General Electric fianancial accounting analysis - Research Paper Example

Section II: Financial Statements and Financial Ratios As a decision maker, we need to know about the company's financial strength when we have to make any investment in the company, or we have to know how the company is faring in terms of liquidity or how the company can reward to its shareholders or for that matter how the company is currently performing compared to the previous years. One can make a good estimate for any firm by studying their financial statements, financial ratios and when they are compared with industry averages, it can give a good understanding where the company stands in the marketplace.

For any company we can study following financial statements which can give us most of the information necessary to make our decisions whether that pertains to investment, employment or as a supplier to safeguard our receivables etc. 1. Profit and Loss or Income Statement 2. Cash Flow Statement 3. Balance Sheet Profit and Loss Statement gives us the information how the company fared during the given financial year. When compared with previous years’ profit and loss figure, we can quickly find whether the company has made any progress or not.

If the company is going downside then that also can be found from the income statement. When these figures are compared with the industry average, it can be found how the company is doing against its competitors. Cash Flow Statement is a measure of company’s liquidity strength. It may be that the company is showing profit in their income statement but still its cash flow may be not healthy or even sometimes negative. Obviously, such companies will have difficulty in paying back its debt when due.

Cash flow rich companies reward its shareholders liberally and increasing dividend declared is a sign of the good cash flow generated by the company. Balance Sheet is an indication of the company’s status at given point. Usually, it shows its financial status at the end of the financial year. This financial statement displays a cumulative strength of the company year after year. All the accumulated reserve from so many years of operation can be seen through this statement. We can come to the conclusion quickly by finding or knowing the financial ratios depending upon what kind of the decisions we want to take regarding the company.

It would be worthwhile to look into some of the financial data and the ratios of the General Electric Co. Important Financial Ratios (Based on latest balance sheet for the year ended 12/31/2010) Asset Turnover is a good measure of the utilization of company’s assets in making the sales in a competitive market. It is an indication of how efficiently resources are made use of. Asset Turnover = Sales/Average Total Assets (Drake, Pamela) = 150,211/751,216 =0.20% This does not augur well with GE, when compared with the industry average as it comes to first 20th percentile.

(GE, Financials) Similarly, when GE's profitability ratios are calculated, they are found to be as follows. Return on Assets= 1.28% On comparing with industry average,