OXFORD BROOKES UNIVERSITY
Research and Analysis Report
Business and Financial analysis of Boeing Company period from 2014-2016
ACCA registration number: 2538461
Words Count: 7,494
Table of Contents
TOC o “1-3” h z u Unit 1 PAGEREF _Toc510887246 h 3Project Objectives and overall research approach PAGEREF _Toc510887247 h 3What are research Projects objectives? PAGEREF _Toc510887248 h 4What are research questions? PAGEREF _Toc510887249 h 4Unit 2 PAGEREF _Toc510887250 h 5What is data and what are types of data? PAGEREF _Toc510887251 h 5Sources relied on with limitations: PAGEREF _Toc510887252 h 5Websites: PAGEREF _Toc510887253 h 5E-Newspapers: PAGEREF _Toc510887254 h 5Books: PAGEREF _Toc510887255 h 6Documents from Websites: PAGEREF _Toc510887256 h 6Annual Reports: PAGEREF _Toc510887257 h 6Ratio Analysis: PAGEREF _Toc510887258 h 6Profitability Ratios: PAGEREF _Toc510887259 h 6Liquidity Ratios: PAGEREF _Toc510887260 h 7Efficiency Ratios: PAGEREF _Toc510887261 h 7Solvency Ratios: PAGEREF _Toc510887262 h 7Investors Ratios: PAGEREF _Toc510887263 h 8Limitation of Ratio Analysis: PAGEREF _Toc510887264 h 8SWOT Analysis: PAGEREF _Toc510887265 h 8Limitations of SWOT Analysis: PAGEREF _Toc510887266 h 8PEST Analysis: PAGEREF _Toc510887267 h 9Limitations of PEST Analysis: PAGEREF _Toc510887268 h 9Ethical Issues: PAGEREF _Toc510887269 h 9Unit 3 Business and Financial Analysis PAGEREF _Toc510887270 h 9Financial Analysis PAGEREF _Toc510887271 h 9Profitability PAGEREF _Toc510887272 h 10Liquidity PAGEREF _Toc510887273 h 13Efficiency PAGEREF _Toc510887274 h 14Solvency PAGEREF _Toc510887275 h 17Investor PAGEREF _Toc510887276 h 19Business Analysis PAGEREF _Toc510887277 h 20Conclusion and Recommendations: PAGEREF _Toc510887278 h 23
Unit 1Project Objectives and overall research approachReasons for selecting OBU, topic, industry and company?
As every ACCA student join ACCA after having completed his matriculation/Intermediate in Pakistan and possess no university degree so do I. As I was studying F4 Corporate and Business Law I came to know from my fellow students that with ACCA qualification one can also gain a university degree which is awarded by Oxford Brooks University. Later I discussed the same with my teacher and they discussed with me how I can gain OBU B.Sc Degree. This is how I came to know the details for B.Sc OBU degree, but the main reason to go for OBU degree is once I stepped into my professional life I came to understand that employers value individuals who have professional qualification coupled with some university degree. No doubt OBU degree help ACCA students, affiliates and members to enhance their marketability as OBU degree will help to improve presentation skills which one can’t attain as being ACCA student.
I decided to undertake OBU project, the very first task I consider important for my self is to go through the details provided in the OBU info pack, which turned out very helpful for me in understanding how to progress through the OBU project in order to gain my B.Sc degree successfully. While reading through the info pack I read out the twenty topics available in info pack which I discussed with my mentor and shared my area of interest which is topic 08. Reason why I chose topic 08 “analysis and evaluation of the business and financial performance of an organization” is my interest during my ACCA studies are more for analysis of financial statements. As a student I always find it interesting in investing the performance of business and finding out area where a business can improve its performance.
Reading through the guidelines provided by ACCA in OBU info pack I came to know that OBU requires students to select one of the three industries for Topic 08. In this submission period “Aerospace manufacturer, Food Industry or Hotel Industry” are available for me to pick 1. I chose Aerospace manufacturer. I consider it as challenge analyzing the performance of an industry where very few industries involve and performance needs to be assessed very carefully.
Once I have selected the industry I searched for the aerospace manufacturer’s and while searching I found Boeing which is the world largest aerospace company. CITATION Boe16 p 2 l 1033 (Boeing, 2016, p. 2) This seems to me another challenge to evaluate the performance of world’s leading Aerospace Manufacturing Company. Not only a challenge but also a learning opportunity to improve my knowledge working on such a huge company. While looking for a competitor I found another giant company in Aerospace sector The United Technologies Inc. Boeing and United Technologies are the 2 most active stock in aerospace manufacturers. CITATION Sto18 l 1033 (Stock News Gazette, n.d.)What are research Projects objectives?As per the guideline provided in OBU info pack as well as the requirement of topic 08 I listed down following objectives for my research project those should be achieved in order to complete my research project successfully. These are as follows:
First research objective is to analyze the financial performance of Boeing over last 3 years from 2015 to 2017.
Second objective is to look into the performance and find out if performance of Boeing improved in last three years or not.
Third objective of my research project is to evaluate the performance of Boeing in comparison to United Technologies.
Forth objective is to analyze Boeing business performance using business valuation model.
What are research questions?After establishing objective for my research project I listed down following questions, those should be answered in order to accomplish project objectives. These are:
How Boeing performed in last three years in financial terms?
Whether Boeing performance improved in over last three year ends?
What is the performance of Boeing in comparison to United Technologies in 2016 year end?
