Annual Report
General Electric
Wen Chen
Summer 2013
Entire Directory:
http://www.ge.com/ar2012/#!report=home
2012 Annual Report:
http://www.ge.com/ar2012/pdf/GE_AR12.pdf
Introduction
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Name of chief executive officer: Jeffrey R. Immelt
Location of home office: Fairfield, CT, United States
Ending date of latest fiscal year: Dec 30
Description of the principal products or services that the company
provides:
General Electric, or GE, is an American multinational
conglomerate corporation that provides the following products and
services:
Appliances for Business, Appliances for Consumers, Aviation, Capital,
Consumer Electronics, Critical Power, Energy Management,
Healthcare, Home Improvement, Housewares, Industrial Solutions,
Intelligent Platforms, Lighting for Business, Lighting for Consumers,
Mining, Oil & Gas, Personal Healthcare, Power & Water, Software,
Transportation
 Main geographic area of activity:
U.S. , Europe, Pacific Basin, Americas and Middle East and Africa
Introduction
 Summary:
“GE {NYSE: GE} works on things that matter. The best
people and the best technologies taking on the toughest
challenges. Finding solutions in energy, health and home,
transportation and finance. Building, powering, moving and
curing the world. Not just imagining. Doing. GE works.”
-- http://www.ge.com
Audit Report
 Independent auditors: KPMG LLP
 Auditors’ opinions about the company:
In the 2012 annual report of GE, KPMG LLP stated that:
GE maintained effective internal control over financial
reporting. The consolidated financial statements and the
Summary of Operating Segments table present fairly the
financial position of GE and the results of its operations and its
cash flows for each of the years in the three –year period ended
December 31, 2012.
Stock Market Information
 Most recent price of the company’s stock: $23.64
 Twelve month trading range of the company’s stock:
$18.82- $23.32
 Dividend per share: $0.19 per quarter
 Date of the above information: 06/03/2013
 My opinion about the company stock as an investment?
BUY/SELL/HOLD
I should hold.
Income Statement
(All numbers in thousands)
Income Statement
 The format is most like a multi-step format.
 From 2011 to 2012:
Gross Profit: decreases by 7.6 %
Income from operations: decreases by 13.95 %
Net Income: decreases by 3.60 %
Net Income Applicable to Common Share:
increases by 3.97 %
The rise in Net Income Applicable to Common Share is bigger
than the fall in Net Income. There is a possibility that GE has pushed
to issue a certain amount of new stock, which raised total money at
work in the business but profits decreases. Indeed, this is a horrible
return regarding the decision of Board of Directors.
Balance Sheet
Balance Sheet
Balance Sheet
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Total assets: decreases by 4.58 %
Total liabilities and equity: decreases by 4.58 %
Total Liabilities: decreases by 7.20 %
Total GE shareowners' equity: increases by 5.66 %
Based on the above data, total liabilities changed the most
from 2011 to 2012. Since revenue goes up and both assets as
well as liabilities decreases, GE was more likely to sell
products and then paid off debts during this period. This is a
good indicator for a company’s well-being in sales.
Statement of Cash Flows
Statement of Cash Flows
Statement of Cash Flows
 Cash flows from operations are more than net income
for the past two years.
 The company is not growing through investing
activities since the cash flows from investing actually
decreased for the past two years.
 The company’s primary source of financing is
Repayments and other reductions (maturities longer
than 90 days) which is Long-term Loans.
 Overall, cash has decreased over the past two years.
Accounting Policies
(significant accounting policies)
•
Revenue Recognition:
GECS Revenues from Services (Earned Income):
Using interest method to recognize income on loans;
Resuming accruing interest on nonaccrual, non-restructured commercial loans
only when (a) payments are brought current according to the loan’s original terms and
(b) future payments are reasonably assured;
Recognizing financing lease income on the interest method to produce a level
yield on funds not yet recovered
Recognizing operating lease income on a straight-line basis over the terms of
underlying leases
Recording fees (include commitment fees related to loans that we do not expect
to fund and line-of-credit fees) in earned income on a straight-line basis over the period
to which they relate
Accounting Policies
(significant accounting policies)
•
Revenue Recognition:
Sales of Goods and Services:
Recording all sales of goods and services only when a firm sales agreement is in
place, delivery has occurred or services have been rendered and collectability of the fixed
or determinable sales price is reasonably assured.
