This study covers the analyses of the TEXTRON CORPORATION— BENCHMARKING PERFORMANCE
Textron's Board of Directors (Thundersbird School of Global Management, Graeme Rankine- TB0043, September 9,2009) had launched a new initiative to assess the company's supply chain and the company's working capital needs. First step was to benchmark the company's recent financial performance against other aerospace and defense firms to determine the areas in which the company's performance could be improved. Top management was particularly interested in understanding the company's sizeable investments in net working capital.
Ms. Amphlett, a financial analyst in the Textron Corporation, soon found that Textron's recent stock price performance was impressive—with an overall increase from $22 per share in 2001 to more than $55 per share in April 2007, much better than the performance of the S&P 500 stock index over the same period.
Cowan, a financial research firm, estimated EPS in 2007 and 2008 of $6.25 and $7.30 per share (versus $5.43 in 2006), respectively, and that the company's shares were worth $55-$57.50 per share, using a sum-of-the parts valuation methodology. Prudential set a target price of $51.50 per share, up from $50.50 using a discounted cash flow valuation approach. Objectives
To make a performance analysis between the Textron and competitors within the same industry segment (mostly Aerospace and Defense firms) by using financial ratios for the fiscal 2005 and 2006 and to compare with Textron’s. Problem short description
Ms. Amphlett was surprised to learn that Textron's growth in revenue, net income, and cash flows over the last 10 years were much less spectacular. Ms. Amphlett obtained a copy of Textron's recent financial statements and information about Textron's competitors in the aerospace and defense industry. For comparison purposes, she also computed financial ratios for Textron and its competitors. But Ms. Amphlett also recalled from her MBA accounting classes that companies in the same industry often use different accounting methods in preparing their financial statements. She wondered how that would affect her benchmarking analysis. Findings of the analyses
Ms. Amphlett had compared mostly the following figures:
* Textron’s Stock Performance from 1/02/01 to 4/2/07 on the the S&P 500* index (that is the most widely followed index of large-cap American stocks (Exhibit 1) * Financial Ratios for Aerospace and Defense Firms (Exhibit 6) Among the biggest competitors in the industry as were Generall Dynamics CORP; Honeywell Int’l Inc, Northrop Grumman Corp; Raytheon CO and Rockwell Collins Inc. Liquidity ratios for Textron was 0,58 which means that they were liquid, and Current ratio was in 2006: 1,45 which means that they were liquid Asset management ratios were also within industry (competitors) ratios, Financial Leverage, Profitability Ratios, as well as by DuPont Analyses they were on safe side. Last reports of the Business and Financial Performance of the Textron Corporation (Textron Annual Report 2009, www.textron.com) could be found at their Financial Report 2009, where they have explained that they have changed their Costs Accounting System and made the following: “Restructuring Program
In the fourth quarter of 2008, we initiated a restructuring program to reduce overhead costs and improve productivity across the company, which includes corporate and segment direct and indirect workforce reductions and streamlining of administrative overhead, and announced the exit of portions of our commercial finance business. This program was expanded in 2009 to include additional workforce reductions, primarily at Cessna, Corporate and Bell, the cancellation of the Citation Columbus development project, the streamlining and reorganization of senior management and the consolidation of certain operations at Cessna. By the end of 2010, we expect to have eliminated approximately 10, 800...