Whether Boeing performed better as compared to United Technologies in 2016 year end?
What are the business strengths and weaknesses of Boeing?
What are the opportunities and threats faced by Boeing?
What approach is used for research project?Most important thing to kick off the project is the information. As there is an inherit limitation of Topic 08 that I am not able to collect information from primary sources and I need to rely on secondary sources of information. My first source to collect information for this is the financial statements. I searched the website of both Boeing and United Technologies and dig down the investor area where I find financial statements of both companies in respective websites.
As analysis is not the easy task so I get in touch with my mentor for guidance how can I proceed with my project. After gathering financial information statements I used financial statements and listed in and excel sheet. From these financial statements I calculated major ratios of Boeing for three years and United Technologies for 2016 year end before analyzing the financial performance of Boeing in last three years and also in comparison to the United Technologies. Later I critically assessed the business performance of Boeing using SWOT and PEST business models.
After completing my research I reviewed the whole project in order to make sure I have met all the objectives of my research project which I set at the start of the project. In last after review is complete I concluded the performance of Boeing along with the recommendation for the improvements of Boeing.
Unit 2What is data and what are types of data?Data is defined as collection of facts and figures as per needs of researcher. The data can be qualitative and quantitative. If data is about something in descriptive form it is known as qualitative data whereas data in values and digits is known as quantitative data. CITATION Mat18 l 1033 (Math is Fun, 2018)Data can be collected through two sources by researcher i.e. primary source and secondary source. Primary source of data is collection of data from original source and record the data when it is gathered like through direct interview or by questionnaire. CITATION Roy18 l 1033 (Royal Road University, 1997-2018)Data once collect was interpreted and analyzed to transform it into useful way becomes secondary data and is collected from already collected source like articles, journals, newspapers. CITATION Riv18 l 1033 (River Camp Libraries, 1998-2018)Both data are important for researcher keeping in view the requirement of research. I have selected topic 8 and my requirements were to gather secondary data which I had used in this project.
Sources relied on with limitations:Following sources were relied upon for gathering data:
Websites:Extremely useful and mostly utilized source for this project was information from websites. I have gathered numerous data and information from different websites. I have gathered data from authentic websites as sometimes I have faced the problem of data which was mismatched. Similarly, some websites contained old and expired data and I did not take attention to these websites and found updated data from reliable sources.
E-Newspapers:Mostly of the information of public listed companies were published through news correspondent. I have gathered numerous information from E-newspapers. As lot of information were found on newspapers and which one were relevant or not was big task for me. I have used google search engine to gather relevant information and in such way the problem faced by me was removed.
Books:This research project was based on actual financial and business information therefore books are irrelevant for me at start of project. Subsequently, when I started to analyze financial information and business model application, I was stuck as some of the things were not cleared for me. Hence, I decided to revise my knowledge on ratio analysis and business model so that I could apply these models successfully.
Documents from Websites:Few of documents which are relevant to this project were also downloaded by me. Authenticity of information and bulk of data on these documents was big problem for me. Therefore, I had restricted to this source and used few information from there.
Annual Reports:All the financial data in the form of financial statements was extracted from annual reports which was transformed into excel format later. Similarly, chairman’s report area was very helpful for me to analyze the ratio analysis and business analysis. I have not confined my research to annual reports and try to locate other sources through research whereas possible.
Ratio Analysis:Financial statements are sometimes not provided information like whether financial strength of company had increased or not unless it was converted into percentage, times or proportion. Therefore, ratio analysis is strong tool to analyze financial information to provide useful information for users about company’s financial performance. Ratio can be calculated to measure profitability, cash position both short and long-term, efficiency and investors. CITATION Mar18 l 1033 (Mark A Lane, 2002-2018) I have selected following ratios described in following paragraphs:
Profitability Ratios:How well company utilizes its assets efficiently to generate revenue refers to profitability ratios. It showed that how well company can expand its revenue and profits including control of assets. Profitability can be sought as improved if profitability ratios were increased over time. CITATION CFI181 l 1033 (CFI, 2018) Following profitability ratios were added herein this project:
Sales growth is important indicator to measure the profitability of business. It is strategic measurement and directors are interested to maintain sales growth as it has direct link with profits. If sales revenue growth is declined, business might be in risk as prompt action is required. CITATION Kli18 l 1033 (Klipfolio, 2018)GP margin is another indicator to measure profitability after analyzing revenue. GP margin is directly linked with revenue and cost. If revenue over period increases GP margin should have been increased, if not means cost is not properly controlled. CITATION YCh18 l 1033 (YCharts, n.d.)NP margin is next to GP margin where impact of GP margin is also important. NP is calculated by deducting all the expenses from GP. It is calculated by dividing the NP with its revenue generated for the period. CITATION Ros18 l 1033 (Rosemary Peavler, 2018)Liquidity Ratios:Liquidity indicates the short-term cash position of any business which measures that how well company handles to pay its short-term liabilities from its current assets. Creditors and other payables are main users of these ratios and they judge whether company could discharge their debts when they were due in future. CITATION Acc171 l 1033 (Accounting Tools, 2017) I have selected two widely used liquidity ratios to measure the liquidity position of Boeing:
