The paper “ Financial Management of General Electric Corporation” is affecting the example of the case study on finance & accounting. General Electric (GE) is an old US multinational company with businesses in various fields including energy, electrical equipment, medical equipment, locomotives and aircraft, and financial services. This paper studies the financial management practices of GE with respect to its capital budgeting, shareholders’ value creation, and dividend payout policy. For the purpose, I have first analyzed the company’ s balance sheet and profit & loss statement and see its main profitability, liquidity, activity, and market ratios. It is found that GE has traditionalized capitalized on its reputation so that with moderate profitability, as seen from its profitability ratios compared to the industry ratios, the company has had very high share prices and turnovers.
This has enabled it to create high shareholders’ value, which has been the high point of the company. Also because of the company’ s reputation, it has been highly dependent on external borrowings for asset creation. Hence, with low levels of liquidity, the company’ s capital budgeting practices have been adventurous, to say the least, so that its short and long term borrowings are much higher than its competitors.
The company has also traditionally rewarded its shareholders with high dividend payouts and low retention rates. The shareholder focus got a battering when the company came to be negatively affected by the global financial crisis. The share price fell and the company’ s earnings were reduced as a result of which it found debt servicing difficult. Fund crunch affected its capital budget planning and dividends had to be cut for the first time in 71 years. IntroductionGeneral Electric (GE) was formed in 1892 and has over the years, grown into one of the largest multinational companies in the world.
GE has around 39,000 employees in its 215 manufacturing plants and offices in the United States and 80 plants in other countries. From the lighting business, GE has grown into a diversified company with business interests in electricity generation, industrial automation, medical diagnostic equipment, locomotives, aircraft engines, and capital services.
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