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Ratio Analysis Of Ultra Electronics And Boeing Add in library

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Question:

Describe about the Ratio Analysis of Ultra Electronics and Boeing company?
 
 

Answer:

About the companies:

Both the companies under review belong to the industry of Aerospace and Defence.

Ultra Electronics is the company that offers many of the generating highly differentiated solutions and solutions with the products in Defence and Aerospace, Security, Cyber, Transport and Energy market by applying the electronic and software technologies in demanding and critical environments in order to meet the needs of the customers.

The company uses innovation to meet the different requirements of its customers and better than the solutions that are offered by its competitors.

(Ultra electronics, 2015)

Boeing is one of the largest aerospace company and a leading manufacturer of the commercial jetliners and defence, space and security systems. It is the top US exporter and the company supports airlines and the US and the allied government customers in more than 150 countries. The company offers its products and the tailored services that includes the commercial and military aircraft, satellites, weapons, electronic and defence systems, launch systems, advanced information and communication systems, and performance-based logistics and training.

(Boeing, 2015)

 

Introduction:

Ultra Electronics increasingly uses its wide portfolio of the specialist capabilities that allows its highly differentiated solutions into the defence and aerospace, security and cyber and transport and the energy market sectors. It is this broad diversity that gives a good resilience to the financial performance of the company and goes onto provide the solid growth. During the last 12 months, the group has used the uncertainty in the US government funded market but the lack of clarity has resulted in the delays in the expected orders, approvals and payments. It is the continued fiscal pressures that results in the broader government funded markets, changing market dynamics that have tested the business model of the company. But the group’s sustained investment and the constant focus on improving the operational efficiencies along with its inherent agility that has shown the model that it is robust and has positioned the company for growth during the times of the normal returns.

(Ultra electronics, 2015)

The revenue of Boeing increased by 6% during the year and recorded an amount of $86.6 billion with the increase of 20% in the core earnings per share. The earnings per share were recorded at $7.07. The core earnings were set between $7 and $7.20 whereas the GAAP earnings per share were set between $6.10 and $6.30. The revenue guidance were set between $87.5 and $90.5 billion. The chairman reported that the operating cash flow before the amount of pension were estimated to be $7 billion whereas the operating cash flows before the set at $6.25 billion. The fourth quarter results recorded an increased amount of the revenue and earnings along with an increased returns to the shareholders.

The following is the graph for the 5 years:

This report aims at discussing the various aspects and the indicators and ratios in respect of Boeing (which is the target company and is being compared with the Ultra Electronics) and then giving the recommendations as to how the same could be improved.

Performance:

In the end of the November, Boeing had employed about 82,500 in state of Washington, but this number has reduced from 3,900 from January 2013.

Even then, the investors love the company. The orders and the backlog are very strong for the airliners. The sector of defence sector has not been hit by the market as was expected. The balance sheet shows a very good performance of the company. The company went on to raise its dividend by 50% and had also announced a $10 billion stock buyback. The dividend alone meant that about $2.16 billion worth of shareholders next year.

(Seattle times, 2015)

The legal disclaimers that are followed in the market are the legal disclaimers that included the marketing and advertising around the funds and other investments.

The company enjoys a great track record in the area of business and it also inspires confidence about the performance in the future. The past financial performance of the company is very impressive. From the past 5 years, the group has indicated that it has a compounded annual growth rate of 16pn. The return of the shareholders includes the rise in the share price and the payments of the dividends. The company has also forecasted the rise of 11pc with the pre-tax profits with 23pc. The balance sheet of the company is robust with the net cash. The company enjoys the history of making the sensible strategic purchases work. The shares yield about 2.3 pc trading on the December 2011 earnings.

(Telegraph, 2015)

Cash flow statements:

In respect of Boeing, the operating cash flows during the last quarter were $1.4 billion and this reflected the production rates of the commercial airplanes and strong core operating performance and the timing of the receipts and the expenditures. During the year, the company has repurchased the 7.6 million shares for $1billion and then paid .4 billion as dividends. On the basis of the strong cash generation and the outlook, the board authorized to pay an additional $10 billion share repurchase program and then raised the quarterly dividend of 50%.

In respect of Ultra electronics, the notes of the cash flow statement shows that the company has incurred an impairment loss of $44,239 thousand during the year 2013. There is a significant amount of an increase in the receivables from $5,696 thousands to $43,144 thousands. There is a significant change in the cash outflow from the fall in the debt and the finance lease from $8898 to 521 thousands.

