Historical Background and Current Financial Position of General Electric Company - Case Study Example

19 April Historical Background and Current Financial Position of GE This paper gives an overview of General Electric Company; a US based international firm dealing in technical specialized products. The paper throws light upon the establishment background, performance, present challenges and financial health of the company. Historical Background The establishment background of GE is linked with the world’s famous scientist, Thomas Edison back in the 19th century. Thomas Edison was the great man who conceptualized the idea of electric bulb and lightening the entire world through this invention. He was a research oriented individual and had great zeal for inventing electrical products. His deep insight into the need for electrical products for the people of his era motivated him to set up business for his electrical products. By 1876, Edison remained busy in the research activities of electrical products and established a laboratory for it. This laboratory was founded in New Jersey, USA. In order to make the world realize the importance of his products, he formed a business company named as Edison General Electric Company. Under this name, he united all his inventions and started marketing them. During the same period, a competitor organization named as Thomson Houston Company emerged. With the passage of time, both the competitors realized that it is almost impossible to survive as competitors because the products from both companies were increasingly becoming supplementary for each other. After successful negotiations, they merged together and one organization emerged who was named as General Electric Company. GE has vast product line and it is interesting to mention here that many of these products were part of the business even when the business started. It is regarded as an achievement of Thomas Edison that his inventions were present in many fields related to medical health care, transportation, consumer electronics, industrial equipments and power transmission etc. GE has established its GE brands with its rich product line and all the sub organizations are headed by dedicated CEO and Chairman. Current Performance GE is a successful name when viewed from the perspective of business owners, customers and employees alike. Customers prefer buying GE products because of their guaranteed performance and reliability. The customer’s loyalty paves the way for profitability of GE and pays favorable returns against the investment of owners. GE is ranked among the top employers of the choice which attracts high talent at high compensation rate. The secret of GE’s success is its strategic management techniques. Through its continuous improvement programs, innovation in business plans and research competencies, it is leading the market of technical specialized products. These products are exported all over the world and GE honorably welcomes the talented employees from every country, it is present it. Current Challenges There are certain challenges associated with GE’s business. The biggest challenge is about cost reduction initiatives. GE is running multiple business organizations with dedicated administrative setup and facilities. It adds tremendously to the total cost of GE Company. No doubt, GE is the biggest supporter of Six Sigma technique which ensures waste and variation reduction from the products, however, there is also a cost associated with conducting the six sigma projects. As per policy of GE, every employee has to complete one six sigma project every year. In addition to the trainings required for functional performance of employees’, GE also provides specialized training of Six Sigma. It is again a cost addition factor. This challenge increases its severity even more when all over the industry; organizations are reducing their prices by slashing their training budgets. If GE continues its training program, there is no doubt that it is bound to succeed in the longer run. But, meeting the customer’s requirements against his affordable prices is a challenge in the present era when the entire world is under huge financial crisis. Another challenge for GE is related to its governance issues. As it runs multiple sub organizations with prefix of GE, all the organizations are registered companies which separate administrative setup, board of directors and CEO. In order to avoid conflict of interest, GE has to take up many measures in the selection of its directors. In addition to the directors who are the key owners of the business, GE has to hire some independent directors as well. These independent directors are the ones who have track record of exceptional performance in the market but have no stake in the business of GE. Governance across various functional bodies of GE is a big challenge requiring huge resources and efforts by the parent company of GE. Since GE deals in technical specialized products, it is a research based organization. All its operations are based on strong