Download - Boeing Finance 3
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Boeing (BA)Castell BarnesAlbert Sutton
Alessandra Fiumi
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Established in Chicago, Illinois in the early 20th Century
Boeing is the world's largest aerospace company and leadingmanufacturer of commercial Jetliners, defense, space andsecurity systems
A top U.S. exporter, the company supports airlines and U.S. and
allied government customers in more than 90 countries
Pioneer in engineering, technology and operational innovations(NASA)
The Boeing Company???
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Boeing products and tailored services include commercial
and military: Aircrafts
Satellites
Weapons
Electronic and defense systems
Launch systems
Advanced information and communication systems
Performance-based logistics and training
Products & Services
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To sustain environmental awareness, Boeing Company
takes steps in manufacturing recyclable parts and fueldissolvable engines
Boeing is organized into two business units: 1. BoeingCommercial Airplanes and Boeing Defense, Space &
Security
The prime supporting unit is the Boeing CapitalCorporation
Products & Services (contd)
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Boeing Capital Corporation is a global provider of
financing solutions
It arranges and structures financials to facilitate thesale and delivery of Boeing commercial and military
aircraft, satellites and launch vehicles
Boeings 2009 portfolio totaled to an approximate$5.7 billion
Boeing Capital Corporation
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Liquidity Ratios
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Current Ratio =
Current Assets/Current Liabilities
Current
Ratio(In Times)
2010 2009 2008
BA 1.15 1.07 0.84
LMT 1.15 1.16 1.01
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Acid Test/Quick Ratio = CurrentAssets Inventory/Current
Liabilities
Acid Test/
Quick Ratio(In Times)
2010 2009 2008
BA 0.46 0.56 0.33
LMT 0.93 0.96 0.83
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Average Collection Period = AccountsReceivable/Daily Credit Sales (Annual Credit
Sales/365 days)
Average
CollectionPeriod(In Days)
2010 2009 2008
BA 32.6 38.1 39.9
LMT 54 57 52
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Accounts Receivable Turnover = Annual Credit
Sales/Account Receivable
Accounts
ReceivableTurnover(In Times)
2010 2009 2008
BA 11.20 9.6 9.2
LMT 6.74 6.39 7.06
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Inventory Turnover = Cost of GoodsSold/Inventories
Inventory
Turnover(In Times)
2010 2009 2008
BA 0.5 0.7 3.2
LMT 17.64 18.2 20
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Capital Structure
Ratios
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Debt Ratio = Total Liabilities/Total Assets
Debt
Ratio
2010 2009 2008
BA 96% 97% 98%
LMT 89% 88% 91%
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Times Interest Earned = Operating Income(EBIT)/Interest Expense
Times
InterestEarned(In Times)
2010 2009 2008
BA 28.17 9.87 21
LMT 12.08 14.7 14.7
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Asset Management
Efficiency Ratios
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Total Asset Turnover Ratio (TATO) =Sales/Total Assets
Total Asset
Turnover Ratio(In Times)
2010 2009 2008
BA 0.94 1.10 1.13
LMT 1.3 1.25 1.27
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Fixed Asset Turnover Ratio = Sales/Net Plantand Equipment (PPE)
Fixed
AssetTurnover(In Times)
2010 2009 2008
BA 7.20 7.77 6.95
LMT 10.05 9.73 9.52
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ProfitabilityRatios
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Operation Return on Assets Ratio(OPMxTATO)
Operation
Return on Assets(In %)
2010 2009 2008
BA 6% 3% 6%
LMT 11% 12% 15%
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Return on Equity (ROE) = NetIncome/Common Equity
Return
OnEquity(in %)
2010 2009 2008
BA 11% 5% 9%
LMT 23% 23.7% 26%
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Market Value
Ratios
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Price-Earnings Ratio = Market Price PerShare/Earnings Per Share
Price-
EarningsRatio(In %)
2010 2009 2008
BA 56% 23% 23%
LMT 12% 15% 34%
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Market to Book Ratio = Market Price perShare/Book Value per Share
Boeing
Market
To BookRatio
2010 2009 2008
BA 16.78 20.1 17.0
LMT 5.67 3.45 8.9
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Stock Analysis
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5 Year Chart
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Stock Price Change (5 Years)
Boeing (BA) Lockheed MartinCorp. (LMT)
-9.17 6.66
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Boeing Vs. Lockheed Martin Corporation Vs. Dow Jones
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Stock Analysis
Average Monthly Return= 1.82%
Standard Deviation= 6.686785476
Annual Return from Monthly Data= 21.17%
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BETA (Yahoo Finance)= 1.29
10 Year US Treasury Bond= 3.18%
Risk Free Rate= 5%
Required Rate of Return= 9.63%
CAPM
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Financial Crisis
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Hard time for commercial customers to get financing in order tobuy new airplanes
The financial-system rescue plan will have an impact on thefuture defense budget
Downturn of world economies leads to reduce air travel worldwide
Anticipate and respond to the crisis
Let's keep our costumers at the top of our minds as we work ourway through the crisis.
Boeing CEO and Chairman, Jim McNerney
FOUR IMPLICATIONS
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The strike involved 27,000 workers Outsourcing Job security Pay Benefits
Workers believe that five years run of $13 million could give themwhat they wanted.
3,700 backlog means a long period without working The strike lasted 4 weeks with a cost of $100 million for the
company.
Boeing machinists strike of 2008
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Demand had fallen
Raw material demand decline
High oil price
Cut operating cost down by cutting back flights
Effects of the Financial Crisis
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Benefits Wide body
Twin-engine jet airliner Fuel efficient (20% less fuel then
similar Boeing 767) Composite material 210-330 passengers
Three years delay: Strike Outsourced of manufacturing and
design Lack of experience with
composite material
The 787 Dreamliner
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The decline in the air travel was not considered thatdramatic ( September, 11,2001)
Commercial aerospace market is still considered verystrong
The fall in sales was cushioned by the record backlog oforders (7,320 aircraft)
Pace of orders slowed down but it remains fairly strong(633 net orders in 2008)
Recovery from the Global EconomicCrisis
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The strike is just a bump in the road, will not cause any long term
problems
2010: Boeing sold three time as many commercial airplanes as theyear before
Oil price is more manageable
Boing is boosting production to accommodate orders
Growth trend for order will continue as emerging economiesexpand
Recovery
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Buy? Sell? Hold?
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1. Risk vs. reward. Average annual return of 13.4% compared to10% of S&P 500 which means the risk is very high
2. Boeing stock is attractive: current stock price is less than whatthe company expect to generate in cash over its lifetime
3. Analysts expect the company can increase earnings 12.8% a
year for the next five years so that the stock will be in thebuy range
4. The aerospace market is still strong, new orders for Boeing areencouraging, built rate are set to go high.
Should We Buy BA?
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Boeing looks good at the current price but an attractivelypriced stock can remain the same way for very long.
After so many delays and promises over the 787Dreamliner investors lost trust in the company.
Hang on: If you can handle that Boeing is riskier than itshould be given its return
Sell it: If you can get a better return for the amount of riskyou are taking
Buy/Sell/Hold