Recent Papers 03-22-2022

Critically discuss two recent developments in the international environment appear to have impacted on your chosen company’s recent performance and development. Analyse how these two developments are likely to impact on the company in the near future.

Submission Deadline: Week 9 (60%)

You are required to prepare/submit a report discussing the following 

Choose a Multinational Enterprise (MNE) listed on an internationally recognised Stock Exchange (including for example, London, Dublin, New York or Paris).

-----------------------------------------------------------------------------------------------------------------

I have divided the report into sub-headings and provided the sort of information required under each sub-heading. I have provided an example using Boeing.

Please note the following instructions

The report is divided into the following subsections.

  1. Introduction
  2. Section A
  3. Section B
  4. Section C
  5. Conclusion
  6. References
  7. Appendix
  • Do not repeat the questions in red font. They have been provided to help you identify what is expected – the salient points.
  • Do not copy and paste other people’s work. Paraphrase and reference all definitions, claims and information used.
  • No fake references – you lose marks for them.

Introduction

Steps

  • What is the name of the company?
  • What does the company sell?
  • What profit did it make in the last 2 years?
  • What is the purpose of the report?

Example using Boeing Aircraft Manufacturer

  • What is the name of the company?

The Boeing Company is an American Multinational corporation headquartered in Chicago, Illinios, USA (Boeing, 2019b).

The Boeing Company designs, manufactures and sells planes, satellites, rockets, missiles (Weiss and Ami, 2019). The Boeing Company is one of the world’s largest manufacturer of aerospace and defence equipment (Cameron, 2019). The Company made over $101.billion in revenues in 2018 (Zazulia, 2019) and have been ranked consistently among the top 100 companies in the Fortune Global 500 list (Fortune 500, 2019). In this report, the financial performance of Boeing is analysed. Furthermore, developments affecting the financial performance of Boeing are outlined, including how it manages the risks associated with its sources of finance and dividend policy.

1 Section A:

Question: Critically discuss two recent developments in the international environment appear to have impacted on your chosen company’s recent performance and development. Analyse how these two developments are likely to impact on the company in the near future. (10 marks)

Steps

  • What is the development? State it as development one, development two. The development can be one that generated a positive or negative outcome
  • Describe the development briefly.
  • What is effect of the development on the financial performance of the company? Discuss the financial impacts – positive and/or negative – It can be increase or decrease of revenues, profit, share price, liabilities, assets etc. These financial impacts have to be in the form of facts and figures supported by credible sources. So, provide citation and reference for these.
  • Any strategy developed or implemented by the company to mitigate/exploit the impacts of the development?

Example – Using Boeing

What is the development?

1.1 Development one: Two Plane Crashes

One event that has affected The Boeing Company’s performance is the faulty Boeing 737 Max aircraft, which caused two crashes that killed over 350 people (Lee, 2019)

Describe the development briefly.

The air crashes were reported widely in the media around the world (Gelles, 2019a). The crashes were caused by a set of faulty features in the cockpit which when reported, were ignored by the Boeing (BBC, 2019b). Though Boeing had claimed the aircraft models were fuel efficient and safe, however, these were not be. Boeing 737 Max was eventually grounded by the Federal Aviation Authority, the airline regulator in the US (Marshall, 2019; BBC, 2019a)

What is effect of the development on the financial performance of the company?

The effect of the crashes on Boeing was swift and intense. The event made airlines to ground their existing fleet of Boeing 737 Max series (Hawkins, 2019). Other airlines cancelled their order for the aircraft (Layne, 2019a), leading to law suits from several aircraft leasing companies like Avia which sought for a refund of $35million from Boeing and $75million in compensatory damages (Slotnick, 2019).

The cancellation of aircraft orders also caused Boeing to lose over $5.6Billion in revenues (MacmIllain, 2019) as inventory piled up (Bogaisky, 2020). On March, Boeing shares tanked and about $25billion was wiped off its market value(Layne, 2019b; Isidore, 2019). Investment banks such as Walton has cut Boeing target share price $95 to $375, citing an increase in “likelihood of a pause on the 737 MAX production system” due to a delay in the jet’s return (Johnson and Ajmera, 2019). At one point, $4.3billion was wiped off the Boeing Company market value (Winck, 2020). The impact of these crashes led to the loss of $636M in 2019 (Boeing first annual loss in 23years)

Any strategy developed or implemented by the company to mitigate the effect of the development?

Boeing CEO has faced a lot of questions regarding the company’s strategy on handling the crisis. First, Boeing identified the faults that caused the crashes by working on the software and make updates(Chua, 2019). Boeing assured airline operators that it would not sell further aircraft until they are certified airworthy by the FAA (Gelles, 2019b). Boeing has fired its CEO and appointed a new one; suspended its share buyback, increased its borrowing to cover the cost of compensation, repairs and suspended further delivery of 737MAX

1.2 Development two: Covid19

What is the development?

