Ratio Analysis of Ultra Electronics and Boeing - Sample Solution

Question: Describe about the Ratio Analysis of Ultra Electronics and Boeing company? Answer: About the companies: Both the companies under review belong to the industry of Aerospace and Defence. Ultra Electronics is the company that offers many of the generating highly differentiated solutions and solutions with the products in Defence and Aerospace, Security, Cyber, Transport and Energy market by applying the electronic and software technologies in demanding and critical environments in order to meet the needs of the customers. The company uses innovation to meet the different requirements of its customers and better than the solutions that are offered by its competitors. (Ultra electronics, 2015) Boeing is one of the largest aerospace company and a leading manufacturer of the commercial jetliners and defence, space and security systems. It is the top US exporter and the company supports airlines and the US and the allied government customers in more than 150 countries. The company offers its products and the tailored services that includes the commercial and military aircraft, satellites, weapons, electronic and defence systems, launch systems, advanced information and communication systems, and performance-based logistics and training. (Boeing, 2015) Introduction: Ultra Electronics increasingly uses its wide portfolio of the specialist capabilities that allows its highly differentiated solutions into the defence and aerospace, security and cyber and transport and the energy market sectors. It is this broad diversity that gives a good resilience to the financial performance of the company and goes onto provide the solid growth. During the last 12 months, the group has used the uncertainty in the US government funded market but the lack of clarity has resulted in the delays in the expected orders, approvals and payments. It is the continued fiscal pressures that results in the broader government funded markets, changing market dynamics that have tested the business model of the company. But the groups sustained investment and the constant focus on improving the operational efficiencies along with its inherent agility that has shown the model that it is robust and has positioned the company for growth during the times of the normal returns. (Ultra electronics, 2015) The revenue of Boeing increased by 6% during the year and recorded an amount of $86.6 billion with the increase of 20% in the core earnings per share. The earnings per share were recorded at $7.07. The core earnings were set between $7 and $7.20 whereas the GAAP earnings per share were set between $6.10 and $6.30. The revenue guidance were set between $87.5 and $90.5 billion. The chairman reported that the operating cash flow before the amount of pension were estimated to be $7 billion whereas the operating cash flows before the set at $6.25 billion. The fourth quarter results recorded an increased amount of the revenue and earnings along with an increased returns to the shareholders. The following is the graph for the 5 years: This report aims at discussing the various aspects and the indicators and ratios in respect of Boeing (which is the target company and is being compared with the Ultra Electronics) and then giving the recommendations as to how the same could be improved. Performance: In the end of the November, Boeing had employed about 82,500 in state of Washington, but this number has reduced from 3,900 from January 2013. Even then, the investors love the company. The orders and the backlog are very strong for the airliners. The sector of defence sector has not been hit by the market as was expected. The balance sheet shows a very good performance of the company. The company went on to raise its dividend by 50% and had also announced a $10 billion stock buyback. The dividend alone meant that about $2.16 billion worth of shareholders next year. (Seattle times, 2015) The legal disclaimers that are followed in the market are the legal disclaimers that included the marketing and advertising around the funds and other investments. The company enjoys a great track record in the area of business and it also inspires confidence about the performance in the future. The past financial performance of the company is very impressive. From the past 5 years, the group has indicated that it has a compounded annual growth rate of 16pn. The return of the shareholders includes the rise in the share price and the payments of the dividends. The company has also forecasted the rise of 11pc with the pre-tax profits with 23pc. The balance sheet of the company is robust with the net cash. The company enjoys the history of making the sensible strategic purchases work. The shares yield about 2.3 pc trading on the December 2011 earnings. (Telegraph, 2015) Cash flow statements: In respect of Boeing, the operating cash flows during the last quarter were $1.4 billion and this reflected the production rates of the commercial airplanes and strong core operating performance and the timing of the receipts and the expenditures. During the year, the company has repurchased the 7.6 million shares for $1billion and then paid .4 billion as dividends. On the basis of the strong cash generation and the outlook, the board authorized to pay an additional $10 billion share repurchase program and then raised the quarterly dividend of 50%. In respect of Ultra electronics, the notes of the cash flow statement shows that the company has incurred an impairment loss of $44,239 thousand during the year 2013. There is a significant amount of an increase in the receivables from $5,696 thousands to $43,144 thousands. There is a significant change in the cash outflow from the fall in the debt and the finance lease from $8898 to 521 thousands. Non-financial performance indicators: Ultra electronics: The company enjoys the portfolio of its specialist areas. The company concentrates on providing its customers with the capabilities and the systems by using the groups electronic and the software solutions of the niche markets in defence, transport and energy. The company focusses on the development of the specialist capabilities that provides the differentiated solutions in order to cater to the requirements of the customers. The company has about 150 specialist capability areas. The customer base of the company has widened and this allows its wide portfolio of the specialist capabilities to its customers around the world. The company is a supplier to a wide variety of different project offices, integrated project teams and the platform teams. It also caters to the larger number of different customers. The geographic footprint of the company has pursed the company in gaining an access into the second largest addressable defence budgets in the world. The US spends more on each of the defence each and every year than the rest of the countries when counted together. The majority of the acquisitions of the company has rather been been in North America. (Ultra electronics, 2015) Boeing: The company is all set to the core values that only define who they actually are and also, serve as the guideposts that helps the company in becoming it desires to be. The company takes a high road when it comes to practising the highest ethical standards and in honouring its commitments. It takes its personal responsibility for its own actions. The company strives for the first time quality and aims at continuous improvement in meeting the standards of excellence stakeholders that are expected from them. The company values the human life and health above anyone else and takes the actions according to the maintenance of the safety in the work places, products and the services. The company feels personally accountable towards the safety and collective responsibility for the safety of the people. In meeting the quality, costa and schedule, the safety is never compromised. The company values its skills, strengths and the visions and views of the diverse teams. The company foster the collaborative workplace and engages the employees where they find the solutions for their customers in order to fulfil their common business objectives. The company acts with integrity, consistence and honesty. They value culture, openness and inclusion in which each and every one is treated fairly and where everyone has an opportunity to contribute. The company is a responsible partner, partner, neighbour and citizen to the diverse communities and the customers that it serves. It promotes health and the wellbeing of the people their families and the communities. The company is very cautious about its environment. It volunteers and financially supports education and the other worthy causes. The company operates profitably and with integrity. The customers are provided with the best value innovation and with this, they achieve the competitive edge of their own markets and enables its employees to work in a safe and an ethical environment with a highly attractive and a competitive mix of the pay along with the benefits. The companys hares its ability of the future success and rewards its customers by maximising their wealth. The company conducts its business lawfully and ethically when it comes to their suppliers and helps in strengthening the communities all around the world. (Boeing, 2015) SWOT Analysis of Boeing: Strengths: The strengths of the company includes the fact that it builds the best products in the world and produces a variety of the products to meet the demand of the different customers. Weakness: The company spends a huge amount of money in research and development each and every year and this affects its earnings. The company has a huge amount pf pension cost. Opportunities: The company has very good image in the eyes of its customers and this makes the products of the company reliable. The employees drill around 18 million holes each year and this shows that the company has an opportunity to improve its performance and produce best quality products. Threats: This industry is best affected by the regulations and the contracts of the government and this is very uncertain. Ratio analysis: The following are the ratios that have been calculated. (Amounts in in thousands) (Amounts in $ in millions) Ultra electronics Boeing company Profitability ratios: Profit before interest and taxation 49281 6618 Equity