Financial Performance Measures in Order

¶ … financial performance measures in order to estimate the effectiveness of company management and operations at different corporate levels. One of such measures is operating profitability ratio reflecting the current company ability to generate earnings. This ratio is also referred to as equity before interest and tax deductions, but after deductions for operating expenses of the company. Northrop Grumman company has been performing very successfully during the last years and the majority of the financial ratios have been improved, including the operating profitability as a percentage of revenue grown from the rate of 5.6% in 2003 to 6.7% in 2004 and up to 7.1% in 2005. Company revenues have grown from $26,396 million in 2003 to $29,853 ml in 2004 and have reached the order of $30,721 in 2005, which is a significant growth in only two last years. At the same time, it is necessary to stress that the company has reduced the amount of net debt, which reveals that the management was able to grow revenues from operations without leveraging expansion.

Lockheed Martin company has achieved almost the same sales and revenues in the last two years if they are compared with those of Northrop Grumman. Net sales have grown from $31,824 million in 2003 to $35,526 in 2004 up to $37,213 in 2005. Operating profit has increased from 2,468 in 2003 to 2,976 in 2004 and up to 3,432 in 2005. Expressed as a percentage of revenues of the company, the operating profit has grown from 7.7% in 2003 to 8.3% in 2004, and has climbed to the number of 9.2% in the latest fiscal year. Thus, the company has achieved better operating profit compared to Northrop Grumman company.

It is not possible to examine financial and operating position of the company by one or two ratios as the profitability and revenues are not always reflective of the true company ability to exploit and utilize assets available to the company. Asset utilization is the ratio reflecting the management skills of the company to generate revenues compared to the value of assets the company has, or the ratio of total sales to the value of total assets. Lockheed Martin company has achieved the following asset utilization ratios: 1.21 in 2003, 1.39 in 2004 and 1.34 in 2005. Thus, the company exploits assets efficiently, but the asset utilization coefficient has decreased slightly in the last years. Northrop Grumman company has achieved 1.06 asset utilization ratio in the year of 2004 and 1.087 in the year of 2005. Thus, the Lockheed Martin company is more capable of generating more revenues for each dollar of assets the company possesses, though the total revenues of the companies are not significantly different. The company has also been decreasing in the recent past its' total debt to equity ratio and thus funded growth without extensive borrowing.