Accounting Policies
(significant accounting policies)
•
Cash (Cash and Equivalents) :
Debt securities and money market instruments with original maturities of three
months or less are included in cash equivalents unless designated as available-for-sale
and classified as investment securities
• Accounts Receivable (Losses on Financing Receivables):
Losses on financing receivables are recognized when they are incurred. The method for
calculating the best estimate of losses depends on the size, type and risk
characteristics of the related financing receivable.
• Inventories:
All inventories are stated at the lower of cost or realizable values
• Investments (Investment Securities):
Reporting investments in debt and marketable equity securities, and certain other
equity securities, at fair value (Unrealized gains and losses on available-for-sale
investment securities are included in shareowners’ equity, net of applicable taxes and
other adjustments)
• Property and Equipment (Depreciation and Amortization) :
Accounting Policies
(significant accounting policies)
•
Property and Equipment (Depreciation and Amortization) :
The cost of GE manufacturing plant and equipment is depreciated over its
estimated economic life. U.S. assets are depreciated using an accelerated method
based on a sum-of-the-years digits formula; non-U.S. assets are generally depreciated
on a straight-line basis.
The cost of GECC equipment leased to others on operating leases is depreciated on
a straight-line basis to estimated residual value over the lease term or over the
estimated economic life of the equipment.
The cost of GECC acquired real estate investments is depreciated on a straight-line
basis to the estimated salvage value over the expected useful life or the estimated
proceeds upon sale of the investment at the end of the expected holding period if that
approach produces a higher measure of depreciation expense.
The cost of individually significant customer relationships is amortized in
proportion to estimated total related sales; cost of other intangible assets is generally
amortized on a straight-line basis over the asset’s estimated economic life.
Accounting Policies
(Topics of the notes to the financial statements)
• Note 1: Summary of Significant Accounting Policies
• Note 2: Assets and Liabilities of Businesses Held for Sale and Discontinued
Operations
• Note 3: Investment Securities
• Note 4: Current Receivables
• Note 5: Inventories
• Note 6: GECS Financing Receivables and Allowance for Losses on Financing
Receivables
• Note 7: Property, Plant and Equipment
• Note 8: Goodwill and Other Intangible Assets
• Note 9: All Other Assets
• Note 10: Borrowings and Bank Deposits
Accounting Policies
(Topics of the notes to the financial statements)
• Note 11: GECS Investment Contracts, Insurance Liabilities and Insurance
Annuity Benefits
• Note 12: Postretirement Benefit Plans
• Note 13: All Other Liabilities
• Note 14: Income Taxes
• Note 15: Shareowners’ Equity
• Note 16: Other Stock-Related Information
• Note 17: Other Income
• Note 18: GECS Revenues from Services
• Note 19: Supplemental Cost Information
• Note 20: Earnings Per Share Information
Accounting Policies
(Topics of the notes to the financial statements)
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Note 21: Fair Value Measurements
Note 22: Financial Instruments
Note 23: Supplemental Information about the Credit Quality of Financing
Receivables and Allowance for Losses on Financing Receivables
Note 24: Variable Interest Entities
Note 25: Commitments and Guarantees
Note 26: Supplemental Cash Flows Information
Note 27: Intercompany Transactions
Note 28: Operating Segments
Note 29: Quarterly Information (Unaudited)
Financial Analysis
Liquidity Ratios
For the past two years:
 Working Capital: Current Assets- Current Liabilities
2011: $ 453,624 M - $ 254,326 M = $ 199. 298 M
2012: $428. 729 M - $ 221. 403 M = $ 207. 326 M
Comment: Working Capital increases; current liabilities decreases faster
than current assets; GE purchased more products and managed to sell them pretty
well and paid off more debts afterwards, which means that the profit made from
sales is greater than debts. It is a good turnout. Thus the whole company is in a
healthy state and expanding.
 Current Ratio: Current Assets / Current Liabilities
2011: $ 453. 624 M / $ 254. 326 M = 1.78
2012: $428. 729 M / $ 221. 403 M = 1.94
Comment: Current ratio increases and both are bigger than one; current
assets overall exceeds current liabilities in the past two years; GE purchased more
products than the amount of debts it should pay off, which means GE is
developing and has the ability to pay short- term obligations and the ability is
increasing.
