Equity, Cash Flow, And Notes Analysis

When evaluating a business's 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. GE's 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 (http://instructional1.calstatela.edu/jotto/chapt3.doc). GE's statement of cash flows is no different. Below are the specific components of GE's Statement of Cash Flows. The statement shows changes from FY 2002 through FY 2004.

General Electric Company and consolidated affiliates

For the years ended December 31 (In millions) 2004 2003 2002

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 - 587 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 -849 534 -409

Decrease (increase) in inventories -468 874 -87

Increase (decrease) in accounts payable 5,370 802 227

Decrease in GE progress collections -464 -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 770 184 -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 3,993 726 -985

Dividends paid to shareowners -8,278 -7,643 -7,157

All other financing activities -2,945 -237 3,873

CASH FROM (USED FOR) FINANCING ACTIVITIES 4,594 -3,632 32,938

INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 2,664 3,754 477

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 -948

No matter what form of entity, owner's equity concept has only two components, owner's contributions to finance the business (Contributed Capital) and, the earnings from profitable operations retained in the business (retained earnings). The Statement of Owner's Equity - called the Statement of Shareholder's Equity when the entity is a corporation - reports both changes in owner investments in the business and changes in retained earnings for the business (http://instructional1.calstatela.edu/jotto/chapt3.doc). Statement of Changes in Owners Equity includes changes in a corporation's capital. This includes any dividends paid to shareholders. GE refers

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