Profit and Shareholder Wealth Comparison Paper

Essay by brokeheartUniversity, Bachelor'sA, December 2007

download word file, 3 pages 3.0

General Electric and Tyco International are classifying as conglomerates with each approaching their business strategies differently resulting in different financial results. General Electric has pursued a conservative growth strategy by focusing on being the number one or number two in each industry where it competes as Tyco has pursued a very aggressive sales and earnings growth strategy through rapid, multiple acquisitions.

According to the website, and had General Electric Company (GE) is a diversified industrial corporation and Tyco International Ltd. (TYC) is a diversified manufacturing and service company.

GE’s infrastructure segment produces jet engines, turboprop and turbo shaft engines, and related replacement parts for use in military and commercial aircraft; wind turbines; aircraft engine derivatives; gas and steam turbines, and generators; oil and natural and natural gas compressors and turbines; diesel-electric locomotives and parts; and productivity solutions for industrial and municipal water systems. (Yahoo Finance, 2007)Net Profit:Net Profits for General Electric (GE)Net Profit Margin2006200520042003200212.60%12.60%12.40%12%11.50%61.5000%12.3%Net

Profit for Tyco (TYC)Net Profit Margin200620052004200320029.10%7.70%7.40%2.70%-28.20%-1.3000%-0.26%In 2006, Tyco was far less profitable in terms of net profit margins (9.10 percent versus 12.60 percent) and had an 11.74 percent return on equity versus 18.65 percent for General Electric with common shareholder’s equity for Tyco at $35,419,000 compared to $112,314,000 for General Electric. After presenting this information about these two companies it has been determined that investors assuming a greater risk have not been rewarded with greater investment in Tyco.

General Electric is clearly the better investment based on their results provided. GE is also the leader in their industry with much greater Market Capitalization, net income and margins.

GE has created the greater shareholder wealth creation. (Please see the calculations).

The CEO of GE announced that the sales of GE’s investment in Swiss have raised a large concern. However, the CEO...