The Boeing Company: Financial Analysis

Summary

Performing financial analysis on Boeing Co. is warranted to evaluate the corporation’s business practices as they relate to specific budgets and other financial related activities to determine the effectiveness and efficiency of its financial performance. Most importantly, the financial analysis is a tool used to determine the stability of a corporation with a key emphasis placed on whether it is profitable enough to recommend a financial investment. 

Terms of Reference

The purpose of this financial analysis is to study Boeing’s financial position to obtain the required knowledge needed to make the determination of whether or not the corporation is investment worthy.  

Company Background

The Boeing Co. is an American multinational corporation headquartered in Chicago. Boeing designs, manufactures, and sells various types of aircraft, missiles, and satellites around the world. The corporation also is in the business of leasing and providing services for product support. Under the leadership of President and CEO is Dennis Muilenburg, the corporation has had one of its most profitable 3rd and 4th quarters to date, rewarding shareholders by experiencing business growth. 

Vertical Analysis

A vertical analysis of Boeing’s income statement and balance sheet items over a three-year period shows some variation. Items represent a percentage of sales shows the following changes in years being 2017, 2016, and 2015, respectively. Total costs & expenses were 0.081%, 0.85%, 0.85; earnings from operations were 0.11%, 0.06%, 0.07%; earnings before income taxes were 0.11%, 0.06%, 0.07%; income tax expenses were 0.02%, 0.007%, and 0.02%; net earnings were 0.09%, 0.05%, and 0.05% (“The Boeing Company 2017 Annual Report,” 2017.p. 46). The most stable was total costs & expenses, with the other items fluctuating between the three-year period. Total assets were 0.99%, 0.95%, 0.98%; total debt was 0.12%, 0.11%, 0.10%; total shareholder’s equity was 0.004%, 0.009%, 0.07%; basic EPS was 0.0001%, 0.00008%, 0.00007%; dividends were 0.00006%, 0.00005%, 0.00004%; cash/cash equivalents were 0.09%, 0.09%, 0.12%; short term & other investments were 0.01%, 0.013%, 0.008%, and operating cash flow was 0.14%, 0.11%, 0.10% (“The Boeing Company 2017 Annual Report,” 2017.p. 48). 

Horizontal Analysis

Horizontal analysis of Boeing’s income statement and balance sheet items show percentage changes over the three year period were also not extreme. The percentage comparisons show contrasts from 2015, 2016, 2017, with the years in reverse beginning with the year 2016, and 2015, respectively, with the year 2017 being the base year. Revenues were 0.012% and 0.016%. Total costs & expenses were 0.06% and 0.02%; earnings from operations were -0.43% and 0.28%; earnings before income taxes were -0.45% and 0.29%; income tax expenses was 0.007% and 0.02%; net earnings were -0.403% and 0.057%; total assets were -0.00001% and 0.049%; total debt was -0.105% and 0.001%; basic EPS was -0.434% and - 0.023%; dividends were -0.214% and 0.174%; cash/cash equivalents were -0.0001% and 0.221%; short term & other investments were 0.0008% and 0.0005%; and operating cash flows were -0.270% and -0.121% (“The Boeing Company 2017 Annual Report,” 2017.p. 17). The negative percent changes represent a decrease and should be of concern for the corporation because if not remedied, it could affect the corporation’s profitability. 

Profitability Ratios (ROCE)

Boeing’s 2017 EBIT was recorded at $10,047, and its three-year average debt liabilities were $10,344, with its 2017 and 2016 total shareholder’s equity was $412 and $877, respectively (“The Boeing Company 2017 Annual Report,” 2017.p. 48). Its 2015 total shareholder’s equity was $6,397, which makes the three-year shareholder’s equity average as $7,686 (“The Boeing Company 2015 Annual Report,” 2015, p. 51). As a result, the Boeing’s ROCE is calculated as ($10,047)/($10,344+7686) = 56%. The high ROCE indicates that Boeing is a successful growth corporation and that a larger portion of its profits could be reinvested to reward shareholders. 

