The Boeing Corporation, originally Pacific Aero Products Company, was established in 1916 in the Washington Puget Sound region. The company was originally incorporated to build aircraft, air mail delivery, and pilot training, but was broken up by the government in 1934 creating United Airlines and Boeing Aircraft Company. During the first 97 years the company expanded through strategic mergers and acquisitions of storied aerospace pioneering companies into the $81. 7 billion dollar company it is today.
Many of the companies are household names with the older generations: North American Aviation, McDonnell Douglas, Rockwell International, Hughes Space & Communications, and Jeppesen. Through these expansions, Boeing has become the world’s largest and most diversified player in the aerospace and defense industry. Ranked in the top of U. S. exporters, Boeing supports airlines as well as the U. S. and allied government customers in 150 countries. The company is divided into two major business units supported by nine corporate functions. The two business units are Commercial Airplanes (60%) and Defense, Space & Security.
Boeing Commercial Airplanes (BCA) is a $36. 1 billion dollar business as of December 31, 2011 headquartered in Puget Sound Washington that employs over 80,000 worldwide. The business of the division is to design, assemble, and support jetliners for its customers. There are five major aircraft lines with VIP/Corporate derivatives, fabrication and assembly facilities, and a global customer support system for delivery and maintenance. There are over 12,000 Boeing jetliners in service today representing approximately three-quarters of the global fleet.
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Commercial Aviation Services (CAS) offers a broad range of services to passenger and freight carriers ranging from maintenance to retrofits. BCA’s main customer base is the global commercial airline and freight companies. Boeing Defense, Space, & Security as of 2011 is a $31. 9 billion dollar business headquartered in St. Louis Missouri that employs over 60,000 worldwide. The division is a conglomeration of four separate businesses: Boeing Military Aircraft, Global Services & Support, Network and Space Systems, and Boeing Phantom Works as well as several joint ventures.
Boeing Military Aircraft’s business includes the design, assembly, and support of manned and unmanned tactical (fighter/bomber), transport, tanker and rotary wing aircraft, surveillance and engagement systems as well as ordinance. Boeing’s current fleet includes many storied aircraft such as A-10 Thunderbolt, F-18 Super Hornet, F-15 Strike Eagle, Air Force One, and EB4 Advance Airborne Command Post. Rotary wing aircraft include AH64 Apache, CH47 Chinook, MD530, and V22 Osprey. The ordinance side of the business ranges from JDAM to Patriot Missile to Minuteman Guidance, Navigation and Control.
The most recent notable system is the Arrow Interceptor, also known in Israel as, the Iron Dome. Global Services & Support provides assistance to government customers worldwide with over 264 locations. The services include maintenance of all Boeing products and services such as supply chain management, logistics support, and training for maintenance personnel along with various other defense and government services. Network and Space Systems (NSS) designs satellites, launch vehicles, and defense systems. The division is also the world’s largest supplier of both commercial and military satellites.
The most famous satellite system from Boeing is the GPS system we all use every day. Commercial customers include many well-known businesses like DirecTV and SIRIUS XM Radio. Boeing manufactures launch vehicles via a joint venture with Lockheed Martin known as United Launch Services. This group designs and manufactures the Delta II as well as three launch vehicles. NSS is currently the largest contractor for NASA being the main for supply of the International Space Station. Boeing Phantom Works develops advanced systems and technology to meet future customer needs as well as scoping out opportunities to broaden the company’s offerings.
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Phantom Works has five distinct sections: Advanced Boeing Military Aircraft, Advanced Network & Space Systems, Advanced Services, Strategy Development & Experimentation, and Phantom Works Ventures. Systems under operation include Directed Energy Weapon Systems (lasers), Wideband Global SATCOM (future battlefield communications), Phantom Eye (hydrogen-fueled unmanned surveillance) aircraft, and X37B Orbital Test Vehicle. II – Overview of Industry Boeing is part of the Aerospace and Defense Industry (A&D); at $68. 7 billion in sales in 2011, it is the largest company in its global peer group.
