This report will compare the pro-forma financial statement of two companies: Bank of America and General Electric also-known as GE. It will describe and summarize the comparison of both organizations and their fiscal stability. It will also detail the typical business cycle of these two companies.
Pro-Forma Financial of General Electric and Bank of America
General Electric and Bank of America are two companies in the US that are competing to increase their sales, as well as their income in order to increase profits. Both companies are very strong financially: GE is an agglomerates industry with a market capital of $259.56 billion and Bank of America one of the major financial institutions with a market capital of $183.25 billion. Both companies make an effort to improve their bottom figures in each financial year. Bank of America had some merging and restructuring expenses in 2008, but was still showing remarkable earnings. However in the latest first-quarter 2014 report, a net loss of $276 million was published. In 2014, GE decided to acquire the power and Grid business of Alstom. GE expects the deal to be accretive to earnings in the first year. (www.businesswire.com, 2014).
Financial Viability and Ratio Analysis of General Electric
According to the GE third-quarter 2014 annual report, the organization is performing well and has experienced profit growth since 2013 in the following areas: operating earnings, revenues, industrial segment profits, industrial segment organic revenue, and growth market orders. In addition, new technologies sparked an increase in equipment orders. Likewise, the organization has a strategy in place that has created growth in services business. GE will continue to simplify operations and focus on the needs of its consumers. Furthermore, GE is continuing to gain approval to acquire Alstom Power and Grid businesses.
This acquisition is expected to take place in 2015. The acquisition is expected to increase GE’s cost per share and it will help GE obtain its goal of receiving most of its earnings through industrial businesses. (GE Reports Third-Quarter 2014, 2013) A ratio analysis is a “quantitative analysis of information contained in a company’s financial statements. (Definition of Ratio Analysis, 2014) It is used to “evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency” (Definition of Ratio Analysis, 2014). This is a great tool to calculate how the company is doing over a certain amount of time.
GE’s efficiency ratio for day’s inventory, for example, was 54.76, however in 2013, it was 77.36. Receivables turnover was another huge improvement from 2004, at 12.21, to 2013 at 6.81(General Electric Co, 2014). GE’s short term debt has decreased from 21.02% in 2004 to 13.24% in 2013 however the long term debt has increased, with 28.41% in 2004, and 36.97% in 2013. The current ratio has also improved with 2.39 in 2004, and 2.53 in 2013, this is a big win for GE! (General Electric Co, 2014) This shows that the company is more able to pay debts and short term obligations than when it first began (Current Ratio Definition, 2014).
Financial Viability and Ratio Analysis of Bank of America
In order to know the financial health of an organization, it is imperative to know the organization’s financial viability. We have looked at the financial viability for Bank of America and find it to be a viable company. We looked at Bank of America’s Return on Investment (ROI) which is calculated by looking at Bank of America’s yearly return compared to the total investment we need for a project. Bank of America’s Revenue was 98,353 million with Net Income at 5,222 million for the year ending 2013. Total liabilities were 1,884,932 million with 2,123,613 million in total assets (Bank of America, 2014). Bank of America’s working capital ratio is 1.126 which shows us that is able to have enough cash to repay debts. Bank of America’s debt ratio is .8876 which shows that this company can repay long term debt. These few ratios help us see that this business is able to generate enough surpluses in order to meet their recurring payment obligation which also verifies the company’s viability (Bank of America, 2014).
A business cycle is the growth or decline in an economy. As of today the economy has grown from the recession in September 2008 that left many people without jobs, the stock market plunges and many companies going bankrupt and closing. Furthermore, the goal of economic policy is to keep the economy in a healthy growth rate that create jobs for people, but slow enough to avoid inflation. Many factors can cause an economy to spin out of control, or settle into depression. The most important, over-riding factor is confidence of investors, consumers, businesses and politicians. The economy grows when there is confidence in the future and in policymakers, and does the opposite when confidence drops (Amadeo, 2014). Recent banking trends offer subtle indications about the business cycle. The financial crisis in 2008 stemmed from explosive monetary policy during the preceding period (Hofschire, 2014).
During the financial crisis in 2008 it left a lot of companies wondering if they will ever get back to where they were before the market plunged. Financial institutions, such as Bank of America made it difficult for home buyers to take out loans to purchase properties. Although the housing market dropped, it was harder to qualify for loans because the qualifications were stricter. Furthermore, home owners were in upside loans because they could not afford to pay back the loans. During the financial crisis in 2008 General Electric (GE) was one of the major companies that produced numerous of appliances, such as refrigerators, stoves, microwaves and much more.
However, they took a huge financial loss as their earnings started to decrease as sale prices declined (Smith, 2008). General Electric said profits from its money and commercial finance divisions should total $2 billion in the third quarter, down nearly 20 percent from $2.45 billion in the second quarter (Smith, 2008). General Electric Capital is a large contributor to the company’s global earnings. Furthermore, General Electric had to give up some assets to raise their capital. As of today GE is one of the largest companies, which generate home appliances and they were able to overcome the financial crisis and regain their financial earnings.
This report shows that both GE and Bank of America are seeing steady growth and are slowly recovering from the recession. Both GE and Bank of America seem to be in the expansion part of the business cycle as sales would project. GE has improved in its current ratio between 2004 and 2013, and Bank of American still needs to improve its current ratio. Both companies have seen an increase in many areas of their financials and plan to continue to increase sales and profits.
Alstom Board Chooses GE Offer. (2014, June 21). Retrieved November 29, 2014, from www.businesswire.com: http://www.businesswire.com/news/home/20140621005026/en/Alstom-Board-Chooses-GE-Offer#.VHu2r-8g9es Amadeo, K. (2014). What Is the Business Cycle? Retrieved November 30, 2014, from useconomy.about.com: http://useconomy.about.com/od/glossary/g/business_cycle.htm Bank of America. (2014, May). Retrieved November 30, 2014, from www.forbes.com: http://www.forbes.com/companies/bank-of-america/ Current Ratio. (2014). Retrieved November 30, 2014, from www.investopedia.com: http://www.investopedia.com/terms/c/currentratio.asp GE news. (2014, October 17). Retrieved November 30, 2014, from www.genewsroom.com: www.genewsroom.com/press-releases/ge-reports-3q%E2%80%9914-operating-eps-038-6-3q-industrial-profit-9-operating-margins-90 General Electric. (2014, May). Retrieved November 30, 2014, from www.forbes.com: http://www.forbes.com/companies/general-electric/ General Electric. (2014, November 28). Retrieved November 30, 2014, from financials.morningstar.com: http://financials.morningstar.com/ratios/r.html?t=GE Ratio Analysis. (2014). Retrieved November 30, 2014, from www.investopedia.com: http://www.investopedia.com/terms/r/ratioanalysis.asp Schire, D. H. (2014, February 28). March business cycle update. Retrieved November 30, 2014, from www.fidelity.com: https://www.fidelity.com/viewpoints/market-and-economic-insights/economy-update-march-14 Smith, A. (2008, October 9). Wall Street crisis hits GE. Retrieved November 30, 2014, from money.cnn.com: http://money.cnn.com/2008/10/09/news/companies/ge_earnings/ Walker, A., & McEntire, L. (2014). Investor Relations. Retrieved November 29, 2014, from www.bankofamerica.com: http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-newsArticle&ID