Current ratio is first of liquidity ratio which shows relation between current assets and current liabilities. This ratio can also be used to measure the working capital situation of any business. Increase in current ratio is desirable but further analysis of turnover ratios are required to judge liquidity in better way. CITATION Inv182 l 1033 (Investopedia, 2018)Another important and familiar ratio to measure liquidity of any business is Acid-test ratio. This ratio shows relationship between liquid assets and current liabilities. Non-liquid assets like inventories are excluded in calculation of Acid-test ratio. CITATION MyA182 l 1033 (My Accounting Course, 2018)Efficiency Ratios:Efficiency ratios are known as working capital ratios and used to measure the efficiency of working capital management. It indicates that how well company utilizes its current assets and current liabilities efficiently. These ratio in conjunction with liquidity provides the user clear picture of financial performance. CITATION Sto15 l 1033 (Stocks 300, 2015) I have selected three efficiency ratios given below:
Inventory days are calculated to measure the efficiency of inventory management. How many days are required to convert the inventory into sales could be calculated from this ratio. CITATION Dou181 l 1033 (Double Entry Book-keeping, 2018)Receivables days are calculated to measure the days in which customers paid their outstanding dues. This ratio is important as earlier collection of amount shall be desirable for any business and chances of bad debts losses shall be reduced. CITATION BD18 l 1033 (BD, 2018)Payables days are calculated to measure the days in which company paid their outstanding amounts to its suppliers. If the payment is not paid on time to suppliers, then stoppage of supply might hinder the operations of business. CITATION Acc131 l 1033 (Accounting Explained, 2011-2013)Solvency Ratios:Solvency indicates whether company can pay its long-term debts in future or not. It depends on capital structure of business, and further we can measure the financial risk of any business. CITATION Jim15 l 1033 (Jim Scord, 2015) Solvency of any business can be measure in variety of ratios and I have added two solvency ratios to measure the financial risk of Boeing given below:
Debt to equity ratio is important tool to measure the financial risk of any business. It showed that how much long-term debts are in percentage to its equity. CITATION Acc172 l 1033 (Accounting for Management, 2012-2017)Interest cover ratio shows how much operating profit is earned by company during the year in comparison with finance cost or in other words, how much times operating profits of company is against finance cost. CITATION Sto181 l 1033 (Stockopedia, 2018)Investors Ratios:Investors are main stakeholders of any business and they are keen to know about their investment position. Therefore, companies often calculated their ratio to measure the prospective impact of attitude of investors that may arise due to financial ratios. CITATION Sar18 l 1033 (Sara Glakes, 2018) I have calculated following ratios in this area:
Earnings per share (EPS) is investors ratio in which company can measure the net profits attributable to owners against each common stock held by them. Higher EPS shall always be attractive for investors. CITATION Mot18 l 1033 (Motley Fool, 1995-2018)Growth in EPS is calculated to measure percentage increase or decrease in EPS from year to year. Growth is always desirable but negative growth puts negative impact on investors attitude.
Limitation of Ratio Analysis:Following points are described relating to limitations of ratio analysis:
Ratio analysis is not useful tool when someone tries to measure its results with other companies in different industries.
Different companies have their own accounting policies which might put significant impact on financial values resulting comparison became useless.
Calculation of ratios was based on financial figures taken mostly from financial statements, which were based on different accounting policies, estimates and there might be risk of change in policies or estimates for window-dressing.
Ratios calculated from financial statements shows in comparison increase or decrease, but it did not directly tell the user whether such increase or decrease is favorable or not for company. CITATION eFi181 l 1033 (eFinance Management, 2018)SWOT Analysis:SWOT analysis is used to identify four different factors which are acronyms of SWOT i.e. Strengths, Weaknesses, Opportunities and Threats. These are classified into two broad categories and name and internal factors (Strengths and Weaknesses) and external factors (Opportunities and Threats). The company can this model to identify factors which are important for success of any business by keeping in view the changing environment for business. These factors are much important as strategical decisions could be made on these factors. CITATION Tim18 l 1033 (Tim Berry, 1996-2018)Limitations of SWOT Analysis:Following points described the limitations of SWOT Analysis:
SWOT analysis helped to identify the internal and external factors for user, but it did not provide framework to tell about priority of the factors means which are important and should be given priority.
Similarly, SWOT analysis tell about the fact that how to deal with these factors. In order words, it did not tell about solutions of identified factors.
SWOT analysis helped to identify lot of factors, so bulk of data can be calculated but which factors should be selected becomes difficult to judge. CITATION Que16 l 1033 (Queensland Government, 2016)PEST Analysis:The tool used to measure the external macro-environmental factors of business is called PEST Analysis. In this analysis, factors relating to Political, Economic, Social and Technological are identified. The factors which are not under control of entity sometimes more critical for the organization. Regular review of these factors shall bring positive and dynamic changes in business environment. CITATION Net10 l 1033 (Net MBA, 2002-2010)Limitations of PEST Analysis:Following points described the limitations of PEST Analysis:
PEST analysis just identified and list down the macro-environmental factors but did not provide framework to critically presented.
As today’s environment had changed rapidly so it became difficult to apply this model as regular effort shall have required to work on these factors.
Similarly, collection of bulk of factors paralysis the researcher by research as it was difficult for them to take advantage from them.
Sometimes, this model is applied on some assumptions which are not relevant and realistic therefore results might not be mostly beneficial for organization. CITATION Dun18 l 1033 (Duncan Haugley, 2018)Ethical Issues:As a student of ACCA, I am well-aware of ethical issues that might arises during the preparation of research project. Being an accountant, I have complied the integrity principle as I am honest in my work and can assure that the work done is solely by me. Similarly, I have used the data from various sources, but references were added to follow professional behavior. I had not used any information which are confidential and where confidentiality is as stake. I have taken guidelines and never try to cheat anybody by copying text from any source.
