Finance Assignment Harvard Case Solution & Analysis


There are two companies which include Boeing Co, and Lockheed Martin Corp. a multinational American corporation that designs, manufactures and sells airplanes, rockets, and satellites. The company is based in Chicago, also it is included in Fortune 500 companies and ranked 95. The close competitor who has been identified as Lockheed Martin Corp, which is also American global aerospace and Defense Company, operates worldwide.

Financial Analysis

Financial analysis will include ratio analysis, trend analysis, and vertical and common size analysis.

Income Statement

Income statement depicts the financial performance during the financial period. The base company is Boeing Co, which is compared with Lockheed Martin Corp. Financial performance is compared to time series as well as between comparative companies. The income statement includes financial performance of three years from year 2012 to 2014.For Lockheed Martin, only income statement of 2014 is used in the financial analysis.

Balance Sheet

Balance sheet or statement of comprehensive income is a snap shot of the financial position. Both organizations’ balance sheet sare included in data input in Excel file for further detailed analysis of the companies.

Ratio Analysis

Liquidity-Current Ratio

Ratio analysis incudes liquidity, asset management, financial leverage and Profitability ratios. Under Liquidity ratio, Boeing’s current ratio has increased from its previous year; if amount of current assets and current liabilities is analyzed, current assets have been increased while current liabilities have decreased which contributed to increasing in current ratio. On the other hand,if the same ratio is compared with Lockheed Martin then in the year 2014 the current ratio is just 1.1 which suggests that the company owns less current assets while owes more current liabilities.

Liquidity-Quick Ratio

The quick ratio which is also known as acid test ratio measures the liquidity of the excluding the amount on inventory. Inventory is excluded because it is considered as il liquid. Quick ratio of Boeing slightly increased from last year which means that either amount of inventory has been decreased by percentage or other current assets have increased.By further analysis it can be interpreted that in absolute terms and percentage wise, inventory has increased while due to decrease in current liability it results in increase in ratio. Lockheed Martin’s quick ratio is better which suggests that it does no tholds inventory in significant quantity.

Liquidity-Average Payment Days

Average payment days determine how much time it takes on average to make payments to the supplier after delivery of goods and services. Boeing Co.’s payment days had increased from last year, and it is also more than its competitors. Increased days suggests that either Boeing Co is taking relax credit term from its supplier or fails to pay on time.By analyzing credit terms, we could come to the exact reason. Industry comparative data would also be useful to conclude a specific reason.

Asset Management Ratios-Total Asset Turn Over

Total asset turn over determines how much the company earns using it asset base. Boeing’s asset utilization has declined from 0.93 to 0.91; the higher rate is better as it suggests more efficient use of an asset. A possible reason for a decline is assets base of the Boeing Co have increased more rapidly than revenues. Total Asset turnover ratio of Lockheed Martin is more lucrative and currently stands at 1.22 which suggests that Lockheed Martin is effectively using its asset based and generates$1.22 on per dollar of an asset.

Asset Management Ratios-Fixed Asset Turn Over

Fixed asset turnover ratio determines how much the company earns by using fixed asset based only which often includes property, plant, and equipment. Boeing Co.’s fixed asset turnover had slightly declined from last year from3.42 to 3.40, which indicates that Boeing Co.’s fixed asset based had increased than the proportionately increase in revenues. Lockheed Martin’s fixed asset turnover is less which suggests that it mostly relieson overall assets mainly current asset.

Asset Management Ratios-Average Collection Period

Average payment days determine how much time it takes on average to receive payments from the customer after sales. Boeing Co.’s collection had increased from last year, and it is also more than its comparative company. Increased days suggest that either Boeing giving relax term to its customers.By analyzing credit terms, we could reach to the appropriate reason. Industry comparative data would also be useful to conclude the reason.

Asset Management Ratios-Inventory Turnover

It is one of the major ratios to judge how quickly the company sells its inventory on average; there is a huge difference between two companies. Overall days have increased from the last year; from 213 days to 222 days is a huge difference due to the difference in the nature of doing business. Boeing Co mainly sells aircraft while Lockheed Martin sells defense equipment that is Lockheed Martin’s sellout inventory in 26 days................................

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