Other 2017 profitability ratios include the company’s profit margin ratio = net income ($8,197)/net sales ($93,392) = 0.09%, EBIT, which is also a measure of profitability) (Net Income ($8,197)+ Interest ($360)+ Taxes($1,850) = [$10,407], and Cash flow margin = Cash flows from operating activities ($13,344 / ($8,197)Net sales = [1.63]. An analysis of these ratios supports investor’s claims of Boeing’s strong performance in 2017. Strong profitability can also be credited to the company’s “production increases for the 737 and 787 jet families that it had set in motion several years ago” (Levine-Weinberg, 2018, para. 2). Strong profits margins can also be credited to the corporation’s ability to maintain total costs and expenses to approximately 0.8% of revenues and increased profit margin from the year 2016 to 2017. This performance positioned Boeing to surpass investor’s 2017 earnings projections. Its cash flow margin ratio shows that the corporation maintained a strong cash flow stream despite revenue decreases in the prior year of 2016. According to Levine-Weinberg (2018), Boeing’s increase in free cash flows played a critical part in its profit margin, especially in the fourth quarter, in which “free cash flow reached $2.5 billion” (para. 5), surpassing the company’s strategies. Although impressive, this amount was a slight growth of 10.6% prior to the previous year. To put this in perspective, “Boeing's full-year free cash flow surged by nearly 50%, from $7.9 billion to $11.6 billion” (para. 5). Also, the corporation’s EBIT calculations show the strength in its ability to earn from operations. The stronger the corporation’s ability to earn a profit, the more the corporation can enhance shareholder’s wealth. Boeing’s operating performance was also the result of its ability to strategically reduce costs by engaging in more efficient business practices (Scott, 2017).  

Liquidity/Efficiency Ratios

Boeing’s 2017 current ratio (current assets[$65,161] /current liabilities [$56,269) and quick ratio (cash + cash equivalents  [$8,813] + short-term investments [1,179] + current receivables [$10,516]/(current liabilities [$11,117]) can be used to calculate the corporation’s ability to pay its short-term financial obligations when due (“The Boeing Company 2017 Annual Report,” 2017, p. 48). The current ratio is 1.2 times, and the quick ratio is 1.84 times and could differ from ratios taken from external sources, because of the time the financial data was retrieved and the fluctuation of cash inflows and outflows.

The corporation’s current ratio indicates the corporation can meet its short-term financial obligations. In the best case scenarios, a corporation’s current ratio should be higher than 1, which means the corporation is in good standing from a liquidity point-of-view. Boeing’s current ratio indicates that the corporation has $1.2 dollars of assets for each $1 dollar of short-term debt. This current ratio also shows that it is in line with the industry average. However, the liquidity ratio shows that the corporation’s above ratios have declined from previous years. During the three year period of 2017, 2016, and 2015, the current ratio was 1.16, 1.25, and 1.35, respectively. The corporation’s quick ratio 0.37, 0.38, and 0.42. Boeing’s quick ratio reveals a decline beginning in  2016 and 2017 (“Liquidity Analysis,” 2019). This should also be of concern to Boeing, as a decline in liquidity can impede its ability to meet financial obligations.

Efficiency ratios such as accounts receivable turnover (11.32 average) and inventory turnover (3.68 average) can be used to study the effectiveness of how Boeing internally utilizes its assets and liabilities (“Boeing Co., (BA), 2019). Based on the accounts receivable turnover, the corporation has an effective strategy to collect on its accounts receivable. The above turnover ratio indicates that Boeing collects on its receivables approximately 11 times per year. Appearing on the balance sheet and classified as an asset, this item is an indicator of capital that is owed to the corporation for products rendered or the liquidation of its inventory and brings up another efficiency ratio, which is inventory turnover. Boeing’s 2017, 2016, and 2015 accounts receivables show an upward trend of $10.83B, $9.26B, and $8.93B, respectively, which began prior to 2015 (“Annual Financials for Boeing Co.,” 2019, para. 1).

