General Electric
The main driving challenge for GE is based on the question “Why predict the future when you can create it?” The company has a great history built on research and great inspiration in a bid to create a brighter tomorrow. The company has demonstrated great ingenuity driven by some of the greatest inventors of the world. The company was founded in 1890 with the leadership of Thomas Edison. It was a combination of several businesses. However, an incandescent electric lamp was the first very successful product a result of innovation. By then it was called Edison General electric. Later another company was called Thomson-Houston Company. As a strategy the two companies merged and the result was General Electric Company. Later several other acquisitions were made and the result was an accumulation of different goods and services (GE: Imagination at work, 2010).
The company boasts of over 120 years of existence and has enjoyed the oversight of some the world’s most brilliant business minds. This has grown the company to become a world class company to date. Again the company has taken advantage of many opportunities to grow and develop new products. For example in the year 1917, the U.S government was in need of a partner to develop new aircraft engines and GE was quick to take the opportunity and add to it portfolio of products hence achieving even greater differentiation (GE: Imagination at work, 2010).
The entire product portfolio is quite wide in comparison to other companies of its stature. First, the company is a worldwide renowned manufacturer of top class appliances. The company provides close to 400 energy efficient household appliances across the globe. It also offers in-built appliances for households. Emphasis here is on energy efficiency. There are also a wide range of office appliances and other work related gadgets. With the introduction of production of jet engines, the company has grown to become a leading producer of engines for corporate commercial, the defense forces as well as marine sectors. It also has a wide range of consumer electronics made with the intention to make life easier. In addition, the company offers equipments and materials for electrical distributions (GE: Imagination at work, 2010).
Other sectors where the company has interest in include the energy sector where the company offers energy solutions to over 120 countries by harnessing coal, and natural gas, wind and other resources; the Healthcare sector through provision of new technologies for the modern patient. It also has interests in the media industry. Finally, it offers leading technologies in infrastructure for economic development as well as ecological sustainability.
As has been mentioned above, the company has many years of accumulation and expansion of shareholding as well as restructuring of the structure of the share portfolio. The company has both common stocks as well as preferred stocks. These serve different purposes as shall be discussed below.
Common stock and Preferred stock
Common stock and preferred stock are both ways of financing capital for a company. Stocks are basically units of ownership to a company. When one purchases a stock it shows the intention to invest in the company of choice and thereafter obtain some returns from the investment made. Depending on the manner in which one wishes to obtain their returns as well as the level of risk they are willing to take, it is possible for one to choose between common and preferred stock. The presence of these two types of shareholding helps in widening the ability of companies to raise capital for investment.
The most commonly known and commonly held stocks or shares are the common stocks. Basically when one owns a share of a common stock, they become direct owners of a proportion of the company in line with the proportion of their shareholding. Holders of common stocks regarding specific companies are regarded as members of the company’s shareholders (Erick, 2010).
Common stocks are thus units of ownership. In the case of public companies which are listed in stock exchanges, common stocks are obtained by the public through initial public offering. Usually, a total valuation of a company is performed to establish the true value of the company. On determining the true value, the capital is subdivided in to small units of ownership which enable a large number of investors to put the money in the company and collectively buy out the company. These units of ownership are allocated an initial price tag called initial offer price. They are then sold in what is supposed to be a primary market to the initial investors. The investors are now at liberty to speculate on their stocks and sell or buy at their preferred time (Stallman, 2010).
Overtime, common stocks are expected to change values depending on the environment both internal and external to the company. If the company is facing great future prospects and enjoys sound and proven management team, then there is likelihood that the value of the common stock will increase with time. Market speculators thus find it prudent to purchase such a share in order to reap what is called capital gains. Another determinant of capital gains is the level of retention of profits.
In addition to capital gains, common stockholders at GE are entitled to a share of profits called dividends. However, this is subject to the performance of the company and the decision of the directors. Dividend is the stream of returns obtained as a result of investing in the company. The dividend is shared among the stock holders according to the proportion of ownership of the stocks (Derrick, 2010). According to the company’s certificate of incorporation, common stockholders are entitled to cumulative cash dividends with respect to each dividend period at a 10% rate per annum on the amount of 100,000 dollars per shares and amount accrued and unpaid on the stocks. The dividend payment dates are Januray 15, April15, July 15, and October 15.
