BusinessOpportunities-General Electric Company

GeneralElectric Company (GE) is one of the largest American corporations andthe most diversified worldwide. The company manufacturers, produces,and sells electronic equipment, engines of aircrafts and cars andoffers other financial services. The company also deals inlocomotives, health care, gas, lighting, oil, software, water,weapons, and wind turbines, and the management of General ElectricCompany (GE) knows how to segment their market. General ElectricCorporation was founded in 1892 that is 124 years ago by Jeffrey R.Immelt. Its other founders were Thomas Edison, Charles A. Coffin,Elihu Thomson, and Edwin J. Houston. Its headquarters are inNewYork, USA. The enterprise is traded on the New York Stock Exchange,the Dow Jones Industry Average Component, and the S&ampP 500component with a ticker symbol GE. Currently, it has a share price of$ 32.20. This research looks at General Electric Company, its likelyinvestments, its forecasts, and decisions the management would makebased on the forecasts and their implications.

TheLikely Investment General Electric Company (GE) Would Consider

Basedon the financial statements of General Electric Corporation (GE), thelikely investment the company’s management will consider isanything related to electronics. For example, the management ofGeneral Electric Company (GE) will consider investing in thelocomotives or automotive industry, or anything that deals withelectric wires, wireless cables, connectivity cables, and technology.They would consider investing in such industries because the economyis realizing a boom in those industries. People are buying more carsevery year since they are becoming affordable to many and countriesare developing. In the next years, there will be no space, as mostcars will have occupied the scarce and available space. Technology isalso advancing in the sense that everything will be automated. Theseindustries also realize the highest returns and profits (Johnston,&amp Bate, 2003).

BasicFeature of an Investment as a Foundation for Considering itsPotential Financial Impact

Aninvestment is an asset to someone or a company. This implies that ifinvested in the right portfolio and the right form ofdiversification, it will realize high returns. Investors aredifferent. There are those who are risk averse and risk takers. Here,we will discuss the features of any investment that could form abasis or a foundation for considering its potential impactfinancially (Johnston,&amp Bate, 2003).

Aninvestor ought to determine whether an investment portfolio hasadequate liquidity and collateral value. For example, one should notinvest in a company that does pay its creditors, has a huge debt, andhas little or no collateral value, which could be used a securitywhen they fail to pay the dividends to the shareholders. He needs toconsider the risk and return of the investment portfolio at hand.Ideally, the higher the risk of an investment, the higher the returnan investor will realize. Third, he should also determine thestability of his income when he decides to invest in a company. Here,an investor may look at it in different ways. By this I mean thestability of his monetary value and that of the purchasing power ofthe income. A point to note is that when the monetary income isstressed, diversification will be limited and hence he will get fewerreturns. Lastly, an important feature of an investment is the taxbenefit. Here he needs to determine the tax status of the company hewants to invest in. For example, the company may be evading tax whichmay increase the risk of the company not paying dividends sincechances of not paying up are high (Wiseman,2010).

ApproximateCosts and Benefits of the Investment

Fromthe financial statements of General Electric Company, as the totalrevenue of the company increases, the operating expenses alsoincrease resulting in a decrease in the net income of the company asseen in Appendix 1. Since the costs are increasing then decreasingand later increasing at the same rate, the financial projections willalso be the same as seen in Appendix 1. The company does not realizeany income apart from the revenue or the sales it makes on an annualbasis. Due to this trend, the decision of the business to invest willbe irrational. They will, therefore, have to decide whether theinvestment project will be profitable or not. Here, they will have touse capital budgeting techniques like net present value and internalrate of return to determine the profitability of the investmentproject of their choice. If the company incurs losses in a certainyear, they may decide not to invest (Wiseman,2010).

Effectof Potential Investment on Budgeting and Decision Making

Basedon the budget or projections of the financial statement of GeneralElectric Company (GE), the company will realize a profit in 2016 and2018. They can, therefore, decide to invest in those two years.However, if they decide to invest in 2017, they ought to seek fundsfrom financial institutions. If the management of General ElectricCorporation (GE) decides to invest in the portfolio this year, itwill involve significant cash spending or expenditures followed byhigh returns or benefits in the coming year (Weygandt,Kieso, &amp Kimmel, 2002).

Howit May Affect Short Term and Long Term Priorities

Ifthere are urgent short-term priorities, the management of GeneralElectric may decide to minimize on their expenditures this year orthey may decide not to invest this year due to the significant cashexpenditures. For the long-term priorities, they may decide to investand hope that they will achieve high returns to cover for their cashspending. In Appendix 2, the business will realize negativeintangible assets of $ – 199,104, 000 while in Appendix 3, they willget a negative change in cash and cash equivalents of $ -510,600,000.Since this amounts are significant, the benefits achieved by thecompany do not outweigh the costs incurred (Weygandt,Kieso, &amp Kimmel, 2002).

