Download Financial Comparison Between The Boeing Company and

1
Financial Comparison
Between
The Boeing Company
and
Lockheed Martin
Keith L. Hohl
EMGT 452
Semester Project
14 December 1999
2
Agenda
• Objective
• Background
– The Boeing Company
– Lockheed Martin
• Consolidated Financial Comparisons
– Total Assets
– Income
• Sales and Earnings
– Ratio Analysis
• Profitability, Liquidity, Asset Management, and Debt Management
• Military Aircraft & Space Divisional Financial Comparison
– Total Assets and Net Capital Expenditures
– Income
• Sales and EBIT
• Conclusions
3
Study Objective
• To research and analyze two major defense contractors
to determine the company’s financial position
• To financially compare the Military and Space divisions
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The Boeing Company
Background
• Corporation divided into four major divisions
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–
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Commercial Airplane Group
Military Aircraft and Missiles Group
Space and Communications Group
Customer and Commercial Financing group
• Company Statistics
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–
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Largest Aerospace Company in the world as measured by Total Sales
Largest manufacturer of Commercial Jetliners and Military Aircraft
Largest NASA Contractor
Merged with McDonnell Douglas corporation in August 1997
Subdivided the Information, Space and Defense Group into the
Military Aircraft and Missiles Group and the Space and
Communications group in 1998
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Lockheed Martin
Background
• Corporation divided into five major divisions
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–
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Space & Strategic Missiles
Electronics
Aeronautics
Information & Services
Energy and Other
• Company Statistics
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–
Includes a two for one stock split as of December 1998
Merged with Loral Electronic Corporation in April 1996
Merged with Martin Marietta Corporation in March 1995
Merged with General Dynamics Fort Worth Division and GE
Aerospace in 1993
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Consolidated Total Assets
Financial Comparison
The Boeing Company
Lockheed Martin
40000
35000
30000
25000
Dollars
20000
(in Millions)
15000
10000
5000
0
1996
1997
1998
•Boeing’s total Assets are 1.30 times greater than LM
•Boeing’s assets are decreasing while LM are remaining roughly the same
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Consolidated Sales
Financial Comparison
The Boeing Company
Lockheed Martin
60000
50000
Dollars 40000
(in
30000
Millions) 20000
10000
0
1996
1997
1998
•Boeing sales are increasing while LM remain basically flat
•Boeing sales are 1.69x greater than LM over the last three years
•Commercial a/c division accounts for 63% of Total Sales
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Consolidated Net Earnings
Financial Comparison
The Boeing Company
Lockheed Martin
2000
1800
1600
1400
1200
Dollars 1000
(in Millions) 800
600
400
200
0
-200
1996
1997
1998
•LM operations more efficient than Boeing over this three year period
•Earnings are comparable to Boeing and yet Boeing has much more sales
•LM earnings are decreasing
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Consolidated Earnings From Operations
Financial Comparison
The Boeing Company
Lockheed Martin
2500
2000
1500
Dollars
1000
(in Millions)
500
0
-500
1996
1997
1998
•LM cost of operations much lower than Boeings respect to Sales
•LM earnings remain consistent with flat sales receipts
•Boeing needs much improvement in its cost of operations
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Consolidated Earnings per Share
Financial Comparison
The Boeing Company
Lockheed Martin
3.5
3
2.5
2
1.5
Dollars
1
(per Share) 0.5
0
-0.5
-1
-1.5
-2
1996
1997
1998
• LM has generally higher earnings per share than Boeing
•More efficient costs of operations
•Effectively utilizing assets and inventories
• Boeing has much room for improvement
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Consolidate Return on Assets(ROA)
Profitability Financial Comparison
The Boeing Company
Lockheed Martin
1998
1997
1996
0
1
2
3
%
4
5
• Shows that LM much more efficient at operations than Boeing
6
7
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Consolidated Return on Equity (ROE)
Profitability Financial Comparison
The Boeing Company
Lockheed Martin
1998
1997
1996
-5
0
5
10
%
15
20
25
• Shows that LM much more efficient at operations than Boeing
30
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Consolidated Profit Margin
Profitability Financial Comparison
The Boeing Company
Lockheed Martin
1998
1997
1996
-2
-1
0
1
2
%
3
4
5
6
• LM Profit Margins are decreasing even though Sales have remained the same
• Shows LM has a more efficient operations than Boeing
•Beta coefficients: Boeing = 1.10. LM = 0.80
Consolidated Inventories
Financial Comparison
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The Boeing Company
Lockheed Martin
10000
8000
6000
Dollars
(in Millions) 4000
2000
0
1996
1997
1998
•LM inventories are increasing while Boeing’s inventory is decreasing
•LM inventory to Total Assets ratio is 50% less than Boeing’s
•Shows that LM operations are more efficient than Boeing’s
Consolidated Current Ratio
Liquidity Financial Comparison
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The Boeing Company
Lockheed Martin
Industry Average
1998
1997
1996
0
0.5
1
1.5
2
2.5
•Ability to meet short term obligations
•Ratio is much lower than industry average
•Shows the 1998 Liquidity position relatively weak
•Must liquidate current assets at 97% (1/1.03) for LM and at 61%
