Financial measures for General Electric

Essay by Alisia GonzalezCollege, UndergraduateA+, November 1996

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To : The Board of Directors, GENERAL ELECTRIC COMPANY



After Mr. Weltch announced my new assignment, I pondered how I could go about guaranteeing the best possible result: a creditable and well organized work that is going to help you, the Board of Directors, plan for the future of the company in a better way. Before starting my analysis, I must specify that my target is not to abolish the traditionally used financial and statistical measures but to develop new ones to be used as guidance for the corporation¹s future development.

Our Chairman recently wrote that "the hottest trend in business in 1995 -- and the one that hit closest to home -- is the rush toward breaking up multi-business companies and spinning off their components, under the theory that their size and diversity inhibited their competitiveness ...

breaking up is the right answer for some big companies ... for us it is the wrong answer."1

For us the new trend is the entrance into the service industry.

The question must then be: is this the right answer?

GE is expecting to increase its revenue by the year 2000 to $120 billion compared with $58 billion in 1990. In other words, if the forecast proves to be correct, it will obtain an average annual rate of growth of 7.5%. This high rate is mainly attributed to the expansion of the services sector of the company, which is estimated to increase by an average annual rate of 13% compared with a corresponding one of 2.1% for manufacturing. Today nearly 60% of GE¹s profits comes from services -- up from 16.4% in 1980.2

This is our new direction and therefore my target...