EADS is a very close second with sales of $68. 3 billion. (For purposes of this analysis of Boeing, EADS is not used in the competitor analysis because their annual reports follow IFRS instead of GAAP as they are headquartered in France. ) The second largest U. S. publicly traded company in competition with Boeing is Lockheed Martin who grossed $22 billion less than Boeing in 2011. The Aerospace and Defense (A&D) industry has been characterized by growth over the past five years. According to IMAP, an M&A (Mergers and Acquisitions) advising firm, the A&D industry has grown at a compounded annual growth rate of 8. 7% from 2005 to 2009.
The expected growth during 2010 to 2014 is an estimated CAGR of 5. 3%. PwC reported 2011 to be the best year for the A&D industry in terms of revenue and net profit. The continual growth in commercial aviation has offset the recent trouble in the defense sector. There are many macroeconomic factors at play in the A&D industry including prices of raw materials, geopolitical risk, business demand and fiscal policy. As the world demands more fuel-efficient aircrafts, businesses must adapt to these needs by replacing old materials such as Aluminum and Titanium to composites which allow aircrafts to become more aerodynamic.
The future costs of composites will in turn affect the expenses of the A&D sector. Lighter weight and more aerodynamic airframes drive better fuel efficiency. The airline industry has done well here over the past 10 years, as air travel has grown 53% but fuel demand has been level at a 3% increase. This has been achieved by a combination of retiring older aircraft and replacing them with the more efficient designs as well as financial hedging of fuel costs. Boeing, for its part has been actively working on alternatives such as bio fuels, fuel cells and mini-nuclear drives.
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The price of oil affects not only the demand for aircrafts, but the economy as a whole. Geopolitical risk in the Middle East can create an upward pressure on the price of oil and thus dampen business demand. Fiscal policy decisions also have a severe effect on the defense spending which in turn determines the earnings of defense contractors. As the United States becomes more cognizant of spending, the risks increase for the defense sector which could create more volatile earnings. In aggregate, the industry has reduced volatility in inputs such as oil by using derivatives to hedge against price increases.
Boeing had the largest reported revenue during the 2011 fiscal year followed by Lockheed Martin, of the United States, at $46. 5 billion. The Boeing Company has dominated the A&D sector, but is losing market share to a number of new entrants in the market from Japan, Russia, and China. Graph 2. 1 lists the top 10 A&D companies by revenue in 2011 (source: PwC): Company Revenue 2011 (in millions) Revenue 2010 (in millions) % Change Boeing $68,735 $64,306 7% EADS $68,328 $60,599 13% Lockheed Martin $46,499 $45,671 2% General Dynamics $32,677 $32,466 1% BAE Systems $30,745 $34,428 -11% United Technologies $26,935 $25,227 7% Northrop Grumman $26,412 $28,143 -6% Raytheon $24,857 $25,183 -1% Finmeccanica $24,086 $24,762 -3% GE Aviation $18,859 $17,619 7% A record amount of M&A activity in 2011 is the result of these new competitors in the industry. Cash on balance sheets have A&D executives participating in 341 deals totaling 43. 7 billion in value in 2011 according to PwC. This trend can contribute to increased non-organic growth within the top firms of the Aerospace & Defense industry. III – Management Analysis In general, the market views the management as well as the board of directors of Boeing as weak.
The scandals from the previous CEO have made the transition for Jim McNerney difficult, and analysts and researchers are skeptical of the managerial performance. Jason Busch, a researcher for the best practices firm, Spend Matters, criticized Boeing for the delays in completing the Dreamliner 787 in 2009. Outsourcing the plane has led to issues in the supply chain which could have been remedied had the firm produced it in the United States. He continues by saying the top managerial positions and the Board of Directors has too many MBAs and not enough engineers.
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The Harvard Law School Forum on Corporate Governance has also been critical of Boeing due to the structure of the board of directors. While over 70% of the Fortune 500 firms have separated the role of CEO and Chairman of the Board, Boeing has not. James McNerney acts as the board of directors as well as the president and Chief Executive Officer. This creates an inherent conflict of interests since the board is responsible for watching the managers of the firm. Jon Talton of the Seattle Times claims the Board of Directors should have been aware of the issues surrounding the lithium-ion batteries in the 787 Dreamliners.
