Choose two firms of interest from finance.yahoo.com, finance.google.com, or mone

Question

Choose two firms of interest from finance.yahoo.com, finance.google.com, or money.msn.com and download their financial statements.

GE: http://www.msn.com/en-us/money/stockdetails/financials/fi-126.1.GE.NYS

http://www.msn.com/en-us/money/stockdetails/financials/fi-126.1.GM.NYS

For each firm: a. Write the ROE, the number of shares outstanding, the dividends per share, and the net income.

b. Compute the sustainable growth rate (g = b * ROE), where b equals the plowback ratio.

c. Calculate the total amount of dividends paid (dividends * number of shares outstanding), the dividend payout ratio (total dividends paid/net income), and the plowback ratio (1 - dividend payout ratio).

d. What does this information reveal about the ROE for the firms you selected?

Explanation / Answer

ROE of GM is very high compared to GE. This indicates that GM shareholders are getting much more return on their capital compared to GE. However GM is not paying out any of its net income as dividends. GM might also be using a larger debt capital base causing its equity capital base to be lower and subseqently making the ROE figure enhanced.

GE GM ROE 4.365% 16.162% Shares 10573000000 1564700000 Div/share 0.61 0 Net income 14151000000 9190000000 Price 30.66 36.34 total dividends 6449530000 0 Dividend payout 0.455764964 0 Plowback ratio 0.544235036 1 sustainable growth rate 2.38% 16.16%

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