A second development in the global environment that has affected Boeing`s financial performance is the Covid19 pandemic.

Describe the development briefly.

Covid19 assumed a pandemic level in March 2020, which triggered multiple rounds of travel restrictions and lockdown to curtail its spread around the globe. Countries closed their boundaries and closed their airspace to air travellers. According to the International Civil Aviation Organisation in its report (ICAO, 2021), the result was a 60% fall in international air passenger traffic, 65% fall in the revenue of  airline carriers and operators,  the introduction of stringent requirements for travellers, and  the 79% decline in international tourism.

Since Boeing provides products and services to the aviation industry, its business has been gravely affected. Critically discuss two recent developments in the international environment appear to have impacted on your chosen company’s recent performance and development. Analyse how these two developments are likely to impact on the company in the near future

What are the impacts of the development on the financial performance of the Boeing Company?

The impacts of the pandemic on the financial performance of The Boeing Company are in two fronts (The Boeing Annual Report, 2020. p. 7)

  1. An impact on Boeing operations in the form of suspended operations  (like in South Carolina and Philadelphia), and the increase in operating costs due to social distancing requirements. Operating costs increased from 3.9billion in 2019 to 4.8billion in 2020 (p.62)
  2. A material decline in the demand of Boeing products (pp.35-38). As a manufacturer of aircrafts and airplanes, the drop in international travel resulted in a fall in demand for aircrafts leading to a large number of undelivered airplanes. In addition, the wider impact on the global economy which impacts on Boeing supply chain and Boeing customers (airlines). The impact of the fall in demand includes the fall in revenue in 2020 by $18billion, an increase in debt from $27billion in 2019 to $63bllion in 2020, a negative operating cash of $18billion in 2020 (p. 68), an impairment in the value of goodwill and a net loss of $11billion in 2020 ($636m in 2019).

Any strategy developed or implemented by the company to mitigate the effect of the development?

Boeing has declared it would reduce significantly the size of its workforce due to falling demand and a large number of non-delivered aircrafts (p. 68). In addition, The Boeing Company has taken a number of actions to enhance its liquidity – abandon the share buy-back scheme for 2021 (p.68), reduce production rate of commercial aircrafts (p.68), substitute share for cash as contribution to pension plan; and accessing deferring tax payments.

Section B: Dividend Policy and Sources of Finance

Discuss the following key elements of the MNE’s international financial and/or risk management strategy
(and how they appear to have affected the financial performance of your chosen company):
• Sources of finance
• Dividend policy

Steps

  • Define the term ‘Dividend Policy’ (2 lines)
  • Identify and discuss the dividend theory that applies to your company. Make sure in the discussion, you are justifying the use of that particular dividend theory/approach used by your chosen company.
  • Discussthe dividend PAID BY YOUR company for the last 3 years- This should include
    • dividend paid per share.
    • Is the dividend growing? Constant? Consistent? Irregular?
    • Interim dividend or final dividend or both? Any special dividend?
    • Frequency of the dividend payment? Quarterly, biannually?
    • Discuss any influences on decision and capacity to pay dividend 

Example using Boeing

Define the term ‘Dividend Policy’ (2 lines)

Dividend policy is…….(get an academic reference)

Identify and discuss the dividend theory that applies to your company. Make sure in the discussion, you are justifying the use of that particular dividend theory/approach used by your chosen company.

The dividend relevance theory applies here. The relevance theory of dividend states that investors prefer dividends to capital gain  as a result of the uncertainty of capital gains. By implication, shareholders of Boeing have a high appetite for dividends. To this end, the Bird in Hand theory of dividend (Gordon 1963) applies here. Furthermore, the Boeing company pays dividend to signal to the market about its bright future despite existing challenges; this is reflected in the share price jump that accomplices the announcement of dividend. Therefore, Dividend Signalling theory also applies. The Dividend Signalling theory states that firms increase the value of their dividend payment as a signal to the market about its future prospects.

