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Financial Management _ MMG725
Transcript of Financial Management _ MMG725
Undertook a series of strategic mergers and acquisitions to become the world’s largest, most diversified aerospace company and leading manufacturer of commercial airplanes and defense, space and security systems
Aerospace pioneers now part of the Boeing enterprise include: North American Aviation, McDonnell Douglas, Rockwell International (space and defense business), Hughes Space & Communications, Jeppesen
It supports airlines and U.S. & allied government customers in more than 90 countries
Headquartered out of Chicago Boeing employs more than 160,000 people across the United States and in 70 countries
Products include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication.
Boeing is organized into two business units: Boeing Commercial Airplanes and Boeing Defense, Space & Security. Supporting these units are Boeing Capital Corporation, a global provider of financing solutions Porter's 5 Forces Analysis SWOT Analysis Substitutes Existing Competition BOEING
COMPANY Suppliers Customers New Entrants OVERVIEW STOCK PRICE EVOLUTION MMG725_ Fall' 2012
Instructor: Raul Consunji
& Hamit Mert Sunnetcioglu Sales History 2007 High capital outlay and expertise
The arms industry has become highly concentrated, nationally and internationally No real threat of substitutes in defense and aircrafts, however air freight section might be affected with increase in concerns of carbon emissions as companies are seeking eco-friendly reputation (low) (low) Large size of competitors due to merger activity
Players are limited as Airbus and Boeing have a virtual duopoly
Buyers typically government organizations which flex their financial muscles to dilute the bargaining power of players (Moderate) A large number of suppliers and subcontractors. However, the high quality inputs provided by suppliers dilute the bargaining power of players
The quality and availability of these inputs is highly important to the quality of the end products in the aerospace and defense industry, increasing the power of the suppliers
Boeing is also dependent on the availability of energy sources, such as electricity, at affordable prices. (Moderate) Boeing faces aggressive international competitors who are intent on increasing their market share, such as Airbus, Embraer and Bombardier, and other entrants from Russia, China and Japan. Boeing focused on improving our processes and continuing cost reduction efforts. Boeing intend to continue to compete with other airplane manufacturers by providing customers with greater value products, services, and support.
Boeing Defense Space and Security faces strong competition in all market segments, primarily from Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Company and General Dynamics Corporation. Non-U.S. companies such as BAE Systems and EADS, the parent of Airbus, continue to build a strategic presence in the U.S. market by strengthening their North American operations and partnering with U.S. defense companies. In addition, certain of our competitors have occasionally formed teams with other competitors to address specific customer requirements. BDS expects the trend of strong competition to continue into 2012 with many international firms attempting to increase their U.S. presence. (High) Performance by Geography MPG96308-07_mcgregor.ppt | * MPG96308-07_mcgregor.ppt | * $68,735 2008 2009 2010 2011 $64,306 $68,281 $60,909 $66,387 Boeing Year End Sales Revenue (Dollars in millions) Cash Flows
12. Free Cash Flow = operating cash flow - capital expenditureA measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt.
It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run.
• 2010 - $2.952 billion - $1.125 billion = $1.872 billion
• 2011 - $4.023 billion - $1.713 billion = $2.31 billion
As the final number in free cash flow is growing and positive, there is no need for concern. If the free cash flow is negative, it will require more research to find out if the company is making large investments. As Boeing's free cash flow is positive, the company passes.
13. Cash flow margin = Cash flow from operating activities / total sales
The higher the percentage, the more cash available from sales.
If a company is generating a negative cash flow, which would show up as a negative number in the numerator in the cash flow margin equation, then even as it is generating sales revenue, it is losing money. The company will have to borrow money or raise money through investors in order to keep on operating.
• 2010 - $2.952 billion / $64.306 billion = 4.59%
• 2011 - $4.023 billion / $68.735 billion = 5.85%
As the company's cash flow margin is positive, it does not have to borrow money or raise money to keep operating. To pass, the cash flow margin must be positive. Boeing passes.
7. Operating Margin = operating income / total sales
• 2010 - $4.971 billion / $64.306 billion = 7.73%
• 2011 - $5.844 billion / $68.735 billion = 8.5%
As Boeing's operating Margin has increased, it leaves more cash for the company to pay for its fixed costs. As the operating margin increased, Boeing passes this metric.
8. Net Profit Margin = Net income / total sales
• 2010 - $3.307 billion / $64.306 billion = 5.14%
• 2011 - $4.018 billion / $68.735 billion = 5.84%
As Boeing's net profit increased, it implies that the company is more profitable than it was a year ago. To pass, the net income must increase. Boeing passes.