(1/1.22) for Boeing of book value and still payoff creditors in full
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Consolidated Quick Ratio
Liquidity Financial Comparison
The Boeing Company
Lockheed Martin
Industry Average
1998
1997
1996
0
0.2
0.4
0.6
0.8
1
•Ratio is decreasing compared to the industry average
•Both companies would have to liquidate its inventory in order to payoff its
current liabilities
•Inventories are the least liquid of current assets
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Consolidated Inventory Turnover Ratio
Asset Management Ratio Financial Comparison
The Boeing Company
Lockheed Martin
Industry Average
1998
1997
1996
0
2
4
6
8
•Inventory sold out and restocked higher than the industry average
•LM ratio is higher than Boeing
•Shows possibly superior merchandising and/or a shortage of needed
inventory to support sales for both companies
10
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Consolidated Fixed Asset Ratio
Asset Management Ratio Financial Comparison
The Boeing Company
Lockheed Martin
Industry Average
1998
1997
1996
0
2
4
6
8
10
•Shows that LM is effectively using its plant and equipment compared to the
industry average and to Boeing
•Boeing requires improvement to better utilize its plant and equipment
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Consolidated Total Asset Ratio
Asset Management Ratio Financial Comparison
The Boeing Company
Lockheed Martin
Industry Average
1998
1997
1996
0
0.5
1
1.5
•Evaluates Total Asset usage
•LM is generating less sales than total asset investment
•Boeing is generating more sales than total asset investment
2
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Consolidated Day Sales Outstanding Ratio
Asset Management Ratio Financial Comparison
The Boeing Company
Lockheed Martin
Industry Average
1998
1997
1996
0
10
20
30
40
50
60
70
80
Days
•Represents the average length of time after making a sale before receiving
a cash payment
•Boeing is approximately 2.5 times better than industry average
•LM is exceeding the industry average on collecting payments
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Consolidated Debt Ratio
Debt Management Ratio Financial Comparison
The Boeing Company
Lockheed Martin
Industry Average
1998
1997
1996
56
58
60
62
64
66
68
70
72
%
• Shows how the company is financed
•Both companies debt ratios are higher than the industry average
•Creditors have supplied approximately 67% of the total financing
•May make it costly to borrow additional funds without raising more equity
capital
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Consolidated Times Interest Earned Ratio
Debt Management Ratio Financial Comparison
The Boeing Company
Lockheed Martin
Industry Average
1998
1997
1996
0
1
2
3
4
5
6
7
8
• Shows the ability to pay interest
•Both companies have sufficient funds to meet annual interest costs even if
operating incomes declines
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The Boeing Company
and
Lockheed Martin
Divisional Financial Comparisons
Divisional Sales
Military Aircraft & Space
Financial Comparison
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The Boeing Company
Lockheed Martin
20,000
15,000
Dollars
10,000
(in Millions)
5,000
0
1996
1997
1998
•Boeing and LM Military Aircraft and Space divisions Sales are nearly equal
•Note Boeing Overall Sales exceed LM by 1.6 times
•Boeing’s sales are increasing while LM are remaining flat
Divisional EBIT
Military Aircraft & Space
Financial Comparison
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The Boeing Company
Lockheed Martin
1800
1600
1400
1200
1000
800
600
400
200
0
1996
1997
1998
•Military a/c and Space divisions did not contribute to the overall 1997 earnings
per share loss
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Divisional Total Assets
Military Aircraft & Space
Financial Comparison
The Boeing Company
Lockheed Martin
10000
9000
8000
7000
6000
Dollars
5000
(in Millions) 4000
3000
2000
1000
0
1996
1997
1998
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Divisional Net Capital Expenditures
Military Aircraft & Space
Financial Comparison
The Boeing Company
Lockheed Martin
500
450
400
350
Dollars 300
250
(in Millions) 200
150
100
50
0
1996
1997
1998
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Conclusions
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The Boeing Company
Financial Summary
• Boeing 1999 Profitability is increasing
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Lowering their long term debt
Reducing overall inventories
Lowering Operating costs
Increasing usage of fixed assets
Generating more Sales than total Asset investment
Improving account receivables payments
• Areas of Improvement Required
– Further reduction in operating costs
– Further improvement of asset utilization
• Boeing may have merged with McDonnell Douglas to
“Prop up” Earnings for interim fix due to the lagging
Earnings performance from the Commercial Division
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Lockheed Martin
Financial Summary
• Lockheed Martin profitability is decreasing
– Sales are Decreasing
– Cost of operations are increasing
– Short term debt increasing
• Areas of Improvement
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Reduce operating costs
Reduce time of Account Receivables
Increase Sales
Reduce short term and long debt
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Military Aircraft & Space Division
Summary
• Sales, EBIT, Total Assets, and Capital Expenditures are
nearly equal between both companies.
• Outstanding Contribution to Overall 1998 Net Earnings
– Boeing: 127%
– Lockheed Martin: 65%
• Satisfactory 1998 Sales Contribution
– Boeing: 35%
– Lockheed Martin: 51%
• Overall the Military Aircraft and Space Divisions are
contributing more than fair share to the overall company
performance