comparative analysis of Airbus and Boeing 2012

Topics: Financial ratios, Boeing, Airbus Pages: 6 (1305 words) Published: September 18, 2014
5.0 A comparative analysis of Airbus and Boeing

5.1 Airbus Group

1. ROCE = 100

Year 2012| Year 2011|

= 15%| = 12.8%|

Return on Capital Employed (ROCE) allows a firm to identify the percentage of profit derived from the capital that was used to run the business. Therefore, ROCE can be used to assess the profitability of the business in a given year. Studies of the Airbus Group’s annual report and financial statements therein, have revealed that the company has investments in associates, mainly in Dassault Aviation (46.32% in December 2012).

Associates are companies in which a firm has less than 50% shares in and are therefore not under the control of that firm. Nonetheless, that firm which in this case is Airbus receives income from its Associates. However, this income from associates need to be deduced from Airbus’ operating profit as it is not generated using the Airbus Group’s capital employed. Subsequently, investments in associates are deducted from capital employed.

2. Profitability (Gross Profit Margin) = 100

Year 2012| Year 2011|

= 14%| = 13.9%|

Gross profit margin represents the percentage of each dollar of Airbus’ revenue that is available after accounting for the cost of goods sold. The values for year 2011 as well as 2012 show a consistent GP margin with a slight improvement in 2012 which suggests that profitability has increased by a very small margin. Revenues were higher in 2012 due to increases in sales of commercial aircrafts, particularly the A330 which received 80 gross orders in that year.

Although it is accepted that higher GP margins are favorable for a business, it is important to compare the values with that of other companies within the industry to identify norms. This comparison will be made with the Boeing company in preceding sections of this report.

3. Current Ratio (Liquidity) = 100

Year 2012| Year 2011|

= 0.93 : 1| = 0.91 : 1|

This liquidity ratio demonstrates a company’s ability to pay its short term liabilities. It is commonly accepted that a higher ratio is more favorable while a value less than 1 indicated that the company in question will be unable to pay off short term obligations if they came due. However, given the industry norm of between 1.20 – 1.30, Airbus’ current ratio value is indicative of a low efficiency in the company’s operating cycle.

It could be explained by the increased competition Airbus has been facing in the recent years, especially from its closest rival Boeing. Commercial aircraft orders was the majority contributor to sales of both Airbus and Boeing with Boeing reporting 1,339 gross orders 2012 and Airbus reporting only 833 orders in the same year.

4. Inventory Turnover Ratio (Efficiency) =

Year 2012| Year 2011|

= 2 Times| = 2 Times|

Showing how many times average inventory is sold during a period, the stock turnover ratio is used to assess how effectively inventory is managed. This ratio is highly dependent on the nature of the industry and ratios of a company in the garment industry cannot be compared with one in the car or aerospace industry. This is due to the higher number of times garments are sold in comparison to aircrafts.

Therefore, given the industry in which Airbus operates in, it is within the industry norms as the Aircraft, Aerospace & Defense industry faces low inventory turnover due to the nature of the products which are not fast moving capital goods. Values are have been constant between 2011 and 2012.

5. Debt to Equity Ratio =

Year 2012| Year 2011|

= 0.33| = 0.41|

Debt to equity ratio is used to measure the relationship between the capital contributed by creditors and that which is contributed by shareholders. The ratio values for Airbus have improved from 2011 to 2012 and shows that for every dollar of the company owned by shareholders, the company owes 0.33 dollars to creditors.

A lower debt to equity ratio is mostly favoured by companies as it...
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