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Research Paper Part II: General Electric
Leslie Perry
Columbia Southern University
Financial Management
Russell Davis
May 2, 2023
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Research Paper Part II: General Electric
In this assignment, the focus will be on evaluating the stock market activity of General Electric
(GE) over the past three years. Additionally, the outstanding, authorized, and issued shares will
be analyzed, as well as the occurrence of stock splits. Finally, the paper will compare GE's stock
to another company in the same industry, and the author's opinion on investing in GE will be
stated.
The Stock Market Exchange the Company is Listed On
General Electric (GE) is listed on the New York Stock Exchange (NYSE) under the ticker
symbol GE.
The Past Three Years’ Worth of Stock Activity for GE
From 2019 through 2022, publicly listed General Electric (GE) stock prices fluctuated. GE
shares averaged $9.14 over this time. Thus, the stock price has mostly been around this number,
indicating market stability. The stock price has fluctuated over this time. GE shares peaked at
$14.70 in March 2021. In March 2020, the stock price hit $5.48, a record low (Wise, 2020).
These stock price changes show that several factors have affected GE's market value. The March
2021 high of $14.70 may have been prompted by positive earnings releases, good market trends,
or investors' confidence in the firm's expansion. Market uncertainty caused by COVID-19 may
have caused the March 2020 low of $5.48. These price changes demonstrate the stock market's
unpredictability and volatility.
GE and a Stock Split
Yes, General Electric initiated stock splits like a 2-for-1 split in 1997 and a 3-for-1 split in 2000
(Bansal et al., 2019). On August 26, 2021, GE divided its shares 1 for 8. Shareholders might
receive one additional share for every eight they held. This decreased the stock price and made it
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more accessible to investors. A stock split divides the investment's value into multiple shares,
making it more affordable for investors with smaller budgets.
Outstanding, Authorized, and Issued Shares of Stock
As of January 2022, GE had 8.7 billion shares of common stock outstanding. The company's
authorized share count is 10 billion, and the issued share count is around 8.8 billion.
Would you invest in this company based on what you have evaluated? Why, or why not?
I don't recommend investing just based on a firm's stock activity. Stock activity only shows a
company's performance at a given time. GE's stock has not continuously increased over the
previous three years, and there may be major volatility. The company's industry position and
long-term development prospects may also affect the choice to invest. General Electric (GE) has
been improving operational efficiency, which might help the company develop sustainably.
General Electric's diverse portfolio of businesses, including aviation, healthcare, and energy,
may benefit it in the long run. General Electric has invested in research and development to
innovate and expand its product line. The firm may benefit from this. Thus, when considering
whether to invest in GE, it is important to consider the stock’s activity and other factors affecting
its long-term growth.
Compare this Company’s Stock to Another Company within the Same Industry
NYSE-listed Honeywell International Inc. (HON), which specializes in aviation, building
technology, and performance materials, is a fair comparison for GE's stock. As of March 2022,
GE's stock was $98, while HON's was $221 (Berthelot, Lasensky & Somers, 2019). HON's
market worth is smaller than GE's, in any case. Over the past three years, HON's stock has had a
higher average price and less volatility than GE's. However, General Electric's financial
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performance and stock price have been affected by a major reorganization over the past few
years.
In conclusion, General Electric's (GE) stock performance over the previous three years
has been negatively impacted by the company's decision to offload its financial services unit, GE
Capital. As a result, GE's present stock valuation may not be wise to acquire. Despite having a
more varied portfolio and being around longer than GE, HON, another company in the same
sector, has surpassed GE in stock growth over the past three years. GE's volatility is greater than
its average stock price. It's important to remember that General Electric has been reorganizing
for years, which may boost its long-term growth. Therefore, GE's financial performance,
industry position, and long-term growth prospects must be examined before investing.
