The Business Model (How They Make Money)

GE Aerospace is primarily in the business of powering and maintaining aircraft, both for commercial airlines and military forces. Think of them as the engine room of the sky. They make their money in two main ways: by selling new jet engines and related components, and by providing a continuous stream of services, like maintenance, repair, and overhauls, for those engines throughout their lifespan. This second part, the services, is a really stable and significant portion of their business because once an engine is sold, it needs regular check-ups and repairs to keep flying safely and efficiently.

For example, in 2023, GE Aerospace generated $31.8 billion in revenue. Their Commercial Engines & Services segment brought in $24.7 billion, making up roughly 78% of their total revenue. The other major part is their Defense & Systems segment, which contributed $7.1 billion in revenue in 2023, representing about 22% of the total.

The Metrics That Matter Most

For GE Aerospace, understanding how healthy the business is means looking beyond just the total sales. Here are a few key measures that tell the story:

1. Revenue: This is the most basic measure of a company's sales, representing the total amount of money they bring in from selling engines and providing services. For GE Aerospace, watching revenue growth tells you if more airlines are buying their engines and if their service business is expanding. Steady or growing revenue indicates strong demand for air travel and defense needs, which directly translates to more engines and more maintenance work for GE Aerospace. In 2023, GE Aerospace reported $31.8 billion in revenue.
2. Operating Income: This metric shows how much profit the company makes from its core business operations after covering all the direct costs of making engines and performing services, as well as everyday expenses like salaries and rent. It tells you if their main business is actually profitable before considering things like interest payments or taxes. For GE Aerospace, a healthy operating income means they are efficiently managing their manufacturing processes and service contracts. In 2023, GE Aerospace's operating income was $5.6 billion.
3. Free Cash Flow (FCF): Think of Free Cash Flow as the leftover cash a company has after paying for everything it needs to keep the business running and growing, like buying new machinery or upgrading factories (this is called capital expenditures, or CapEx). It's the cash that's truly "free" for things like paying down debt, buying back stock, or even paying dividends to shareholders. For a company like GE Aerospace, which invests heavily in research and manufacturing facilities, a strong Free Cash Flow is a sign of financial health and ability to reinvest in future innovation. In 2023, GE Aerospace generated $5.2 billion in free cash flow.
4. R&D Expenses (Research & Development Expenses): This number tells you how much money GE Aerospace is investing in developing new, more efficient, and more powerful jet engines and aerospace technologies. For a company in a high-tech industry like aerospace, continuous innovation is key to staying competitive. High R&D spending often signals a commitment to future growth and leadership in engine technology, which directly impacts their ability to secure new engine contracts down the line. In 2023, GE Aerospace reported $1.6 billion in R&D expenses.

How to Value This Company

When trying to figure out if GE Aerospace's stock is cheap or expensive, one really useful measure is the EV/EBITDA ratio.

EV/EBITDA stands for Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation, and Amortization.

Here's why it's great for GE Aerospace:

• Enterprise Value (EV) is like the total price tag of the entire company, including its stock market value, plus any debt it owes, minus any cash it has on hand. It gives you a more complete picture than just the stock price.
• EBITDA is a measure of the company's operating profits before taking into account things like interest on debt, taxes, and the cost of wear and tear on its big machines and factories (depreciation and amortization). For a company like GE Aerospace with lots of physical assets that depreciate over time, and potentially significant debt, EBITDA gives a clearer view of the cash generated from its core business before these non-operating or accounting charges.

When you divide EV by EBITDA, you get a number that tells you how many years of that core operating profit it would take to "buy" the entire company. A lower EV/EBITDA ratio might suggest the company is undervalued compared to its earnings power, while a higher ratio might mean it's expensive. It's especially useful for comparing GE Aerospace to other industrial or aerospace companies, as it helps level the playing field by ignoring differences in how they finance themselves (debt vs. equity) or how their assets are accounted for.