Finance Policy Recommendation and Pro Forma Budget: Boeing

Topics: Net present value, Cash flow, Boeing Pages: 15 (5041 words) Published: June 6, 2013
Finance Policy Recommendation and Pro Forma Budget: Boeing
Henry Aguirre, Patrick Buckley, Sheri White-Manning, Ted Ortiz, and Becky Wilson FIN 571
June 5, 2013
Dr. Tom NeSmith

Boeing Working Capital Policy Analysis
Boeing is an aerospace cooperation that has been around since 1916. William E. Boeing, and a former U.S. Navy officer named Conrad Westervelt discovered the cooperation. They started out with a two seated single-engine seaplane called B&W. About a year later, the company was known as the Boeing Airplane Company. During the 1920 through the 1930s, the company sold several types of planes and their patrol bombers to the United States military. Around 1928 Boeing Airplane & Transport Corporation was established. Boeing is recognized as one of the largest global aircraft manufacturers in the world. They come in second as possessing the largest aerospace and defense contract. They are well-known for two of their commercial flights such as the 777 and 787. Boeing cooperation needs to enhance their working capital policy to ensure continues growth and success. Team B will discuss our recommendation by providing three working capital policy strategies, such as the aggressive approach, matching approach, and the conservative approach to the cooperation for their approval. We will create a pro forma budget to define the working capital budget and financial recommendations for the next five years. Working Capital Policy Strategies

Working capital is simply the difference between a firm’s current assets and current liabilities. Emery, Finnerty, and Stowe states, “working capital provides a measure of the firm’s liquidity, or its ability to meet its short-term obligations as they come due” (2007, p. 47). Working capital policy is an extremely important element in the monetary strategy of large firms. Leadership must be able to lie out a policy that will make use of the firm’s resources most efficiently. The ability for leadership to do this lies in which approach they use. The main difference between working capital strategies is the level of debt, versus equity a firm uses to finance its operations. Listed below is a brief explanation of the most widely used strategies: Aggressive Approach| More shore-term source of finance,Less long-term source of finance| Low cost, high risk leading to high profitability but low liquidity| Maturity Matching Approach| Uses short-term source of finance for fluctuating current assets and long-term source of finance for permanent current assets| Balance between cost and risk, leading to a balance between profitability and liquidity| Conservative Approach| More long-term source of finance, less term source of finance| High cost, low risk leading to low profitability but high liquidity|

To decide which approach the leadership at Boeing Co. should use, it is important to analyze the firm’s working capital turnover. The working capital turnover is measured by using the ratio: Current Assets – Current Liabilities/Sales. Data from the firm’s financial statements is necessary to compute this ratio. The chart below is based on data from Boeing Co. Annual Reports: Boeing Co.|

Experts Financial Statements 2008-2012|
| Dec 31, 2012| Dec 31, 2011| Dec 31, 2010| Dec 31, 2009| Dec 31, 2008| USD $ in Millions| | | | | |
Current assets| 57,309| 49,810| 40,572| 35,275| 25,964| Less: Current liabilities| 44,982| 41,274| 35,395| 32,883| 30,773| Working capital| 12,327| 8,536| 5,177| 2,392| -4,809| SALES| 81,698| 68,735| 64,306| 68,281| 60,909|

TURNOVER VS INDUSTRY|  |  |  |  |
Boeing Co.| 6.63| 8.05| 12.42| 28.55| –|
Industry, Industrials| 8.80| 10.55| 8.41| 11.52| 31.48| Stock Analysis on Net (www.stock-analysis-on.net)|
Copyright © 2012 EBIT Financial Analyses Center|
A cursory observation of the data above shows that Boeing’s working capital has increased every year since 2008,...

References: Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007).Corporate financial management. Pearson College Div.
http://www.stock-analysis-on.net/NYSE/Company/Boeing-Co/Ratios/Short-term-Operating-Activity#Working-Capital-Turnover
Boeing Co., Annual Report , 2012. Retreived from: https://materials.proxyvote.com/Approved/097023/20130301/CMBO_157699/TheBoeingCompany_AR_3-11-13b/page_2/images/image-02.png
Mergent Online, M. (2013, May). Mergent Online. Retrieved from http://www.mergentonline.com.ezproxy.apollolibrary.com/companydetail
Morningstar Ratios: http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=ba
Boeing Co. Balance Sheet. Retreived from:http://financials.morningstar.com/balance-sheet/bs.html?t=BA®ion=USA&culture=en-us
Boeing Co. Income Statement. Retreived from: http://financials.morningstar.com/income-statement/is.html?t=BA®ion=USA&culture=en-us
Boeing Plane Cost http://www.boeing.com/boeing/commercial/prices/
Boeing SEC Filings http://www.sec.gov/Archives/edgar/data/711513/000119312513071067/d450745d10k.htm
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