The goal of the study is to provide overall financial statement overview of The Boeing Company using the knowledge obtained during the Financial Management course.
The main question of the study is how financially well the company is at the moment and what investment expectation it generates on the market nowdays.
The Boeing Company background
The company was originally founded by William Boeing on July 15, 1916, as "The Pacific Aero Products Company". Two years later it was renamed into “The Boeing Company”, on May 9, 1917. Since that date the company grew and acquired a lot of its competitors, including the McDonnell Douglas in 1997.
The Boeing’s structure consists of two main divisions and two supporting divisions:
- Boeing’s Commercial Airlines (BCA)
- Boeing Defense Space & Security (BDS), which in turn consists of:
o Boeing Military Aircraft
o Network & Space Systems
o Global Services & Support
- Boeing Capital Corporation (BCC)
- Other segments (including own Fire department and other non-profile activities)
The Boeing Company’s Commercial Airliners division took the leading market positions up to 2003.
Financial Ratios Analysis
Boeing’s liquidity ratios increased in 2010 and 2009 in comparison to 2008 values, but current and acid-test ratios are still below the industry average. Reasons:
- the amount of money and short-term investments increased in 2010 and 2009
- accounts payable and other accrued liabilities value decreased in 2010 and 2009
In terms of current and acid-test ratios, Boeing is less liquid than average firm in the aerospace industry. However the current ratio appears to suggest more liquidity than the acid-test ratio. This could be explained by the fact that Boeing carries more inventory relative to current debt than does an average firm.
Inventory turnover ratio decreased in 2010 in comparison to 2008 and 2009, because the inventories’ value increased in 2010 up to $24317 million. Bearing in mind that the acid test ratio is below the industry norm, Boeing is holding the excessive inventory. It means that funds which could be invested elsewhere are being tied up in inventory. In addition, there will be high carrying cost for storing the goods, as well as the risk of obsolescence.
To examine the level of operating profits relative to the assets, OIROI ratio is used. In comparison to 2009 OIROI increased to 7,25% in 2010 due to the growth of operating income by $2875 million and decrease in total assets by $6512 million. Reasons:
- In 2010 CGS and other operating expenses decreased in comparison to 2009 results
-Income from operating investments increased in 2010
The total asset turnover ratio is helpful in evaluating a company`s ability to use its asset base efficiently to generate revenue. Boeing’s total assets turnover ratio is constantly decreasing starting from 2008, but it’s still above the industry norm, which indicates that the company is using its assets efficiently and generates $0,94 in sales per dollar of assets, whereas the average norm is only $0,74 in sales per every dollar of assets.
2 Asset Management
However, the company`s use of assets declined during the three years as well as the inventory turnover ratio (declined from 3,2 to 2,13). Moreover, inventory turnover ratio is below the industry average. As mentioned previously, Boeing is holding the excessive inventory causing both inventory and assets turnover ratios to decline. Moreover sales decreased by $3975 million in 2010 in comparison to 2009. This indicates that Boeing has some difficulties in production distribution. According to Boeing’s official representatives, Boeing Commercial Airplanes fourth-quarter revenue decreased by 11% because of the delayed deliveries of 777 and 747 airplanes....