Financial Analysis
Liquidity Ratios
For the past two years:
 Receivables turnover: Net Sales / Average Accounts Receivable
2011: $ 95,036 M / $ 11,807 M = 8.05
2012: $100,875 M / $ 10,872 M = 9.28
Comment: Receivable turnover increases; the revenue every assets can produce
is increasing. GE’s effectiveness in using its assets increases; it could be possible that
there is a huge possibility that GE has developed new technologies to utilize assets
more efficiently than before. It could also be possible that certain change in policy
management has improved using resources of the company.
 Average days’ sales uncollected: 365 / Receivable turnover
2011: 365 / 8.05 = 45 days
2012: 365 / 9.28 = 40 days
Comment: Average days’ sales uncollected decreases; average collection period
is shorter which means that the amount of the time that GE collets cash from customers
becomes shorter. There are two possible reasons: 1. more customers are doing better
and thus have the abilities to pay GE on time or even before deadline 2. GE has
improved the system of collecting accounts receivables from customers or issued new
policy to encourage customers to pay back earlier or on time.
Financial Analysis
Liquidity Ratios
For the past two years:
 Inventory turnover: COGS / Average Inventories OR Sales/ Inventories (Here provided
Sales and Inventories)
2011: $95,036 M / $ 13,741M = 6. 92
2012: $100,875 M / $ 15,295 M = 6.60
Comment: Inventory turnover decreases; the times that GE’s inventory is sold and
replaced during a year is decreasing, which means that it takes longer for GE to sell all of its
inventory in a year now. Thus, GE’s sales state is regressing. It might because preferences
from customers change before GE realizes or the overall purchasing abilities of the whole
economy dropped.
 Average days’ inventory on hand: 365 / Inventory turnover
2011: 365 / 6.92 = 53 days
2012: 365 / 6.60 = 55 days
Comment: Average days’ inventory on hand increases; the duration for GE to sell a
certain amount of goods increases, which means that there is a longer period of time until all
inventories are sold out. Thus, GE’s sales state is regressing. It might because preferences
from customers change before GE realizes or the overall purchasing abilities of the whole
economy dropped.
Financial Analysis
Liquidity Ratios
For the past two years:
 Operating cycle:
Average days’ sales uncollected +Average days’ inventory on hand
2011: 45 + 53 = 98 days
2012: 40 + 55 = 95 days
Comment: Operating cycle decreases; although average days’ sales
uncollected decreases and average days’ inventory on hand increases, the duration
that GE receives cash becomes shorter, which means that GE is able to collect
cash from customers or debtors faster. Therefore, it can use the amount of cash
collected to pay liabilities in a faster pace.
Financial Analysis
Liquidity Ratios
For the past two years:
 Payables turnover: Net Purchases or COGS / Average Accounts Payable
2011: $ 95,036 M / $ 14,209 M = 6.69
2012: $ 100,875 M / $ 14,259 M = 7.07
Comment: Payables turnover increases; the times GE pays debts during a
year increases, which indirectly indicates that it becomes faster for GE to get cash
to pay off debts.
 Average days’ payables: 365 / Payables turnover
2011: 365 / 6.69 = 55 days
2012: 365 / 7.07 = 52 days
Comment: Average days’ payables decreases; the duration for GE to
pay off debts becomes shorter; its ability of paying off debts is increasing,
which partially means it becomes faster for GE to collect cash from
customers.
Financial Analysis
Profitability Ratios
For the past two years:
 Profit margin: Net Income / Revenue
2011: $ 14,151 M / $ 147,288 M = 9.61 %
2012: $ 13,641 M / $ 147,359 M = 9.26 %
Comment: Profit margin decreases; the amount of money out of every
dollar of sales GE keeps in earnings decreases; which means that products
sales of GE are less profitable, which is not beneficial to GE’s future
development. It might be possible that the expenses increases due to rising
cost of materials for production, labors, etc.,
 Assets turnover: Revenue / Average Total Assets
2011: $ 95,036 M / $ 225,168 M = 42. 21 %
2012: $ 100,875 M / $ 236,447 M = 42. 66 %
Comment: Asset turnover increases; the amount of sales generated for
every dollar's worth of assets increases, which means that GE has improved
in utilizing assets to generate more sales. Thus, the amount of revenue
produced from every assets increases. Yet, it is unknown if assets become
more profitable.
