In march 2005 GE had a book Value of equity of $113 billion , $10.6 billion shar

Question

In march 2005 GE had a book Value of equity of $113 billion , $10.6 billion shares outstanding and market price of $36 per share, GE also had a cash of $13 billion, and total debt of $370 billion. Four years later , in early 2009,GE had a book value of equity of $105 billion, 10.5 billion shares outstanding with a market price of $10.80 per share, share cash of $48 billion and total debt of $ 524 billion. Over this period, what was the change in GE's
a. market capitialization?
b. market to book ratio?
c. book dept -equity ratio?
d. market debt-equity ratio?
e. enterpise value?

Explanation / Answer

a. Market Capitalaization in 2005 = Market Price * Outstanding Shares = 36 * 10.6 Billion = $381.6 Billion Market Capitalaization in 2009 = 10.8 * 10.5 = $113.4 Billion Changes in Market Capitalization = 381.6 - 113.4 = $268.2 Billion b. Market to Book Ratio in 2005 = Market Value of Firm/ Book Value of Firm = 381.6 / 113 = 3.377 Market to Book Ratio in 2009 = 113.4 / 105 = 1.08 Changes in Market to Book Ratio = 3.377 - 1.08 = 2.297 c. Book Debt to Equity Ratio in 2005 = Debt / Book Value of Equity = 370 / 113 = 3.274 Book Debt to Equity Ratio in 2009 = 524 / 105 = 4.99 Changes in Book Debt to Equity Ratio = 4.99 - 3.274 = -1.7 d. Market Debt to Equity Ratio in 2005 = Debt / Market Value Equity = 370 / 381.6 = 0.97 Market Debt to Equity Ratio in 2009 = 524 / 113.4 = 4.62 Changes in Market Debt to Equity Ratio = 4.62 - 0.97 = -3.65 e. Enterprise Value in 2005 = Market Capitalization + Debt = 381.6 + 370 = 751.6 Enterprise Value in 2009 = 113.4 + 524 = 637.4 Changes in Enterprise Value = 751.6 - 637.4 = 114.2 Thank you.... Market Capitalaization in 2005 = Market Price * Outstanding Shares = 36 * 10.6 Billion = $381.6 Billion Market Capitalaization in 2009 = 10.8 * 10.5 = $113.4 Billion Changes in Market Capitalization = 381.6 - 113.4 = $268.2 Billion

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