Equity, Cash Flow, And Notes Analysis
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When evaluating a businesss financial statements, there are many key factors that may lead to certain conclusions, however, one that is often overlooked is the cyclic nature of the economy and the company. GEs lengthy history, beginning in 1878, and as the only remaining original company listed on the Dow Jones Industrial Index since 1896, proves that it has a strong background and products (www.ge.com/en). In evaluating the financial status of the company, the team will explain the fundamental principles behind the statements we are considering and extrapolate information from them. First we will review the Statements of Owners Equity and Cash Flows, where we will discover that they are increasing at a relatively consistent rate. After which, we will analyze the changes, why they occurred, and how they may guide future decisions for GE executives. In supplement to these tools, we will also review the financial statements and others tools potential insights for decision-making.
As we evaluate the financial position of GE, we must keep in mind the purpose of the different data and their implications. The Statement of Owners Equity is a valuable tool for investors and must be strong if GE intends to attract more stockholders. Equally valuable to investors is the Statement of Cash Flows, which let them know where the money is going. This is especially important when profits are lower because it can convey major purchases that will ultimately lead to higher profits and are only a short-term expense.
Statement of Changes
The Statement of Cash Flows contains three sections, operating activities, investing activities, and financing activities. The primary purpose of the Statement of Cash Flows is to provide relevant information about the cash inflows and outflows of a business during a specific period of time (
General Electric Company and consolidated affiliates
For the years ended December 31 (In millions)
CASH FLOWS – OPERATING ACTIVITIES
Net earnings
$16,593
$15,002
$14,118
Adjustments to reconcile net earnings to cash provided from operating activities
Cumulative effect of accounting changes
1,015
Depreciation and amortization of property, plant and equipment
8,385
6,956
6,511
Earnings (before accounting changes) retained by GECS
Deferred income taxes
-1,702
1,127
2,414
Decrease (increase) in GE current receivables
Decrease (increase) in inventories
Increase (decrease) in accounts payable
5,370
Decrease in GE progress collections
-2,268
-5,062
Increase in insurance liabilities and reserves
4,961
1,679
9,454
Provision for losses on financing receivables
3,888
3,752
3,084
All other operating activities
-2,499
CASH FROM OPERATING ACTIVITIES
36,484
29,229
28,766
CASH FLOWS – INVESTING ACTIVITIES
Additions to property, plant and equipment
-13,118
-9,779
-14,056
Dispositions of property, plant and equipment
5,845
4,952
6,357
Net increase in GECS financing receivables
-15,280
-4,687
-18,082
Payments for principal businesses purchased
-18,703
-14,407
-21,570
Investment in GECS
All other investing activities
2,842
2,078
-13,876
CASH USED FOR INVESTING ACTIVITIES
-38,414
-21,843
-61,227
CASH FLOWS – FINANCING ACTIVITIES
Net increase (decrease) in borrowings (maturities of 90 days or less)
-2,729
-20,544
-17,347
Newly issued debt (maturities longer than 90 days)
61,659
67,545
95,008
Repayments and other reductions (maturities longer than 90 days)
-47,106
-43,479
-40,454
Net dispositions (purchases) of GE shares for treasury
3,993
Dividends paid to shareowners
-8,278
-7,643
-7,157
All other financing activities
-2,945
3,873
CASH FROM (USED FOR) FINANCING ACTIVITIES
4,594
-3,632
32,938
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR
2,664
3,754
Cash and equivalents at beginning of year
12,664
8,910
8,433
Cash and equivalents at end of year
15,328
$12,664
$8,910
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest
-11,907
($10,910)
-9,654
Cash recovered (paid) during the year for income taxes
-1,339
-1,539
No matter what form of entity, owners equity concept has only two components, owners contributions to finance the business (Contributed Capital) and, the earnings from profitable operations retained in the business (retained earnings). The Statement of Owners Equity – called the Statement of Shareholders Equity when the entity is a corporation – reports both changes in owner investments in the business and changes in retained earnings for the business (