Non-financial performance indicators:

Ultra electronics:

The company enjoys the portfolio of its specialist areas. The company concentrates on providing its customers with the capabilities and the systems by using the groups electronic and the software solutions of the niche markets in defence, transport and energy. The company focusses on the development of the specialist capabilities that provides the differentiated solutions in order to cater to the requirements of the customers. The company has about 150 specialist capability areas. The customer base of the company has widened and this allows its wide portfolio of the specialist capabilities to its customers around the world. The company is a supplier to a wide variety of different project offices, integrated project teams and the platform teams. It also caters to the larger number of different customers. The geographic footprint of the company has pursed the company in gaining an access into the second largest addressable defence budgets in the world. The US spends more on each of the defence each and every year than the rest of the countries when counted together. The majority of the acquisitions of the company has rather been been in North America.

(Ultra electronics, 2015)

 

Boeing:

The company is all set to the core values that only define who they actually are and also, serve as the guideposts that helps the company in becoming it desires to be. The company takes a high road when it comes to practising the highest ethical standards and in honouring its commitments. It takes its personal responsibility for its own actions. The company strives for the first time quality and aims at continuous improvement in meeting the standards of excellence stakeholders that are expected from them.

The company values the human life and health above anyone else and takes the actions according to the maintenance of the safety in the work places, products and the services. The company feels personally accountable towards the safety and collective responsibility for the safety of the people. In meeting the quality, costa and schedule, the safety is never compromised. The company values its skills, strengths and the visions and views of the diverse teams. The company foster the collaborative workplace and engages the employees where they find the solutions for their customers in order to fulfil their common business objectives. The company acts with integrity, consistence and honesty. They value culture, openness and inclusion in which each and every one is treated fairly and where everyone has an opportunity to contribute.

The company is a responsible partner, partner, neighbour and citizen to the diverse communities and the customers that it serves. It promotes health and the wellbeing of the people their families and the communities. The company is very cautious about its environment. It volunteers and financially supports education and the other worthy causes.

The company operates profitably and with integrity. The customers are provided with the best value innovation and with this, they achieve the competitive edge of their own markets and enables its employees to work in a safe and an ethical environment with a highly attractive and a competitive mix of the pay along with the benefits. The company’s hares its ability of the future success and rewards its customers by maximising their wealth. The company conducts its business lawfully and ethically when it comes to their suppliers and helps in strengthening the communities all around the world.

(Boeing, 2015)

 

SWOT Analysis of Boeing:

Strengths:

The strengths of the company includes the fact that it builds the best products in the world and produces a variety of the products to meet the demand of the different customers.

Weakness:

The company spends a huge amount of money in research and development each and every year and this affects its earnings.

The company has a huge amount pf pension cost.

Opportunities:

The company has very good image in the eyes of its customers and this makes the products of the company reliable. The employees drill around 18 million holes each year and this shows that the company has an opportunity to improve its performance and produce best quality products.

Threats:

This industry is best affected by the regulations and the contracts of the government and this is very uncertain.

Ratio analysis:

The following are the ratios that have been calculated.

 

(Amounts in £ in thousands)

(Amounts in $ in millions)

 

 

Ultra electronics

Boeing company

 

Profitability ratios:

 

 

 

 

 

 

 

Profit before interest and taxation

49281

6618

 

Equity and debt

393843

23069

 

 

 

 

 

Return on capital employed

12.51%

28.69%

 

 

 

 

 

Net profit after taxes

38157

4585

 

Equity

321179

14997

 

 

 

 

 

Return on equity

11.88%

30.57%

 

 

 

 

 

Net profit after taxes

38157

4586

 

Revenue

745154

86623

 

 

 

 

 

Net profit ratio

5.12%

5.29%

 

 

 

 

 

Gross profit

221467

13430

 

Revenue

745154

86623

 

 

 

 

 

Gross profit ratio

29.72%

15.50%

Need to improve

 

 

 

 

Liquidity ratios:

 

 

 

 

 

 

 

Current assets

334021

65074

 

Current liabilities

305795

51486

 

 

 

 

 

Current ratio

1.092303667

1.263916404

 

 

 

 

 

Current assets-stock

276247

22162

 

Current liabilities

305795

51486

 

 

 

 

 

Quick ratio

0.903373175

0.430447112

Need to improve

 

 

 

 

Efficiency ratios:

 

 

 

 

 

 

 

Inventory*365

21087510

15662880

 

Cost of sales

523687

73193

 

 

 

 

 

Inventory holding period

40.26739255

213.9942344

Need to improve

 

 

 

 

Debtors*365

87569340

2389290

 

Revenue

745154

86623

 

 

 

 

 

Debtors holding period

117.5184459

27.58262817

 

 

 

 

 

Creditors*365

98516055

3466770

 

