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General Electric Co. (GE)


Analysis of Investments

High level of difficulty


Investment Accounting Policy

GE reports investments in debt and marketable equity securities, and certain other equity securities, at fair value. Unrealized gains and losses on available-for-sale debt securities are included in shareowners’ equity, net of applicable taxes and other adjustments. Unrealized gains and losses on equity securities with readily determinable fair values, are recorded to earnings.

GE regularly reviews investment securities for impairment using both quantitative and qualitative criteria. For debt securities, if GE does not intend to sell the security or it is not more likely than not that GE will be required to sell the security before recovery of the amortized cost, GE evaluates other qualitative criteria to determine whether GE does not expect to recover the amortized cost basis of the security, such as the financial health of and specific prospects for the issuer. GE also evaluates quantitative criteria including determining whether there has been an adverse change in expected future cash flows. If GE does not expect to recover the entire amortized cost basis of the security, GE considers the security to be other-than-temporarily impaired (OTTI), and GE records the difference between the security’s amortized cost basis and its recoverable amount in earnings and the difference between the security’s recoverable amount and fair value in other comprehensive income. If GE intends to sell the security or it is more likely than not GE will be required to sell the security before recovery of its amortized cost basis, the security is also considered OTTI and GE recognizes the entire difference between the security’s amortized cost basis and its fair value in earnings.

Realized gains and losses are accounted for on the specific identification method. Unrealized gains and losses on investment securities classified as trading are included in earnings.

Source: 10-K (filing date: 2019-02-26).


Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

General Electric Co., adjustment to Net Earnings (loss) Attributable To The Company

US$ in millions

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12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net earnings (loss) attributable to the Company (as reported) (22,355) (5,786) 8,831  (6,126) 15,233 
Add: Investment securities 64  (775) 203  (553) 708 
Net earnings (loss) attributable to the Company (adjusted) (22,291) (6,561) 9,034  (6,679) 15,941 

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).


Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

General Electric Co., adjusted ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net Profit Margin
Reported net profit margin -19.69% -5.11% 8.00% -5.79% 14.27%
Adjusted net profit margin -19.63% -5.80% 8.18% -6.31% 14.93%
Return on Equity (ROE)
Reported ROE -72.16% -9.00% 11.65% -6.23% 11.89%
Adjusted ROE -71.95% -10.21% 11.91% -6.80% 12.44%
Return on Assets (ROA)
Reported ROA -7.23% -1.53% 2.42% -1.24% 2.35%
Adjusted ROA -7.21% -1.74% 2.47% -1.36% 2.46%

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. General Electric Co.’s adjusted net profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders’ equity. General Electric Co.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. General Electric Co.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.

General Electric Co., Ratios: Reported vs. Adjusted


Adjusted Net Profit Margin

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings (loss) attributable to the Company (22,355) (5,786) 8,831  (6,126) 15,233 
Sales of goods and services 113,544  113,192  110,390  105,808  106,758 
Ratio
Net profit margin1 -19.69% -5.11% 8.00% -5.79% 14.27%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net earnings (loss) attributable to the Company (22,291) (6,561) 9,034  (6,679) 15,941 
Sales of goods and services 113,544  113,192  110,390  105,808  106,758 
Ratio
Adjusted net profit margin2 -19.63% -5.80% 8.18% -6.31% 14.93%

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

1 Net profit margin = 100 × Net earnings (loss) attributable to the Company ÷ Sales of goods and services
= 100 × -22,355 ÷ 113,544 = -19.69%

2 Adjusted net profit margin = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Sales of goods and services
= 100 × -22,291 ÷ 113,544 = -19.63%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. General Electric Co.’s adjusted net profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings (loss) attributable to the Company (22,355) (5,786) 8,831  (6,126) 15,233 
Total GE shareowners’ equity 30,981  64,263  75,828  98,274  128,159 
Ratio
ROE1 -72.16% -9.00% 11.65% -6.23% 11.89%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net earnings (loss) attributable to the Company (22,291) (6,561) 9,034  (6,679) 15,941 
Total GE shareowners’ equity 30,981  64,263  75,828  98,274  128,159 
Ratio
Adjusted ROE2 -71.95% -10.21% 11.91% -6.80% 12.44%

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

1 ROE = 100 × Net earnings (loss) attributable to the Company ÷ Total GE shareowners’ equity
= 100 × -22,355 ÷ 30,981 = -72.16%

2 Adjusted ROE = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Total GE shareowners’ equity
= 100 × -22,291 ÷ 30,981 = -71.95%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders’ equity. General Electric Co.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Assets (ROA)

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings (loss) attributable to the Company (22,355) (5,786) 8,831  (6,126) 15,233 
Total assets 309,129  377,945  365,183  492,692  648,349 
Ratio
ROA1 -7.23% -1.53% 2.42% -1.24% 2.35%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net earnings (loss) attributable to the Company (22,291) (6,561) 9,034  (6,679) 15,941 
Total assets 309,129  377,945  365,183  492,692  648,349 
Ratio
Adjusted ROA2 -7.21% -1.74% 2.47% -1.36% 2.46%

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27).

2018 Calculations

1 ROA = 100 × Net earnings (loss) attributable to the Company ÷ Total assets
= 100 × -22,355 ÷ 309,129 = -7.23%

2 Adjusted ROA = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Total assets
= 100 × -22,291 ÷ 309,129 = -7.21%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. General Electric Co.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.