These batteries are responsible for grounding the 787s. Rather than use a traditional battery, they attempted to make the planes more fuel efficient by using lighter batteries to reduce drag on the planes, but these batteries were overheating and causing fires in the planes. Regardless of this black-eye for the firm, Jim McNerney has not received any financial penalties and instead got a bonus for the initial delivery of the 787s. The executive compensation structure allows for room to earn more for financial milestones, but fails to address setbacks.
The experience of the Board of Directors provides a wealth of financial and managerial knowledge. Table 3-1 illustrates the name and position of each Director: Table 3-1 Board of Directors Name Experience Ken Duberstein Reagan Chief of Staff Susan Schwab Former U. S. Trade Rep. Edmund Giambastiani Retired Admiral David Calhoun CEO Nielsen Holdings Larry Kellner Former CEO: Continental Airlines Ron Williams Former CEO: Aetna Mike Zafirovski Former CEO: Nortel Linda Cook Senior Executive: Royal Dutch Shell Ed Liddy AIG crisis management after 2008 James McNerney Jr. (Chairman)
CEO: Boeing The Board contains ten directors as of December 31, 2011. Included in this group are three former CEOs, two current CEOs, a senior executive, a former U. S. trade representative, and the Chief of Staff in the Reagan Administration. While the leadership and experience of the Board has been established, the lack of engineers can dramatically reduce the perspective overall. Management is also full of talented individuals who have been with the company for a number of years. Many of the managers have ascended the ranks to help provide a greater perspective.
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Table 3-2 illustrates the name, position, and number of years with the company: Table 3-2 Management Name Position Years with Boeing Raymond Conner CEO: Commercial Airplanes 36 James A. Bell Executive VP 8 Wanda Denson-Low VP: Internal Governance 13 Thomas Downey Senior VP: Communications 27 Shepherd Hill Senior VP: Strategy 19 Tim Keating VP: Government Operations 5 J. Michael Luttig VP: External 7 James McNerney President, CEO, Chairman 8 Dennis Muilenburg CEO: Defense 28 Anthony Parasida Senior VP 35 Greg Smith CFO 9 Richard Stephens VP: Human Resources 33 John Tracy Chief Technology Officer 32
Jim McNerney was the previous CEO of 3M and next in line to succeed Jack Welch at General Electric. It is important for a CEO to provide contacts to expand business opportunities and McNerney’s wealth of experience in the industrial sector is a great fit. According to the 2012 proxy, the board is 75% independent, but highlighted potential conflicts with Jim McNerney being the CEO and Chairman of the Board. This conflict as well as the perverse payment structure could be a sign of future trouble ahead. Intense competition from emerging markets such as China and Russia has put a damper on growth.
It’s up to management to find innovative ways to compete in this economy as sequestration looms over the defense sector and a weak recovery hampers consumer and business spending. IV – Presentation of Financial Reports Throughout the following section, Boeing’s financial statements for the years 2007 to 2011 are presented. They include the company’s balance sheets, income statements, cash flow statements, as well their respective restatements. In Appendix A you can also find the financial statements of Boeing’s top four competitors, which have also been averaged out in order to get an idea of Boeing’s true competitive advantage. 48 V – Common-Sized Presentation of Restated Reports VI – Detailed Discussion/Analysis of Section IV and V Reports Restatement of the Boeing Company’s Balance Sheet was necessary in order to assess the primary information for proper comparison. Stockholder’s equity remained the same as the information was significant enough in its original form. Boeing’s Net Receivables were expanded to reflect the figures associated with their Allowance for Uncollectible Accounts. The data for this expansion came from Note 6 of Boeing Company’s published 10K’s (Boeing, 2012).
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In addition, Advances and Progress Billings were separated from Inventories to give a truer analysis of their actual inventory. The data for extracting this information is supplied in Note 7 of their published 10K (Boeing, 2012).
