An Analysis of Productivity of General Electronics (NYSE:GE)

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By Thomas Copeland on December 17, 2014 Company

When looking at an industrial corporation, investors look at the segmental margin of the company. This enables the investors to analyze which part of the company is outperforming and that helps them to decide where they should be investing. However, another thing to be taken under consideration is the company’s return on assets or ROA.

The company under discussion here is General Electronics (NYSE:GE), therefore the segmental margin of General Electronics (NYSE:GE) needs to be evaluated. General Electronics (NYSE:GE) is an American multinational corporation which operates through various segments like Energy, Technology infrastructure, Capital Finance as well as Consumer and Industrial.

GE’s segmental margin

General Electronics (NYSE:GE) comprises of four segments that successfully generate margins which are more than 15%. These four segments are power and water, aviation, health care as well as transportation. Due to the strength of these four segments, chances are that investors would be more interested in these operational departments of the company. However, in 2013 transportation made up around 7% of industrial income which was very low. Investors consider the segment margins of the segments based on the results of various years and it is not necessary that a segment that has not done well in the past would be preferred by the investors based on its current margin which is better than before. The overall results and the consistency is what matters along with the segmental return on assets (ROA).

GE’s (NYSE:GE) segmental ROA

A look at General Electronics’ (NYSE:GE) segmental ROA shows the following points;

Power & water has segmental return on asset (ROA) of more than 15%
Oil & Gas has segmental ROA of almost 10%
Energy Management has very low segmental ROA of mere 2%
Aviation has segmental ROA of 15%
Healthcare has segmental ROA of 10%
Transportation has segmental ROA of more than 25%
Appliance & lightening has ROA of almost 9%

Investors do not just look at the segmental ROA’s but also considers other strategic aspects prior to investing in a segment. Investors after looking at the segmental ROA of General Electronics (NYSE:GE) decided to focus on the company’s power & water segment by gaining the power and grid resources of French corporation Alstom.

The Alstom deal

The Alstom deal is about developing and industry in which General Electronics (NYSE:GE) will be the ruler. This deal will also generate cost collaboration via combined properties. By the 5^th year of the deal, General Electronics (NYSE:GE) hopes to generate $1.2 billion in annual cost. The deal was valued at $15.4 billion and Alstom gained $1.5 billion in earnings from operations of its power and grid properties in the year 2013. Looking at the numbers the company’s expected value is a decent amount.

The company generates the highest RAO through its Power and Water segment; therefore to the delight of the shareholders, the Alstom deal will focus on this segment. Focusing on power and water is likely to the stock higher which will benefit the shareholders as well as the company.