1. Koninklijke Philips N.V.
Portfolio Report
Koninklijke Philips N.V.
General Electric
Tony Sako
Nikos Georgitsopoulos
Ali Dehghan Saee
Bastiaan Smit

2. Introduction Introduction and assumptions Philips & General Electric
Company Profile
Risk & Return
Ratio & Fundamental Analysis
Credit Ratings & Analyst reports
Optimal Risky & Combined Portfolio
Conclusion & Recommendation

3. Company profile - Philips
Founded in 1891 by Gerard Philips and his father Frederik
Headquartered in Amsterdam, the Netherlands
One of the largest electronics companies in the world
Areas: Healthcare, Consumer Lifestyle and Lighting, Cardiac care, Energy efficiency, lighting applications
Operates in approximately 100 countries

4. PEST Analysis - Philips
Political
Global political conflicts could impact the international capital and credit markets
All established subsidiaries are exposed to governmental regulations and unfavorable political developments
Economic
Global recession and economic downturn particularly in consumer markets has reduced the company’s financial figures
Strong growth in energy-efficient lighting solutions resulted in a significant sales increase
Social
Highly influenced by social and demographic trends: growing demand for better healthcare at lower costs, consumer empowerment and the need for energy efficiency
Various accusations related to labor rights
Technological
Severe competitive challenges: the speed of innovation, shortening product life cycles, fast-moving market trends and rapid technological change
Experiences the need to continuously reduce costs, increase efficiency and enhance technologies

5. Company profile – General Electric
Founded in 1892 (merging of Edison General Electric company & Thomson-Houston Electric company)
Headquartered in Connecticut, USA
Areas: Appliances, Power and Water, Oil and Gas, Energy Management, Aviation, Healthcare, Transportation and Capital
Operating in over 100 countries and listed on the Dow index

6. PEST Analysis - General Electric
Political
Dealing with political systems of different nations, increasing its political risk. Different countries provide different working conditions and tax systems which increases risk
Economic
Changes in rates of interest, exchange rates in different countries and greatly affects its financial performance
Global recession and economic downturn particularly in consumer markets has reduced the company’s financial figures
Social
Highly influenced by social and demographic trends
It may bears even more risk due to larger variety of products offered
Technological
The speed of innovation, shortening product life cycles, fast-moving market trends and rapid technological change
A need to continuously reduce costs, increase efficiency and enhance technologies

7. Assumptions Risk aversion factor of 3.5
Monthly returns are normally distributed
Risk-free rate of 4.0%
The market information is derived from S&P500 (calculations rely on the Expected Return forecasted by S&P Analists

8. Historical Risk & Return (mth.) Analysis
Key Figures GE
Philips
Market
Mean Return
0,67%
0,58%
0,56
Standard Deviation
7,64%
10,05%
4,38%
Sharpe Ratio
0,044
0,025
0,0523
Beta
1,48
1,5 1
GE historical returns outperforming;
Philips returns in line with market, despite higher beta
Both stocks more volatile than the market (around twice)
Phillips significantly more volatile
Even though both stocks have about equal risk(beta), GE Sharpe ratio almost double that of Philips

9. Risk & Return Forward Analysis
Key Figures GE
Philips
Market
Beta
1,48
1,5 1
Required Return (1-Year)
18,8%
19% -
Expected return (1-Year)
14,9%
25,7%
14%
Alpha
-4,1%
6,7%
Required returns nearly same, in line with similar betas
12-Month Expected returns for Philips significantly higher than for GE
PHG to outperform - GE expected to underperform
GE better track record but Philips better forecasts
Past or future which to prioritize?
Look to Optimal Portfolio for Quantitative Answer

10. Credit ratings Philips
Short-term
P-2 rating
“Stable outlook”
Long-term
Downgrade A3 to Baa1
“Weaker-than-expected operating performance through 2014”
“Overall stable”
Downgrade A to A- rating
Recommendation
1 Mht
3 Mth
Strong buy 1
Buy
Hold
Underperform
Sell
Stable
A/A-2 rating
“Stable rating”

11. Ratio analysis Philips
Liquidity ratios
2013
2014
Growth
Current ratio
1,33
1,31
-0,3
Quick ratio
0,97
0,95
-0,2
Net working capital
2,825
2,853 28
Solvability ratios
2013
2014
Growth
Total assets / debt capital
1,73
1,62
-0,12
Equity / total assets
0,42
0,38
-0,04
Equity / debt capital
0,73
0,62
-0,11
Profitability ratios
2013
2014
Growth
Operating profit
8,7%
2,3%
-6,0%
Net income / equity
10,5%
3,8%
-7,5%
Net income / debt capital
11,0%
1,1%
-10%
Net income / total assets
6,4%
0,7%
-0,06

12. Credit ratings GE Both long- and short term
Downgrade A1 to Aa3
“Consequent of announced plans to sell $200 billion of ending net investment in GE Capital
Rating outlook remains stable
“Overall stable”
Downgrade A to A- rating
Recommendation
1 Mht
3 Mth
Strong buy 5
Buy 4
Hold 8 9
Underperform
Sell
Stable
AA+ credit rating
“Stable rating”

13. Ratio analysis GE Liquidity ratios 2013 2014 Growth Solvability ratios
Current ratio
5,15
1,33
-3,82
Quick ratio
4,94
0,97
-3,97
Net working capital
340
324
-16,00
Solvability ratios
2013
2014
Growth
Total assets / debt capital
1,66
-0,01
Equity / total assets
0,20
-0,00
Equity / debt capital
0,33
Profitability ratios
2013
2014
Growth
Operating profit
18,0%
0,00
Net income / equity
10,0%
11,9%
0,02
Net income / debt capital
4,1%
4,4%
0,03
Net income / total assets
2,5%
2,7%

14. Optimal Risky Portfolio
Weight GE
Weight PHG
Optimal Portfolio
89,9%
10,1%
Minimum Variance
74,1%
25,9%
Optimal/Tangency Portfolio
Heavily Weighted GE
Minimum Variance Portfolio
Includes more of PHG

15. Optimal risky & Combined portfolio
Weight Risk-free
Weight Risky Portfolio
Stock Weights Risky Portfolio
Combined Portfolio
80,7%
19,3%
GE = 17.35%
PHG = 1.96%

16. Conclusion Comparison GE Philips Optimal P Combined P S&P500
Risk-free Rate
0,0033
Mean Return
0,0067
0,0058
0,0070
0,0044
0,0056
Std. Deviation
0,0764
0,1005
0,0739
0,0143
0,0438
Sharpe ratio
0,0442
0,0253
0,0500
0,0802
0,0523
Individually Stocks with some deficiencies
GE good risk-return profile but expected underperformance
PHG poor risk-return profile and minimal coverage but promising prospects
Optimal Portfolio
Better risk-return profile than individual stocks
Better returns than market
Combined Portfolio
Lowest Risk & Best Sharpe Ratio
Can be tailored according to individual risk preferences

17. Questions