Week 2 – Discussion Forum 1

 Prior to beginning work on this discussion forum ,  read Chapters 3, 4, and 5 in the course textbook, Using Financial Accounting Information: The Alternative to Debits and Credits, and Chapter 6 in the course textbook, Warren Buffett Accounting Book: Reading Financial Statements for Value Investing.

Using the same company and annual reports that you chose in your

Week 1 – Discussion Forum

, Reading and Using the Annual Report Case Study, address the following:

• Calculate the gross profit ratio, operating margin ratio, and net income margin ratio for the latest two years, and obtain the industry average ratios (if available) from IBISWorld.
• Analyze these ratios and discuss what each of these ratios tells you about the company’s profitability, and how it compares to the industry averages.
• Note any trends in these ratios from year-to-year, and discuss your assessment of the company based on these changes.
• If you were an investor, explain why you would or would not buy stock in the company.

Your initial response should be a minimum of 200 words. Graduate school students learn to assess the perspectives of several scholars. Support your response with at least one scholarly and/or credible resource, in addition to the text.

Attached is the discussion post from Week 1 needed for discussion 2

Mycompany of interest that trades on the New York Stock Exchange is General Electric (GE). Current ratio = current assets/current liabilities Year 2019: Current assets = $126.066 billion

Current liabilities = $74.259 billion

Current ratio = 126.066/74.259

CR = 1.698: 1

This current ratio indicates that General Electric can meet its current liabilities 1.698 times using its current assets before they are depleted. Year 2018: Current assets = $107.922 billion

Current liabilities = $60. 451 billion

Current ratio = 107.922/60.451

CR = 1.785:1

This ratio shows that GE can meet its current liabilities using its current assets 1.785 times. In comparing these two ratios, GE performed better in the year 2018 as compared to 2020.

Profit margin = gross profit/revenue * 100

Year 2019: Gross Profit = $25.186 billion

Revenue = 95.214 billion

Profit margin = 25.186/95.214 * 100

PM = 26.45%

This ratio indicates that 26.45% of total sales was gross profit.

Year 2018: Gross profit = 24. 194 billion

Revenue = 97.0112 billion

Profit margin = 24.194/97.0112 * 100

PM = 24.94%

This ratio shows that 24.94% of sales was gross profit.

In the latest report, the management discussion and analysis comments show that GE’s unrealized losses are attributed to the fair value of its securities which have been in a loss position. The comments also indicate that the current valuation was also not well adhered to thus altering the results. GE’s 2019 financial year auditor was Klynveld Peat Marwick Goerdeler (KPMG). KPMG gave an unqualified report for the year 2019.

GE has been on the right trajectory in terms of performance over time and has established sound accounting mechanisms and reporting. In the latest audited financial reports, it has had a truthful and fair presentation of financial transactions. (Casey & Pearce, 2018)

References

Casey, D., & Pearce, D. (Eds.). (2018). More Than Management Development: Action Learning at General Electric Company. Routledge.

Wise, G. (2020). Willis R. Whitney, General Electric and the Origins of US Industrial Research. Plunkett Lake Press.