General Electric’s financing subsidiary (GE Capital Services—GECS) provides financing services for GE’s customers. If you purchase a GE appliance, for example, you could finance it through GECS. In 2014, GECS generated over $42 billion in revenue and reported profits of almost $7 billion. These numbers represented approximately 28 percent of the company’s total revenues ($149 billion) and 45 percent of the company’s profits ($15.2 billion). In 2014, the bad debt provision reported on GE’s income statement was $4.0 billion.
a. Compute bad debts as a percentage of revenues. Should you use GE overall revenues or revenues generated by GECS? Why?
b. If GECS prepared its own balance sheet, what would you expect to be the largest accounts?
c. Would you consider GE to be a manufacturing, retail, or service company? Discuss.
d. In 2015 GE announced it was de-emphasizing its lending business and reducing its exposure to GECS.
Discuss the reasons behind this management decision.