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    1. QUESTION

     

    This Portfolio Project has two parts: Calculations and a 4- to 6-page essay. While the calculation requirements of this assignment are important, equally important are your discussion and analysis of the quantitative results. You will submit two documents: 1) a spreadsheet containing your horizontal and vertical analysis (and perhaps your ratios) and 2) a word document containing your essay. You will submit both parts separately.

    In Module 7, you submitted your spreadsheet. For this module, you will take what you submitted in your spreadsheet, and use that information to write your paper.

    Directions:

    Your paper must:

    Be 4-6 pages in length.
    Include a proper introduction and conclusion.
    Include a reference page.
    Provide your reader with an overall understanding of the financial health of your chosen firm including the following:
    Discussion of the ratio analysis results, including rationale for the ratios chosen.
    Discussion of all horizontal and vertical analysis from above.
    Discussion of four items from the management discussion of the firm that support the conclusion formed in your discussion of the financial results.
    APA format

 

Subject Essay Writing Pages 8 Style APA

Answer

General Electric Statement Analysis

General Electric Company (GE) is a multinational conglomerate that was incorporated in 1892 Schenectady, New York. It is an American company that is listed in New York Stock Exchange and makes up the S&P 100 and 500 components. The company’s head offices are in Boston, Massachusetts in the United States. The company’s products include aircraft engines, electric motors, energy, health care, software development, weapons, gas, wind turbines, lighting and electrical distribution. In early 2018, GE was ranked as one of top eighteenth largest companies in terms of gross revenue in the US and fourteenth most profitable (GE Annual report, 2017).

                                    Balance Sheet Horizontal Analysis

In the year 2016, GE profitability was affected by its decision to pay most of its long term debts. The liabilities decreased by 27% in 2016 compared to an increase of 2.77% in 2017. The liabilities increased from $389.961 in 2015 billion to $284.667 billion in 2016 (Yahoo Finance, 2017). In 2017, the liabilities increased slightly to $292.56 billion compared to 2016. The major changes were noted in the long term debt payments that decreased by 27.36 % from $144.659 billion in 2015 to $105.080 billion in 2016. The long term debts increased slightly to $108.575 billion compared to 2016. The decrease in long term debts was associated with the company’s policy of dividends and share buybacks. GE returned $30.5 billion in 2016 to investors in order to strengthen its shares in the market by increasing the demand of its shares.

GE registered a reduction in deferred long term debts asset charges in 2016 and a very high debts asset in 2017. The assets decreased by 40.97% from $3.105 billion in 2015 to $1.833 billion in 2016, but increased to $6.207 billion in 2017, an increase of 238.63%. The total assets decreased by 25.94% in 2016 compared to an increase of 3.49%. The total assets were $493.071 billion in 2015 and decreased to 365.183 billion in 2016 and increased slightly to 377.945 billion in 2017. Net tangible assets decreased by 173.95% in 2016 and further by 461.78%% in 2017. The minority interest decreased by 3.06% in 2016 but increased by 350.55% in 2017. The current assets decreased by 53.21% in 2016 and a further decrease of 9.39% in 2017. However, other current assets decreased by 23.96% in 2016 but increased by 77.27% in 2017. Intangible assets decreased by 7.65% in 2016 but increased by 23.35% in 2017. The current liabilities decreased by 49.11% in 2016 and also by 12.04% in 2017. The net tangible assets were $14.945 billion in 2015 and decreased to negative 11.052 billion in 2016 and further to negative 39.984 billion in 2017.

                                            Balance Sheet Vertical Analysis

The total liabilities of GE average to about 78% of the total assets of the company. The total liabilities in 2017 were $292.560 billion compared to the total assets that were $377.945 billion. In 2016, the total liabilities were 284.667 billion compared to 365.183 billion while in 2015 the total liabilities were 389.961 billion compared to a total asset base of $493.071 billion. The high percentage of liabilities indicates that the company had a lot debts in between the three years compared to the assets of the firm.

The current assets amounted to 31.51% of the total assets in 2017 while in 2016 and 2015, GE registered 35.99% and 56.97% respectively. The current liabilities in 2017 amounted to 16.38% of the total assets while in 2016 and 2015, the percentage was 19.27 and 28.04% respectively. Minority interest compared to the total assets were 5.59% in 2017, while in 2016 and 2015, minority interest compared to the total assets reduced further to 1.28 and 0.98%.

However, the company’s retained earnings amounted to about 33.25% of the total assets in 2017. In 2016 and 2015, retained earnings compared to total assets amounted to 38.21 and 28.40% respectively. The retained earnings were $125.682 billion, $139.532 billion and $140.02 billion for the years 2017, 2016 and 2015 billion respectively (GE Annual report, 2015). The company can utilize the retained earnings to pay off some of its outstanding debts, especially the long term debt that amounted to $108.575 billion, $105.08 billion and $144.659 billion in 2017, 2016 and 2015 respectively. The long term debt in 2017 was 28.73% while in 2016 and 2015 the percentage increased slightly to 28.77 and 29.34% respectively. The company’s retained earnings are more than the total debt the company owes its creditors and financial institutions. 

