Bae Systems Financial Analysis as Thesis

  • Length: 8 pages
  • Sources: 5
  • Subject: Business
  • Type: Thesis
  • Paper: #44058072

Excerpt from Thesis :

Clearly the ability to transform critical new product development, supply chain, sourcing and material yield and optimization strategies has paid off, as indicated by the exceptionally strong inventory turns a year in the latest fiscal period (29.78). This was also achieved in FY 2008 and due to several acquisitions during FY 2007 BAE Systems posted 52.31 inventory turns due to the consolidation of financial statements and operations with companies acquired during that time. Finally the metrics illustrate how well BAE is re-architecting key processes to gain high levels of cost efficiencies. This is seen in the trending of Return on Assets (ROA), which in 2005 was 3.03, increasing to 8.52 in 2006 and then dropping to 4.69 in 2007. The FY 2008 timeframe showed exceptional growth with the company reporting 7.58 ROA. On ROE the transition from 20.22 in 2005, to 47.16 in 2006, 17.78 in 2007, and 26.19 in 2008 also illustrates how the overall performance of cost efficiency measures based on process performance significantly improved the performance of the company over time. Finally on ROI, the company increased most consistently on this metric. From 6.57 in 2005, to 7.84 in 2006, 10.38 in 2007, to 13.79 in 2008, the ROI performance has been one of the most consistent over time for the company. This has been anchored in the asset utilization strategies the company continues to pursue and the decision to become an outsource provider on selected processes and systems that are routine and easily controlled for variation (Feeny, Lacity, Willcocks, 2005). When all of these factors are taken into account it is clear to see how BAE Systems has continually excelled across competitive product categories and also in very competitive geographies as well.

Conclusion

Based on the high level of internal process efficiencies, alignment of R&D to core defense markets globally and dominance of the American aerospace and defense market, it is recommended that £.1B be invested in BAE Systems. There are several factors that contribute to this decision. First, the company is attaining performance levels that are exceptional compared to the industry. They have attained this by concentrating on making lean production and Six Sigma engrained into their culture. As the assessment of competitive strengths indicates in this analysis, the company also has a defensible advantage in the market given its level of R&D investment and financial strength in terms of profitability as asset utilization. Further, the ROE and ROI analyses indicate upward trending of asset utilization and indicate Return on Invested Capital (ROIC) is also increasing given the increasing ROI levels as well. Finally the company is well positioned to take advantage of strategic acquisitions and the rising level of global defense spending occurring it is most dominant segments of the market. Finally the quality assurance and ECQM initiatives have given the company the ability to withstand competitive threats in their most critical key accounts. This has become a contributor to the stabilization of their services annuity revenue streams. With all these factors considered and the analysis presented in this report, it is recommended that an investment be made in BAE Systems.

References

John Addey. 2001. Quality management system design: A visionary approach. Total Quality Management 12, no. 7,8, (December 1): 849-854.

Botta, R., and A. Bahill. 2007. A Prioritization Process. Engineering Management Journal 19, no. 4, (December 1): 20-27.

Card, D., K. Domzalski, and G. Davies. 2008. Making Statistics Part of Decision Making in an Engineering Organization. IEEE Software 25, no. 3, (May 1): 37-47.

David Feeny, Mary Lacity, and Leslie P. Willcocks. 2005. Taking the Measure of Outsourcing Providers. MIT Sloan Management Review 46, no. 3, (April 1): 41-48.

BAE looks to fighter jets for growth. 2009. FT.com, November 8, 2009/

Mostafa Jazayeri and Robert W. Scapens. 2008. The Business Values Scorecard within BAE Systems: The evolution of a performance measurement system. The British Accounting Review 40, no. 1, (March 1): 48-70.

Appendix A

2007-2009 Comparative Analysis

Quick Ratio

Current Ratio

Earnings Before Tax Margin %

EBITDA Margin %

Gross Margin %

Inventory Turnover

Net Profit Margin %

Operating Margin %

ROA % (Net)

ROE % (Net)

ROI % (Operating)

Revenue per Employee

Year: 2009

Peer Avg: 0.73

Peer Avg: 1.15

Peer Avg: 10.57

Peer Avg: 14.04

Peer Avg: 16.35

Peer Avg: 21.10

Peer Avg: 6.51

Peer Avg: 8.61

Peer Avg: 5.87

Peer Avg: 24.16

Peer Avg: 22.73

Peer Avg: 293957.33

BAE Systems Plc

0.84

1.09

20.73

28.54

29.78

15.25

11.22

11.04

38.16

20.1

EADS N.V. (France)

0.48

1.53

23.78

3.15

5.08

7.67

2.89

18.04

19.67

General Dynamics Corp.

