Liquidity
General Electric’s current ratio for 2014 is 2.53 compared
to the industry average of 2.3. General Electric’s current ratio is higher than
the than the industry average. This is good because it means the company can
more easily make debt payments than the average company in its field can. General Electric’s quick ratio is 2.42
compared to the industry average of 1.9.
The higher quick ratio means that it is easier for the company to pay
liabilities when they come due. General Electric has good liquidity because
they can pay off their operating expenses and short-term or current
liabilities. If the liquidity is low, it could indicate financial problems. If
the liquidity is high, it could mean an excess of cash resulting in missed
opportunity cost. Because General Electric’s current and
quick ratios are a little higher than the industry average, but not too high,
it seems that the company is in a good position. General Electric has a good
ability to pay short-term debts and short-term obligations when they come due.
Activity
General Electric’s total asset turnover is .23 compared to
the industry average of .40. This means General Electric is not using their
assets as efficiently as the average company is in their industry. GE is
generating .23 for every dollar invested in assets. General Electric’s
Inventory turnover is 4.64 compared to the industry average of 4.2. This means
GE is to sell or use inventory on average every 78.66 when the average company
in their industry takes 86.9 days. The inventory turnover ratio is slightly
higher than the industry norm, which means they generate enough sales to go
through company inventory and are doing this better than the average company in
their industry. The companies average collection period is 54.81 compared to
the industry average of 48. This means that the company is taking longer than
the average firm is in their industry to collect from their credit sales. This
could mean General Electric is making poor credit decisions. These activity ratios measure the company’s
proficiency at using its assets. Because General Electric has a low asset
turnover and high average collection period, they are probably not using their
assets as efficiently as they should be.
Debt
General Electric’s debt ratio is .79 compared to the industry
average of .91. This means General
Electric must sell 79% of assets to pay off debt. General Electric is not as
leveraged as the industry average, which gives them a lower debt ratio. General
Electric is considered less of a financial risk than the average firm in their
industry would be. While the low debt ratio can mean the company does not react
as easily to changes in business, it can also mean the company is not using its
leverage to cultivate the business. General Electric’ times interest earned
ratio is 2.82 compared with the industry average of 5.5. This means that GE has
less income to cover interest expense than the average competitor does. General
Electric makes enough income to pay for its interest expense 2.82 times during
2014 while the industry average can cover it more than 5.5 times. The company
has a better than average debt ratio but a worse than average times interest
earned. This indicates that while GE is not using a lot of debt to finance
assets they are efficiently paying interest on the debt they do have compared
to other firms in the industry.
Profitability
General Electric’s gross profit margin is 45.28 compared to
the industry average of 39.2. The higher
than industry average gross profit margin indicates that the company is doing
well financially. This means that GE has money left for revenues after the COGS.
With a good gross profit margin, General Electric will be able to pay operating
plus other expenses and still grow the company for the future. General Electric
a net profit margin of 10.25 compared to the industry average of 6.29. Meaning that General Electric has 10.25% of
revenue left after paying operating expense, interest, taxes and preferred
dividends. This shows that GE is doing a good job converting revenue into
profits for their shareholders. General Electric has a return on assets of 2.33
that is close to the industry average of 2.4. This means General Electric can
earn a good profit from assets almost in line with the industry average. This
2.33 Return on assets is a good indicator that General Electric has solid
financial performance. General Electric
has a return on equity of 11.78 compared to an industry average of 5.5. This
means that General Electric is efficiently using investment funds to generate
growth. General Electric is earning
twelve cents for every dollar originally invested in the company. GE is
operating more profitably than the industry average, probably from getting more
of the market share. General Electric has a Price-earnings ratio of 30.66
compared with the industry average of 39.6. This indicates that the market is willing
to pay less for GE’s stock based on its earnings than the industry average
stock. Investors are paying 30.66 for every dollar of General Electric’s
earnings that meaning that they believe GE may have poor future performance.
General Electric’s high-profit margin and return on equity indicate that the
firm is in a good financial position, but the low Price/earnings ratio shows
that investors do not seem to trust the company as much as the numbers indicate
they should.