However, with the significant fall in demand and the resulting negative operating cashflow, Boeing has come under pressure in terms of its capacity to pay dividend. Boeing stopped its share buybacks in March 2019 as Max 737 Max was grounded and decided to suspend  its dividend payment (Bogaisky, 2020, The Boeing Company Annual Report, 2020. p. 47)

State the dividend for the last 3 years- dividend paid per share – you can also calculate the dividend payout ratio to identify the pattern over three-four years

Boeing has paid dividend consistently in the last three years. Record from (Nasdaq, 2019) shows that Boeing pays dividends quarterly, that is 4 times a year. In 2019, Boeing paid $8.22 as dividend for a share ($2.055 x 4 quarters), in 2017 Boeing paid $6.84 ($1.71 x 4 quarters) and in 2016, Boeing paid $5.68 ($1.42 x 4quarters) - see table 1 below. Boeing did not pay dividend in 2020 as the Board suspended the declaration and payment of dividends till further notice (p.47)

Fig 1: Boeing dividend paid between  2017-2019 (Nasdaq, 2019)

Annual dividend per share –(2016-2020) (The Boeing Annual Report, 2020 p. 23) Critically discuss two recent developments in the international environment appear to have impacted on your chosen company’s recent performance and development. Analyse how these two developments are likely to impact on the company in the near future

From the above stated dividend values, it shows Boeing operates a dividend growth policy as the dividend paid has increased over the 3 years considered (2020 excluded). Boeing has a rich dividend history as its fundamentals are strong (Downey, 2019):

  • Three-year dividend growth rate: +23.4%
  • Current dividend per share: $2.055
  • Current yield: 2.41%

Any influences on decision and capacity to pay dividend 

Prior to the air crashes with its associated impacts and the pandemic, the Boeing company has consistently paid dividends to her shareholders. Dividend payment to shareholders has consistently and gradually increased to the delight of Boeing shareholders with high appetite for dividends. As profitability and cashflow increased, Boeing has continued to pay dividend.

This was consistent with the pattern of decision and policy associated with past CEOs at Boeing who promoted shareholders’ interest via funding share back and steady dividend increases using operating cashflow (Bogaisky, 2020).

As The Boeing Company dividend grew, the share price has grown over the years Zach Equity Research, 2021). This reflects the confidence of investors (Bailey, 2019). Even with the challenges associated with the 737Max aircraft at the end of 2019, there was optimism among the board and management at Boeing that the setback would and should not hamper its ability to continue to pay dividend as its annual report for 2019 has shown (Ben, 2019).

1.3 Sources of Finance

Steps

  • Define the term ‘sources of finance’ (2 lines)
  • Identify the sources of finance for your chosen company and state the MONETARY values and component of each sources.
  • Calculate gearing ratio for last three years. Two years in case if the third year data is not available in the annual report provided.
    • Examine the mix of equity and debt
    • What did you observe? èPreference for debt or equity? Optimal mix of both sources of finance? high finance costs? negative equity?
    • Discuss your observations in the context of the points below. Is the gearing ratio increasing/decreasing because of:
      • WACC and maximizing the value of the firm
      • Cash management and financial risks
      • Other influences on the capital structure decision of your chosen firm?
      • Identify and discuss which capital structure theory applies to your chosen company. Justify why the company has chosen to use that capital structure theory.

Example of Boeing has been used here

Define the term ‘sources of finance’ (2 lines)

Sources of finance describes how firms ….. (use an academic reference)

Identify the sources of finance for your chosen company and state the MONETARY values.

The Boeing Company utilizes equity financing and debt financing as its sources of finance Boeing has a total shareholders’ equity of ($8,300m) and ($18,075m) for 2019 and 2020 respectively. In terms of debt, Boeing has both short term liabilities and long-term liabilities. The total current liabilities were$121,642m in 2020 and $102,229m in 2019 while the long-term liabilities were $87,931m and $44,613 in 2020 respectively (The Boeing Company Annual Report, 2020).

State the component of each

Equity – Negative Equity

As can be seen in the below table (from the Balance sheet), the total equity shares issued is a little above 1billion units. Additional capital is 6745m and $7,745m. Noticeable in the Balance sheet of the Boeing company is the large amount of  treasury stock (share buyback) , retained earnings and accumulated other comprehensive loss (The Boeing Company Annual Report, 2020).

Large scale share buy-back over multiple accounting periods accounts for the large value of treasury shares for 2020 and 2019 ($52b for 2020 and 54billion for 2019). The Boeing company has a negative equity value for 2020 and 2019, which is due to the shares buyback. The Boeing company has a robust share repurchase program, which involves a large scale repurchase of its shares. Boeing repurchased 6.9million (worth $2.7billion) and 26.1 million shares (worth $9 billion) in 2019 and 2018 respectively. Share repurchase was suspended in April 2020 (The Boeing Company Annual Report, 2020. p. 47

But comparing the two recent years, Boeing equity is significantly reduced due to decline in the retained earnings and increase in accumulated other comprehensive losses.

