Has General Electric conquered the business cycle? According to the companies past three financial statements it appeared as if they have indeed done so. Looking at GE’s 1996 Annual Report, Letter To Share Holders, the first phrase of the 14 page document was “In 1996, your Company had its best year ever.” Companies such as GE spend millions if not billions of dollars per year to ensure they can include this nine-worded phrase in their Annual Report. Those few words affect the behavior of investors all over the world.
To understand why a corporation would “manage earnings” one must first understand the reason a corporation exists. The Corporation is an abstract entity which sole concern is to please its stockholders in every degree according to Prof. Saldana of Phl 205 (Business and Professional Ethics).
Profit is the generating force behind all Corporations. A famous quote taken from J. D. Rockefeller (19th century Billionaire) states, “Let them eat cake!” Defined by many to explain his strict economic policies and ruthless elimination of business opponents it also reinforces the fact why Corporations must always do well. Understanding this concept explains why a conglomerate corporation such as General Electric would want to ensure that its figurers are in line with expectations because its financial future relies on it.
A CEO, in the case of GE, John F. Welch Jr. is faced with risk daily. It is his initial decision to change the direction of the Corporation whether for better or worst. The daily stock price and its fluctuations may reflect the amount of risk seen by investors however no matter how poorly a decision may be implemented the Corporation will always stand. A Corporation can never die, it can be merged, bought out or taken in to bankruptcy but it is not human, it cannot be placed in jail and withdrawn from society however its members can; such as GE’s Vice Chairman, Paolo Fresco. Gains and losses will always be part of the business cycle although it is how well a corporation handles each of the situations that it will be profitable and admired by investors.
The Business plan on Venture Capital Financing Companies Company Investors
... for strategic reasons. A large corporation can benefit from a smaller corporation in which it can do business. Stages of Capital When ... solution to financing high risk, but potentially high reward companies. Usually the investors receive a say in the company's management, they ... will receive stock or cash from the acquiring company and the venture investor will distribute the proceeds from the sale to ...
Business ethics, two words which by nature would be considered taboo. These two words have created global studies in Universities; how humans or entities can interact, once completed, equally benefit from the transaction. “Managed earnings” is just another way the Corporation ensures that itself and its investors are both equally satisfied with its activities. GE wants to ensure that its investors are happy with their purchase in such a confident organization because anything less would not bring satisfaction but possibly, despair. Yes, it is ethical that General Electric ensures satisfaction with its investors otherwise the maximum potential of being a Corporation would not be emphasized.
Investors and financial analysts are truly aware of the companies whom “manage earnings.” A large degree of AAA stocks are tied into these financial monsters, such as IBM, PepsiCo, Disney, Merck and Co., as well as General Electric. Investors look for these companies not for growth but for long term securities these companies are as stable as the U.S. Government yet yield better than T-Bills even after taxes. These Corporations are promoting the way of J. D. Rockefeller yet still maintains the ability to continue without threat of breaking antitrust laws. Again, investors view these Corporations with envy ensuring tomorrows business today.
