from continuing operations before income taxes

Amount

Percentage

156,783
75,921
80,862
51,749
29,113
18,769
10,344

100.00% 182,515
48.42% 83,772
51.58%
98,743
33.01% 52,752
18.57%
45,991
11.97%
26,209
6.60%
19,782

100.00%
45.90%
54.10%
28.90%
25.20%
14.36%
10.84%

Benefit (provision) for income taxes

Income (loss) from continuing operations

1,090
11,434

7.29%

(1,052)
18,730

10.26%

Loss from discontinued operations, net of taxes

Net income (loss)

(193)
11,241

7.17%

(679)
18,051

9.89%

Less net income attributable to noncontrolling interests

Net Income attributable to the Company

216
11,025

7.03%

641
17,410

9.54%

Preferred stock dividends declared

Net Income attributable to GE common shareowners

(300)
10,725

6.84%

(75)
17,335

9.50%

VERTICAL ANALYSIS: INCOME STATEMENT

Gross profit
Cost of goods and services sold
Operating and other expenses
Net income

2009
51.58%
48.42%
33.01%
7.17%

2008
54.10%
45.90%
28.90%
9.89%

2007
57.61%
42.39%
27.87%
13.41%

70.00%
60.00%
50.00%

Gross profit

40.00%

Cost of goods and services

sold

30.00%

Operating and other

expenses

20.00%

Net income

10.00%
0.00%
2009

2008

2007

Gross profit and net income decreased year to year,

due to increase in COGS (and COSS) and operating
and other expenses. The company seems NOT to be a
good performer in long-term.

BENCHMARK
Year 2009
Total revenue
Cost of goods and services sold
Gross profit
Operating and other expenses
Income before income tax
Net income

GE
Net income; 7%

GE
100.00%
48.42%
51.58%
44.98%
6.60%
7.17%

Siemens
100.00%
72.98%
27.02%
21.94%
5.08%
3.26%

Siemens
Net income; 3%
Operating and other expenses; 22%

Cost of goods and services sold; 48%

Operating and other expenses; 45%
Cost of goods and services sold; 74%

Gross profit of GE looks much better than Siemens in comparison

with gross profit but net income doesn't make much different. It's
because GE wasn't very efficient in operating (in comparison with
Siemens). Operating and other expenses of GE is more than double

FINANCIAL RATIOS
GENERAL ELECTRIC
Liquidity ratios
Working capital

Industry
average

2009

2008

GE
Chart
Rank

316,579 284,349

Current ratio
1.1
2.76
2.30
Good because it's likely double the industry average in years, indicates a very strong
financial position and the liquid assets are sufficient to maintain normal business
operations. Creditors might have no worries if they lend money to GE.
Quick ratio
0.8
0.78
0.51
Not very good because the company's quick ratio improved considerably year by year
but it's still lower than the industry average. Also, normal acceptable ratio should be 1.
However, ratio of 2009 is almost the industry average and it seems that there is no
problem with these ratios of the company, especially in considering strong financial
position shown by current ratios above.

FINANCIAL RATIOS
GENERAL ELECTRIC
Profitability ratios

Industry
average

2009

2008

GE
Chart
Rank

Not in
51.58% 54.10% Top 100

Gross margin
47.03%
So far so good: Although the company was not in top 100, its ratio is higher than the
industry average. It indicates that the company did better than the average of the industry
in terms of profitability.
Operating margin
15.69% 18.57% 25.20% 93th
Good: The company ratio is higher than the industry average, indicates that the business
run well from an operational standpoint and has less financial risk because the company
is able to pay for its fixed cost, such as interest on debt.
Net margin
8.93%
7.17% 9.89% 67th
Not very good: The company ratio is around the industry average. It did better in 2008
but it was less successful than the average in 2009. We may say that economic recession
in 2009 affected all the companies, but it seems that it affected GE more.

FINANCIAL RATIOS
GENERAL ELECTRIC
Profitability ratios (cont.)

Industry
average

Return on assets (or rate of return on total

assets)

4.30%

2009

2008

1.42%

GE
Chart
Rank
22nd

Bad: The company ratio is much lower compared to the industry average. Based on the number
calculated, it did not use its assets to earn profit very well in 2009. One of the reason could be
economic recession. Decrease in demands in 2009 could affect bigger companies more because their
assets were likely unchanged. However, GE was at 22nd among the players, indicated that many
players didn't do well in this hard time.

Return on equity (or rate of return on common

stockholder's equity)

12.97%

9.66%

41/173

Behind the scene, it could be bad: The company ratio is lower than but not very far from industry
average. The company ranked at 41st among players, indicates that it still did better than many
players. But observe that ROA of the company is much lower. Using du pont analysis, this difference
could result from financing operations with debt, called "trading on the equity" or "leverage" practice.
It's proven by the fact that debt ratio of the company is very high (more than double of the industry
average) and the company didn't even rank in the top 100.