Financial Analysis
Profitability Ratios
For the past two years:
 Return on assets: Net Income / Average Total Assets
2011: $ 14,151M / $ 225,168 M = 6.28 %
2012: $ 13,641M / $ 236,447 M = 5.77 %
Comment: Return on assets decreases; although assets turnover increases,
which leads to rising in sales per certain amount of assets, GE’s profitability based
on its total Assets decreases. This is phenomenon is due to the fact that profit
margin decreases and therefore brings down the profitability of each sale.
 Return on equity:
Net Income / Average Total Share-holders’ Equity
2011: $ 14,151M / $116, 440 M = 12.15%
2012: $ 13,641M / $ 123, 030 M = 11.09%
Comment: Return on equity decreases; the amount of profit GE generates
with the money shareholders have invested decreases, which means the
profitability of money burrowed from shareholders decreases. This is basically
because profit margin itself drops and therefore causes the profitability of any
kinds of asset to decrease.
Financial Analysis
Market Strength Ratios
For the past two years:
 Price/earnings per share:
Market Value / Earnings per Share (EPS)
12/2011: $ 17.03/ $ 1.23 = 13.85
12/2012: $ 20.65/ $ 1.39 = 14.86
Comment: Price / Earnings per share increases; the amount of money that investors are
willing to pay per dollar of earnings increases, which is beneficial towards GE’s development
since there will be more investment supporting GE as well as a higher market price. It might
be possible that GE’s reputation among investors increases. It could also be because of ripple
effects, which means with more people buying GE’s stocks, more people are willing to
purchase them and therefore raise the average level of market price per share.
 Dividend yield:
Annual Dividends per share / Price Per Share
2011: $ 0.70 / $ 17.03 = 4.11 %
2012: $ 0.61/ $ 20.65 = 2.95 %
Comment: Dividend yield decreases; the amount that GE pays out in dividends each
year relative to its share price drops, which means it has a stronger market strength because
price/ earnings per share increases and therefore the needs to attract more shareholders to
invest drops.
Financial Analysis
Solvency Ratio
For the past two years:
 Debt to equity:
Total Liabilities / Total Shareholders Equity
2011: $ 600,055 M / $ 116,438 M = 5.15
2012: $ 556,858 M / $ 123,026 M = 4.53
Comment: Debt to equity decreases; the proportion of equity and debt GE is
using to finance its assets decreases, which means the amount of Shareholders Equity
originating from total liabilities is dropping. This indicates that GE needs to burrow
less to maintain the shareholders equity during a year. Thus, GE has developed in
some extent.
 Financing gap: Days Payable < Operating Cycle
2011: 55 days < 98 days 98 – 55 = 43 days
2012: 52 days < 95 days 95 – 52 = 43 days
Comment: Financing Gap does not change; the duration between GE receives
cash and it has to pay off debts doesn’t change. Since both of them indicate that days
payable are less than operating cycle, GE did have financing gap during these two
years. In other words, during the 43 day-gap, GE has to burrow extra amount of
money to fill in the gap in order to pay off the debts.
Industry Situation & Company Plans
 GE is an American multinational conglomerate corporation focuses on Energy,
Technology, Infrastructure, Capital Finance and Consumer and Industrial. As it always
does, GE will keep focusing on energy development and progress industrial and
financial services split. In the future, GE will keep investing in organic growth. A
tremendous demand in its oil and gas business and aviation will appear behind new
products. There are 5 goals that GE would like to achieve: (1) strong industrial
earnings growth (2) good margin enhancement (3) 30 basis points of improvement (4)
Getting cash from GE Capital (5) making GE capital smaller, returning cash to
investors through dividends and buyback. With the intention of being in good markets,
with some economic tailwind, GE focuses on driving key investments to grow
infrastructure, continuing to make businesses more valuable and laying the ideas for
the next iteration of GE Capital strategy.