and debt 393843 23069 Return on capital employed 12.51% 28.69% Net profit after taxes 38157 4585 Equity 321179 14997 Return on equity 11.88% 30.57% Net profit after taxes 38157 4586 Revenue 745154 86623 Net profit ratio 5.12% 5.29% Gross profit 221467 13430 Revenue 745154 86623 Gross profit ratio 29.72% 15.50% Need to improve Liquidity ratios: Current assets 334021 65074 Current liabilities 305795 51486 Current ratio 1.092303667 1.263916404 Current assets-stock 276247 22162 Current liabilities 305795 51486 Quick ratio 0.903373175 0.430447112 Need to improve Efficiency ratios: Inventory*365 21087510 15662880 Cost of sales 523687 73193 Inventory holding period 40.26739255 213.9942344 Need to improve Debtors*365 87569340 2389290 Revenue 745154 86623 Debtors holding period 117.5184459 27.58262817 Creditors*365 98516055 3466770 Cost of sales 523687 73193 Creditors holding period 188.120108 47.36477532 Need to improve Financial structure: Long term borrowings 72664 8072 Long term borrowings equity 393843 23069 Gearing ratio 18.45% 34.99% Profit before interest and taxes 49281 6618 Interest expense 9723 386 Interest cover 5.068497377 17.14507772 The following are the comparative ratios for the 3 years: (Amounts in $ in millions) 2013 2012 2011 Boeing company Profitability ratios: Profit before interest and taxation 6618 6352 5891 Equity and debt 23069 14940 13626 Return on capital employed 28.69% 42.52% 43.23% Net profit after taxes 4585 3900 4018 Equity 14997 5967 10018 Return on equity 30.57% 65.36% 40.11% Net profit after taxes 4585 3900 4018 Revenue 86623 81698 68735 Net profit ratio 5.29% 4.77% 5.85% Gross profit 13430 13142 12996 Revenue 86623 81698 68735 Gross profit ratio 15.50% 16.09% 18.91% Liquidity ratios: Current assets 65074 57309 49810 Current liabilities 51486 44982 41274 Current ratio 1.263916404 1.274042951 1.206813006 Current assets-stock 22162 19558 17570 Current liabilities 51486 44982 41274 Quick ratio 0.430447112 0.434796141 0.425691719 Efficiency ratios: Inventory*365 15662880 13779115 11767600 Cost of sales 73193 68556 55739 Inventory holding period 213.9942344 200.99065 211.1196828 Debtors*365 2389290 2046920 2114445 Revenue 86623 81698 68735 Debtors holding period 27.58262817 25.0547137 30.76227541 Creditors*365 3466770 3428810 3068190 Cost of sales 73193 68556 55739 Creditors holding period 47.36477532 50.01473248 55.04565923 Financial structure: Long term borrowings 8072 8973 10018 Long term borrowings equity 23069 14940 13626 Gearing ratio 34.99% 60.06% 73.52% Profit before interest and taxes 6618 6352 5891 Interest expense 386 442 498 Interest cover 17.14507772 14.37104072 11.82931727 Explanations: Return and risk: A risk is the likelihood that the expected return would be different from the actual return. Return can either be a loss or a profit. Profitability: Profitability is the potential of a business to yield gain or profit. Profitability is measured by the profitability ratios like profit margin, return on assets ratio, and return on equity ratio. Return on capital employed: Return on capital employed is the return that the company earns form the amount of money that it has invested in the business. The graph shows a downward trend which indicates that there has been a decrease in the % of the return on the capital employed. This is not good for the company. The main reason for the same were the increase in the profit and increase in debt and equity. Return on equity (ROE): ROE are the earnings that the company earns by investing the funds of the shareholders in the business. The more the return on equity, the better is the profitability of the business. It is arrived at by dividing the net income by the average of opening as well as the closing balance of the shareholders equity. The graph shows a downward trend which indicates that there has been a decrease in the % of the return on the equity of the shareholder. This is not good for the company. The reason for the same could be an increase in the net profit and increase in the equity. Profit margin ratio: It is the ratio that is expressed between the net income that is earned by a company and the sales that are affected during that period. It is arrived at by dividing the net income by sales. The graph shows the ratio to be at the same level. The reason for the same could be the increase in the net profit and revenues. There has been a reduction in the amount of the gross profit. The reason for the same could be the rise in the revenue but not the same level of increase in the gross profits. Current ratio: Current ratio is the measure that tells us as to what extent the current assets are able to pay off the current liabilities of the company. It is arrived at by dividing the current assets by the current liabilities. The graph shows an increase which is a good thing since the company will be able to meet its obligations easily. The reason for the increase could be the rise in the current assets and current liabilities. Acid test ratio: Quick or the acid test ratio is the measure to determine the extent to which the current assets, except inventory, are able to pay off the current liabilities of the company. It is arrive at by dividing the