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General Electric: Ratio Analysis

Find General Electric's Annual report.

Calculate the following ratios for the company:

Return on assets
Return on equity
Gross profit margin
Debt to equity ratio
Debt ratio
Current ratio
Quick ratio
Inventory turnover
Total asset turnover
Price earnings ratio

Using the calculated ratios, analyze the financial performance of the firm. Use the ratios to make comparisons between itself in previous periods as well as against competitors, determine the firm's performance. Write a memo to the CEO detailing the following:

An explanation of the calculated ratios.
Address other methods of analyzing financial statements aside from ratio analysis.
Explain analysis of the firm, and recommendations for improvement.

Solution Preview

The manufacturing company whose annual report I have found is General Electric. General Electric is a US based multinational company which has manufacturing activities in energy, technology, and infrastructure. It has been ranked as the 14th most profitable company in the US.

To: Chief Executive Officer, General Electric,
From: Financial Analyst
Date: September 21st 2013
Subject: Financial Analysis of your company.

We first use ratio analysis to evaluate the financial condition of General Electric.
As required we first calculate the return on assets ratio. The return on assets is expressed as a percentage that shows how profitable the GE's assets are in generating revenue. This is calculated by dividing net income of GE by total assets. Return on assets is 2.09% which when compared with the industry average of 4.11% is weak. We now consider return on equity. Return on equity is the net income as a percent of shareholder's equity. This is a strong measure of shareholder's equity. We calculated it by dividing GE's net income by shareholder's equity. The return on equity is 11.65% when compared with the industry return on equity of 15.52% the performance of GE is not favourable. We next consider gross profit margin. Gross profit margin is the proportion of money left over from the revenues after accounting for cost of goods sold. This is calculated by subtracting the cost of goods sold of GE from its sales revenues and dividing it by sales revenues. The Gross profit margin of GE is 49.97% when compared with the industry average of 36.07% the gross profit margin is GE is ...

Solution Summary

The response provides you a structured explanation of ratio analysis of General Electric financial statements. It also gives you the relevant references.

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