Unit 3 Business and Financial AnalysisFinancial AnalysisFor financial analysis, I have calculated ratios from different perspective and analysis for Boeing are stated below:
Ratio Analysis Boeing.xlsxRevenue of Boeing was raised from 87 billion dollars to 91 billion dollars in FY-2014 showing revenue growth of 4.78%. Revenue was raised due to Record deliveries and orders in FY-2014. Major share in revenue growth was that Boeing had made 114 deliveries for 787 Dreamliner in FY-2014. CITATION Cha15 l 1033 (Charisse Jones, 2015) Boeing had sold 723 planes in FY-2014 whereas the toll was 648 in FY-2013, which cause to increase revenue. CITATION Ben151 l 1033 (Ben Geier, 2015)Continuity of increasing revenue were also shown by results of Boeing in FY-2015 when revenue was raised to $96 billion, with handsome growth of 5.90% which was highest between FY-2014 to FY-2016. Reason for such increase was high demand of commercial planes and Boeing had made high deliveries of commercial aircrafts. CITATION CNB15 l 1033 (CNBC Reuters, 2015) Two major products of Boeing had contributed a lot towards revenue growth. In FY-2015, Boeing had won 1,036 net orders of Air Bus along with most expensive large 777 jets which toll to 58. CITATION Dom16 l 1033 (Dominic Gates, 2016)
However, revenue of Boeing was declined to $94.6 billion in FY-2016 whereas revenue of Boeing in FY-2015 was $96.1 billion. Major effect on decline in revenue was caused by 18% decrease in revenue of Military Aircraft in fourth quarter of FY-2016 which was further caused by lower planned deliveries and mix. CITATION SLF17 l 1033 (SL Fuller, 2017) Boeing’s deliveries were slow down as company was engaged in developing new 737 MAX narrow body, and overall 80 deliveries were found to be less than expectation. CITATION Alw17 l 1033 (Alwyn Scott, 2017) Even though Boeing was declared highest revenue generating aerospace manufacturing company in USA in FY-2014 with Revenue of $94.6 billion, with second highest by United Technologies of $57.2 billion. CITATION Rev17 l 1033 (Revenueandprofits, 2017)United technologies (UT) had shown improvement in revenue by 2% in FY-2016 whereas Boeing revenue was declined. The organic sales were increased by 2% and 1% net acquisition growth. Foreign exchange adversely affected by 1% which was offset by increase in organic sales. Overall, sales of UT had increased by 2%. CITATION UTN17 l 1033 (UT News, 2017) UT had opened new office to expand market in 2016 in Jeddah which had put slight impact on revenue of UT in FY-2016. CITATION UTN16 l 1033 (UT News, 2016)
Ratio Analysis Boeing.xlsxGP Ratio of Boeing was unchanged in FY-2014 to 15.44% whereas it was same in FY-2013. Revenue and CGS both increased in same proportion in FY-2014, which was resulted unchanged GP ratio. Slight increase or decrease in cost in segments offset each other and no change was put impact on GP ratio of Boeing in FY-2014. CITATION Boe14 l 1033 (Boeing, 2014) NP ratio of Boeing in FY-2014 was increased from 5.29% in FY-2013 to 6.00% in FY-2014 whereas GP ratio was unchanged. General ; Administrative expenses were declined by 5% which was caused by decrease in deferred compensation against recording of huge amount of $406 million as litigation expenses recorded in FY-2013. CITATION Boe14 p 20 l 1033 (Boeing, 2014, p. 20) Similarly, litigation against Boeing by Defense Division of US Government was also settled in early period of FY-2014. CITATION USD23 l 1033 (US Department of Justice, 23) Tax rates for Corporate Sector remain unchanged from FY-2013 to FY-2014. CITATION Tax15 l 1033 (Tax Policy, 2015), CITATION Tax13 l 1033 (Tax Foundation, 2013) Tax expense in FY-2014 was increased due to deferred tax implication. Due to above factors, profit growth of Boeing was 18.78% in FY-2014.
GP Ratio of Boeing was declined slightly in FY-2015 at 14.59% from 15.44% in FY-2014. Revenue of Boeing was at upper side, but cost of sales and services were increased by approximately 6% which was less than revenue increase, which resulted decline in GP ratio of Boeing in FY-2015. NP was also declined from 6% to 5.39% which was caused by decline in GP ratio otherwise all the expenses were under control. The reasons for decline in profits of Boeing in FY-2015 was since Boeing had declined its production of its 747-8 jumbo jet to its half and as resultant charge of $569 million was taken in fourth quarter which distort the results of profits in FY-2015. CITATION Reu16 l 1033 (Reuters, 2016) Another reason for decline in profitability of Boeing in FY-2015 was reduced charged of $536 million on Air Force’s K-46 tanker program. It was caused by problem with fuel system identified in last three months. CITATION Dom18 l 1033 (Dominic Gates, 2015) R & D expenses were increased in FY-2015 by 9.32% from year-on-year, and 4.9% of revenue which was higher than FY-2014 when it was 3.5% of revenue. Boeing was involved in R&D of new and innovate aircrafts for experiment, design, development and testing of defense system and commercial aircrafts. CITATION Aer18 l 1033 (Aeroweb, 2018) Due to above factors, NP growth was negative and accounted for as -4.96% in FY-2015.