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References
Bansal, G., Hasija, V., Chamola, V., Kumar, N., & Guizani, M. (2019, December). Smart stock
exchange market: A secure predictive decentralized model. In 2019 IEEE Global
Communications Conference (GLOBECOM) (pp. 1-6). IEEE.
https://ieeexplore.ieee.org/abstract/document/9013787/
Berthelot, M. J., Lasensky, N., & Somers, P. (2019). The Board’s Role in Monitoring Strategy:
Lessons Learned from General Electric. https://www.corpgov.net/wpcontent/uploads/2019/01/GE-The-Boards-Role-in-Monitoring-Strategy-Lessons-Learnedfrom-GE-Berthelot-Lasensky-Somers-1-14-2019.pdf
Wise, G. (2020). Willis R. Whitney, General Electric and the Origins of US Industrial Research.
Plunkett Lake Press.
https://books.google.com/books?hl=en&lr=&id=gW7LDwAAQBAJ&oi=fnd&pg=PA18
38&dq=General+Electric+(GE)+stock+prices&ots=Z7xNzPbvsJ&sig=pIF4IAkxQQMh2D-b0vp7HKMUAQ
UNIT VI STUDY GUIDE
Financial Data and Data Analysis
Course Learning Outcomes for Unit VI
Upon completion of this unit, students should be able to:
5. Prepare preliminary financial statements and ratio analyses.
5.1 Perform an analysis of a firm using various ratios.
5.2 Summarize key areas of an income statement and balance sheet.
6. Evaluate stock and bond valuation.
6.1 Assess the health of a firm using financial data.
6.2 Compare the financial metrics of two companies in the same industry.
Course/Unit
Learning Outcomes
5.1
5.2
6.1
6.2
Learning Activity
Unit Lesson
Chapter 14, pp. 432-458
Unit VI Scholarly Activity
Unit Lesson
Chapter 13, pp. 391-420
Unit VI Scholarly Activity
Unit Lesson
Chapter 13, pp. 391-420
Chapter 14, pp. 432-458
Unit VI Scholarly Activity
Unit Lesson
Chapter 13, pp. 391-420
Chapter 14, pp. 432-458
Unit VI Scholarly Activity
Required Unit Resources
Chapter 13: Business Organization and Financial Data, pp. 391-420
Chapter 14: Financial Analysis and Long-Term Financial Planning, pp. 432-458
Unit Lesson
In this unit, we will study financial data and financial analysis. We will examine the different business
organizations and the basic financial statements. Further, we will gain a better understanding of the ratios and
how they assess a firm’s performance. Finally, we will learn about the link between financial analysis and
long-term financial planning.
FIN 3301, Financial Management
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Corporations prepare financial statements to inform shareholders, creditors, and
others
about GUIDE
the financial
UNIT
x STUDY
position of the company on the date that the financial statements were prepared.
The financial statements
Title
consist of the following:
•
•
•
The income statement, which is a summary of the revenues and expenses of the business over the
accounting period;
The balance sheet, which is a summary of the assets and liabilities of the company on a specific date;
and
The cash flow statement, which is a summary of the net inflows and outflows of cash during an
accounting period (Needles et al., 2011).
The statement of retained earnings is also considered an important financial statement; it shows the changes
in retained earnings over the accounting period. The four statements are interrelated with the information on
some statements dependent on the information in other statements (Brigham & Houston, 2015). The following
sections discuss the relationship of the financial statements to the objective of the firm and corporate
governance, financial statement analysis, and the use of financial statements for long-term financial planning.
Objective of the Firm
The general objective of all firms in the private sector is to
maximize profit for the shareholders. The financial
statements provide information about the degree of
success the firm has in increasing profit for shareholders
although the financial statements report only on
accounting profit (Thomas & Maurice, 2016). Investors
can use the information in the financial statements to
determine if their investment in the company is providing
the required amount of return when considering factors
such as the type of industry and the amount of risk
involved in the business. The investors can also use the
financial statements to determine whether managers have
been successful in increasing shareholder value. Because
financial statements in all companies have to use the
same accounting standards such as Generally Accepted
All firms want to increase profits. Financial
Accounting Standards (GAAP), the statements enable
statements help measure this.
investors to compare the return on their investment with
(Photoking, 2018)
other similar companies in the same industry. Creditors
also use financial statements to determine the amount of risk involved with loans to the firm. As a result, the
financial statements can influence the cost of debt capital for the firm, which can affect profitability.
