Prepare a company analysis for General Electric Company . A checklist for Company Analysis 1. Corporate Profile ? Identify the companys major products and services;
Prepare a company analysis for General Electric Company . A checklist for Company Analysis
1. Corporate Profile
? Identify the company’s major products and services; current position in industry; and history
? Composition of sales
? Product life-cycle stages/experience/experience curve effects
? R&D activities
? Past and planned capital expenditures
? Board structure, composition, and electoral system; antitakeover provisions; and other corporate governance issues
? Management strengths, weaknesses, compensation, turnover, and corporate culture
? Benefits, retirements plans, and their influence on shareholder value
? Labor relations
? Insider ownership levels and changes
? Legal actions and the company’s state of preparedness
? Other special strengths or weaknesses
2. Industry Characteristics
? Stage in its life cycle
? Business-cycle sensitivity or economic characteristics
? Typical product-life cycles in the industry (short and marked by technological obsolescence or long, such as pharmaceuticals protected by patents)
? Brand loyalty, customer switching costs, and intensity of competition
? Entry and exist barriers
? Industry supplier considerations (concentration of sources, ability to switch suppliers or enter suppliers’ business)
? Number of companies in the industry and whether it is, as determined by market shares, fragmented or concentrated
? Opportunity to differentiate product/service and relative product/service price, cost, and quality advantages/disadvantages
? Technologies used
? Government regulation
? State and history of labor relations
? Other industry problems/opportunities
3. Analysis of Demand for Products/Services
? Sources of demand
? Product differentiation
? Past record; sensitivities; and correlations with social, demographic, economic, and other variables
? Outlook – short, medium, and long term, including new products and business opportunities
4. Analysis of Supply of Products/Services
? Sources (concentration, competition, and substitutes)
? Industry capacity outlook – short, medium, and long term
? Company’s capacity and cost structure
? Import/export considerations
? Proprietary products or trademarks
5. Analysis of Pricing
? Past relationships among demand, supply, and prices
? Significance of raw material and labor costs and the outlook for their cost and availability
? Outlook for selling prices, demand, and profitability based on current and anticipated future trends
Financial Ratios and Measures (in multiyear spreadsheets with historical and forecast data)
I Activity ratios: measuring how efficiently a company performs such functions as the collection of receivables and inventory management
? Days of sales outstanding (DSO)
? Days of inventory on hand (DOH)
? Days of payables outstanding (DPO)
II Liquidity ratios: measuring a company’s ability to meet its short-term obligations
? Current ratio
? Quick ratio
? Cash ratio
? Cash conversion cycle (DOH + DSO – DPO)
III Solvency ratios: measuring a company’s ability to meet its debt obligations. (in the following, “net debt” is the amount of interest-bearing liabilities after subtracting cash and cash equivalents.)
? Net debt to EBITDA (earnings before interest, taxes, depreciation, and amortization)
? Net debt to capital
? Debt to assets
? Debt to capital (at book and market values)
? Financial leverage ratio (average total assets/average total equity)
? Cash flow to debt
? Interest coverage ratio
? Off-balance-sheet liabilities and contingent liabilities
? Non-arm’s-length financial dealings
IV Profitability ratios: measuring a company’s ability to generate profitable sales from its resources (assets)
? Gross profit margin
? Operating profit margin
? Pretax profit margin
? Net profit margin
? Return on invested capital or ROIC (net operating profits after tax/average invested capital)
? Return on assets or ROA (net income/average total assets)
? Return on equity ROE (net income/average total equity)
V Financial statistics and related considerations: quantities and facts about a company’s finances that an analyst should understand
? Growth rate of net sales
? Growth rate of gross profit
? EBITDA
? Net income
? Operating cash flow
? EPS
? Operating cash flow per share
? Operating cash flow in relation to maintenance and total capital expenditures
? Expected rate of return on retained cash flow
? Debt maturities and ability of company to refinance and/or repay debt
? Dividend payout ratio (common dividends/net income available to common shareholders)
? Off-balance-sheet liabilities and contingent liabilities
? Non-arm’s length financial dealings
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Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac
22nd Edition
324401841, 978-0-324-6250, 0-324-62509-X, 978-0324401844
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