GP was almost equal with 0.02% decline in FY-2016 for Boeing whereas NP was declined to 5.18% in FY-2016 whereas it was 5.39% in FY-2016. Cost of sales and services were declined in proportion to decline in revenue in FY-2016 which had not distorted GP ratio. However, operating expenses put impact on NP ratio of Boeing. In FY-2016, Boeing had charged for more than $2 billion which put direct impact on NP ratio of Boeing. The charge included $847 million for Boeing 787, stem from two test aircraft which was substantially modified and unsold. Other charge for Boeing 747 for $814 million as due to cut in production of 747-8 resulted from low market demand. Further charge of $393 million for hardware and delivery issue of KC-46 tanker program of US Air Force. CITATION Reu161 l 1033 (Reuters, 2016) In addition, R&D expenses were enhanced by 38.91% in FY-2016. Finance cost was also resulted in decline in NP ratio which was enhanced by 11.27% caused by more reliance on debts needed to meet charge and R&D. Tax expense was declined but corporate tax rates were not increased, which was caused by adjustment of deferred tax created in previous years. Overall NP growth was negative and seen as -5.48% in FY-2016. CITATION Boe16 l 1033 (Boeing, 2016)COS of UT was increased by 2.59% whereas revenue was increased by 2.01%, slight decline in GP ratio was seen for UT in FY-2016 but significantly higher than Boeing. COS in organic volume was increased by 3% whereas revenue increase was 2% which distorted the GP ratio of UT in FY-2016. The COS in organic volume was increased due to unfavorable contract performance, unfavorable commercial mix at UTC Aerospace system and contract termination benefits paid. CITATION UT16 p 13 l 1033 (UT, 2016, p. 13)
Ratio Analysis Boeing.xlsxCurrent Ratio of Boeing was increased from 1.26 in FY-2013 to 1.40 in FY-2014. CA were increased by 4.14% whereas CL were declined by 4.15% both caused current ratio to enhance in FY-2014. Major cause of increase in CL were increase in Inventories by approximately 9%. Even though some other CA also caused but inventories constituted more than 60% of CA, therefore its impact was greater on CA. Cash balance was significantly increased by 29% caused by higher operating cash flow and increase in profitability of Boeing in FY-2014. Increase in other CA were in line with growth of revenue in FY-2014. CITATION Boe14 l 1033 (Boeing, 2014)Marginal decline in current ratio of Boeing which was recorded at 1.35 in FY-2015. CA were increased by 0.69% which was offset by increased in CL which were 11.27%. Accounts receivables, net showed decline of 44% which was meant that Boeing had collected their outstanding amounts in FY-2015. Inventories were increased by 11% which was caused by contract in progress. The long-term contract was made with Light Squared, LLC. In addition, Inventories of Boeing was calculated on contract accounting. Whereas CL showed mixed trend like accrued expenses were increased but significant impact was significant increase in short-term borrowings even though Boeing had paid them but significantly less payment than FY-2014. CITATION Boe15 l 1033 (Boeing, 2015)CA of UT were increased by 6.90% but CL were decreased by 3.15% in FY-2016 and result was increase in current ratio. Inventories and receivables both increased by 8% and 7% respectively whereas other assets increased by 43%. Overall, current ratio of UT was slightly better than Boeing. CITATION UT16 l 1033 (UT, 2016)
Ratio Analysis Boeing.xlsxInventories consisted of major portion of CA therefore huge difference is seen in Acid-test ratio as compare to current ratio in each of three years mentioned in above graph. Acid-test ratio of FY-2014 for Boeing was slightly increased by 0.01 times whereas current ratio was increased by 0.14 times. Only difference was increase in inventories in 8.96%. As mentioned in above ratio, inventories were increased due to contracts in progress relating to commercial aircrafts and Air Force contract. CITATION Boe14 l 1033 (Boeing, 2014)Acid-test ratio was further declined by 0.02 in FY-2015 for Boeing whereas current ratio was declined by 0.02 also. Inventories were slightly increased by 1.09% which had not put impact on Acid-Test Ratio. Only impact was seen due to other CA and increase in CL which were caused by increase in accrued liabilities as mentioned above. CITATION Boe15 l 1033 (Boeing, 2015)Unlikely inventories were declined by 8.59% in FY-2016 caused by decline in revenue and completion of contracts in progress. Decline in inventories should have put impact in increase in Acid-test ratio but it had declined. It was caused by decrease in current ratio by 0.10 in FY-2016. Similarly, increase in CL by 2.57% further pushed Acid-test ratio to decline. CITATION Boe16 l 1033 (Boeing, 2016)Acid-test ratio of UT was significantly better than Boeing in FY-2016, whereas current ratio of both companies was not significantly different. Major impact was inventories as UT had less inventories than Boeing as UT had less contracts in progress than Boeing. CITATION UT16 l 1033 (UT, 2016)Efficiency
