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General Electric Co Earnings Power Value (EPV)

: $-15.28 (As of Sep21)
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As of Sep21, General Electric Co's earnings power value is $-15.28. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is N/A.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


General Electric Co Earnings Power Value (EPV) Historical Data

The historical data trend for General Electric Co's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

General Electric Co Annual Data
Trend Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20
Earnings Power Value (EPV)
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -108.99 -211.46 -7.89 -8.02 -5.98

General Electric Co Quarterly Data
Dec16 Mar17 Jun17 Sep17 Dec17 Mar18 Jun18 Sep18 Dec18 Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21
Earnings Power Value (EPV) Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 37.07 -5.98 -12.22 -22.71 -15.28

Competitive Comparison

For the Specialty Industrial Machinery subindustry, General Electric Co's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

   

General Electric Co Earnings Power Value (EPV) Distribution

For the Industrial Products industry and Industrials sector, General Electric Co's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where General Electric Co's Earnings Power Value (EPV) falls into.



General Electric Co Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

General Electric Co's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 93,406
DDA 6,014
Operating Margin % 1.13
SGA * 25% 4,582
Tax Rate % 7.95
Maintenance Capex 4,006
Cash and Cash Equivalents 30,255
Short-Term Debt 5,459
Long-Term Debt 57,429
Shares Outstanding (Diluted) 1,105

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 1.13%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = $ Mil, Average Operating Margin = 1.13%, Average Adjusted SGA = 4,582,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 93,406 * 1.13% +4,582 = $5632.31975 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = 7.95%, and "Normalized" EBIT = $5632.31975 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 5632.31975 * ( 1 - 7.95% ) = $5184.5784914737 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 6,014 * 0.5 * 7.95% = $239.025566 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 5184.5784914737 + 239.025566 = $5423.6040574737 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
General Electric Co's Average Maintenance CAPEX = $4,006 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. General Electric Co's current cash and cash equivalent = $30,255 Mil.
General Electric Co's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 57,429 + 5,459 = $62888 Mil.
General Electric Co's current Shares Outstanding (Diluted Average) = 1,105 Mil.

General Electric Co's Earnings Power Value (EPV) for Sep21 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 5423.6040574737 - 4,006)/ 9%+30,255-62888 )/1,105
=-15.28

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( -15.279328733296-92.20 )/-15.279328733296
= N/A

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


General Electric Co  (NYSE:GE) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


General Electric Co Earnings Power Value (EPV) Related Terms

Thank you for viewing the detailed overview of General Electric Co's Earnings Power Value (EPV) provided by GuruFocus.com. Please click on the following links to see related term pages.


General Electric Co Business Description

General Electric Co logo
Industry
Industrials » Industrial Products NAICS : 335312 SIC : 3621
Address
5 Necco Street, Boston, MA, USA, 02210
GE was formed through the combination of two companies in 1892, including one with historical ties to American inventor Thomas Edison. Today, GE is a global leader in air travel, precision health, and in the energy transition. The company is known for its differentiated technology and its massive industrial installed base of equipment sprawled throughout the world. That installed base most notably includes aerospace engines, gas and steam turbines, onshore and offshore wind turbines, as well as medical diagnostic and mobile equipment. GE earns most of its profits on the service revenue of that equipment, which is generally higher-margin. The company is led by former Danaher alum Larry Culp who is leading a multi-year turnaround of the storied conglomerate based on Lean principles.
Executives
Horton Thomas W director 4333 AMON CARTER BLVD. FORTH WORTH TX 76155
Rosput Paula G director 605 HILLSIDE DRIVE EAST SEATTLE WA 98112
Trian Fund Management, L.p. director 280 PARK AVENUE 41ST FLOOR NEW YORK NY 10017
Garden Edward P director 280 PARK AVE 41ST FL NEW YORK NY 10017
Lavizzo-mourey Risa J director GENERAL ELECTRIC COMPANY 5 NECCO STREET BOSTON MA 02210
Tisch James S director 667 MADISON AVE NEW YORK NY 10021
Bazin Sebastien director 5 NECCO STREET 5 NECCO STREET BOSTON MA 02210
Dsouza Francisco director 500 GLENPOINTE CENTRE W TEANECK NJ 07666
Seidman Leslie director 7 WORLD TRADE CENTER 250 GREENWICH STREET NEW YORK NY 10007
Lesjak Catherine A director 1501 PAGE MILL RD PALO ALTO CA 94304
Carter Ashton B director C/O DELTA AIR LINES, INC. P.O. BOX 20574, DEPT. 981 ATLANTA GA 30320
Pecresse Jerome officer: Senior Vice President 5 NECCO STREET BOSTON MA 02210
Murphy Kieran Pius officer: Senior Vice President THE GROVE CENTRE,WHITE LION ROAD LITTLE CHALFONT X0 HP7 9LL
Joyce David Leon officer: Vice Chairman GENERAL ELECTRIC COMPANY 5 NECCO STREET BOSTON MA 02210
Stokes Russell officer: Senior Vice President 5 NECCO STREET BOSTON MA 02210

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