9. SG&A % Sales = SG&A / total sales
• 2010 - $3.644 billion / $64.306 billion = 5.67%
• 2011 - $3.408 billion / $68.735 billion = 4.96%
As the SG&A % Sales decreased, it implies that management is spending more efficiently. To pass, the SG&A % Sales must decrease. Boeing passes.
10. ROA - Return on Assets = Net income / total assets
• 2010 - $3.307 billion / $79.986 billion = 4.31%
• 2011 - $4.018 billion / $80.205 billion = 5.01%
As the ROA increased from 4.31% in 2010 to 5.01% in 2011, it implies that management is using its assets to generate earnings. Boeing passes.
11. ROE - Return on Equity = Net income / shareholder's equity
• 2010 - $3.307 billion / $3.515 billion = 94.08%
• 2011 - $4.018 billion / $5.027 billion = 79.92%
As the ROE decreased from 94.08% in 2010 to 79.92% in 2011, it reveals that the company is generating less profits from the money shareholders have invested. Boeing does not pass. Key Players Summary
In analyzing Boeing's profitability, it is clear that the company is profitable. The company's earnings and earnings growth has been very volatile over the past five years. Even though the economic recession had a great impact on Boeing's earnings in 2008 and 2009, the company has been recovering nicely.Boeing passed all aspects of the profit margins segment, expect for the gross margin. In 2010 through to 2011, the gross margin fell slightly, indicating that it was less efficient in manufacturing and distribution. The company had healthy increases in Operating Margin, net profit margin and a decrease in the SG&A % Sales - which are all positive indicators of profitability. As the ROA increased it indicates that Boeing's management is more efficient at using its assets to generate earnings than the previous year. The company did not pass the ROE aspect of the analysis indicating that the company was less profitable with money shareholders have invested. Boeing passed both aspects of the cash flow summary. As the free cash margin increased this indicates that the company has money to, develop new products, make acquisitions, pay dividends and reduce debt. In analyzing Boeing's profitability, it is clear that the company has been profitable over the past few years. Most aspects of profitability are positive, so there are no red flags raised with these aspects of Boeing's profitability.
- Air-travel resilience, stable demand should support funding for $104 billion in 2013 deliveries - Most funding sources expected to improve or be stable despite economic uncertainties - Indicators show that global aviation remains healthy, attracting continued financing Comparable Valuation Discount Rate Valuation DCF Valuation Sale Revenue Growth (in %) EADS Boeing Sales History Margins Common Size Income Statement Common Size Income Statement Revenue by Product Line Liquidity ratios Return on Book Values Boeing’s making high-end products designed to last for decades, and it’s much less vulnerable to cyclical markets than, for example, DuPont or Dow Chemical Co. DOW +0.32% — both of which announced major layoffs and plant closures this week. Nor are Boeing’s products as vulnerable to raw-material prices as other manufacturers, because by the time those materials get into the company’s hands, they’re so highly engineered that material costs are no longer the primary price driver.
There’s one important exception, however: oil. Right now, high oil prices are working in Boeing’s favor.
That’s because Boeing has invested heavily in developing more fuel-efficient aircraft, as demonstrated by its Dreamliner 787. The 787 is already the world’s best-selling commercial airliner, offering much-needed savings to carriers around the world struggling with soaring fuel bills. Sales Have Never Been Better!
•Boeing delivered 49 planes last month, bringing the year’s total to 237 and has had 420 net orders through May.
•Boeing is set to sign a $2 billion deal with Indonesian Airline Lion Air for 10 Dreamliners.
•The largest passenger jet ever made by Boeing will debut on its Frankfurt-to-Washington route. The 747-8 is the first of 20 ordered by Lufthansa.
•Avolon took delivery of the first of 12 Next-Generation 737-800s ordered in December 2009.
•Boeing has another 30 commitments for the 747-8I it will convert to orders soon. Boeing vs S&P 500 Coverage ratios Efficiency Ratios Design, assemble and support commercial jetliners
Boeing 7-series family of airplanes lead the industry
Commercial Aviation Services (CAS) offers broad range of services to passenger and freight carriers
Design, assemble and support defense systems
World’s largest designer and manufacturer of military transports, tankers, fighters and helicopters
Support Systems provides services to government customers worldwide
Design and assemble satellites and launch vehicles
World’s largest provider of commercial and military satellites; largest NASA contractor
Integrate large-scale systems; develop networking technology and network-centric solutions
Provide financing solutions focused on customer requirements
Develop advanced systems and technology to meet future customer needs What Boeing Does Today Connect and protect people globally Coverage Ratios Boeing EADS 2011 2010 2009 Times Interest Fixed Charges Times Interest Fixed Charges 2.0 2.0 1.7 7.2 6.9 12.6 11.83 9.73 6.11 8.4 6.3 7.2