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An Overview of General Electric's Balance Sheet

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GE'S BALANCE SHEET 3 LESSONS FOR INVESTORS


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GENERAL ELECTRIC'S BALANCE SHEET CASTS LIGHT ON THREE OF THE COMPANY'S MOST IMPORTANT TRAITS.


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SIZE | LIQUIDITY | SOLVENCY


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ARE THERE ENOUGH CURRENT ASSETS (CASH & EQUIVALENTS) TO COVER CURRENT LIABILITIES? SIZE | LIQUIDITY | SOLVENCY ASSETS & EQUITY DOES EQUITY EXCEED DEBT?


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THESE TRAITS GIVE INVESTORS A SENSE OF GENERAL ELECTRIC'S GROWTH POTENTIAL, AS WELL AS OF THE VULNERABILITY OF ITS BUSINESS MODEL.


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BEFORE DIGGING INTO THESE TRAITS, LET’S BRIEFLY REVIEW THE BALANCE SHEET ITSELF.


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THE BALANCE SHEET 1. THE BALANCE SHEET REVEALS A COMPANY’S ASSETS, LIABILITIES, AND OWNERS’ EQUITY ON THE FINAL DAY OF A FISCAL QUARTER OR YEAR. LIABILITIES ASSETS EQUITY 2. THIS IS WHY IT’S OFTEN REFERRED TO AS A SNAPSHOT OF A COMPANY’S FINANCIAL CONDITION. 3. THE “ACCOUNTING EQUATION” HOLDS THAT ASSETS MUST ALWAYS EQUAL LIABILITIES PLUS OWNERS’ EQUITY.


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1. SIZE


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YOU PROBABLY WON'T BE SURPRISED TO HEAR THAT GENERAL ELECTRIC IS ONE OF THE BIGGEST COMPANIES IN AMERICA.


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4 WAYS TO MEASURE GE'S SIZE $581 billion $312 billion $111 billion $148 billion Market Total Shareholders' Revenue Capitalization Assets Equity (ttm) FOUND ON GENERAL ELECTRIC'S BALANCE SHEET


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11TH 9TH GE IS THE 9TH BIGGEST COMPANY ON THE S&P 500 BASED ON EQUITY. IT'S THE 11TH LARGEST WHEN MEASURED BY ASSETS.


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THANKS TO GENERAL ELECTRIC'S ALREADY CONSIDERABLE SIZE, IT ISN'T LIKELY TO GROW AS FAST AS, SAY, A NEWLY LISTED GROWTH STOCK.


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2. LIQUIDITY


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THE CURRENT RATIO IS A COMMON WAY TO MEASURE LIQUIDITY.


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IT’S CALCULATED BY DIVIDING A COMPANY’S CURRENT ASSETS BY ITS CURRENT LIABILITIES.


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GE'S CURRENT ASSETS $256 BILLION $84 BILLION GE'S CURRENT LIABILITIES = 3.03 GE'S CURRENT RATIO


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HOW DOES GENERAL ELECTRIC'S CURRENT RATIO COMPARE TO THAT OF OTHER LARGE-CAP STOCKS?


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THE CURRENT RATIOS OF THE 100 BIGGEST S&P 500 COMPANIES ←CURRENT RATIO → 6 5 4 3 2 54% OF S&P 500 COMPANIES HAVE CURRENT RATIOS BETWEEN 0.75 AND 2.0 1 - ← 100 BIGGEST S&P 500 COMPANIES →


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IN SUM, BECAUSE GENERAL ELECTRIC'S CURRENT RATIO EXCEEDS 2.0, IT'S MORE LIQUID (AND THUS PRESUMABLY SAFER) THAN THE TYPICAL LARGE-CAP STOCK.


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3. SOLVENCY


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LAST BUT NOT LEAST IS SOLVENCY, WHICH IS MEASURED BY THE DEBT-TOEQUITY RATIO.


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THIS IS CALCULATED BY DIVIDING A COMPANY’S DEBT BY ITS EQUITY.


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GE'S DEBT $243 BILLION $111 BILLION GE'S EQUITY = 2.18 GE'S DEBT-TOEQUITY RATIO


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THERE’S NO HARD-AND-FAST RULE WHEN IT COMES TO THE DEBT-TOEQUITY RATIO, THOUGH A SMALLER RATIO (LESS THAN 1) IMPLIES THAT A COMPANY IS BETTER POSITIONED TO SURVIVE AN INTERUPTION TO ITS REVENUE.


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HOW DOES GENERAL ELECTRIC'S DEBTTO-EQUITY RATIO COMPARE? 3.5 3.0 2.98 2.5 2.18 2.17 2.0 1.5 1.0 0.56 0.49 0.5 0.28 0.20 JNJ XOM 0.0 IBM MCD COST PG GE


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WHILE GE'S DEBT-TO-EQUITY RATIO EXCEEDS 1.0, IT'S IN GOOD COMPANY, AS 185 OTHER S&P 500 COMPANIES ARE IN THE SAME BOAT.


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