Assets were separated between tangible and intangible which were included in other long term assets. Property, Plant, and Equipment was separated in order to recognize what area significant asset acquisitions may have occurred, less Accumulated Depreciation, that can be found in Note 9 of their 10K (Boeing, 2012).
In the Intangible and Other Long Term Assets section Accumulated Amortization was separated as well. This information was found alongside the actual other assets line item in their balance sheet. Other changes made to the information in this section include moving the short term portions of deferred taxes, investments, and notes receivable from the current assets section of the balance sheet and including them on a separate line item along with the corresponding long term debt in this section. This allows for an easier analysis of the most liquid current assets.
The only change to liabilities was moving the current portion of long term debt down to be reflected along with the long term portion of the corresponding debt. This was done to stay consistent with current and long term assets to ensure ratio reliability and accuracy. Common sizing was necessary to observe trends within the financial statements. This report reflects both horizontal and vertical common sizing which used 2007 as the base period. The base year is preferred because 2007 was before the recent economic crisis and provides results from operating to measure the post-recession growth.
Total current assets and total tangible assets continue to trend upwards regardless of the recession. Cash and cash equivalents declined in 2008 by approximately $4 billion or 53. 6 % as a result of a $401 million cash outflow attributable to higher working capital requirements. This loss in cash and cash equivalents was offset by a larger than normal increase in inventories “driven by continued spending on production materials, airplane engines, and supplier advances during the IAM strike, lower commercial airplane deliveries and the continued ramp-up of the 787 program”(SEC Filing, 2008).
Total assets declined by approximately $5 billion, 8. 8%, between 2007 and 2008 due mostly in part of a large decrease in investment activity due to the economic recession. Some of this loss in investment was offset by a gain in deferred income taxes of approximately $2. 5 billion that is a result of unrealized pension assets that tax had yet to be paid on as of end of year 2008. In 2009 there is a large increase in cash and cash equivalents that comes from a reduction in working capital from the buildup of inventory in 2008 due to the IAM strike.
In 2010 cash flow decreased again as Boeing increased inventories in anticipation of the deliveries of their 787 and 747-8 airplanes. In 2011 the large increase in total assets is reflected in a $12 billion dollar increase in inventories and a $5 billion dollar increase in cash and cash equivalents which comes from increased sales and customer advances. All other assets from 2008 through 2011 remained relatively constant with a slight increase in 2010 that is due to an increase in time deposits.
Liabilities reflect an approximate $18 billion dollar increase over the five years 2007 through 2011. This comes from an increase in long term debt for unsecured debentures and notes that are due through 2043 and an increase in pensions and other postretirement benefits which is primarily due to a higher amortization of actuarial losses and higher service costs driven by lower discount rates (Boeing, 2012).
As depicted in the graph above, Boeing’s assets and liabilities have increased overall in the past five years.
The increase in liabilities may at first glance seem like a negative trend but the overall increase can in part be attributed to the company’s simultaneous rise in assets, and also can imply a higher level of participation with additional companies; that is, Boeing is continuing to expand as a company in the global market. There are two notable equity trends, the first of which is a slight steady increase in the company’s retained earnings. Growth in retained earnings is proof that a company has more available holdings each year, and Boeing’s balance sheets indicate just
that. The second is that each year Boeing conducts a tremendous reinvestment in itself by repurchasing a large amount of its treasury stock, and by reinvesting a large amount of their available resources back into the company, Boeing will be able to experience continued gains on equity from future operations. This is important news for stockholders. In order to fully analyze the financial state of Boeing, a restatement of the Income Statement was required. Taking the Income Statements available in the 10K’s, they were restated in the six profit point Multi-Step format.
The multi-step breakdown of Gross Profit, EBITDA, Net Operating Income, EBIT, EBT and Net Income is essential to align Boeing year over year as well as Boeing to the competition. The multi-step approach helps better understand the financial state of the business by segregating the operating revenues and operating expenses from the non-operating revenues, non-operating expenses, gains, and losses. This approach allows anyone to review selected areas without having to sort through notes and reading the complete 10K. In addition, depreciation expense was removed from COGS and was reflected with all other depreciation expenses.