Conclusion

Whileconcluding, General Electric Company (GE) is a profitable venture ifit utilizes its resources well. Due to its diversification, it hasrealized high returns in various ventures. Budgeting is an essentialtool in a company as it helps management plan for the future andreduces chances of going into debt. Investors would prefer a companythat has minimal debt, as they will be assured of high returns. Inthis analysis, we have found out that investment with a higher riskis likely to achieve higher returns as compared to that with alow-risk level. For General Electric Company to invest in anyportfolio, it has to consider the amount of risk they will incur andthe returns if any. Finally, the analysis concludes that it would notbe worthwhile for General Electric Corporation to invest this yearsince its costs outweigh its benefits and therefore the company willrealize a downfall.

Appendix

Appendix1: Generic Electric Company Income Statement

GENERAL ELECTRIC COMPANY (GE)

INCOME STATEMENT

FOR THE YEAR ENDED

2013

2014

2015

2016

2017

2018

Total revenue

113,245,000

117,184,000

117,386,000

113,851,000

106,579,000

95,570,000

Cost of revenue

82,502,000

86,234,000

85,298,000

89,030,000

86,234,000

91,826,000

Gross Profit

30,743,000

30,950,000

32,088,000

24,821,000

20,345,000

3,744,000

Operating expenses

Research development

0

0

0

0

0

0

Selling, general, and administrative

18,773,000

17,963,000

20,439,000

16,297,000

23,771,000

14,631,000

Non-recurring

0

0

0

0

0

0

Others

0

0

0

0

0

0

Total operating expenses

18,773,000

17,963,000

20,439,000

16,297,000

23,771,000

14,631,000

Operating income or loss

11,970,000

12,987,000

11,649,000

8,524,000

-3,426,000

-10,887,000

Income from continuing operations

Total other income/ expenses net

0

0

0

0

0

0

EBIT

11,970,000

12,986,000

11,649,000

8,524,000

-3,426,000

-10,887,000

Interest

2,870,000

2,723,000

3,463,000

2,130,000

4,056,000

2,723,000

PAT

9,100,000

10,263,000

8,186,000

6,394,000

-7,482,000

-13,610,000

Income tax expense

1,219,000

773,000

6,485,000

-4,493,000

11,751,000

-9,759,000

Minority interest

-298,000

-112,000

-332,000

-78,000

-366,000

-44,000

Net Income from continuing operations

7,881,000

9,490,000

1,700,000

10,965,000

-18,867,000

-3,807,000

Non-recurring events

Discontinued operations

5,475,000

5,855,000

-7,495,000

18,825,000

-20,465,000

20,122,000

Extraordinary items

0

0

0

0

0

0

Effect of accounting changes

0

0

0

0

0

0

Other items

0

0

0

0

0

0

Net income

13,057,000

15,233,000

-6,126,000

29,790,000

-39,332,000

16,315,000

Preferred stock and other adjustments

0

0

-18,000

0

0

-18,000

Net income applicable to common shares

13,057,000

15,233,000

-6,145,000

29,790,000

-39,332,000

16,297,000

Appendix2: Generic Electric Company Balance Sheet

GENERAL ELECTRIC COMPANY (GE)

