The Need for Consolidated Statements

The Case of General Electric

Exercise A3-3

GE-Parent owns a sufficiently high percentage of the voting common stock of GECS to require preparation of consolidated financial statements under FASB ASC 810. GE long has voluntarily reported the (non-required) financial-statement information for GE-Parent and GECS. Use the financial-statement information for GE-Consolidated and GE-Parent (i.e., not GECS) posted at Oncourse to answer the following questions about GEs reporting of GE-Parent and GECS.

Required:

1. Refer to the GE-Consolidated and GE-Parent December 31, 2010 Statement of Financial Position and Statement of Earnings for the year then ended to calculate the following ratios for each entity.

1. Return on equity (i.e., net earnings divided by share owners equity)

2. Profit margin (i.e., net earnings divided by total revenues)

3. Return on assets (i.e., net earnings divided by total assets)

4. Debt-to-equity (i.e., total liabilities divided by share owners equity)

2. Compare each of the ratios for GE-Consolidated and GE-Parent for the year ended December 31, 2010. If the ratios are different, identify the exact cause of the difference. Does GE-Consolidated or GE-Parent have better ratios?

3. Assume you are financial analyst trying to estimate the intrinsic value of GEs common stock. How would you evaluate the performance and financial condition of GE?

The Need for Consolidated Statements

The Case of General Electric

Exercise A3-3

Ratio	GE-Consolidated	GE-Parent
Return-on-Equity = Net Earnings / Total Shareowners Equity
Profit margin = Net Earnings / Total Revenues
ROA = Net Earnings / Total Assets
Debt-to-Equity = Total Liabilities / Total Shareowners Equity