Ratio Analysis Boeing.xlsxInventory turnover was highest in FY-2014 within three years period for Boeing. Inventories were increased with higher percentage as compare to revenue. The main reason for increase in inventories was significant increase in orders, in FY-2014, Boeing has booked 1,432 orders due to this program 737, 777 and 787 involves huge orders which were in progress at end of year. CITATION New18 l 1033 (Newsrelease, 1995-2018) As a result, inventory had increased by 8.96% including commercial aircraft and other orders. CGS was increased by 4% whereas inventories were increased by 9%, as a result inventory days ratio was increased to 239 days in FY-2014. CITATION Boe14 l 1033 (Boeing, 2014)In FY-2015 Inventory days ratio was declined by 5 days as inventories and CGS both increased by 7%. However, inventories were in 0.01% was more than CGS, therefore inventory days ratio was increased. Boeing had introduced B757 aircraft for commercial purposes to carry 220 passengers and 4,500 mm range. CITATION Wik181 l 1033 (Wikipedia, 2018) Boeing had introduced this brand in Paris Air Show in June 2015 and many orders were received subsequently. CITATION Avi15 l 1033 (Aviation Week Network, 2015)Further decline in inventory days ratio by 4 days in FY-2016 of Boeing was due to 9% decline in inventories and just 1% decrease in CGS. Main reason was decline in revenue of Boeing in FY-2016 as Boeing had faced challenges in production of MAX737, most fuel-efficient technologies. As a result, demand for FY-2016 was not properly catered and resulted decline in revenue. CITATION Rob16 l 1033 (Robert Wright, 2016)
Inventory days of UT in FY-2016 was significantly lowered than of Boeing. However, inventory days of UT had increased from year to year due to 8% increase in inventories. Due to increase in inventory turnover, the inventory days were less than of Boeing. CITATION UT16 l 1033 (UT, 2016)
Ratio Analysis Boeing.xlsxIn FY-2014, Boeing’s receivables were increased by 18.07% whereas revenue was increased by 4.78% as a result receivables days ratio was increased to 28.70 days. Major increase in receivables was caused by high market demand as specified above. US Government Contracts and Commercial Aircraft orders were enhanced and as a results receivable were increased there. Revenue increase reasons have mentioned in above ratios. CITATION Boe14 l 1033 (Boeing, 2014)In FY-2015, receivables days for Boeing had further increased by 1.52 days as revenue was increased by 5.90% whereas receivables were increased by 12.73%. Higher increase in receivables forced this ratio to move upwards. Similar reason was seen in FY-2015 when receivables against US Government Contracts and Commercial Aircraft were increased due to higher demand of Boeing’s aircrafts. CITATION Boe15 l 1033 (Boeing, 2015)Receivables days ratio of Boeing was further increased by 1.74 days in FY-2016 because of 1.37% in receivables and 1.61% decrease in revenue. In FY-2016, US Government Contracts receivables were slightly declined but commercial aircraft receivables were shown increasing trend. However, receivables on other contracts including service contracts were increased, which showed strong market demand of Boeing aircraft commercially. CITATION Boe16 l 1033 (Boeing, 2016)Receivables of UT was increased by 8% but revenue was expanded by only 2%, therefore receivables days increased in FY-2016 from year to year. Boeing receivables in FY-2016 was quite better than of UT which indicates better liquidity position of Boeing. CITATION UT16 l 1033 (UT, 2016)
Ratio Analysis Boeing.xlsxPayables days was almost same in FY-2014 and FY-2015 but increased by just 2 days in FY-2016. In aggregate, no major change was observed in three years period. CL were declined by 7% but COS was increased by 4% both factors put impact on decline in days payable. COS was increased in proportion to increase in revenue by 4.78%. Reasons for increase in revenue had been discussed above. As Boeing had generated sufficient amount of cash from operating activities, enabling them to pay their payables. CITATION Boe14 l 1033 (Boeing, 2014)In FY-2015, COS was further increased by 7% but accounts payable were slightly declined by 0.39%. Revenue was one of the reason for increase in COS but proportionate increase in COS was more than revenue growth. Overall, COS increased by 0.8% from year to year CITATION Boe15 p 23 l 1033 (Boeing, 2015, p. 23) which was exactly equal to inflation rate prevailing in US market for foods items and slightly higher than overall inflation in US of 0.7%. CITATION USI16 l 1033 (US Inflation Calculator, 2016). Another reason for increase in COS was significant one-time charge on two different programs named 747-8 and KC-46 tanker which offset the increase in revenue and overall COS was increased. CITATION Aar16 l 1033 (Aaron Karp, 2016)In FY-2016, COS was declined by 1% but payables were increased significantly by 12.36% leaving impact of increase in payables days ratio by 2 days. Revenue was declined by 5% but COS was not proportionate declined showing in aggregate increase. However, COS as percent of revenue was unaffected. Major increase in COS by 14% was noticed in commercial airplanes segment. CITATION Boe16 l 1033 (Boeing, 2016)Payables days of UT were not significantly different in FY-2016 as of Boeing. Accounts payables were increased by 8.84%. Payables were primarily increased due to new service contract with US Air Force to give technical support in Global Hawk MS-177 program. CITATION Pho16 l 1033 (Photonic Media, 2016) Overall payables days of both companies were in acceptable mode.
Ratio Analysis Boeing.xlsxD/E ratio was 92.62% in FY-2014 which was more than FY-2013 as equity was declined by 41.75%. It was primarily due to negative treasury stock increase by more than 30% and accumulated losses by more than 40%. Long-term borrowings were slightly raised by 0.85%. Above figures indicated that impact on increase in ratio was due to decline in equity. CITATION Boe14 l 1033 (Boeing, 2014)In FY-2015, Long-term borrowings were significantly increased by 7.23% resulted increase in financial leverage. Major increase in leverage was in peer Airbus which was highest than others. Despite of fact of increase in leverage, cash flows of Boeing were sufficient to discharge them. But other side of picture was not attractive as leverage had increased at higher pace. CITATION All16 l 1033 (Ally schmidt, 2016) Equity continued to decline by 27% further pushed this ratio to higher side.