Cost of sales

523687

73193

 

 

 

 

 

Creditors holding period

188.120108

47.36477532

Need to improve

 

 

 

 

Financial structure:

 

 

 

 

 

 

 

Long term borrowings

72664

8072

 

Long term borrowings equity

393843

23069

 

 

 

 

 

Gearing ratio

18.45%

34.99%

 

 

 

 

 

Profit before interest and taxes

49281

6618

 

Interest expense

9723

386

 

 

 

 

 

Interest cover

5.068497377

17.14507772

 

 

 

 

 


The following are the comparative ratios for the 3 years:

 

(Amounts in $ in millions)

 

2013

2012

2011

 

 

 

 

 

Boeing company

Profitability ratios:

 

 

 

 

 

 

 

Profit before interest and taxation

6618

6352

5891

Equity and debt

23069

14940

13626

 

 

 

 

Return on capital employed

28.69%

42.52%

43.23%

 

 

 

 

Net profit after taxes

4585

3900

4018

Equity

14997

5967

10018

 

 

 

 

Return on equity

30.57%

65.36%

40.11%

 

 

 

 

Net profit after taxes

4585

3900

4018

Revenue

86623

81698

68735

 

 

 

 

Net profit ratio

5.29%

4.77%

5.85%

 

 

 

 

Gross profit

13430

13142

12996

Revenue

86623

81698

68735

 

 

 

 

Gross profit ratio

15.50%

16.09%

18.91%

 

 

 

 

Liquidity ratios:

 

 

 

 

 

 

 

Current assets

65074

57309

49810

Current liabilities

51486

44982

41274

 

 

 

 

Current ratio

1.263916404

1.274042951

1.206813006

 

 

 

 

Current assets-stock

22162

19558

17570

Current liabilities

51486

44982

41274

 

 

 

 

Quick ratio

0.430447112

0.434796141

0.425691719

 

 

 

 

Efficiency ratios:

 

 

 

 

 

 

 

Inventory*365

15662880

13779115

11767600

Cost of sales

73193

68556

55739

 

 

 

 

Inventory holding period

213.9942344

200.99065

211.1196828

 

 

 

 

Debtors*365

2389290

2046920

2114445

Revenue

86623

81698

68735

 

 

 

 

Debtors holding period

27.58262817

25.0547137

30.76227541

 

 

 

 

Creditors*365

3466770

3428810

3068190

Cost of sales

73193

68556

55739

 

 

 

 

Creditors holding period

47.36477532

50.01473248

55.04565923

 

 

 

 

Financial structure:

 

 

 

 

 

 

 

Long term borrowings

8072

8973

10018

Long term borrowings equity

23069

14940

13626

 

 

 

 

Gearing ratio

34.99%

60.06%

73.52%

 

 

 

 

Profit before interest and taxes

6618

6352

5891

Interest expense

386

442

498

 

 

 

 

Interest cover

17.14507772

14.37104072

11.82931727

 

 

 

 


Explanations:

Return and risk:

A risk is the likelihood that the expected return would be different from the actual return. Return can either be a loss or a profit.

Profitability:

Profitability is the potential of a business to yield gain or profit. Profitability is measured by the profitability ratios like profit margin, return on assets ratio, and return on equity ratio.

Return on capital employed:

Return on capital employed is the return that the company earns form the amount of money that it has invested in the business.

The graph shows a downward trend which indicates that there has been a decrease in the % of the return on the capital employed. This is not good for the company. The main reason for the same were the increase in the profit and increase in debt and equity.

Return on equity (ROE):

ROE are the earnings that the company earns by investing the funds of the shareholder’s in the business. The more the return on equity, the better is the profitability of the business.

It is arrived at by dividing the net income by the average of opening as well as the closing balance of the shareholder’s equity.

The graph shows a downward trend which indicates that there has been a decrease in the % of the return on the equity of the shareholder. This is not good for the company. The reason for the same could be an increase in the net profit and increase in the equity.

Profit margin ratio:

It is the ratio that is expressed between the net income that is earned by a company and the sales that are affected during that period.

It is arrived at by dividing the net income by sales.

The graph shows the ratio to be at the same level. The reason for the same could be the increase in the net profit and revenues.

There has been a reduction in the amount of the gross profit. The reason for the same could be the rise in the revenue but not the same level of increase in the gross profits.

Current ratio:

Current ratio is the measure that tells us as to what extent the current assets are able to pay off the current liabilities of the company.

It is arrived at by dividing the current assets by the current liabilities.

The graph shows an increase which is a good thing since the company will be able to meet its obligations easily. The reason for the increase could be the rise in the current assets and current liabilities.