In 2004 Boeing conducted a purchase and sale agreement with GEEC (General Electric Capital Corporation).
In this agreement Boeing has agreed to sell to GEEC all of the assets related to Boeing Capital’s commercial financing services business. This was listed as an extraordinary item on Boeing’s original income statement. The restatement moves this to discontinued operations as it has occurred regularly since 2004. The income tax from the extraordinary item was also moved above the line and included with income tax expense. All financials were reviewed in common size format, both horizontal and vertical to better help see noticeable trends.
The horizontal common size method used to analyze Boeing was the base year method. In reviewing the data, it is clear that there was a dramatic drop in product revenues in 2008 of $5,478 (12%) which was slightly offset by an increase in service revenues. This drop in product revenues can be directly attributed to the IAM strike. Even with the recession coming on strong, there was a rebound in product revenues that is attributed to delivery of backlogged aircraft delayed by the strike. In 2010, there is again a dramatic drop in revenues that directly lines up with the bottom of the recession.
The Gross Profit in 2010 did not follow the trend; instead there was a 5% increase due to both an increase in Service revenues and a 3% decrease in the Cost of Goods Sold. 2009 saw a large increase in R&D due to the launch of 737 Max, 747-8 and issues with the launch and subsequent delay of the 787 Dreamliner. The above graph was constructed from the last five years of Boeing’s income statements, and several trends were identified. At a first glance, their yearly revenue from sales has seemingly fluctuated around the same point, which overall shows that their sales are relatively constant.
Shareholders would rather see a positive growth in sales than what is displayed in the graph; constant sales over the recent five years do not indicate that the company has been selling more of its products and services. Changes in supply and demand of its products and services as well as inflationary effects serve as additional factors for relatively stagnant sales revenue. Likewise, there has been an overall loss on operating investments, which essentially means that the company does not generate enough liquid revenue to cover its operating expenses and that is generally not a good sign.
A noteworthy and possible root cause for these overall negative trends was the extremely large and unusual amount of reinvestment costs Boeing incurred in 2008, which can also be indicative of the impact of the global recession. As a result, Boeing’s overall Earnings-Per-Share and overall Net Income values have generally remained constant. Furthermore, when taking into account the rate of inflation, their Net Income actually decreased. Cash flows from operations are measured against net income to check for reliability of portraying the economics of Boeing.
There appeared to be a large deviation between net income and cash flows from operations from 2007-2009; the largest deviation takes place in 2008 with a difference of over 700%. During 2010 and 2011, the gap decreases which makes earnings a more accurate measurement of the cash inflows and outflows. 2011 2010 2009 2008 2007 Net income $4,018 $3,307 $1,312 $2,672 $4,074 CFFO $4,023 $2,952 $5,603 (401) $9,584 % difference .1% 12% 76% 766% 57% A negative cash flow from operations in 2008 was a widespread phenomenon due to the recession. All other years analyzed reflect Boeing generating positive cash flows from operations.
The cash flows from investing section indicate Boeing allocating a consistent amount of capital to property, plant, and equipment over the last five years. Over 2008-2010, Boeing allocated over $600 million per year to acquiring new companies which placed a strain on their cash position. These strategic acquisitions could misconstrue the economics of Boeing’s operating cash flows in the future as purchased accounts receivable are repaid. A large cash outlay of $15 billion in 2010 for contributions to investments follows a sharp drop in investments proceeds in 2009.
After Boeing saw investments proceeds decline to $1 billion in 2009 from $11 billion in 2008, management deemed a contribution to be necessary. An examination of the cash flows from financing shows Boeing adding a significant amount of leverage in 2009 by borrowing nearly $6 billion. Outside of 2009, Boeing did not add debt of more than $300 million in any particular year. This large cash inflow from new borrowings played a part in the above-average debt ratios. Despite cash flows being affected by the recession in 2008, Boeing maintained a steady dividend.