Title and reference

Debt

A breakdown of the long-term debt/borrowing (found in the Notes to the Account) is shown below. It consist of Unsecured debt securities, non-recourse debt and notes, capital lease obligations, commercial paper, and other notes. See the table below (The Boeing Company Annual Report, 2020)  

Fig 4. A breakdown of debt for Boeing 2020 and 2019 The Boeing Company Annual Report, 2020. p. 105)

  • Calculate gearing ratio for last three year. Two years in case if the third year data is not available in the annual report provided.
  • Examine the mix of equity and debt
  • What did you observe? èPreference for debt or equity? Optimal mix of both sources of finance? high finance costs? negative equity

Calculating the gearing ratio for Boeing for 2018,  2019, 2020 shows a very high level of debts in Boeing. This poses a financial risk for Boeing.

 

2020

2019

2018

    Non-current liabilities x 100

Non-current liabilities + total equity

82,931 x 100

82,931+(18,075)

     44613 x 100

44613 + (8300)

     35359 x 100

(410 + 35,359)

 

127.86%

122.85%

98.85%

 

The gearing ratio shows 127.86%  of debt in 2020, 122.85% in 2019 and 98.85% in 2018. It can be seen that Boeing is heavily leveraged as its liabilities constitute over 90% of its capital structure. The debt level has increased gradually over the past three years.

  • Discuss your observations in the context of the points below. Is the gearing ratio increasing/decreasing because of:
  • WACC and maximizing the value of the firm
  • Cash management and financial risks
  • Other influences on the capital structure decision of your chosen firm?
  • Identify and discuss which capital structure theory applies to your chosen company. Justify why the company has chosen to use that capital structure theory.

WACC and the application of Capital Structure Theory

Very high levels of debt in Boeing’s Balance sheet shows the relevance of the net income theory of Capital Structure. The Net Income capital structure theory was proposed by David Durand in 1952. He postulated that an increase in financial leverage (debt level) lowers the cost of capital cost (WACC), which results in an increase in firm value.

However, with the threat of financial risk increasing for Boeing as a result of heavy debt to equity ratio, it shows that Boeing capital structure is not optimal (FitchRatings, 2020).

Influences => 737Max Grounding, Undelivered Commercial Planes, Dividend Payment

Boeing recorded an outstanding and increased operating cash flow to a record of
$15.3 billion and maintained cash and marketable securities of $8.6 billion, providing strong liquidity for the payment of debt  (The Boeing Company Annual Report, 2019). However, accrued liabilities increased from £14b to $22b due to 737 MAX customer concessions and the grounding of 737 MAX (The Boeing Annual Report 2019. p. 84; 2020. p. 46). Furthermore, total debt increased from $3b to $7b as more commercial papers were issued. The increase in debt level was designed to provide Boeing with the capacity to absorb the increasing cost of compensation (about $1.2billion), delays,  cancelled contracts, disruptions to suppliers and production systems; arising from the suspension of the 737 Max program (Boeing Annual report, 2019. p. 8; 2020. p. 46). Furthermore, additional net borrowing increase of $29.3billion in 2020 was used to cover dividend payment for dividend declared for the 2019 accounting year (The Boeing Company Annual Report, 2020. p. 47). The net result of this scenario is high debt level and negative operating cashflow.

Cash Management and Liquidity Risks - Negative operating cashflow

In 2020, the negative operating cash flow worsen as the effects of the pandemic (Covid19) with its associated reduction in air travel, and a fall in commercial aircrafts delivery took its toll.  Further borrowing has contributed to increasing in the cost of borrowing. However, Boeing acknowledges that interest rate risk is non-material (The Boeing Company Annual Report, 2020. p. 58). Boeing dependence on loans and debt has resulted in the downgrade of its credit rating by credit agencies (Franke 2019; The Boeing Company Annual Report, 2020. p. 48) and further downgrade could close its access to capital markets. Critically discuss two recent developments in the international environment appear to have impacted on your chosen company’s recent performance and development. Analyse how these two developments are likely to impact on the company in the near future

The Boeing company anticipates its negative operating cash flow would continue into 2023. However, its has put in place some mechanism and plans to mitigate the effects of negative liquidity: by reducing the production of new aircraft, making share contributions to the pension plan, reduction in size of workforce to save cash.

Section C: Ratio Analysis

With reference to your chosen Multinational Enterprise (and using the most recent annual report published),analyse the financial performance (in terms of profitability, liquidity, efficiency and investment) of the company in the two most recent consecutive financial periods ( e.g. 2019/2020 or 2021/2020, ) using 8 different accounting ratios (prior year comparative figures will be available in the annual report

Steps

  • Select the 8 ratios
  • Define the 8 ratios
  • Calculate the 8 ratios (don’t copy and paste ratios) either in the appendix or on the body of your report. Show your calculations.
  • Interpret the ratios
  1. What do the ratio values reveal? – i.e. the significance of the ratios
  2. Any reason for the movement in the ratios across the two years?
  3. Benchmark with the industry leader or closest rival.
  • Note: Paste an image of the Balance sheet/income statement in the appendix of your report. Do not attach a separate spreadsheet******