Acid test ratio:

Quick or the acid test ratio is the measure to determine the extent to which the current assets, except inventory, are able to pay off the current liabilities of the company.

It is arrive at by dividing the sum of cash, accounts receivables and short term investments by the current liabilities.

The graph shows an increase which is a good thing since the company will be able to meet its obligations easily. The reason for the increase could be the rise in the current assets less inventory and current liabilities.

Inventory turnover ratio:

It is a measure that estimates the number of times a company replaces its inventory during a year.

It is arrived at by dividing the cost of goods sold by the average of opening and closing inventory.

When we divide the inventory by the cost of sales multiplied by 365, we get the number of days that are taken to convert the inventory into sales.

The graph shows an increase in the number of days. This shows that the company is now taking more days to convert its inventory into sales. The reason for the same was increase in inventory and increase in the cost of sales.

Accounts receivable turnover ratio:

It is a measure through which the company estimates the number of times the company collects the balance in the accounts receivables account.

It is arrived at by dividing the sales by the average of opening and closing accounts receivable.

When we divide the debtors by the revenue multiplied by 365, we get the number of days that are taken to convert the accounts receivables into cash.

The number of days have decreased which indicates that the company is able to convert its receivables into cash much faster now and therefore, enjoys a good cash position.

Accounts payable turnover ratio:

It is a measure through which the company estimates the number of times the company pays the balance in the accounts payable account (to its suppliers).

It is arrived at by dividing the purchases made during the year by the average accounts payable.

When we divide the creditors by the cost of sales multiplied by 365, we get the number of days that are taken to convert the accounts payables into cash.

The graph shows a decrease which indicates that the company is paying off its creditors faster now.

Gearing ratio:

This is the ratio that shows the degree to which the firm's activities are funded by owner's funds versus creditor's funds. The more the ratio, the more riskily is the company.

The gearing ratio of the company has deceased which indicates that the company is less risky now.

Interest coverage ratio:

It is the ratio used to determine the ease with which the company is able to pay off the interest on outstanding borrowings.

It is arrived at by dividing the earnings before interest and taxes by the interest expense.

The ratio has increased which is a good sign is since, it merely shows that the company’s revenues are able to cover the interest.

 

Conclusion and recommendations:

The ratios that have been calculated above shows that the company has suffered a fall in its performance but it is able to cover its interest expense by more number of times.

The company must focus on reducing its expenses. It must start looking for the ways through which the costs could be reduced by switching off to the less costly options that are available in the market but at the same time, must never compromise on the quality of the services and the products that it offers.

The company must focus on increasing its profit amount since the financial reports shows an increase in the equity and debt only and no corresponding increasing at par with the profit margin.

The company must concentrate on the ways through it can increase its profits since there has been a continuous increase in the equity but no corresponding increase in the profit. As the result, the ratio has reduced.

 The company must offer its customers discounts, payment options, etc. so that it can convert its inventory into sales at a much faster pace.

 

References:

Boeing.com, (2015). Boeing: Boeing in Brief. Retrieved 8 February 2015, from https://www.boeing.com/boeing/companyoffices/aboutus/brief.page

Boeing.com, (2015). Boeing: Culture & Values. Retrieved 8 February 2015, from https://www.boeing.com/boeing/aboutus/culture/index.page?

Boeing.com, (2015). Boeing: The Boeing Company. Retrieved 8 February 2015, from https://www.boeing.com/boeing/

hsprod.investis.com, (2015). Annual report 2010. Retrieved 8 February 2015, from https://hsprod.investis.com/ir/ule/pdf/Annual_report_2010.pdf

hsprod.investis.com, (2015). Annual report 2013. Retrieved 8 February 2015, from https://hsprod.investis.com/ir/ule/pdf/ultra-ara-2013.pdf

Talon, J. (2015). Boeing's soaring performance in 2013. The Seattle Times. Retrieved 8 February 2015, from https://blogs.seattletimes.com/jontalton/2013/12/31/boeings-soaring-performance-in-2013/

Ultra-electronics.com, (2015). Ultra Electronics | Group overview. Retrieved 8 February 2015, from https://www.ultra-electronics.com/about-us/group-overview.aspx

Ultra-electronics.com, (2015). Ultra Electronics | Welcome. Retrieved 8 February 2015, from https://www.ultra-electronics.com/

White, G. (2011). Questor share tip: Good time to invest in under-rated defense company - Telegraph. Telegraph.co.uk. Retrieved 8 February 2015, from https://www.telegraph.co.uk/finance/markets/questor/8635545/Questor-share-tip-Good-time-to-invest-in-under-rated-defence-company.html

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