Financial Position Ratios

Financial position ratios are return on equity (ROE) (net income ($8,197)/shareholder’s equity ($355) and return on assets (ROA) (net income ($8,197)/total assets ($92,333) (“The Boeing Company 2017 Annual Report,” 2017,  pp. 46 & 48).  Boeing’s ROE is 23.0, and its ROA is 0.09. These ratios are indicators of Boeing’s strong ability to reward its shareholders.

Shareholders’ Ratios

Total 2017 shareholders’ equity and 2017 total assets were recorded as $355 and $92,333, respectively. These two balance sheet items are used to calculate the percentage of the claim that shareholders have on the corporation’s assets. According to these ratios, shareholders have a percentage claim of  0.0039%. In addition to this ratio, the shareholders’ claims can also be measured with ratios that measure profitability scaling. 

Conclusion

In conclusion, this financial analysis is done to determine the corporation’s financial stability, as some corporations experience an upward and decline in financial growth. The corporation has an established global presence in over 150 companies, doing business with the United States government and its military partners, which plays a critical role in its growth outlook. When analyzing the financial data, it is clear Boeing’s profitability turnaround is strategic and due to “record commercial airplane deliveries, growth in our services business, and solid defense, space and security performance,” which resulted in a revenue stream that “returned to growth in the third quarter and continued to accelerate toward the end of the year” (“The Boeing Company 2017 Annual Report,” 2017, p. 3). 

The corporation’s financial position is important because it is reflected in the corporation’s financial statements, which is used in determining different financing options needed to support corporate growth.  Also, without a strong financial position, the corporation will have difficulty meeting important financial obligations such as taxes, as well as short and long-term liabilities, which could force the corporation into solvency, which erodes shareholder’s wealth. Increasing shareholder wealth is executive leadership’s top priority and is based on the corporation’s ability to implement effective growth strategies using sound decision-making techniques. 

Based on Boeing’s lasts financial performance, investors are just in their positive outlook for the corporation’s future financial performance. As a result, investment is recommended. Investors also agree with a recommendation to invest, especially “analyst Cai von Rumohr [who] is bullish on Boeing stock” (Rich, 2018, para. 2). The analyst projects that Boeing will continue is to experience production growth, as well as an extreme in positive cash flows.  Most importantly it is projected that shareholder’s stand to benefit, as “a cash flow per share of $28.60 in 2019 and of around $35 by 2021” (para. 5).

References

Annual financials for Boeing Co. (2019). Market Watch. Retrieved from https://www.marketwatch.com/investing/stock/ba/financials/balance-sheet

Boeing Co., (BA). (2019). CSI Market. Retrieved from https://csimarket.com/stocks/singleEfficiencyit.php?code=BA

Levine-Weinberg, A. (2018). Boeing Co. earnings: A terrific end to 2017. The Motley Fool. Retrieved from https://www.fool.com/investing/2018/01/31/boeing-co-earnings-a-terrific-end-to-2017.aspx 

Liquidity analysis. (2019). Stock Analysis on Net. Retrieved from https://www.stock-analysis-on.net/NYSE/Company/Boeing-Co/Ratios/Liquidity

Scott, A. (2017). Boeing shares jump on strong fourth-quarter results, 2017 forecast. Reuters. Retrieved from https://www.reuters.com/article/us-boeing-results-idUSKBN1591FV

Rich, G. (2018). Boeing aims for new buy point after stock is named as 2019 Pick. Investor’s Business Daily. Retrieved from https://www.investors.com/news/boeing-stock-best-ideas-for-2019/

The Boeing Company 2017 annual report. (2017). Boeing. Retrieved from http://s2.q4cdn.com/661678649/files/doc_financials/annual/2017/2017-Annual-Report.pdf

The Boeing Company 2015 annual report. (2015). Boeing. Retrieved from https://s2.q4cdn.com/661678649/files/doc_financials/annual/2015/2015-Annual-Report.pdf