 While GE’s profitability dropped during 2011- 2012, GE still managed to raise the
sales. Actually, the market strength of GE has grown during this period.
 GE is positioned in this environment: “a great portfolio of world-class, technologyleading businesses; a strong position in fast-growth global markets; leading-edge
service technologies that achieve customer productivity; high visibility with a backlog
of $210 billion; and a strong financial position”
Executive Summary
 Based on all of the information and analysis, GE remains competitive
and innovative. With an organic growth, it performed well across
industries and capital. It seems to be considered as one of the very
few good investment with a high market strength. However, with the
fact that dividend yield has fallen during this period, we should be
more cautious when we chose to invest in GE. Undoubtedly, GE has
a huge and inevitable potential to grow even faster in every industries
it involves. Therefore, if we are only considering about market price
and trying to earn profit from stock price escalating, then we should
definitely purchase shares from GE.
Citation
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P2 http://www.ge.com/products
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P３http://www.ge.com
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p4 http://www.ge.com/ar2012/pdf/GE_AR12.pdf (p33)
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p5 http://www.ge.com/investor-relations/stock-information (dividends share)
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p6 http://finance.yahoo.com/q/is?s=ge
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p8-9 http://www.ge.com/ar2012/pdf/GE_AR12.pdf (P72)
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p11-12 http://www.ge.com/ar2012/pdf/GE_AR12.pdf (P74)
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p14 http://www.ge.com/ar2012/pdf/GE_AR12_Notes.pdf (P78)
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p15 http://www.ge.com/ar2012/pdf/GE_AR12_Notes.pdf (P77)
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p16 http://www.ge.com/ar2012/pdf/GE_AR12_Notes.pdf
Cash and Equivalents: P81
accounts Receivable: P79
Inventories: P81
Investments: P81
p17 http://www.ge.com/ar2012/pdf/GE_AR12_Notes.pdf P78
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p18-20 http://www.ge.com/ar2012/pdf/GE_AR12_Notes.pdf
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p21 http://finance.yahoo.com/q/bs?s=GE&annual
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p22 http://www.stock-analysis-on.net/NYSE/Company/General-Electric-Co/Ratios/Short-term-OperatingActivity#Receivables-Turnover
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p23 http://www.stock-analysis-on.net/NYSE/Company/General-Electric-Co/Ratios/Short-term-Operating-Activity#InventoryTurnover
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p24 http://www.stock-analysis-on.net/NYSE/Company/General-Electric-Co/Ratios/Short-term-Operating-Activity#OperatingCycle
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p25 http://www.stock-analysis-on.net/NYSE/Company/General-Electric-Co/Ratios/Short-term-Operating-Activity#PayablesTurnover
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p26 http://finance.yahoo.com/q/is?s=ge
http://www.ge.com/ar2012/pdf/GE_AR12.pdf (P72)
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p27 http://finance.yahoo.com/q/is?s=ge
http://www.ge.com/ar2012/pdf/GE_AR12.pdf (P72)
http://www.stock-analysis-on.net/NYSE/Company/General-Electric-Co/Ratios/Profitability#ROE
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p28 http://investing.money.msn.com/investments/equity-historicalprice/?PT=7&D4=1&DD=1&D5=0&DCS=2&MA0=0&MA1=0&CF=0&nocookie=1&SZ=0&symbol=US%3aGE
http://finance.yahoo.com/q/hp?s=GE&a=0&b=2&c=1962&d=5&e=24&f=2013&g=d&z=66&y=66
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p29 http://www.ge.com/ar2012/pdf/GE_AR12.pdf (P72)
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p30 http://www.ge.com/sites/default/files/ge_annual_outlook_transcript_12172012_0.pdf
http://www.ge.com/ar2012/#!report=letter-to-shareowners
http://finance.yahoo.com/q/is?s=ge
http://www.ge.com/ar2012/pdf/GE_AR12.pdf (P72)
http://www.stock-analysis-on.net/NYSE/Company/General-Electric-Co/Ratios/Profitability#ROE
http://investing.money.msn.com/investments/equity-historicalprice/?PT=7&D4=1&DD=1&D5=0&DCS=2&MA0=0&MA1=0&CF=0&nocookie=1&SZ=0&symbol=US%3aGE
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