General Electric is a 100+ year old firm that, as of the end of 2004, is a $153 billion dollar firm with approximate 40% of this amount coming from business outside it’s native United States.  General Electric is a firm with very broad interests, “developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity” (Mergent 2005).  It has established business segments in commercial and consumer finance, energy, healthcare, transportation, television and media (owning NBC), lighting, appliances, trains, medical equipment and nuclear power among others.  Indeed, one may have a hard time pinning down anything that GE does not do.  Despite doing these diverse activities, GE concedes that is true core competency is, “…not manufacturing or services, but the global recruiting and nurturing of the world’s best people and the cultivation in them of an insatiable desire to learn, to stretch and to do things better every day”  (GE Annual Report 2002, p. 4).

In analyzing the financial situation of a firm, the first concern is that of being a “going concern”, that is, is it solvent?  Is the firm in imminent danger of being taken over by creditors.  The two best measures of these are the Current Ratio and the Quick Ratio, each reflecting the relationship of assets to liabilities.  In the case of the current ratio, the fraction is generated by the current (cash or redeemable within generally about 12 months) assets divided by the total liabilities.  The Quick Ratio tends to give a more pessimistic outlook as the readily liquefiableassets (cash in 30-days or less) is divided by the total liabilities. In GE’s case, the current and quick ratios are 0.19 and 0.14, respectively.  For comparative purpose of other multi-billion dollar firms, the current ratio or Wal-Mart is 0.9, 3M is 1.4 (quick ratio, 1.0), Tyson is 1.54 (quick ratio is .58) and Johnson & Johnson is 0.58.  While other information will reflect a very much alive firm that it turning a considerable sum through a number of business segments, this ratio represents a less-than-desirable ratio.  Trusting that GE is staffed by multitudes of very clever individuals, it may be that they are ‘playing the market’ with regards to leveraging the very low interest rates to generate additional income.  The only question to this is the obvious… are the other firms any less clever?

Other key indicators of interest are to be found in the balance sheet that simply lists are assets and liabilities.  In summary, GE’s assets exceeds it’s liabilities by comfortably over $100 million, possibly giving some credence to the ‘alternative investment theory’ mentioned above as clearly, GE must have used the borrowed funds for something and it appears to have value.

In reviewing the business segments, data was not available for all segments, yet, the “GECS” or General Electric Capital Services generated the most revenue at over $60 billion each year.  This reflects a segment that is approximate 3x larger than any the other, also highly profitable business.  As this segment entails financing, it is possible that much the lower current ratio is captured in this segments activities.  In addition, none of the other companies ratios listed have significant business operations in this segment which underscores the importance of full and careful consideration of a wide range of information prior to making ill-informed decisions.

Finally, in reviewing other calculated financial data, the over health of GE is indicated in profitability ratios such as it’s return on equity (15.05%), return on investments (9.66%), and operating and net profit margins (13.81% and 10.89%, respectively).  Also, as that the effective corporate tax rate falls over the recent 5-year period, this corroborates that the firm is ‘extending’ itself with regards to operating activity as would be consistent with GE larger presence in consumer financing as the housing market, due to the lower interest rates has been quite active.  As the housing market begins to slow down, large part to the Fed monetary policy in the US, it is likely that GE will see slower growth from this division.  To this goes the counter-trend of the growing materialism and the desire to finance the purchase of various niceties in life.  To the extent that GE can maintain a low percentage of those who default on their loan(s), they will be able to manage a large part of the inherent risk of doing business in this segment.  In terms of overall risk management, GE is relatively assured of weather most any storm due to its extreme diversification with regard to products, services and geographical dispersion of business.  In addition, it has a world class reputation of having great people, the foundation and greatest asset of any business.

In conclusion, by taking a deliberate venture through financial reports, without an over-consideration of any one key factor, and by analyzing the number and the relationships of business activities that they represent, once can quite literally foresee the health of a company.