Unbelievable increase in financial leverage of Boeing was caused by 87.10% decline in equity and 9.60% increase in long term borrowings. Treasury stock further declined by 22% put significant impact on decline in equity. Boeing worked in capital-intensive industry where technology paid vital role and huge amount of research and development is required to cater the market position. Therefore, Boeing had raised its borrowing for future technology development. CITATION All171 l 1033 (Ally Schmidt, 2017)Financial leverage of UTC had increased from year to year in FY-2016. Long-term borrowings were increased by 12.30% and equity was increased by 1.13% resulting D/E to move upwards. But with comparison with Boeing, UT was in better solvency position. CITATION UT16 l 1033 (UT, 2016)
Ratio Analysis Boeing.xlsxInterest cover of Boeing was improved in FY-2014 as OP was increased by 13.88% and finance cost was decreased by 13.73% both factor increased interest cover ratio. In FY-2015, OP was slightly declined by 0.70% but finance cost was significantly declined by 17.42% resulting further improvement in interest cover ratio. In FY-2016, Boeing Interest cover was declined to 19.07 times whereas in FY-2015 it was 27.07, both increase in finance cost by 11.27 and decrease in OP by 21.62% caused decline in ratio. Reason for increase or decrease in OP in three years period was already discussed above. Finance cost was linked with borrowings, as discussed in above ratio, Boeing had relied more on research and development expenses. For this they relied on debts and result was increase in finance cost in FY-2016. Boeing had taken variable rate borrowings and rate was not changed in these years. CITATION Boe16 l 1033 (Boeing, 2016)Interest cover of UT was less than Boeing in FY-2016 but still impressive. However, from year to year it was declined as finance cost was increased by 26% against OP which was 12% increased. Finance cost was at higher side due to net extinguishment loss of $164 million due to redemption of outstanding notes. CITATION UT16 l 1033 (UT, 2016)Investor
Ratio Analysis Boeing.xlsx
Ratio Analysis Boeing.xlsxEPS of Boeing was increased to 7.47 in FY-2014 whereas EPS was 6.03 per share in FY-2013, showing overall growth in EPS by 24% in FY-2014. Profits were increased by 19% but shareholders’ equity was decreased by 42%, both resulted to increase EPS showing growth of 24%. Profit improvements had already been discussed above in relevant section. Equity was declined due to decrease in treasury stock and other comprehensive losses in FY-2014. CITATION Boe14 l 1033 (Boeing, 2014)EPS was further improved in FY-2015 by $0.05 per share caused by decline in profits and equity at same time. As profits were declined by 5% whereas equity was declined by 27%, resulted EPS had shown growth of 1% in FY-2015. Even Boeing had not issued any new common stocks, but treasury stock was declined significantly resulted decline in equity. Overall, EPS had shown improvement as shown in above graph. CITATION Boe15 l 1033 (Boeing, 2015)EPS was further improved by 2% as profits again decline by 5% but equity was declined by 87%. EPS in FY-2016 was $7.70 per share whereas in FY-2015 it was $7.60 per share. Equity was declined due to significant decline in Treasury stock and other comprehensive losses. In FY-2016, Boeing had not issued any further common stocks but due to impact of decline in equity EPS had shown improvement of 2%. CITATION Boe16 l 1033 (Boeing, 2016)EPS of UTC was increased to $6.19 per share and showed growth of 35%. If you compare Boeing with UTC in terms of EPS Boeing was in better position but growth point of view UT was shown extensive improvement in EPS in FY-2016. CITATION UT16 l 1033 (UT, 2016)Business AnalysisSWOT Analysis:
SWOT analysis of Boeing is as follows:
Boeing is the world’s largest aerospace company and leading manufacturer of commercial plans, defense and space and security systems. Boeing global presence includes customer from almost 150 countries, and employees and operation in more than 65 countries. Boeing has partnership with companies and Governments worldwide which help Boeing to maintain its revenues as this is a competitive edge over its competition. Currently 70% of the backlog is represented by customers outside the U.S. CITATION Boe18 l 1033 (Boeing, 2018)
Boeing airplanes model with strong capabilities and fuel efficiency is an edge for Boeing. Boeing’s 787 Dreamliner family is an example of Boeing’s strong capabilities plane model. Passengers enjoy luxurious experience that help airline maintain their prestige and exceptional environmental performance for the world. Boeing achieved the high standard by not only improving the processed but materials too. Boeing 787 is 50pc composite by weight due to optimum material used which is result of analysis of the airframe, load and environmental data. CITATION The181 l 1033 (The Telegraph, 2018)Boeing has wide variety of models which satisfy the demanding needs of different customers globally. Boeing provides both Commercial aircrafts to military aircrafts and different models in both the segments as per the requirements if the customer needs. Boeing aircrafts ranges planes, jets, helicopters, to other flying vehicles. CITATION Ran18 l 1033 (Ranker, 2018)Boeing being international presence have a large number of supplier’s for its supplies still Boeing sometime face some problems in getting supplies. To make a control over supplies and avoid delays that result in disruption Boeing is forming its own company with the leading supplier to develop a close relation and make sure supplies are not delayed. CITATION AInv182 l 1033 ( Investor’s Business Daily, 2018).