I have used Boeing as an example  – The calculations are in the appendix

PROFITABILITY RATIOS

ROCE

This measures (get the definition in a textbook and put a textbook reference after the definition)

 

 

 

2020

2019

Return on Capital Employed

Operating Profit (PBIT)       x 100
Capital employed

 

Capital employed = Total non-current liabilities + Total equity

 or

Capital employed = Total assets – Current liabilities

 

Operating profit (Earnings from Operations)

-12,767

-1,975

Total Assets

152,136

133,625

Current liabilities

87,280

97,312

 

 

-19.69%

-5.44%

 

PBIT – Profit before interest and tax – This is the profit before interest and tax are deducted.

Explanation

  1. What is the significance of the ratio you have calculated? – LOOK AT THE DEFINITION

ROCE measures the return relative to capital employed. The ROCE fell from --5.44% in 2019 to -19.69% in 2020. Since, ROCE measures returns relative to capital, that means for every £100 of capital invested, Boeing lost £5.44 in 2019 and £19.69 in 2020.

  1. Identify reasons for the movement in the ratio across the two years
  • First discuss the relationship between the numerator and denominator

A number of reasons account for the deterioration in the value of ROCE.  Operating loss of $1,975m was made in 2019. This went further south in 2020 to a loss of $12,767m. Though the value of the capital increased (due to increase in debt), Boeing could not generate or improve on its return in 2020. Therefore it is sufficient to say that Boeing has not been able to effectively utilize its working capital in generating profits.

  • Second present contextual reasons for the movement

Some contextual issues can be cited for the movement in the ratio. The deep impact of the pandemic on commercial air travel and the grounding of the 737 Mx airplanes (both were involved in crashes) as well as Covid which affected demand for aircraft  and aircraft deliveries (The Boeing Annual Report, 2020, p. 27, 35)

Operating Profit Margin

This measures (define and attach a reference)

 

 

 

2020

2019

Operating profit margin

Operating Profit   x 100
Total Revenue 

Operating profit (Earnings from Operations)

-12,767

-1,975

Total Revenue

58,158

76,559

Operating profit is PBIT

 

-22.0%

-2.6%

Explanation

  1. What is the significance of the ratio you have calculated?

Operating margin  fell from -2.6% to -22.0% from 2019 to 2020. Boeing made operating loss in both years. Since Operating margin measures the operating profit relative to the revenue, that means for every £100 of sales, Boeing lost £2.6 in 2019 and £22 in 2020. The performance was poorer in 2020.

2. Identify reasons for the movement in the ratio across the two years

  • First discuss the relationship between the numerator and denominator

A number of reasons account for the decline in the operating margin.  Operating loss of $1,975m was made in 2019. This went further south in 2020 to a loss of $12,767m. The main cause of the operating loss  in 2020 was the fall in sales. Major contributor to the loss were sales which fell from $76b in 2020 to $58b in 2019. Another was increase in General and administrative expense  which were $3909m in 2019 and $4817m in 2020.

  • Second present contextual reasons for the movement

Covid19 and the fall in the demand for commercial aircrafts and deliveries accounts for the dismal performance in both years (The Boeing Annual Report, 2020, p. 27, 35)

Gross profit margin

This measures …..(put a textbook reference after the definition)

Formula

                          Gross profit         x 100

                        Revenue

2020

(5685)      x 100 = profit margin

58158

= -9.77%

2019

4466      x 100 = profit margin

76559

 

Explanation

What is the significance of the ratio you have calculated?

Gross profit margin fell from 5.83% to -9.77% from 2019 to 2020. That means Boeing made less profit for every dollar of sales after paying direct cost (production related).

Identify reasons for the movement of the ratios between two years.

1. First discuss the relationship between the numerator and denominator

The ratio has decreased due to decrease in sales revenue from $76559m in 2019 to $58158m in 2020. This decline is more severe in sale of product component of sales which decreased from $66094m to $47142m. On the other hand cost of services have also increased from $9154m to $9232m over the last two years.

2. Second present contextual reasons for the movement

The fall in aircraft demand and delivery occasioned by Covid19 and the Max grounding caused by the air crashes underpin the fall in gross profit (The Boeing Annual Report, 2020, p. 30)

EFFICIENCY RATIOS –

Inventory Turnover – define it, reference it

 

 

 

2020

2019

Inventory Turnover Days

Inventory  x 365 days
Cost of sales

Inventory

               81715

             76622

Cost of sales

63,843

72,093

 

 

468

388

 The above is closing inventory which can be found under Assets in the statement of financial position.

