Word Count: 5,483
ACC4053 | Financial Analysis
2. Valuation of the Company
2.1 An evaluation of BAE Systems’ current position and its future prospects 2.2 Assessment of the value of BAE Systems based on the application of suitable cash flow based valuation techniques 2.3 Assessment of the value of BAE Systems based on the application of suitable accounting based valuation techniques 3. Comparison of the valuation with the ‘market’ valuation 4. Appendices
4.1 Appendix 1: PEST Analysis
4.2 Appendix 2: SWOT Analysis
4.3 Appendix 3: Porter’s Five Forces Model
4.4 Appendix 4: Key Financial Ratios
4.5 Appendix 5: Weighted Average Cost of Capital
4.6 Appendix 6: Shareholder Value Analysis
4.7Appendix 7: Economic Profit
4.8Appendix 8: Dividend Discount Model
4.9Appendix 9: Price Earnings Ratio
4.10Appendix 10: Asset Valuation Method
4.11Appendix 11: Share Price Movement
$1,620bn. The world’s total defence and military expenditure in 2010. $687bn. United States’ military expenditure in the same year. Switzerland’s GDP in 2010 was $523bn, a country ranked 19th in the world. The figures themselves place into context the scale of global defence spending and one set of companies which have benefitted the most from it are the defence suppliers. BAE Systems is one of them. BAE Systems today is a global defence, security and aerospace company. The group is based in the United Kingdom and is listed on the London Stock Exchange where it a constituent of the FTSE 100 index. The most recent financial year end of the company is 31 December 2010. The following report presents an analysis of BAE Systems and the industry it operates in including its competitors. The paper evaluates the company in terms of its current position and future prospects using various strategic analytical models. The objective of the report also is to assess the value of the company through cash and accounting based techniques. In addition, the analysis provides a comparison of the measured value with the actual ‘market’ value of the company. The report has been divided into three sections. Section 2 presents the valuation of BAE which is then compared with the market value of the company in Section 3. The research is accompanied by a number of appendices in the final section which consists of various analytical models and financial data. A list of references is also provided at the end of the report.
2. Valuation of BAE Systems
The following section presents a valuation of BAE Systems derived from various models. The section is segregated into three parts. It starts with an evaluation of the current position and future prospects of the company. The second and third parts then build on the analysis through assessment of the value of BAE using both cash and accounting based valuation techniques. 2.1 An evaluation of BAE Systems’ current position and its future prospects BAE Systems is currently the second largest defence company in the world. The company’s main competitors are Lockheed Martin, Boeing and Northrop Grumman. For the purpose of the analysis, BAE would be evaluated against Lockheed Martin (LM) and Northrop Grumman (NG) where required. Boeing may not be pertinent for such comparisons as its core business also includes manufacturing commercial airplanes, whereas both Lockheed Martin and Northrop, like BAE, are largely defence and security companies.
Chart 1: Top ten global defence companies (based on 2009 defence revenues in US$bn) (Source: Defense News, 2010)
A number of analytical models, including, PEST Analysis, SWOT Analysis and Porter’s Five Forces Model were used to evaluate the company’s current position and future prospects. These models help in understanding the key features and characteristics of the company as well as the issues it is presently facing. One of the key strengths of BAE is its...