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No. of Recommendations: 2
This is my first attempt at a Rule Maker analysis.  I pit GE v. MMM since they are both conglomerates.  The analysis is for the FY 2000 of both GE and MMM.

Please tell me if anything is incorrect, this is my first try :-)


                                The Motley Fool's Rule Maker Ranker
                                Version 3 -- Updated June 2000

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                                                                                 (Please read all three of these competitor comments.)
Financial AnalysiCompany Being Evaluated                          Competitor #1   Competitor #2  Competitor #3

                 General Electric                                      3M        <Fill in Name> <Fill in Name>
                 Current Period Year-ago PeriodYear-over-Year    Current Period  Current Period Current Period
                    Dec. 2000      Dec. 1999       Growth           Dec. 2000        <Date>         <Date>
Income Statement
  Sales                 129,417        110,832      16.8%                 16,724
  Cost of Goods S        39,312         34,554      13.8%                  8,787
  Net Income             12,735         10,717      18.8%                  1,782
  Shares Outstand     9,932,006      9,854,528      0.8%

Balance Sheet
  Cash & Equivale         8,195          8,554      -4.2%                    302
  Current Assets        295,663        273,187      8.2%                   6,379
  Short-term Debt       119,180        130,346      -8.6%                  1,866
  Current Liabili       156,112        161,216      -3.2%                  4,754
  Long-term Debt         82,132         71,427      15.0%                    971

Cash Flow Statement
  Operating Cash         22,690         24,593      -7.7%                  2,326
  Capital Expendi        13,967         15,502      -9.9%                  1,115
                                                                                1              0              0
Margins & Ratios . . .                                                                                         Competitors' Average
  Gross Margins            69.6%          68.8%      0.8                    47.5%                                   47.5%
  Net Margins               9.8%           9.7%      0.2                    10.7%                                   10.7%
  Cash-to-Debt              0.04           0.04     -4.0%                    0.11                                    0.11
  Net Cash             -193117.0      -193219.0      N/A                  -2535.0                                 -2535.0
  Fool Flow Ratio           7.78           8.57     -9.2%                    2.10                                    2.10
  Cash King Margi           6.7%           8.2%     -1.5                     7.2%                                    7.2%

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Ranking Rule Makers

1) Brand          Points (0-1)                                  3) Financial Dire Points (0-3)
Familiarity                    1                                Sales Growth                   3
Openness                       1                                Gross Margins                  3
Optimism                       1                                Net Margins                    3
Legitimacy                     1                                Shares Outstandin              2
Inevitability                  1                                Cash-to-Debt                   1
Solitariness                   1                                Fool Flow Ratio                2
Humor                          1                                Expansion Potenti              3
  Subtotal                     7                                  Subtotal                    17

2) Financial Loca Points (0-2)                                  4) Monopoly Statu Points (0-4)
Mass Market Habit              2                                Gross Margins                  4
Gross Margins                  2                                Net Margins                    0
Net Margins                    1                                Net Cash                       0
Cash-to-Debt                   0                                Fool Flow Ratio                0
Fool Flow Ratio                0                                Convenience                    4
Your Interest                  2                                  Subtotal                     8
  Subtotal                     7
                                                                5) Your  Enjoymen              1

                   Total Score               40  Second Tier

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No. of Recommendations: 2
Nice analyisis.

A couple of comments:

1) Tyco is another competitor worth considering
2) Predicting GE's future is difficult until we know whether the Honeywell deal is going through and if it does how well the acquired company is integrated
3) I can't see a company this large in the business sectors its in having a "three point" expansion potential. GE may be able to grow its business but it is not as nimble as some smaller newer companies.

Overall I think GE is pretty solid but it might not be a true tier two rulemaker at this time and caution should always be exercised when evaluating companies in the middle of a major acquisition.

(disclosure: I currently own shares of GE)
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No. of Recommendations: 1
I did a ranker on GE, and my numbers track with yours except for COGS. You've got 39k and 35k, while I came up with 111k and 96k. I used MMM and UTX as competitors, and came up with a score of 33 rather than your 40.

One difference I noticed was that GE scored 4/4 for Gross Margins on yours, and 0/4 on mine. I gather this is due to our difference in COGS.

I'm new at this too, so it's helpful to check against someone else's work. Now if we only knew which numbers were right!
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No. of Recommendations: 1
Hi, where did you get your data? I've got the GE 2000 annual report open here (pg. 34) and COGS should be 39 and 35. The exact numbers are 39,312 and 34,554.

Hope this helps. Note that I did not include cost of services sold, only cost of good sold. Even with COSS included, they are still lower than the numbers you got.

Here's a link to GE's annual report online showing both GE and GECS (GE Capital Services):

Add the COGS for both and you'll get the numbers stated in the annual report.

Let me know what you come up with.

Foolishly Yours,
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No. of Recommendations: 1
Hi Tollkuehn,

"I did a ranker on GE, and my numbers track with yours except for COGS. You've got 39k and 35k, while I came up with 111k and 96k"

Your $111K is the sum of ALL costs and expenses, including things in the 10K called "insurance losses...", "Other costs and expenses", etc. Conceptually, the only costs that should be considered when computing gross margins are the costs directly attributable to providing the product. Thus it would include the material and direct labor of a manufactured product, but NOT the salary of the plant manager's secretary, or the cost of the tooling on the production line. (For example).

In the case of services, it would again include the costs directly attributable to providing the service. For instance if you own a janitorial service, it would be the cost of the cleaning supplies and the wages of the floor sweeper. It would NOT include the cost of the person in the office who schedules the work or orders more soap. Those costs eventually get reflected in Net Margin.

Since GE provides both Goods and Sevices, you need to consider both Cost of Goods and Cost of Services when computing Gross Margin, so the number for FY 2000 is arrived at as follows:

GE Cost of Goods 30,782
GE Cost of Service 12,765
GECS Cost of Goods 8,537

There is one other left curve, in that GECS has financing operations in which interest is a direct cost of service, as I understand it. (I confess I'm walking on thin ice here... I don't like analyzing financial institutions.)

GECS Interest and other financial charges = 11,111.

So finally, direct costs = 52,084 + 11,111 = 63,195.

So, Gross Margin = (Revenue-Cost of Revenue)/Revenue
or (129,417-63,195)/129,417=51.1%

I hate analyzing conglomerates, because they frequently are the summation of many smaller, very different businesses where things like Margins, growth rates, etc, are just "averages" of the many businesses under the umbrella. To double check my work, I sometimes use Market Guide. This page shows slightly different numbers for both revenue and cost of revenue, but they are in the same ballpark:

This page computes margins and ratios, and again is reasonably close:
(You will have to scroll down a ways to about half way down to see Gross Margin listed as 50.92%)

If someone has an explanation for the difference in numbers between Market Guide and the SEC filing, I'd like to hear it. They are usually pretty accurate.


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No. of Recommendations: 0
...I confess I'm walking on thin ice here... I don't like analyzing financial institutions...

...I hate analyzing conglomerates...

I feel your pain! My investment club makes me responsible for following GE and Berkshire Hathaway

no pain, no gain?

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No. of Recommendations: 0
Thanks Cameran and GrandpaRalph. I didn't think my numbers could be right. Thanks for helping me move in the right direction.
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