Average inventory can also be used instead of it. But for average inventory you must have opening inventory, which is the closing inventory for the year before.

Average inventory = Opening inventory + Closing inventory

2

Explanation –

  1. What is the significance of the ratio you have calculated?

Inventory Turnover days increased from 344 days to 468 days. It took Boeing more days to deliver aircraft in 2020. It indicates a less efficient management of inventories. However, the situation was largely due to external factor which was outside the control of Boeing.

  1. Identify reasons for the movement of the ratio across the two years.
  • First - discuss the relationship between the numerator and denominator

The increase in inventory and decrease in cost of sales is the cause for the decline in turnover ratio, hence increase in inventory days. This is indicating management intention to keep high level of inventory to support trade. But this increase level of inventory would subsequently increase the inventory holding cost of the company.

  • Identify reasons for the movement of the ratios between two years.

Boeing admits that there were a large number of undelivered plans in inventory as at December 2020, which accounted for the large value on inventory in 2020.

Covid19 and the fall in the demand for commercial aircrafts and deliveries caused inventory to accumulate (The Boeing Annual Report, 2020, p. 28)

Receivable Turnover Days – define it and reference it

 

 

 

2020

2019

Receivables turnover days

Receivables    x365
Total Revenue (sales)

Receivables

1955+7995= 9950

3266+9043= 12309

Total Revenue (sales)

58,158

76,559

 

62

59

The above is receivables which can be found under Assets in the statement of financial position.

Average receivables can also be used instead of it. But for average receivables you must have opening receivables, which is the receivable amount for the year before.

Average receivable = Opening receivable + Closing receivable

2

Explanation –

  1. What is the significance of the ratio you have calculated?
  2. Receivable turnover days  was 59 days in 2019 but increased to 62 days in 2020. Although, this might look like some decrease in efficiency as the customers are taking slightly more time to settle their dues with Boeing
  3.  Identify reasons for the movement in the ratio across the two year
  • Discuss the relationship between the numerator and denominator

Receivable turnover days  was 59 days in 2019 which increased to 62 days in 2020. Although the receivables (Account and unbilled) are decreasing along with the sales. But the rate of decline in receivables is slower than the sales. Which shows company ineffective ability to retrieve cash from customer.

Increase in the receivable days can mainly be due to two reasons:

  1. a.    The customer are having financial difficulties and delaying their payments.
  2. b.    It can be company sales strategy to give more time to the customers to settle their debt, which can potentially bring more sales.

But as in this case Boeing sales are decreasing, therefore more likely case is the customer (airline companies) are facing financial difficulties. Critically discuss two recent developments in the international environment appear to have impacted on your chosen company’s recent performance and development. Analyse how these two developments are likely to impact on the company in the near future

  • Present contextual reasons for the movement in the ratio across the two years

Boeing admits that there were a large number of unbilled receivables as contract execution takes a long period. While it recognises revenue, it cannot issue involve under the terms of the contract with the customer (The Boeing Annual Report, 2020, p.73)

LIQUIDITY RATIOS

Current Ratio- define and attach a reference

 

 

 

 

2020

2019

Current Ratio

Current Asset
Current Liabilities

Current Asset

121,642

102,229

Current Liabilities

87,280

97,312

 

 

1.39:1

1.05:1

 Explanation

  1. What is the significance of the ratio you have calculated?

The current ratio for Boeing is above 1, for year 2020 and 2019, which means Boeing can meet its short term obligation as they fall due.

  1. Identify reasons for the movement of the ratios between two years.
  • Discuss the relationship between the numerator and denominator

In 2020, current ratio was 1.39. However, there was increase from 1.05 to 1.39 between 2019 and 2020. This was due to increase in current assets such as customer financing and short term investment. Also current liabilities are also decreasing which is also a contributing factor.

  • Second present contextual reasons for the movement in the ratio across the two years.

Boeing admits that there were a large number of undelivered inventories due  Covid19 and travel restrictions (The Boeing Annual Report, 2020, p.73)

Acid Test/Quick Test Ratio – define and attach a reference

 

 

 

 

2020

2021

Quick Ratio

(Current Asset - inventories)
Current Liabilities

Current Asset

121,642

102,229

Inventories

81,715

76,622

 

Current Liabilities

87,280

97,312

 

 

0.46

0.26

Explanation

  1. What is the significance of the ratio you have calculated?

Acid test ratio falls below 1. That means - with the removal of inventory, Boeing is illiquid and might not be able to meet its short obligations as they fall due. Which means still there remains a higher probability that Boeing will not be able to meet short term liabilities in the scenario of quick payments demanded by creditors.