Preferred stocks are owned by preferred holders. Just like the word suggests, the preferred stockholders are preferred first in times of sharing the company’s earnings. This means that before considering paying out dividends to the common stock holders, preferred stockholders have to get their share first. This form of investment is less common compared to the common stock. Preferred stockholding is very close to a bond. This is because it attracts a constant return whether the company is making earnings or not. The terms in the form of earnings of the preferred stock are well explained and understood by the company and the stockholder before investing just like is the case in bonds. Consequently it becomes very clear that the investor has no interest in ownership of the company but rather the monetary gains accruing to the investment.
As mentioned above, the common stock avails both capital growth as well as dividends from the earnings of the company. However preferred stocks d not change value despite the earnings of the company. Still the returns to the preference stocks already agreed upon do not fluctuate. The level of earnings for the common stock is determined mainly by the performance of the company as well as the director’s strategies for the future.
At GE any merger, consolidation and sale of assets should not constiture liquidation, dissolution and winding up of the company. This safeguards the interests of the stockholders from unilateral decisions among directors. The common stock holders are not also subject to sinking funds or mandatory redemption.
In a case where the company becomes bankrupt, the common stockholders are the last to be paid. Just like is the case during the sharing of earnings, preference shareholders get their investments back before considering the common stockholders. However, despite these overriding characteristics, there are several categories of preference stocks. The first is the participating preferred stock. This stock enables shareholders to obtain adjustment to dividends in certain years when earnings exceed certain limits. Adjustable rate preferred stock just like the name suggests has adjusted earnings. The adjustment is mainly based on the market rates of treasury bills and other such instruments. The convertible preferred stock is one with a predetermined price at which it can be converted to a common stock in the future. The final type is the fixed rate perpetual preferred stock. This is the preferred stock with no maturing period meaning that the returns agreed upon are to be earned for the life.
In General electric, there are both preferred stocks as well as common stocks. The number of preferred stocks is 30,000 shares. The entire number of shares is not taken up by any investor hence remains outstanding as at the end of year 2009. The number of paid up common stocks as at the end of year 2009 stood at 10,663075,000. An additional 10, 536,897,000 remained outstanding meaning that investors were yet to take them up. The total per value of these common stocks was 702, 000, 000 dollars.
In terms of voting rights, only holders of common stocks are allowed to vote for directors who are in charge of the daily running of the company. It is clear that the sole aim of the preference stockholder is the return for investment. Consequently, his/her return is guaranteed but he/she losses voting rights due to the drastically reduced risk. The common shareholder shoulders the highest risk and thus is given the opportunity to choose who is to manage the risk for him/her.
Ordinarily, the voting rights are proportionate to the number of stocks held. Each stock entitles the common stockholder to one vote. Consequently, the more number of shares a person has, the greater is voting right and hence ability to influence the outcome of the vote. Again this is in consideration of the fact that they shoulder bigger risks in case of bankruptcy (Scholasticus, 2010).
Common stock vs. preferred stock ratio
This is a ratio showing how the common stock and the preferred stock in a company compare. It shows which stock accounts for a higher share of the capital in the company’s capital structure. Such information is important especially for potential investors as there are financial consequences of having different ratios. The ratio is got by dividing the number of common stocks with the number of preferred share. In the case of General Electric, the ration can be calculated as below
Common stock/preferred stock=21,199,972,000/30,000= 706665.73:1
The figure 21,199,972,000 is a combination of the paid-up and the outstanding common stock.
Rights of common and preferred stockholders
Unlike common stockholders, preferred stockholders have a right to some predetermined returns. Common stockholders on the other hand have the right to vote in the directors unlike the preferred stock holders. The preferred stock holders also have a right to claim their investment before the common stockholders in case of bankruptcy.
What is clear is the fact that preferred stocks are less risky and offered more steady returns than preferred stocks. However in many cases, there may be a considerable level of flexibility allowing conversion of preferred stocks into common stocks.
References
Derrick, L. Common Stocks, Preferred Stocks—Basic Concepts. 2010. Web.
Erick, D. Common Stock vs. Preferred Stock. 2010. Web.
GE: Imagination at work. 2010. Web.
Scholasticus K. Preferred Stock vs. Common Stock. 2010. Web.
Stallman, C. Common Stock vs. Preferred Stock. 2010. Web.