research, whether it is need identification of new product development, product design or product promotion. Research is again a time consuming and costly activity. It directly affects the quality of the products. In the present era of energy crises (Faust), the initiatives of environmental protection (Blodgett) are at in fashion. GE needs to align its products with these two limiting factors. Huge research is required to maintain the existing products and design the new products according to these standards. Financial Health GE is a private limited organization listed at New York Stock Exchange. New York Stock Exchange has tough criteria for listing of companies and GE was able to meet these criteria soon after its establishment. GE listed itself at New York Stock Exchange on 23 June 1892 (NYSE.com). GE has been enjoying sound financial position for the last 100 years. The evidence of this fact is GE has not missed any year in the past century for payment of dividends. In the financial year 2009, GE was awarded with the title of a sustainability leader because of its excellent performance for the consecutive six years (GE.com). In 2010, GE won awards of most ethical company of the world, 25th most inventive company, the most admired company and the world’s top company for leaders. All these swards speak in favor of excellent performance of GE. Capital Structure The capital structure of GE as published in their Annual Report 2011 is as follows. The table gives an idea about heads of capital and also the respective share in capital formation. The comparison of two financial years i.e. 2010 and 2011 is also given below. 2011 (Figures in MUSD) 2010 (Figures in MUSD) Capital Stock 56 56 Investment Securities (671) (337) Currency Translation Adjustment (545) (1,541) Cash Flow Hedges (1,227) (1,347) Benefit Plans (563) (380) Additional Paid in Capital 28,462 28,463 Retained Earnings 54,533 47,967 Total GE Shareowners’ Equity 80,045 72,881 Total Equity 80,735 74,045 The table shows GE increased its overall capital in one year; however, investment securities are reduced. The reason may be the financial crisis and downfall of interest based system prevailing in USA. At this point, it is interesting to mention that GE is also involved in the finance related business but its success in that field largely goes unaffected by the global crises. Earnings per Share There are many determinants of financial health of an organization. Among all of them, the figure of Earning per share holds much weight. It is because it is calculated on the basis of organizational earnings divided by total number of stocks and helps determine organizational profitability (Tracy, 82). Since each stock has value and the number of company stocks reflect the level of financing, it collects through the equity sources, it is important to judge what value the company holds for each share. The table gives details about GE’s earnings per share in the last three financial years. Period Earnings Per Share Operating Earnings 2011- Fourth Quarter 0.39 USD 4.1 Billion USD 2011- Third Quarter 0.31 USD 3.4 Billion USD 2011- Second Quarter 0.34 USD 3.7 Billion USD 2011- First Quarter 0.33 USD 3.6 Billion USD 2010- Fourth Quarter 0.36 USD 3.9 Billion USD 2010- Third Quarter 0.29 USD 3.2 Billion USD 2010- Second Quarter 0.30 USD 3.3 Billion USD 2010- First Quarter 0.21 USD 2.3 Billion USD 2009- Fourth Quarter 0.28 USD 3 Billion USD 2009- Third Quarter 0.22 USD 2.5 Billion USD 2009- Second Quarter 0.26 USD 2.9 Billion USD 2009- First Quarter 0.26 USD 2.8 Billion USD The trend of GE’s earning per share shows its relative consistency. It is important to note that even after the global crises; GE maintained its pace and declares good level of earnings per share. Its performance is even better in the financial year 2011 and it has made huge jump in operating earnings and earnings per share as well. Conclusion GE is a success story and its financial health is highly sound. The efficient strategies of GE enable it not only to sustain in the current challenges but also grow and lead the market. It is not easy to stay first choice for customers, employees and investors at the same time. But GE has managed to attain this status and maintaining it quite well. There are challenges in its way but it is facing them all strategically and tactfully so that it can convert them into opportunities. It is successful at many platforms and continuously struggling to pave ways for even more successful endeavors. Works Cited Blodgett, John. Environmental Protection: New Approaches. New York: Nova Science Publishers, Inc. 2004. Print. Faust, Daniel. Energy Crisis: The Future of Fossil Fuels. New York: The Rosen Publishing Group. 2008. Print. GE| Technology | Services | Finance | Innovation | General Electric. General Electric, 2012. Web. 17 April 2012. New York Stock Exchange, New York Stock Exchange. NYSE Euronext, 2012. Web. 19 April 2012. Tracy, John. How to Read a Financial Report: Wringing Vital Signs Out of the Numbers. New Jersey: John Wiley & Sons. 2009. Print. Read More