  1. Identify reasons for the movement of the ratio across the two years.

The increase is caused by the an increase in short-term investment made in 2020. Short-term investment increased from $545m in 2019 to $17,838m in 2020.This was used to pay benefits and used as a liquidity vehicle (The Boeing Annual Report, 2020, p.113)

GEARING RATIOS

Interest Coverage Ratio – define and attach a reference

 

 

 

2020

2019

Interest Coverage

Operating Profit (PBIT)
Interest on Loan (Finance costs)

Operating profit

-12,767

-1,975

Interest on loan

2,156

722

 

 

-5.92

-2.74

Explanation

  1. What is the significance of the ratio you have calculated?

Boeing had an interest coverage ratio of -2.74 in 2019 and -5.92. The negative values show that Boeing might struggle to pay its interests in loan since it made a loss in 2019 and 12020

The fall in operating profit is largely due to the fall in sales with a lower percentage fall in operating profit

  1. Identify reasons for the movement of the ratio across the two years.

The negative cash position of Boeing means it would delay the payment of its interest on loan as it is uncertain with respect to when commercial flights would return to pre-pandemic levels

Conclusion

Here you can write short summary of the report

References

Bailey, J., 2019. Boeing Approves Shares Dividend Despite Ongoing MAX Crisis. Simple Flying. Available at: [Accessed 14 Jul. 2021].

BBC, 2019a. 737 Max return may be later than hoped. BBC News. [online] 23 May. Available at: [Accessed 4 Nov. 2019].

BBC, 2019b. Series of failures behind Boeing Lion Air crash. BBC News. [online] 25 Oct. Available at: [Accessed 4 Nov. 2019].

Ben, L., 2019. Finally: Boeing Fires CEO Of Commercial Airplanes. [online] One Mile at a Time. Available at: [Accessed 5 Nov. 2019].

Boeing, 2019a. Boeing: Boeing hires more than 8,500 new Washington employees in 2018. [online] Boeing. Available at: [Accessed 4 Nov. 2019].

Boeing, 2019b. Boeing: Our Company. [online] Boeing. Available at: [Accessed 29 Oct. 2019].

Cameron, D., 2019. Boeing Profit, Sales Drop As China Adds to Its Problems. Wall Street Journal. [online] 23 Oct. Available at: [Accessed 29 Oct. 2019].

Chua, A., 2019. Boeing CEO addresses new 737 Max issue. [online] Flight Global. Available at: [Accessed 4 Nov. 2019].

DePillis, L., 2019. 4 ways Trump’s tax cuts changed the American economy. [CNN Business] CNN. Available at: [Accessed 4 Nov. 2019].

Downey, L., 2019. Best Dividend Stocks for November 2019. [online] Investopedia. Available at: [Accessed 5 Nov. 2019].

FitchRatings, 2020. Fitch Downgrades Boeing’s Ratings to ‘BBB’; Removes from Rating Watch Negative; Outlook Negative. [online] FitchRatings. Available at: [Accessed 14 Jul. 2021].

Fortune 500, 2019. Boeing. [online] Fortune. Available at: [Accessed 29 Oct. 2019].

Gelles, D., 2019a. Boeing 737 Max: What’s Happened After the 2 Deadly Crashes. The New York Times. [online] 22 Mar. Available at: [Accessed 4 Nov. 2019].

Gelles, D., 2019b. Boeing 737 Max: What’s Happened After the 2 Deadly Crashes. The New York Times. [online] 22 Mar. Available at: [Accessed 4 Nov. 2019].

Hawkins, A.J., 2019. Everything you need to know about the Boeing 737 Max airplane crashes. [online] The Verge. Available at: [Accessed 4 Nov. 2019].

Isidore, C., 2019. The 737 Max crisis has wiped more than $25 billion off Boeing’s market value. [CNN BUsiness] CNN. Available at: [Accessed 4 Nov. 2019].

Johnson, E. and Ajmera, A., 2019. Boeing may face billions more in losses as MAX crisis deepens - analysts. Reuters. [online] 21 Oct. Available at: [Accessed 5 Nov. 2019].

Johnson, J., 2018. Boeing Blows Past Estimates With Help From Tax Cut; Shares Surge. Bloomberg.com. [online] 31 Jan. Available at: [Accessed 4 Nov. 2019].

Johnson, J. and Koeing, D., 2018. Boeing is booming: Profit soars with help from US tax cut. [online] HeraldNet.com. Available at: [Accessed 4 Nov. 2019].

Layne, R., 2019a. Boeing loses first big 737 Max order to rival Airbus, sees big drop in deliveries last quarter. [online] CBSNews. Available at: [Accessed 4 Nov. 2019].

Layne, R., 2019b. Boeing’s value has sunk $27 billion since Ethiopian Air crash. [online] CBS News. Available at: [Accessed 4 Nov. 2019].