The company’s policy of share buyback that is intended to strengthen the company’s shares in the market should be extended to reduce some of the long term debts and other debts that are growing at a high rate. The company’s increase in sales revenues was less than 1% in 2017 and 3.8% in 2016 compared to an increase of 101.84% in total operating expenses in 2017 and 91.32% in 2016.

Income Vertical Analysis

The company’s income vertical analysis indicates that the company’s cost of revenue is increasing while its gross profit and net income are reducing. In 2017, General electric’s cost of revenue was $106.378 billion compared to 2016 when the cost of capital was $94.618 billion while in 2015 it was $90.111 billion. The gross profit was $14.874 billion in 2017 and $25.655 billion and $25.723 billion in 2016 and 2015 respectively. Selling and general administrative expenses also increased by 14.1%, 12.65% and 14.1% in 2017, 2016 and 2015 respectively. Total operating expenses increased from by 101.84% in 2017 and 91.32% in 2016 while in 2015 it increased by 91.89% compared to total sales. The increase in expenses is not backed by improvements in net earnings.

The net income decreased by 4.77% in 2017 compared to an increase of 7.34% in 2016 and a decrease of 5.29% in 2015. The net income in 2017 amounted to a loss of 5.786 billion and a profit of 8.831 billion and a loss of 7.807 billion in 2016 and 2017. The income before tax decreased by 7.25% in 2017 and increased by 7.51 and 7.07% in 2016 and 2017 respectively. The income tax expense decreased by 2.5% and 0.39% in 2016 but increased by 5.6% in 2015. The tax expense in 2017 amounted to $3.043 billion and 0.464 billion in 2016 while in 2015, the tax expense amounted to $6.485 billion (GE Annual report, 2016).

Minority interest increased by 17.42% in 2017 and 3.9 and 4.17% in 2016 and 2015 respectively. Minority interest increased to 21.122 billion in 2017 from 4.688 billion in 2016 while in 2015, minority interest amounted to 4.836 billion.

Income Horizontal Analysis

The total revenues for GE increased by 0.81 %in 2017 compared to an increase of 3.83% in 2016. The total revenues in 2017 amounted to $121.252 billion compared to $120.273 billion in 2016. The cost of revenue increased by 12.43 and 5% in 2017 and 2016 respectively. The cost of revenue in 2017 was $106.378 billion compared to $94.618 billion. Selling and general administrative expenses increased by 12.4% in 2017 while in 2016 it reduced by 6.83%. The total operating expenses increased by 12.43% in 2017 and 3.19% in 2016. The total operating expenses in 2017 amounted to $123.477 billion and $109.83 and $106.438 billion in 2016 and 2015. Earnings before interest and taxes in 2017 amounted to $2.225 billion representing a decrease of 121.31% while in 2016 and 2015, the earnings before interest was $10.443 and 9.396 billion which were represented by an increase of 11.14% in 2016.

The net income decreased by 165.52% in 2017 compared to a decrease of 244.16% in 2016. The amounts were a loss of $5.786 billion in 2017 and a profit of $8.831 billion while in 2015, the net loss amounted to 6.126 billion. The income before tax increased by 555.82% in 2017 and decreased by 107.15% in 2016. The tax expense in 2017 amounted to $3.043 billion and 0.464 billion in 2016 while in 2015 the tax expense amounted to $6.485 billion.

Minority interest increased by 350.55% in 2017 and decreased by 3.06% in 2016. Minority interest increased to 21.122 billion in 2017 from 4.688 billion in 2016 while in 2015 minority interest amounted to 4.836 billion.

                                                              Ratio Analysis

Liquidity Ratios

Liquid assets are assets that can be quickly converted to cash. They reflect the company’s ability to honor short term financial obligations (Atrill & McLaney, 2013). Higher ratios indicate greater liquidity while lower ratios reflect reduced liquidity. The acceptable rule of thumb for liquidity ratios is 2:1 for current ratio and 1:1 for quick ratio. General Electric Company has fairly strong liquidity ratios but very strong quick ratio. The current ratios in 2017, 2016 and 2015 were 1.92, 1.82 and 2.03 respectively. The current ratio implies that the company’s current assets can be able to cover the current liabilities 1.92 times in cases of emergency and the current liabilities have to be settled.  The quick ratios were 1.57, 1.55 and 1.87 for 2017, 2016 and 2015 respectively.

Asset Management Ratios

The company’s fixed assets turnover was 47%, 51% and 55% in 2017, 2016 and 2015 respectively. The company’s total sales were 47% of the total assets invested in the company in 2017 and 51% in 2016 while in 2015 it was 55%. The total assets turnover amounted to about 29% of average total assets. For every dollar invested in the company the company earned 29%.