BALANCE SHEET

FOR THE YEAR ENDED

2013

2014

2015

2016

2017

2018

Assets

Current assets

Cash and cash equivalents

88,555,000

70,025,000

70,483,000

52,869,000

88,555,000

34,797,000

short term investments

43,981,000

35,505,000

31,973,000

30,561,000

24,205,000

12,905,000

Net receivables

272,442,000

42,943,000

45,856,000

-177,817,000

272,442,000

-404,403,000

Inventory

17,325,000

17,689,000

25,515,000

40,803,000

63,553,000

93,765,000

Other current assets

0

0

0

0

0

0

Total current assets

422,303,000

166,162,000

173,827,000

-53,584,000

448,755,000

-262,936,000

Long term investments

0

0

0

0

0

0

PPE

68,877,000

50,896,000

56,913,000

62,860,000

44,949,000

74,824,000

Goodwill

77,648,000

53,207,000

65,526,000

64,437,000

87,449,100

52,315,000

Intangible assets

14,310,000

13,182,000

16,744,000

10,748,000

19,178,000

8,314,000

Accumulated amortization

0

0

0

0

0

0

Other assets

73,147,000

365,325,000

179,578,000

258,894,000

231,779,000

98,233,000

Deferred long term asset changes

275,000

6,183,000

3,105,000

33,353,000

5,935,000

523,000

Total assets

656,560,000

654,955,000

495,693,000

376,708,000

838,045,100

-28,727,000

Liabilities

Current liabilities

Accounts payable

31,816,000

69,159,000

72,110,000

40,441,000

-25,164,000

-125,419,000

Short/ long term debt

108,014,000

74,828,000

52,975,000

42,455,000

43,268,000

55,414,000

Other current liabilities

66,742,000

14,323,000

23,597,000

57,738,000

-19,818,000

101,153,000

Total current liabilities

206,572,000

158,310,000

148,682,000

140,634,000

-1,714,000

31,148,000

Long term debt

221,665,000

186,596,000

145,301,000

97,780,000

44,033,000

-15,940,000

Other Liabilities

91,540,000

173,117,000

95,598,000

172,059,000

99,656,000

168,001,000

Deferred long term liability charges

0

0

0

0

0

0

Minority interest

6,217,000

8,674,000

1,864,000

13,027,000

-2,489,000

17,380,000

Negative goodwill

0

0

0

0

0

0

Total liabilities

525,994,000

526,697,000

391,445,000

423,500,000

139,486,000

200,589,000

Stockholder`s equity

Misc. stocks options warranties

0

98,000

2,972,000

8,622,000

17,048,000

28,250,000

Redeemable preferred stock

0

0

0

0

0

0

Preferred stock

0

0

6,000

6,000

6,000

6,000

Common stock

702,000

702,000

702,000

702,000

702,000

702,000

Retained earnings

149,051,000

155,333,000

140,020,000

164,364,000

130,989,000

173,395,000

Treasury stock

-42,561,000

-42,593,000

-63,539,000

-105,399,000

-168,173,000

-251,861,000

Capital Surplus

0

0

0

0

0

0

Other stockholder equity

23,374,000

14,716,000

21,084,000

17,006,000

18,794,000

19,296,000

Total Stockholder Equity

130,566,000

128,256,000

98,274,000

85,301,000

-634,000

-30,212,000

Net tangible assets

38,608,000

61,770,000

16,004,000

-132,093,000

699,193,100

-199,104,000

Appendix3: Generic Electric Company Statement of Cash Flows

GENERAL ELECTRIC COMPANY (GE)

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED

2013

2014

2015

2016

2017

2018

Net income

13,057,000

15,233,000

-6,126,000

29,790,000

-39,322,000

16,315,000

Operating activities

Depreciation

5,202,000

4,953,000

4,847,000

4,810,000

4,630,000

4,307,000

Adjustments to net income

-9,313,000

-6,849,000

7,546,000

33,872,000

72,129,000

122,317,000

Changes in accounts receivable

-485,000

-1,913,000

-52,000

-2,346,000

381,000

-2,779,000

Changes in liabilities

2,334,000

50,000

-1,537,000

-2,427,000

-2,620,000

-3,124,000

Changes in inventories

-1,368,000

-872,000

-314,000

306,000

988,000

1,732,000

Changes in other operating activities

4,672,000

5,318,000

7,160,000

10,198,000

14,432,000

19,862,000

Total cash flow from operating activities

28,510,000

27,709,000

19,891,000

44,413,000

89,940,000

142,315,000

Investing activities

Capital expenditures

-6,754,000

-7,134,000

-7,309,000

-7,689,000

-8,244,000

-8,974,000

Investments

18,850,000

1,260,000

1,043,000

-16,113,000

-50,642,000

-102,544,000

Other cash flows from investing activities

17,021,000

841,000

65,753,000

-47,891,000

114,485,000

-532,623,000

Total cash flow from investing activities

29,117,000

-5,034,000

59,488,000

-71,693,000

55,599,000

-644,141,000

Financing activities

Dividends paid

-7,821,000

-8,852,000

-9,295,000

-9,440,000

-10,173,000

-11,494,000

Sale of purchase stock

-8,288,000

-1,218,000

-1,099,000

-5,733,000

-19,516,000

-40,253,000

Net borrowings

-29,316,000

-30,190,000

-57,546,000

-111,384,000

-191,704,000

-298,506,000

Other cash flows from financing activities

-150,000

23,304,000

-8,112,000

31,566,000

-16,374,000

39,828,000

Total cash flow from financing activities

-45,575,000

-16,956,000

-76,054,000

-94,991,000

-237,767,000

-310,425,000

Effect of exchange rate changes

-795,000

-3,492,000

-3,464,000

-6,105,000

-795,000

-8,774,000

Change in cash and cash equivalents

11,258,000

2,224,000

-138,000

-33,385,000

144,744,000

-510,600,000

References

Johnston,R. &amp Bate, J. (2003). Thepower of strategy innovation.New York: AMACOM. Retrieved on 11 July 2016.

Wiseman,B. (2010). Budgeting.New York, NY: Weigl Publishers. Retrieved on 11 July 2016.

Weygandt,J., Kieso, D., &amp Kimmel, P. (2002). Managerialaccounting.New York: Wiley. Retrieved on 11 July 2016.