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A Glance at GE’s Balance Sheet: Debt Profile and Liquidity

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Jul. 13 2016, Updated 12:04 a.m. ET

About GE’s balance sheet: Debt and equity

At first glance, one might wonder about the sudden rise in General Electric’s (GE) Industrial plus Verticals debt-to-equity in the last two quarters. Verticals refer to financial services businesses expected to be retained by GE, primarily including GECC’s (General Electric Capital Corporation) vendor financing operations.

As of December 31, 2015, GE’s Industrial plus Verticals segment had $103.7 billion in debt compared to equity of $98.3 billion, implying a debt-to-equity ratio of ~1.1x. This was a sudden jump from 0.2x in 3Q15. GE’s consolidated debt-to-equity fell marginally to 2.0x in the same period.

The key reason for the sudden rise in leverage in GE’s Industrial plus Verticals segment was its assumption of $85.1 billion worth of debt from GECC. On the asset side of the Industrial plus Verticals segment, it reported the amount as receivables from GECC.

As of March 31, 2016, GE’s Industrial plus Verticals segment’s debt fell by 10% to $93 billion compared to its equity of $91.1 billion, implying a debt-to-equity ratio of 1.0x. GE’s consolidated debt-to-equity ratio was ~2.0x.

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GE’s liquidity

GE had $9.4 billion in cash and cash equivalents on its Industrial plus Verticals balance sheet as of March 31, 2016. Moreover, the sale of GECC’s assets could improve its liquidity position further. Based on the company’s guidance, it expects to generate cash from operations of about $30 billion–$32 billion in 2016, subject to an $18 billion dividend from GECC.

Investors interested in trading in industrials can look into the Fidelity MSCI Industrials ETF (FIDU). FIDU’s top holdings include GE at 12.5%, 3M Company (MMM) at 4.5%, United Technologies (UTX) at 3.7%, and Honeywell International (HON) at 3.6%.

In the next part, we’ll understand how General Electric will benefit from its shedding of the SIFI (systemically important financial institution) label.

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