0.91

1.15

12.3

14.55

12.47

16.01

8.39

12.47

9.06

22.48

25.44

$316,576

Lockheed Martin Corp.

0.71

1.01

10.33

11.61

10.88

23.54

7.53

12.01

10.29

50.64

49.01

$291,878

Northrop Grumman Corp

0.73

0.97

-1.09

1.47

18.26

33

-3.72

-0.33

-3.96

-8.5

-0.59

$273,418

Quick Ratio

Current Ratio

Earnings Before Tax Margin %

EBITDA Margin %

Gross Margin %

Inventory Turnover

Net Profit Margin %

Operating Margin %

ROA % (Net)

ROE % (Net)

ROI % (Operating)

Revenue per Employee

Year: 2008

Peer Avg: 0.73

Peer Avg: 1.15

Peer Avg: 10.57

Peer Avg: 14.04

Peer Avg: 16.35

Peer Avg: 21.10

Peer Avg: 6.51

Peer Avg: 8.61

Peer Avg: 5.87

Peer Avg: 24.16

Peer Avg: 22.73

Peer Avg: 293957.33

BAE Systems Plc

0.84

1.09

20.73

28.54

29.78

15.25

11.22

11.04

38.16

20.1

EADS N.V. (France)

0.48

1.53

23.78

3.15

5.08

7.67

2.89

18.04

19.67

General Dynamics Corp.

0.91

1.15

12.3

14.55

12.47

16.01

8.39

12.47

9.06

22.48

25.44

$316,576

Lockheed Martin Corp.

0.71

1.01

10.33

11.61

10.88

23.54

7.53

12.01

10.29

50.64

49.01

$291,878

Northrop Grumman Corp

0.73

0.97

-1.09

1.47

18.26

33

-3.72

-0.33

-3.96

-8.5

-0.59

$273,418

Quick Ratio

Current Ratio

Earnings Before Tax Margin %

EBITDA Margin %

Gross Margin %

Inventory Turnover

Net Profit Margin %

Operating Margin %

ROA % (Net)

ROE % (Net)

ROI % (Operating)

Revenue per Employee

Year: 2007

Peer Avg: 0.87

Peer Avg: 1.33

Peer Avg: 11.70

Peer Avg: 16.15

Peer Avg: 14.30

Peer Avg: 25.34

Peer Avg: 6.28

Peer Avg: 8.19

Peer Avg: 6.64

Peer Avg: 19.32

Peer Avg: 17.77

Peer Avg: 295466.67

BAE Systems Plc

1.21

1.49

17.29

29.21

52.31

12.61

11.44

9.4

35.62

20.79

EADS N.V. (France)

0.53

1.66

16.25

3.22

-1.68

-2.11

-0.89

-4.99

-4.48

General Dynamics Corp.

1.1

1.34

11.19

13.53

11.43

17.55

7.61

11.43

8.61

19.19

22.92

$326,228

Lockheed Martin Corp.

0.77

1.11

9.95

10.69

10.11

24.81

7.25

10.81

10.61

36.35

35.46

$299,014

Northrop Grumman Corp

0.74

1.05

8.39

11.16

19.41

28.81

5.59

9.39

5.48

10.44

14.14

$261,158

Appendix B

BAE Systems PLC Ratio Analysis (1999-2008)

Profitability Ratios

12/31/2008

12/31/2007

12/31/2006

12/31/2005

12/31/2004

12/31/2003

12/31/2002

12/31/2001

12/31/2000

12/31/1999

ROA % (Net)

7.58

4.69

8.52

3.03

0.04

-4.18

-0.77

-0.07

2.45

ROE % (Net)

26.19

17.78

47.16

20.22

0.11

-11.14

-1.94

-0.18

6.91

ROI % (Operating)

13.79

10.38

7.84

6.57

3.08

-4.18

4.1

1.78

7.52

EBITDA Margin %

19.58

14.58

10.39

11.02

11.15

Calculated Tax Rate %

25.43

27.13

24.8

16.24

26.88

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EBT<n
27.01

Liquidity Indicators

Quick Ratio

0.58

0.6

0.65

0.49

0.49

0.62

0.65

0.71

0.6

0.72

Current Ratio

0.75

0.74

0.79

0.68

0.68

0.9

0.91

1.08

0.97

1.2

Net Current Assets % TA

-10.6

-12.16

-9.03

-14.15

-15.04

-4.37

-3.89

3.06

-1.08

7.72

Debt Management

LT Debt to Equity

0.36

0.37

0.67

1.26

0.79

0.31

0.34

0.32

0.15

0.16

Total Debt to Equity

0.38

0.42

0.75

1.58

1.15

0.45

0.53

0.51

0.48

0.43

Interest Coverage

11.36

11.35

74.21

55.65

56.96

1.33

2.43

1.66

Asset Management

Total Asset Turnover…

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