 

Debt Management Ratios

Debt management ratios reflects the extent that a company is depending on debt to fund its operations and investments. The ratios provide the possibilities of how to manage debt obligations. Companies that cannot manage their debt eventually go into receivership, however, debt can be beneficial when managed well as tax benefits are available to interest payments and allows a company to exploit more business opportunities. The rule of thumb is to maintain a debt to equity ratio of about 50% or debt to asset ratio of the same margin. The debt to asset ratio for General Electric Company was 77% in 2017 and 78% in 2016 while in 2015 it was 79%. It means that the company is heavily geared and it should move fast to reduce the debt ratio to total assets as it is very high. The times interest earned shows that the earnings before interest and taxes was less 81% of the annual interest expense in 2017 while in 2016 and 2015 the earnings before interest and taxes was 5.51 times more than the times interest expense earned. The worst year that GE faced in terms of high financial interest rates due to high debt portfolio in the last three years was the year 2017.

Profitability Ratios

The profitability ratios indicate how profitable a company is. GE’s gross profit margin in 2017 was 12% while in 2016 and 2015 it was 21 and 22%. The return on earnings was a loss of 9% in 2017 while in 2016 the ROE was 2% while in 2015 it amounted to a loss of 6%. The ROE means that for every dollar invested in the company’s equity the investor lost 9% in 2017. The return to assets in 2017 amounted to a loss of 2% while in 2016, it amounted to a profit of 2% In 2015, the company incurred a ROA of negative 1%. The ROA means that for every dollar invested in GE in 2017, the investor lost 2%.

 

                                                General Electric Performance Ratios (Figure 1)

 

Source: (GE Annual Report, 2017).

Market Value Ratios

Market value ratios reflect the imbedded stocks value that investors use to screen investment before making investment decisions. Low P/E values indicate a track record that is not favorable while high ratios indicate high investor’s optimism about the company’s future prospects. 

GE’s price earnings ratio for 2017 was negative 32.81 while in 2016, it was 34.10 and in 2015 it was negative 45.11.

Altman Z-Score

The Altman Z-score gauges the credit strength that publicly traded companies in the manufacturing sector apply to test a company’s likelihood of bankruptcy (Wilkinson, 2013). The higher the Z-Score the lower the risks of bankruptcy a company has the lower the Z-scores rates the higher chances of bankruptcy. GE’s Z-score is 1.23.

 

CALCUATIONS

 

 

Z

Z1

Z2

 

 

Factor

Public

Private

General

 

 

 

Mfg

Mfg

Use

Working capital/Total assets

X1

0.151353

1.2

0.717

6.56

Retained earning /Total assets

X2

0.33254

1.4

0.847

3.26

EBIT/Total assets

X3

0.039355

3.3

3.107

6.72

Market value of equity/Total liabilities

X4

0.219637

0.6

 

 

Book value of equity/Total liabilities

X4A

0.219637

 

0.42

1.05

Net sales/Total assets

X5

0.320819

1

0.998

 

Z-Score

1.23

0.92

2.57

                                            

Conclusion

The Altman Z-score gauges the credit strength that publicly traded companies in the manufacturing sector apply to test a company’s likelihood of bankruptcy. The higher the Z-Score the lower the risks of bankruptcy a company has while the lower the Z-scores rates, the higher the chances of bankruptcy. GE’s Z-score is 1.23 and it is classified among the companies with high likelihood of bankruptcy is very high. The debt to asset ratio for General Electric Company was 77% in 2017 and 78% in 2016, while in 2015, it was 79%. This means that the company is heavily geared and it should move fast to reduce the debt ratio to total assets as it is very high. The times interest earned shows that the earnings before interest and taxes was less 81% of the annual interest expense in 2017 while the profitability ratios reflects a reducing trend. General electric financial performance is reducing as reflected by the ratios and the performance trend on figure 1 above.

 

 

References

Yahoo Finance. (2017). General Electric Annual Statements retrieved November 15, 2018 retrieved from https://finance.yahoo.com/quote/GE/balance-sheet?p=GE

Atrill and McLaney. (2013). Accounting and finance for Non-Specialist Power Points on the Web, 8th edition, Pearson Education Limited.

GE Annual report. (2017). GE Annual report retrieved December 17, 2018 from https://www.ge.com/investor-relations/sites/default/files/GE_AR17.pdf

GE Annual report. (2016). GE Annual report retrieved December 17, 2018 from https://www.ge.com/investor-relations/sites/default/files/GE_AR16.pdf

GE Annual report. (2015). GE Annual report retrieved December 17, 2018 from https://www.ge.com/investor-relations/sites/default/files/GE_AR15.pdf

Wilkinson, J. (2013). Z–Score Model retrieved December 18, 2018 from https://strategiccfo.com/z-score-model/

 

 

 

 

 

 

 

 

 

 

 

 

Appendix

Appendix A:

Communication Plan for an Inpatient Unit to Evaluate the Impact of Transformational Leadership Style Compared to Other Leader Styles such as Bureaucratic and Laissez-Faire Leadership in Nurse Engagement, Retention, and Team Member Satisfaction Over the Course of One Year

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