Equity Cash Flow and Notes Analysis

Equity, Cash Flow, And Notes Analysis for the General Electric Company

Regarding the specific components of the Statement of Changes in Owner's Equity and Statements of Cash Flows, from line items to balances

General Electric still stands tall in the public's estimation and in its international reputation as a pioneer of Six Sigma management policies regarding internal quality control. (Six Sigma, 2004) According to its annual report, GE Share owners' equity increased $8.9 billion, $4.3 billion and $7.9 billion in 2002, 2001 and 2000. Thus, the performance of the General Electric company in sheer dollar terms continues to improve, not simply as a statistical blip between the current financial year and the financial year of the past, but steadily, and over time. The increases were largely attributable to net earnings of $14.1 billion, $13.7 billion and $12.7 billion. These increases were only partially offset by dividends declared of $7.3 billion, $6.6 billion and $5.6 billion in 2002, 2001 and 2000, respectively.

But by and large, GE's profit as a company thus overall increased in terms of its net worth, and also in terms of its ability to pay dividends to its stockholders and shareholders. It was also able to maintain generous stock options packages and retirement packages to its employees, domestically and internationally, and increased its net worth in both its manufacturing and service sectors.

Part B: Analysis of the changes in those balances from the prior year, possible specific explanations for any changes from the previous year, and how management can use that information in helping the business to achieve its http://www.ge.com/images/en/ar2002/space.gif

It should be noted that GE's international financial statements were affected by currency translation adjustments. These translations increased the recorded equity by $1.0 billion in 2002, compared with reductions of $0.6 billion and $1.2 billion in 2001 and 2000, respectively. "Changes in the currency translation adjustment reflect the effects of changes in currency exchange rates on our net investment in non-U.S. subsidiaries that have functional currencies other than the U.S. dollar," stated the GE Management Statement and Analysis regarding Cash Flow and Liquidity of the company. Thus, in addition to specific corporate policies, the currency exchange rate also affected the reporting of the company's profits to a considerable degree, because of GE's considerable international interests.

Also because the Euro, the prime currency of the European Union, has grown stronger in relation to the United States dollar and that given the European Union has grown more cohesive and larger as an economic unity, and the unified currency has become part and parcel of international economic affairs, GE must keep a careful eye upon currency values. Currency translation and cash flow of GE was also affected "to a lesser extent," by the value of Asian currencies in relation to the U.S. dollar reversed trends in those exchange relationships over the prior two years.

The fact that the Euro strengthened significantly vs. The U.S. dollar in 2002, and was relatively unchanged in 2001 after weakening in 2000 and that Asian currencies also strengthened against the dollar in 2002, and had weakened in 2001 and 2000 point to a possible currency trend might indicate that GE needs to exploit these opportunities in the future, by exporting American manufactured and based goods to these nations. GE was one of the pioneering companies into Eastern Europe during the 1990's, most notably in Hungary, an economic expansion experiment that eventually proved successful, despite many naysayers. But now, the weakening United States dollar is not necessarily bad for the company as a whole, given GE's considerable international interests, as well as its strong standing domestically.

Part C: Important notes to the financial statements and how they help management and investors make good business decisions

It should be noted that GE is in fact a conglomeration of two entities that are associated but are also independent. GE's accounts represent the adding together of all affiliates other than General Electric Capital Services, Inc. (GECS), whose operations are presented on a one-line basis, in all financial statements. This affiliate owns all of the common stock of General Electric Capital Corporation (GE Capital) and while GE Global Insurance Holding Corporation (GE Global Insurance Holding), the parent of Employers Reinsurance Corporation. GE Capital, GE Global Insurance Holding and their respective affiliates are consolidated in the GECS columns and constitute its business. GE is thus a service-based industry, selling insurance, as well as a manufacturing sector. Both sectors, however, have been booming. Also it should be noted that GE is composed of NBC, in other words an entertainment and service sector that does not always result in all dividends with all activities being paid immediately upon the fruits of production being realized. According to the most recent "Summary of Significant Accounting practices," the "sales by NBC are recorded when advertisements are broadcast, with provision made for any shortfalls from viewer commitments" are "based on specific contracts and independent viewer census information," while "sales of goods in the Aircraft Engines, Medical Systems, Power Systems, Transportation Systems and certain Industrial Systems businesses sometimes include multiple components and sometimes include services such as installation. In such contracts, amounts assigned to each component are based on that component's objectively determined fair value, such as the sales price for the component when it is sold separately or competitor prices for similar components. In general, sales are recognized individually for delivered components only when undelivered components are not essential to their functionality. However, when undelivered components are inconsequential or perfunctory, such as certain training commitments, sales are recognized on the total contract with provision made for the cost of the incomplete elements."