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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 (France)
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
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
EBT
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