Important Costs To A Company And Investors example essay topic

General Electric is a diversified technology and services company dedicated to creating products that make life better -- from aircraft engines and power generation to financial services, medical imaging, television programming and plastics. GE was formed in 1892 from a merger of two electric companies. Today, GE operates in more than 100 countries and employs more than 300,000 people worldwide. Since 2000 Jeffrey F. Im melt has been Chairman of the Board and CEO of General Electric Company. The home office is in Fairfield, Connecticut. Also, the ending date of the last fiscal year was Dec. 31st, 2001.

All of this information can be found at the company's website: web Letter to the Stockholders Despite a hard year due to September 11th, GE has grown. Earnings have set a new record with 11% growth to almost $14 billion; along with an 11% increase in earnings per share. GE has increased dividends by 13% in December, despite being called a "growth company". They have also repurchased $3.1 billion of their own stock and overall $9.5 billion was returned to the share owners. The recent economic slowdown had an impact on GE's short-cycle business such as plastics, lighting, and appliances. However, GE's long-cycle business and GE capital, which together contributed to more than 75% of GE's revenues, expanded.

In particular, the Power Systems contributed business because of GE's global leadership in gas turbine technology research and development. GE has 41% of its sales outside the U.S., and wishes to continue global growth. Report of Independent Auditor KPMG LLP has audited the financial position of General Electric Company and consolidated affiliates as of December 31, 2001. The audit included examining evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. KPMG LLP had stated that General Electric has fairly presented the financial position of GE and consolidated affiliates at Dec. 31, 2001, and the results of their operations and their cash flows, in conformity with accounting principles generally accepted in the United States of America. Income Statement or Statement of Operations For the year ended December 31, 2001, GE reported revenues of $125,913,000,000 on their income statement.

The company also reported costs and expenses of $106,212,000,000, making their net earnings have a grand total of $13,684,000 after provisions for taxes. The differences between 2001, 2000, and 1999 are illustrated in the graph above. When comparing the two years, it becomes clear that despite having an economically hard year, GE managed to actually improve upon its performance in 2001. Like most companies, GE slipped a bit in revenues, but made up for the difference (unlike many companies did in the past year) by cutting costs. Perhaps this demonstrates the importance of accountants to be constantly reviewing the company's performance? Overall, both years improved upon the performance in 1999, demonstrating the fact that GE continues to grow.

Also, earnings per share were reported as $1.38 "after accounting changes" and the income statement lists dividends as $. 66 per share. Since Cost of Goods Sold is reported as $35,678,000,000, gross margin (revenue minus cost of goods sold) can be calculated to be $90,235,000,000. Balance Sheet In 2000, GE reported total assets as $495,023,000,000.

Total liabilities were $440,199,000,000 and total equity $54,824,000,000 (which obviously totals the amount of assets). The graph below depicts the growth of 2001 over 2000. While total equity stayed almost the same between the years, total assets and total liabilities grew, obviously at about the same amount, in order to even out through the equation total assets = total liabilities + total equity. Such growth in liabilities would be expected to go along with growth in total assets; the company most likely to took out loans, etc. to pay for their new assets.

Statement of Cash flows Cash from operating activities was reported as $32,195,000,000, from investing activities was $ (40,114,000,000) and financing activities was $9,082,000,000. Thus, the net cash flow for the year was $887,000,000, and since beginning cash was reported as $8,195,000,000, ending cash for the year was $9,082,000,000. In general, the company is most likely using cash from operations and from borrowing to expand the business. In comparison to the two previous years, operating activities grew, investing activities placed in the middle of 2000 and 1999, and financing activities was slightly above 1999, but much lower (almost half) of 2000). This information is detailed in the graph below.

Perhaps GE is using their cash from operations to pay down debt or pay owners. The ending cash balances grew considerably from 2000 and 1999 as detailed in the next graph. Statement of Retained Earnings or Stockholder's Equity The balance of retained earnings on January 1, 2001 was reported as $50,492,000,000. After a dividend payout totaling $ (7,529,000,000) and transactions other than dividends of $11,861,000,000, the ending balance of retained earnings at December 31, 2001 can be calculated to be $54,824,000,000. This is an increase over the previous two years, which were reported at $50,492,000,000 and $42,557,000,000 respectively. What is extremely interesting about this growth is that even though the balance of retained earnings is increasing each year (for these respective years), the total payout of dividends is also going up, along with the dividends declared per share.

Financial Ratios A. Current Ratio: 128,254 = 0.84 153,076 The current liabilities used were: short-term borrowing notes, accounts payable, progress collections and price adjustments accrued dividends payable, and all other current costs and expenses. General Electric has a low current ratio and cannot cover its current liabilities with its current assets. Their liquidity is very low. This might be because of some of its subsidiaries, especially because of the financing branch. B. Debt Ratio 439,984 = 88.8% 495,023 This debt ratio is telling us that General Electric has borrowed a lot. The high level of borrowing stems from one of its subsidiaries, GE Capital Services, which is a financing institution. Investors shouldn't be worried about this. C. Return on Equity 13,684 = 24.9% 54,824 General Electric's return on investment was 24.9%, which means that for every dollar invested they had a 24.9 cents profit, which is very good for investors. D. Price Earning Ratio 26 = 18.84 1.38 High PE ratios are associated with firms for which strong growth is predicted in the future.

GE's PE ratio is a good one. It shows it is a well-established company. Notes to Financial Statement In the first note, summary of significant accounting policies, they explain which companies are parts of GE, and under what criteria this is assumed. An explanation of the statement structure regarding the different subsidiaries represented is given. It is important for the investors to know this information because it will make their understanding of the financial statement easier. In the second financial note, sources for income other than from sales is explained.

It is important for investors to be aware of this information because they need to understand which other activities will affect the company's performance. Important transactions are noted on this part, such as the gain from a transaction performed by NBC in 1999. Note 4, supplemental cost information, details how much was spent on activities not directly related to operations, such as financing leases, investment, and premium and commissions. It is important that investors know that these cost also affect a company's performance.

Another note that is important for investors is note 5, retiree health and life benefits, because GE and its affiliates sponsor a number of retiree health and life insurance benefit plans. Employment benefits are often important costs to a company, and investors should be aware of them. Additional Information Other additional information that investors should keep in mind when deciding whether to invest in a company or not are the accounting methods used, historical performance of the company, risk factors, dividends paid to investors, and shares outstanding. GE prepares its statements in conformity with GAAP. In addition, their statements are consolidated, including all of GE and its subsidiaries. Risk factors that affect GE performance are exchange rates, since 41% of GE income comes from international operations.

Another risk factor is the interest rate. Historically, GE has always performed well. Moreover, it has a history of 26 years of paying dividends to its investors. It is also one of the original Dow-Jones stocks, and it is still used to date to compute that index. There are 9.938 shares outstanding. Conclusion In conclusion, as an investor, we would invest in GE.

Not only does it rank sixth as a Fortune 500 company, but also the ratios calculated here and the information summarized show why it is such a good company to invest in. It has been around long enough to consolidate itself and its subsidiaries as the best in the areas they compete, and its financial position is secure. Dividends are paid out to investors, making it yet more attractive. All in all, it is a great company to invest in.