General Electric Company is listed in the New York Stock Exchange (NYSE). The company has four business divisions namely consumer electronics, energy, technological equipment, and investment capital (Fortune, 2011). GE ranks number six in terms of the US companies with the highest gross revenue. The company is involved in various industries including generation and supply of electricity, manufacturing industrial machinery and medical equipment as well as aircraft engines. It also offers financial services including insurance and consumer finance. The key competitors of the company are Siemens AG, and Emerson Electronic Company mainly concerned with production of consumer electronics. Consumer electronics also form the main business of General Electric Company (Ellis, 2011).
Debt to Equity Ratio
The debt to equity ratio is used to indicate the solvency risk of a company. Companies with a high debt to equity ratio are perceived as being more risky because they can easily fail to repay debt obligations leading to the dissolution of the company (Crawford, 2010). In such cases, investors end up losing their money since they are paid after debtors. Thus, companies with lower debt to equity ratio are preferred by investors provided they show optimal returns. Compared to its key competitors, General Electric Company has a very high debt to equity ratio. This means that the company has a very high insolvency risk which can scare away investors. The other two companies have a reasonable debt to equity ratio.
Profit Margin
The profit margin percentage indicates the proportion of a company’s sales that form its profit. A high profit margin may be a sign of high efficiency in a company’s operations such that most of its sales become profits (Jones & Wilson, 2010). Among the three companies-GE, EMR, and SI-EMR has the highest profit margin which shows that it is more efficient than the other two.
Return on Assets and Return on Equity
The return on assets percentage shows how much value a company is generating from the capital invested-both debt and equity capital (Siegel, 2008). The ratio is used to indicate the efficiency of a company in its operations. Among the three companies, EMR has the highest return on assets which shows that it is more efficient than the other two. Return on equity, in its part, shows the proportion of a company’s returns that are attributable to equity shareholders. Firms with a higher return on equity are more preferable to equity investors.
Beta and Current Ratio
Current ratio refers to the ratio of current assets to current liabilities and it indicates the ability of a company to meet short-term obligations (Scott, 2007). General Electric Company has the highest current ratio which means that it has lower liquidity risk compared to the other two companies. Beta, on the other hand indicates the sensitivity of a company’s return to market returns (Wilson, 2009). Siemens AG has the highest beta which means that its returns are more sensitive to market returns than the returns of the other two companies.
References
Crawford, M. (2010). Planning Assumptions: Will the Real Long-term Return Please Stand Up? AAII Journal 19(10), 10-12.
Ellis, D. (2010). Investment Policy. Homewood: Dow Jones-Irwin.
Fortune, P. (2011). An Assessment of Financial Market Volatility: Bills, Bonds, and Stocks. Economic Review 44(5), 13-18.
Jones, P & Wilson, W. (2010). Stocks for the Long-run: A Guide to Selecting Markets for Long-term Growth. Homewood, IL: Irwin.
Scott, W. (2007). Why Does Stock Volatility Change over Time? Journal of Finance 44(5), 1115-1153.
Siegel, B. (2008). The World Bond Market: Market Values, Yields, and Returns. Journal of Fixed Income 1(1), 90-99.
Wilson, W. (2009). A comparison of Annual Stock Returns. Journal of Business 60(2), 239-258.
Yahoo Finance. 2012. Web.