Lee, D., 2019. Series of failures behind Boeing Lion Air crash. BBC News. [online] 25 Oct. Available at: [Accessed 29 Oct. 2019].

Leeham, 2021. HOTR: Investors optimistic for Boeing. Are they too optimistic? [online] Leeham News and Analysis. Available at: [Accessed 14 Jul. 2021].

MacMacmIllain, D., 2019. Boeing takes $5.6 billion revenue hit to compensate 737 Max customers. [online] Washington Post. Available at: [Accessed 4 Nov. 2019].

Marshall, A., 2019. FAA Grounds Boeing’s 737 MAX Jet Days After Ethiopia Crash. [online] Wired. Available at: [Accessed 4 Nov. 2019].

Nasdaq, 2019. Boeing Company (The) Common Stock (BA) Dividend History. [online] Nasdaq. Available at: [Accessed 5 Nov. 2019].

Sheetz, M., 2018. Trump’s tax cuts were a big way ‘to unleash economic energy’ in America, Boeing CEO says. [online] CNBC. Available at: [Accessed 4 Nov. 2019].

Shivdas, S., 2019. Fitch, Moody’s cut Boeing’s debt outlook to ‘negative’ on 737 MAX problems. Reuters. [online] 22 Jul. Available at: [Accessed 14 Jul. 2021].

Slotnick, D., 2019. A Russian company is suing Boeing for hundreds of millions of dollars over its 737 Max order, and it could be the first of dozens of similar lawsuits against the planemaker. [online] Business Insider. Available at: [Accessed 4 Nov. 2019].

The Boeing Company, 2019. The Boeing Company on Twitter: "How is Boeing improving product and services safety? @BoeingCEO Dennis Muilenburg. Available at: [Accessed 5 Nov. 2019].

Weiss, S. and Ami, A.R., 2019. Boeing Company | Description, History, & Aircraft. [online] Encyclopedia Britannica. Available at: [Accessed 29 Oct. 2019].

Zazulia, N., 2019. Boeing Brings in $100 Billion in 2018 Revenue. [online] Avionics International. Available at: [Accessed 29 Oct. 2019].

Appendix

 

 

 

2020

2019

Profitability

 

 

 

 

Return on Capital Employed

Operating Profit (PBIT)        x 100
Total Asset - current liabilities

Operating profit (Earnings from Operations)

-12,767

-1,975

Total Assets

152,136

133,625

Current liabilities

87,280

97,312

 

 

-19.69%

-5.44%

 

 

 

 

 

Operating profit margin

Operating Profit   x 100
Total Revenue 

Operating profit (Earnings from Operations)

-12,767

-1,975

Total Revenue

58,158

76,559

 

 

-22.0%

-2.6%

 

 

 

 

 

Return on Equity

Net profit (profit for the year) x 100
Total Assets  

Net profit/loss

-11,941

-636

Total Assets

152,136

133,625

 

 

-7.85%

-0.48%

 

 

 

 

 

Liquidity Ratio

 

 

 

 

Current Ratio

Current Asset
Current Liabilities

Current Asset

121,642

102,229

Current Liabilities

87,280

97,312

 

 

1.39

1.05

 

 

 

 

 

Quick Ratio

(Current Asset - inventories)
Current Liabilities

Current Asset

121,642

102,229

Inventories

81,715

76,622

 

Current Liabilities

87,280

97,312

 

 

0.46

0.26

 

 

 

 

 

Efficiency Ratios

 

 

 

 

Inventory Turnover Days

Average Inventory  x 365 days
Cost of sales

Average inventory

                       79,168.50

                    69,594.50

Cost of sales

63,843

72,093

 

 

453

352

 

 

 

 

 

Receivables turnover days

Receivables      x 365 days
Total Revenue

Average receivables

2610.5

3572.5

Total Revenue

58,158

76,559

 

16.4

17.0

 

 

 

 

 

Gearing Ratios

 

 

 

 

Interest Coverage

Operating Profit (Earnings from Operations)
Interest on Loan (Finance costs)

Operating profit

-12,767

-1,975

Interest on loan

2,156

722

 

 

-5.92

-2.74

 

 

 

 

 

Investment Ratio

 

 

Per share

Per share

Earnings per Share

Net income (Profit for the Year)

Net income

-11,941

-636

 

Number of ordinary shares

Number of ordinary shares

569

566

 

 

 

-20.99

-1.12

100% Plagiarism Free & Custom Written, Tailored to your instructions
paypal checkout

Our Giveaways

Plagiarism Report

for £20 Free

Formatting

for £12 Free

Title page

for £10 Free

Bibliography

for £18 Free

Outline

for £9 Free

Limitless Amendments

for £14 Free

Get all these features for
£83.00 FREE

ORDER NOW