Earnings per share (EPS)

NA

1.01

1.72

Bad: In 2009, the company's EPS decreased 41%, indicates that business didn't perform very well in
general. Again, 2009 is economic degradation time, so it's understandable. For shareholders, it could
be a bad time, but for investors, it could be a good time to buy the stocks and wait for its increase in
long-term.

FINANCIAL RATIOS
GENERAL ELECTRIC
Asset Utilization ratios

Industry
average

2009

2008

GE
Chart
Rank

Inventory turnover
4.50
3.94
43rd
Not very good: The company's inventory turnover ratio is lower than but not very far from
industry average. It indicates a little difficulty in selling its inventory. A company's turning of
inventory much slower than the industry average might be an indication that there is
excessive old inventory on hand which would tie up their cash.
Inventory days

81.11

92.59

43rd

Account receivable turnover

3.47
0.41
8th
Not very good: The company's ratio is very low compared to the industry average but it's
ranked 8th among players. It indicates that the business is not very successful in
collecting cash, but it was the common problem among players. Again, 2009 is economic
degradation time, so it's understandable. However, because the industry average is much
higher than the one of the company, top players of the industry were doing well on this,
and it would be a challenge for the company if it wants to be at the leading position among
players in a long run.

FINANCIAL RATIOS
GENERAL ELECTRIC
Asset Utilization ratios (cont.)

Industry
average

2009

2008

GE
Chart
Rank

Days' sales in receivables

105.19
884.53
8th
Bad: As mentioned for account receivable turnover, the problem was common among
players. BUT 885 days or almost 3 years is really a long time to collect cash. The industry
average is only 105 days or about 3-4 months. The company's cash position might not
healthy in a long run if it takes to long to collect cash.
Days sales outstanding
837.79 799.97
Bad: This calculation is similar to days' sales in receivables, but it uses ending A/P
instead of average A/P. The calculations show that in 2008, the company had a similar
situation even though it was a little bit better.
Days payable outstanding
150.42 161.50
Not very good: DPO of the company is likely high, the company would have a good cash
position, but its vendors would likely be less happy. Comparing with DSO of the company,
DPO of the company is much lower, indicates that the company's cash position might not
remain healthy in a long run.
Total asset turnover

0.54

0.20

8th

Not very good: The company ratio is low compared to the industry average. Applied du pont analysis,
net profit margin of the company is around the industry average, but this asset turnover ratio is low,
results in low ROA. As mentioned, the company did not use its assets to earn profit very well in 2009.
GE was at 8th among the players, indicated that it was the common problem of many players.

FINANCIAL RATIOS
GENERAL ELECTRIC
Debt utilization ratios

Industry
average

2009

2008

GE
Chart
Rank
Not in

Debt ratio
39.42% 83.99% 85.76% Top 100
Very bad: The company ratio is really high, more than double of the industry average,
indicates that the company was in a very bad debt position. As mentioned, this could be a
"leverage" practice to gain high ROE. Leverage is a double-edged sword, increasing
profits during good times but compounding losses during bad times.

Stock performance ratios

Dividend Yield (annual)
2.51%
3.00%
2/173
Very good: Ranked at the second place, only after industry leader CLX, this seems to be
a very good news to shareholders of the company.
Price per earnings (P/E)
12.99
14.98
Higher than the industry average because Dividend Yield is very high.

CONCLUSION
1. Year 2009 is when economic degradation affected a lot on companies' business
including GE. GE's business performance in 2009 presented a great decrease
compared to year 2008 in terms of revenue, gross profit and net income. But for
investors, it could be a good time to make a long-term investment.
2. GE stayed strong in financial position as the liquid assets were sufficient to
maintain normal business operations. This is a good sign for creditors/bankers.
However, debt ratio is high and lenders would have to be careful to evaluate the
risk of loaning funds to the business.
3. In terms of asset utilization and efficiency, it didn't do very well. In a long run,
COGS and gross profit of players in the industry will likely be the same, thus GE
should pay attention to improve its efficiency and reduce operating costs over
long-term or it must make a difference to be competitive. Shareholders of the
company might have a reason to be worried about the company future.
4. GE's business performed likely okay, as ROE of the company is around the
industry average. But ROA of the company is really low, that could result from
financing operations with debt by "leverage" practice. It's proven by the fact that
debt ratio of the company is very high. Leverage practice would be a doubleedged sword.

LEARNING POINTS
1. By doing a careful analysis, compare the performance of company
with itself and with other competitors, financial numbers can show the
connection between activities and performance and reveal a lot. It
gives shareholders, investors, creditors ... some indicators to make
decisions related to the company's business.
2. Comparison might be inaccurate sometimes because industry
average may not be desirable base to compare to in case only few top
players perform excellently while most of the other perform very bad.
In those cases, company rank among the players in the industry can
be another useful indicator.
3. However, financial numbers have some limitation because accounting
practices differ across firms, some external environment conditions
such as economic recession, seasonality, culture difference ... might
distort the comparison result. A firms industry category is also difficult
to identify sometimes. Conglomerates is an example: percentage of
each industry that "conglomerates" firms invest in could be different.

THANK
YOU!
Q&A