sum of cash, accounts receivables and short term investments by the current liabilities. The graph shows an increase which is a good thing since the company will be able to meet its obligations easily. The reason for the increase could be the rise in the current assets less inventory and current liabilities. Inventory turnover ratio: It is a measure that estimates the number of times a company replaces its inventory during a year. It is arrived at by dividing the cost of goods sold by the average of opening and closing inventory. When we divide the inventory by the cost of sales multiplied by 365, we get the number of days that are taken to convert the inventory into sales. The graph shows an increase in the number of days. This shows that the company is now taking more days to convert its inventory into sales. The reason for the same was increase in inventory and increase in the cost of sales. Accounts receivable turnover ratio: It is a measure through which the company estimates the number of times the company collects the balance in the accounts receivables account. It is arrived at by dividing the sales by the average of opening and closing accounts receivable. When we divide the debtors by the revenue multiplied by 365, we get the number of days that are taken to convert the accounts receivables into cash. The number of days have decreased which indicates that the company is able to convert its receivables into cash much faster now and therefore, enjoys a good cash position. Accounts payable turnover ratio: It is a measure through which the company estimates the number of times the company pays the balance in the accounts payable account (to its suppliers). It is arrived at by dividing the purchases made during the year by the average accounts payable. When we divide the creditors by the cost of sales multiplied by 365, we get the number of days that are taken to convert the accounts payables into cash. The graph shows a decrease which indicates that the company is paying off its creditors faster now. Gearing ratio: This is the ratio that shows the degree to which the firm's activities are funded by owner's funds versus creditor's funds. The more the ratio, the more riskily is the company. The gearing ratio of the company has deceased which indicates that the company is less risky now. Interest coverage ratio: It is the ratio used to determine the ease with which the company is able to pay off the interest on outstanding borrowings. It is arrived at by dividing the earnings before interest and taxes by the interest expense. The ratio has increased which is a good sign is since, it merely shows that the companys revenues are able to cover the interest. Conclusion and recommendations: The ratios that have been calculated above shows that the company has suffered a fall in its performance but it is able to cover its interest expense by more number of times. The company must focus on reducing its expenses. It must start looking for the ways through which the costs could be reduced by switching off to the less costly options that are available in the market but at the same time, must never compromise on the quality of the services and the products that it offers. The company must focus on increasing its profit amount since the financial reports shows an increase in the equity and debt only and no corresponding increasing at par with the profit margin. The company must concentrate on the ways through it can increase its profits since there has been a continuous increase in the equity but no corresponding increase in the profit. As the result, the ratio has reduced. The company must offer its customers discounts, payment options, etc. so that it can convert its inventory into sales at a much faster pace. References: Boeing.com, (2015). Boeing: Boeing in Brief. Retrieved 8 February 2015, from https://www.boeing.com/boeing/companyoffices/aboutus/brief.page Boeing.com, (2015). Boeing: Culture Values. Retrieved 8 February 2015, from https://www.boeing.com/boeing/aboutus/culture/index.page? Boeing.com, (2015). Boeing: The Boeing Company. Retrieved 8 February 2015, from https://www.boeing.com/boeing/ hsprod.investis.com, (2015). Annual report 2010. Retrieved 8 February 2015, from https://hsprod.investis.com/ir/ule/pdf/Annual_report_2010.pdf hsprod.investis.com, (2015). Annual report 2013. Retrieved 8 February 2015, from https://hsprod.investis.com/ir/ule/pdf/ultra-ara-2013.pdf Talon, J. (2015). Boeing's soaring performance in 2013. The Seattle Times. Retrieved 8 February 2015, from https://blogs.seattletimes.com/jontalton/2013/12/31/boeings-soaring-performance-in-2013/ Ultra-electronics.com, (2015). Ultra Electronics | Group overview. Retrieved 8 February 2015, from https://www.ultra-electronics.com/about-us/group-overview.aspx Ultra-electronics.com, (2015). Ultra Electronics | Welcome. Retrieved 8 February 2015, from https://www.ultra-electronics.com/ White, G. (2011). Questor share tip: Good time to invest in under-rated defense company - Telegraph. Telegraph.co.uk. Retrieved 8 February 2015, from https://www.telegraph.co.uk/finance/markets/questor/8635545/Questor-share-tip-Good-time-to-invest-in-under-rated-defence-company.html