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Analysis of Investments

Difficulty: Advanced


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 investment securities are included in shareowners' equity, net of applicable taxes and other adjustments.

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, including whether the issuer is in compliance with the terms and covenants of the security. 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. For equity securities, GE considers the length of time and magnitude of the amount that each security is in an unrealized loss position. If GE does not expect to recover the entire amortized cost basis of the security, GE considers the security to be OTTI, and GE records the 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: 2018-02-23).


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

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

USD $ in millions

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12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net earnings (loss) attributable to the Company (as reported) (5,786) 8,831  (6,126) 15,233  13,057 
Add: Investment securities (775) 203  (553) 708  (374)
Net earnings (loss) attributable to the Company (adjusted) (6,561) 9,034  (6,679) 15,941  12,683 

Based on: 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), 10-K (filing date: 2014-02-27).


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

General Electric Co., adjusted ratios

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net Profit Margin
Reported net profit margin -5.11% 8.00% -5.79% 14.27% 12.99%
Adjusted net profit margin -5.80% 8.18% -6.31% 14.93% 12.61%
Return on Equity (ROE)
Reported ROE -9.00% 11.65% -6.23% 11.89% 10.00%
Adjusted ROE -10.21% 11.91% -6.80% 12.44% 9.71%
Return on Assets (ROA)
Reported ROA -1.53% 2.42% -1.24% 2.35% 1.99%
Adjusted ROA -1.74% 2.47% -1.36% 2.46% 1.93%

Based on: 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), 10-K (filing date: 2014-02-27).

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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders' equity. General Electric Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. General Electric Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

Adjusted Net Profit Margin

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net earnings (loss) attributable to the Company (USD $ in millions) (5,786) 8,831  (6,126) 15,233  13,057 
Sales of goods and services (USD $ in millions) 113,192  110,390  105,808  106,758  100,542 
Net profit margin1 -5.11% 8.00% -5.79% 14.27% 12.99%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net earnings (loss) attributable to the Company (USD $ in millions) (6,561) 9,034  (6,679) 15,941  12,683 
Sales of goods and services (USD $ in millions) 113,192  110,390  105,808  106,758  100,542 
Adjusted net profit margin2 -5.80% 8.18% -6.31% 14.93% 12.61%

Based on: 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), 10-K (filing date: 2014-02-27).

2017 Calculations

1 Net profit margin = 100 × Net earnings (loss) attributable to the Company ÷ Sales of goods and services
= 100 × -5,786 ÷ 113,192 = -5.11%

2 Adjusted net profit margin = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Sales of goods and services
= 100 × -6,561 ÷ 113,192 = -5.80%

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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

Adjusted Return on Equity (ROE)

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net earnings (loss) attributable to the Company (USD $ in millions) (5,786) 8,831  (6,126) 15,233  13,057 
Total GE shareowners' equity (USD $ in millions) 64,263  75,828  98,274  128,159  130,566 
ROE1 -9.00% 11.65% -6.23% 11.89% 10.00%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net earnings (loss) attributable to the Company (USD $ in millions) (6,561) 9,034  (6,679) 15,941  12,683 
Total GE shareowners' equity (USD $ in millions) 64,263  75,828  98,274  128,159  130,566 
Adjusted ROE2 -10.21% 11.91% -6.80% 12.44% 9.71%

Based on: 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), 10-K (filing date: 2014-02-27).

2017 Calculations

1 ROE = 100 × Net earnings (loss) attributable to the Company ÷ Total GE shareowners' equity
= 100 × -5,786 ÷ 64,263 = -9.00%

2 Adjusted ROE = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Total GE shareowners' equity
= 100 × -6,561 ÷ 64,263 = -10.21%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders' equity. General Electric Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

Adjusted Return on Assets (ROA)

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net earnings (loss) attributable to the Company (USD $ in millions) (5,786) 8,831  (6,126) 15,233  13,057 
Total assets (USD $ in millions) 377,945  365,183  492,692  648,349  656,560 
ROA1 -1.53% 2.42% -1.24% 2.35% 1.99%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net earnings (loss) attributable to the Company (USD $ in millions) (6,561) 9,034  (6,679) 15,941  12,683 
Total assets (USD $ in millions) 377,945  365,183  492,692  648,349  656,560 
Adjusted ROA2 -1.74% 2.47% -1.36% 2.46% 1.93%

Based on: 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), 10-K (filing date: 2014-02-27).

2017 Calculations

1 ROA = 100 × Net earnings (loss) attributable to the Company ÷ Total assets
= 100 × -5,786 ÷ 377,945 = -1.53%

2 Adjusted ROA = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Total assets
= 100 × -6,561 ÷ 377,945 = -1.74%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. General Electric Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.