Tyco Versus General Electric Financial Analysis

Tyco versus General Electric Financial Analysis

This paper will give a financial analysis of two corporate moguls: Tyco International and General Electric Corporation. Through thorough research of each company’s shareholder’s equity, preferred stock equity, market capitalization, net profit margins and other factors, this paper will review which company’s strategy has presented a greater risk to the shareholder’s investment. It will also determine whether the investors who are assuming the risk have been rewarded with a greater investment.

To research this effectively, a few figures are necessary to be stated. To begin with each company’s shareholder’s equity needs to be determined. Tyco's annual report listed that their Stockholders' Equity for 2007 was $15,624,000 and no Preferred Stock had been issued; therefore, $15,624,000 was the Common Shareholders' equity (total equity less any preferred stock equity). General Electric’s annual report listed that their Stockholders' Equity for 2007 was $115,559,000 and that no Preferred Stock had been issued; therefore, $115,559,000 was the Common Shareholders' equity (total equity less any preferred stock equity).

Next the market capitalization was researched. This is done by taking the total amount of common stock shares outstanding and multiplying that by the latest stock price. General Electric’s per share price on April 18th was $32.69 and had 9,987,599,000 Common Stock shares outstanding, which means that the Market Capitalization calculated to: $326,494,611,310 (stocks.us.reuters.com, 2008). Tyco’s per share price on April 18th was $47.41 and had 397,000,000 Common Stock shares outstanding, which means that the Market Capitalization calculated out to: $18,821,770,000 (stocks.us.reuters.com, 2008).

Net profit margins are also a vital piece of information needed in order to calculate risk. Each company’s information is listed publicly. Please refer to charts below.

Tyco International

Profit Margins % Company Industry S&P 500

Gross Margin NA 24.3 34.4

Pre-Tax Margin NA 8.1 16.6

Net Profit Margin NA 7.1 11.7

5Yr Gross Margin (5-Year Avg.) 35.1 27.3 34.8

5Yr PreTax Margin (5-Year Avg.) 4.1 6.5 17.0

5Yr Net Profit Margin (5-Year Avg.) 2.1 4.2 11.9

(moneycentral.msn.com, 2008)

General Electric

Profit Margins % Company Industry S&P 500

Gross Margin NA 21.3 34.4

Pre-Tax Margin NA 6.5 16.6

Net Profit Margin NA 5.7 11.7

5Yr Gross Margin (5-Year Avg.) 44.0 41.8 34.8

5Yr PreTax Margin (5-Year Avg.) 15.5 13.8 17.0

5Yr Net Profit Margin (5-Year Avg.) 12.7 10.1 11.9

(moneycentral.msn.com, 2008)

These charts show that the five year net profit margin for Tyco was 2.1%, and the five year net profit margin for General Electric was 12.7%.

The market-to-book ratio provides one measure of shareholder wealth created by each company. This calculation is done by taking each companies market capitalization and dividing that by its shareholder’s equity. Shareholder’s equity is defined by the sum of preferred stock equity and common stock equity (investors.tyco.com, 2007). For both Tyco and General Electric the shareholder’s had no preferred stock issued. Here are the calculations for the market to book ratio. General Electric has a market capitalization of $326,494,611,310, divide that by $115,559,000 in shareholder’s equity, and the market-to-book ratio is 2,825.35. For Tyco the market capitalization was $18,821,770,000, divided by the shareholder’s equity of $15,624,000 equals 1,204.67 as