# Bombardier Case: Financial Analysis

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• Published : June 3, 2011

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Bombardier Case - Financial Analysis

**please note that units in this financial analysis are in the \$ millions.

1.Describe Bombardier’s current liquidity position (from balance sheet and note on their bank credit facility). Do you think they have sufficient liquidity?

CURRENT RATIO QUICK RATIO
CA = 9863 =1.0502 CA- INVENTORY = 9863 – 3805 = 0.6451 CL 9391 CL 9391

CASH RATIO
CASH = 2917 = 0.310
CL 9391

Current asset(CA) consists the following items: Cash &Cash equivalent, Receivables, Aircraft Financing, and Inventory. Current Liability(CL) consists the following items: Accounts payable & Accrued liabilities, Advances and progress billings in excess of related costs, Fractional ownership deferred revenues, and Deferred income taxes.

The current ratio represents the company’s ability to pay its current liability using only its current assets . Bombardier’s current ratio is 1.05. This means that their current asset is only able to cover their current liability once. The quick ration represents the company’s ability to pay its current liability using its current asset without the inventories. Bombardier’s quick ratio is 0.64. This means that they are not able to pay for the current liabilities without the inventories. The cash ratio represents the company’s ability to pay its current liability using only cash. The cash ratio is 0.310. this means that they can only pay about 1/3 of the current liability with only cash. From the above liquidity ratios, we can see that Bombardier has a very tight current asset position and the company is most likely slow at paying for its current liabilities. Bombardier is very close to insufficient liquidity.

2.Would you consider Bombardier to be heavily leveraged? Why? What ratio(s) prove your position?

DEBT-TO- ASSET RATIO
TD= 15057 = 0.8613 = highly dependent on debt
TA 17482

DEBT-TO-EQUITY RATIO
TD = 15057 = 6.209
TE 2425

Bombardier is heavily leveraged. The debt-to-asset ratio and the debt-to-equity ratio prove my position. The debt-to-asset ratio is 86.13%. This means that the company does not have enough capital and it is highly dependent on debt to support it’s operations. From the debt-to-equity ratio, we can see that Bombardier has 6\$ of debt for every 1\$ of equity. Therefore Bombardier is heavily leveraged.

3.Can they adequately cover their interest obligations? What has been their coverage trend over the past five years?

INTEREST COVERAGE RATIO = EBIT = 357 = 1.725
INTEREST 207

This ratio shoes how the company can pay its interest expenses using it’s operating income(EBIT). The interest coverage ratio for Bombardier is 1.725. This means that Bombardier is almost having trouble meeting its interest obligations.

Year20052004200320022001
EBIT or operating income7751468147322001794
Interest 191255223182108
Interest coverage ratio4.0575916235.7568627456.60538116612.0879120916.61111111

From the above table, we can see that Bombardier’s interest coverage ratio has been decreasing rapidly since 2001. The difference of 2001 to 2006’s interest coverage ratio is 14.86(Year2001 16.61- Year2006 1.725).

4.How has the composition of their invested capital changed over the past 5 years? Is the amount of invested capital attributed to debt holders consistent with your answer in question 2? If yes, why? If no, why?

The invested capita is the total of the company’s liability and equity. 2006’s invested capital was \$17,482, and 2001’s invested capital was \$17,108. The difference for the past 5 years is \$374 Million. This means the company’s debt has most likely increased. The amount of invested capital attributed to debt holders...