Corporate Governance
Financial statements are useful for providing the board of directors as well as managers with information
about the effect of past financial and operational decisions. The directors of a company can use the financial
statements as a tool to help with the oversight of the company. The board of directors has an audit committee
usually composed of directors who are not managers in the company that helps to ensure that the financial
statements are a full and accurate representation of the financial position of the company (Lee, 2006). The
directors can also use the financial statements to assess the performance of managers for achieving the
basic objective of the firm (increasing shareholder value).
The financial statements contain a substantial amount of information about the company to help managers
assess the strengths and weaknesses of the company and take appropriate corrective action (Brigham &
Houston, 2015). One of the ways that financial statements can help managers with controlling the activities of
the company includes providing information for preparing budgets and determining whether budget objectives
have been met. Financial statements can also assist managers with financial analysis, capital investment
decisions, and cost and revenue estimation (Marsh, 2012). To use financial statements effectively, however,
managers have to be familiar with the methods to analyze the statements.
FIN 3301, Financial Management
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Financial Statement Analysis
UNIT x STUDY GUIDE
Title
Financial statement analysis determines how important items in the company's financial statements relate to
the company's primary objective of increasing shareholder value (Needles et al., 2011). The objective of
increasing shareholder wealth can be divided into different categories to assist with the analysis of the
company's performance. In addition, ratios can be created from the information in the financial statements;
these ratios can be used to assess the current effect of managerial decisions and to compare changes in the
financial statements over time as well as comparing the financial statements of a company with industry peers
(Brigham & Houston, 2015).
Liquidity Ratios
The liquidity ratios are a measure of the ability of a company to pay its liabilities that are due within one year
and to have enough cash to meet unforeseen expenses. Liquidity is based on cash and assets that can be
quickly converted to cash without substantially reducing the value of the asset. The most important of the
liquidity ratios is the current ratio that is found by dividing current assets by current liabilities (Brigham &
Houston, 2015). Current assets are cash and marketable securities while current liabilities are accounts
payable or other bills payable within one year. A company should have a current ratio greater than one to
ensure it can pay its liabilities without borrowing. The ratio should also be similar to industry peers.
The quick ratio is useful for assessing the liquidity of companies that carry inventories. The quick ratio is
calculated by subtracting the value of inventory from current assets then dividing by current liabilities
(Brigham & Houston, 2015). The quick ratio is important for determining how dependent the company is on
the sale of inventory to pay its current liabilities, which could be an important issue during periods of business
slowdown.
Asset Management Ratios
The asset management ratios are a set of ratios that measure how effective managers are with using the
company's assets to produce value for shareholders (Brigham & Houston, 2015). The accounts receivable
turnover assesses how well the company manages its credit policy and is found by net credit sales divided by
average accounts receivable. The ratio helps managers evaluate the tradeoff between increasing sales
through easy credit policies and the costs of longer periods necessary for collection (Baker & Powell, 2005). A
variation is receivables collection period, which can be found by dividing 365 by the accounts receivable
turnover. Changes over time in the receivables collection period can provide information about the
effectiveness of the credit policy.
Additionally, the inventory turnover ratio provides an indication of whether the company is carrying too much
inventory and is found by dividing the cost of goods sold by the average inventory. The total asset turnover
ratio is an indication of the effectiveness of management for using the company's assets to produce value for
shareholders. The ratio is found by dividing sales by total assets. The ratio varies across industries because
some industries are more capital intensive than other industries.
Financial Leverage Ratios
The financial leverage ratios evaluate the effectiveness of the company in managing its debt and are of great
interest to creditors. As the level of debt increases, the risk the debt represents to the company also
increases. The debt ratio is found by the total liabilities divided by the total assets. A ratio less than one
suggests the company is at risk of insolvency (Baker & Powell, 2005). The debt-to-equity ratio assesses the
relationship of debt and equity in the capital structure and is found by total liabilities divided by total equity.