A large percentage of Boeing business is derived from defense contracts, of which the U.S. military is one major customer. Thus any decision on military spending from U.S. Government make a huge difference for Boeing. CITATION Chi18 l 1033 (Chicago Tribune, n.d.) Not only defense business as aerospace industry is highly regulated business so government policies directly impact Boeing business. CITATION bInv182 l 1033 (Investopedia, 2018)Boeing faces labor strikes which ultimately impact production of aircrafts and hence overall profitability of company. Year’s age Boeing started building its 787 Dreamliner in South Carolina because of the fear of labor unions in Washington being so strong. CITATION cTim18 l 1033 (Time, 2018)Opportunities
Commercial airplanes industry is the one growing industry and Boeing has very unique models and its research department is making good progress. Global commercial aircraft fleet is expected to grow more than 35,000. CITATION oli18 l 1033 (oliverwyman, 2018)Globally aerospace and defense market is growing with a CAGR of 6.5% during a period of 2017 to 2022. CITATION Cis18 l 1033 (Cision, 2018)Threats
Boeing conduct a significant portion of its business with U.S. Government. All such contracts are subject to strict procurement regulations. Boeing 23% of our revenues are earned from U.S. Government in 2016 CITATION Boe16 p 24 l 1033 (Boeing, 2016, p. 24). Any change to such regulation or in case not following state regulation will add cost and loss of revenues to Boeing. CITATION POG18 l 1033 (POGO, n.d.)Boeing entered into fixed price contracts which turned into loss if cost of such projects overrun. Boeing Defense, Space ; Security (BDS) segment earned 71% of its revenues in 2016 from fixed price contracts.CITATION Boe16 p 25 l 1033 (Boeing, 2016, p. 25)PEST Analysis
Boeing global presence will create a great impact on its business. Boeing needs to be more familiar with the regulation in countries where it’s doing business. As regulation across nations are not same. In some countries political and regulatory impact is less while there are still aerospace industry is highly regulated, which ultimately impact the profits of airlines companies and Boeing as well in terms of lower aircraft purchased by airline companies. The airline deregulation act 1978 changed airline industry and its dynamics. CITATION avi18 l 1033 (aviationweek, 2018)This deregulation act has removed the U.S. federal government control over areas such as fares, routes and entry of new airlines. Still this does not mean airline companies are not required to follow any regulation, operations and safety of passengers are still closely monitored and strictly regulated. CITATION Fro18 l 1033 (Frobes, n.d.) Boeing actively spends on lobbying with political forces to soften aviation regulation and to win defense contracts. Obama administration decided to cutbacks in weapons system spending, Boeing being a defense, space ; security supplier to U.S. Government start lobbying with congress to increase defense spending. CITATION huf18 l 1033 (huffpost, 2018) Boeing should consider such thing as this will ultimately impact the goodwill of organization. Now a days a company should consider because being a listed company Boeing is required to publish a corporate social responsibility report and such news negatively impact reputation of a company.
Economic factors are very important for aviation companies. Economic factors includes industry growth rate, inflation & economic condition of specific sector for example Aerospace/Defense Products & Services industry growth rate and consumer spending. Aircraft manufacturing companies (Boeing) are working on manufacturing of airplanes those involve longer time period in which value of dollar might depreciated, and negatively impact the contracts already taken like fixed priced contracts. Government spending and strong GDP’s also impact Boeing business. Government interventions in free market and related goods in and industry.
Thing those influence the behavior of individuals in a society are named as social factors. CITATION bus18 l 1033 (businessdictionary, 2018)Boeing is a global organization so it need to know the behavior of individuals in a society. Now a day’s air travel is much familiar to the societies and people prefer travelling in planes. This results due to the low fares charged by companies due to fuel efficient airplanes provided by airplane manufacturers. Boeing is the one leading airplanes manufacturer in the world. Boeing new models being fuel efficient would have more acceptance in the market as compared to its competitor’s.
Technology is a very important factor in the growth of any industry. Specifically for aerospace manufacturer technology is considered as the backbone. Boeing airplanes model have good capabilities which is evident that Boeing is using technology to its maximum extent. Boeing models like 787 fuel efficiency is unparalleled to any other airplane make it attractive to the airline as this help airline companies to make good return on investments and able to charge low fare to passengers. Apart from the existing models Boeing is actively investing in research and development to be completive and ahead of its completion.
Conclusion and Recommendations:With the completion of my research project, I assessed the performance of Boeing in both Financial and business terms. At the start of project I had listed objective for my project, I am concluding these as follows:
Looking into the financial aspect of Boeing I can say that in terms of profitability Boeing performance deteriorated in 2016 year end as compared to 2015. Major problem lies with the sales revenue that decreased in 2016, while Boeing is able to maintain its Gross profit ratio. Overall performance of Boeing performance in comparison to 2014, dropped in 2016, on the other hand when I had compared it with United Technologies it seems that Boeing have more effectively controlled its cost as compared to the competition.
Boeing investment in research and development is a plus for Boeing that will help Boeing to improve its performance in coming years. Boeing research and development costs also include cost related to government products and services bid and proposals. In case of excess expenditure it’s recoverable from government. CITATION CAer18 l 1033 (Aeroweb, 2018)I recommend Boeing to avoid involving in lobbying which will adversely impact Boeing goodwill, also there is a huge potential for Boeing to explore and expand its commercial airplanes segment which is growing and focus should be on Asia-Pacific region because half of the Global air traffic growth is expected from this region. CITATION Gee18 l 1033 (GeekWire, 2018) Boeing initiative to supplier integration program should be moved forward as this will help Boeing to overcome its reliability over supplies.