The long-term debt ratio is found by dividing long-term debt by total assets; this provides a guide as to
whether a company is excessively leveraged.
FIN 3301, Financial Management
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Profitability Ratios UNIT x STUDY GUIDE
Title
Firms use ratios for many different financial
aspects.
(Dragon345, 2018)
Profitability ratios are of interest to investors and
evaluate how the company compares to competitors.
Operating margin is found by dividing operating profit
over sales and is a rough indicator of whether
operating costs are too high. The net profit margin is
found by dividing net income by sales and can be
compared to industry averages to determine the
effectiveness of management policies. The return on
assets (ROA) is found by dividing net income by total
assets, and it determines the effectiveness of
management for using assets to produce value
(Baker & Powell, 2005). The return on investment
(ROI) is based on dividing net income by average
total equity.
Market Value Ratios
Market value ratios relate to the company's stock price and are theoretically affected by company earnings
and value. The price earnings (P/E) ratio divides the stock price by the earnings and indicates how much
investors are willing to pay for a share per dollar of earnings (Brigham & Houston, 2015). A high P/E ratio
suggests that investors are optimistic about a company's future earnings. The market-to-book ratio divides the
market value of equity by the book value of equity with a ratio greater than one indicating that the company
has produced excess value for investors.
Long-Term Financial Planning
Past financial statements provide information about trends in the company based on current policies and
operations. As a result, financial statements can be useful for long-term financial planning by providing a
basis for projecting the effect of different scenarios in the future. For example, a company could use proforma financial statements for future accounting periods to determine the effect of a 10% decrease in sales
from a future recession on the ability of the company to meet its long-range debt obligations. The approach
could be useful to support decisions about financing capital expansion with either debt or equity. The
assumption in using past financial statements to make future financial projections is that the past conditions
and trends will remain unchanged in the future except for one critical variable.
In summary, we studied financial data and financial analysis and examined the different business
organizations. We learned about the basic financial statements and gained a better understanding of the
ratios. Finally, we explored the link between financial analysis and long-term financial planning.
References
Baker, H. K., & Powell, G. (2005). Understanding financial management. Wiley-Blackwell.
Brigham, E. F, & Houston, J. F. (2015). Fundamentals of financial management. Cengage.
Dragon345. (2018). ID 71348428 [Image]. Dreamstime. https://www.dreamstime.com/stock-photo-blueballpoint-pen-financial-ratios-analysis-check-lists-antique-clock-two-vintage-brass-keys-businessimage71348428
Lee, T. A. (2006). Financial reporting and corporate governance. Wiley.
Marsh, C. (2012). Financial management for non-financial managers. Kogan Page.
Needles, B. E., Powers, M., & Crosson, S. V. (2011). Financial and managerial accounting. South-Western
Cengage.
FIN 3301, Financial Management
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Photoking. (2018). ID 131218859 [Image]. Dreamstime. https://www.dreamstime.com/profit-word-yellowUNIT x STUDY GUIDE
paper-wooden-steps-arrow-black-grunge-background-profit-word-steps-image131218859
Title
Thomas, C., & Maurice, S. C. (2016). Managerial economics. McGraw Hill.
Suggested Unit Resources
In order to access the following resource, click the link below.
The video below gives a quick lesson on the fundamentals of financial statements. In about five minutes, you
will have a pretty good basic understanding of this concept.
Costa, C. (2012, April 3). 5 minute finance lesson: Financial statement basics [Video]. Cielo24.
https://c24.page/yky7vp8wubugjcvu99bmmx7cdy
A transcript and closed captioning are available once you access the video.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
How well do you know the unit material? Take the Unit VI Knowledge Check Quiz to find out! (PDF of Unit VI
Knowledge Check Quiz)
FIN 3301, Financial Management
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