Since the market views a cut in dividend as a weakness in the fundamentals of the company, it is often seen as a last resort. Rather than reduce dividends, Boeing instead discontinued share repurchases in 2010. This is still a reduction of return to shareholders because the decrease in outstanding shares gives the remaining stock more value. The chart below shows Boeing’s free cash position after return to shareholders: 2011 2010 2009 2008 2007 Dividends (1,244) (1,253) (1,220) (1,192) (1,096) Repurchase 0 0 (50) (2,937) (2,775) Return to Shareholder (1,244) (1,253) (1,270) (4,129) (3,871) CFFO-CapEx $2,310 $1,827 $4,417 (2,075) $7,853 Cash Excess $1,066 $574 $3,147 (6,204) $3,982 Share repurchases in 2007 and 2008 amounted to nearly $3 billion each year. A sharp reduction in 2009 cut the return to shareholders by nearly half. Despite the reduction, cash excess of free cash flow declined from the high in 2007. The overall trends observed in the cash flow statement depict a mature company interested in acquisitions. Cash flows from operations are generally positive and growing from the low in 2008. Investing cash flows are oscillating as evident from their acquisition activities in 2008-2010.
A negative cash position from financing activities is a result of the mature company paying constant dividends. As a result of the recession in 2008, Boeing has been careful with cash. Now that the economy is showing signs of life, it may be possible Boeing begins to acquire more companies as they have cash of over $10 billion. VII – Analysis of Liquidity Ratios Boeing – Liquidity Ratios Ratio Name 2011 2010 2009 2008 2007 Competitor Average Days’ Sales in Receivables 31. 044 31. 014 32. 538 35. 182 32. 631 64. 86 Accounts Receivable Turnover 12. 155 11. 134 11. 420 10. 318 11. 186 5. 63 Accounts Receivable Turnover in days 30. 029 32. 782 31. 961 35. 374 32. 631 64. 86 Days’ Sales in Inventory 215. 445 175. 454 111. 766 116. 019 66. 959 20. 49 Inventory Turnover 1. 932 2. 453 3. 398 3. 902 5. 451 17. 81 Inventory Turnover in days 188. 972 148. 815 107. 406 93. 543 66. 959 20. 49 Payables Turnover 7. 759 7. 828 4. 697 3. 220 5. 407 9. 92 Average Days Payables Outstanding 47. 041 46. 627 77. 705 113. 351 67. 501 36. 79 Working Capital Turnover 0. 410 9. 853 -0. 656 -0. 281 -0. 476 14. 58 Operating Cycle 220. 016 179. 829 139. 945 128. 725 66. 959 85. 35 Trade Cycle 172. 97 133. 20 62. 24 15. 37 32. 09 20. 49 Working Capital 9161 651 -243 -5883 -8431 2237. 25 Current Ratio 1. 235 1. 019 0. 992 0. 806 0. 726 2. 17 Quick Ratio 0. 407 0. 313 0. 466 0. 292 0. 415 1. 08 Cash Ratio 0. 258 0. 156 0. 286 0. 108 0. 229 0. 37 Cash Flow from Operations (CFO) Ratio 0. 103 0. 086 0. 174 -0. 013 0. 311 0. 33 Calculations of the short-term liquidity ratios yielded several trends in the recent operations of The Boeing Company as well as some interesting results using comparisons to the calculated competitor average values from 2011. The receivables ratios are fairly consistent for Boeing over the five years; this may be indicative of collection policies not subject to drastic change.
When comparing Days’ Sales in Receivables for Boeing to the competitor average, it appears the allowable time for collections is twice as long within the competition as Boeing has reported. This has several inferences, the first being that Boeing may have stricter collection policies than the competition, which could be due to a large amount of high-risk contracts. Another inference could be Boeing is collecting quicker in order to reinvest more in its company, which can lead to higher sales. Similarly, Boeing’s higher Accounts Receivable Turnover compared to the competition may indicate a higher level of liquidity.
The inventory ratios present an interesting dilemma: over the past five years Boeing’s Inventory Turnover in days has significantly increased each year, rising from 67 days in 2007 to a staggering 215. 45 days in 2011. Compared to the competitor average of just 20. 49 days, it is obvious Boeing has been holding onto their inventory for longer periods of time. There are several reasons why this may be, the first being the most obvious – they are simply unable to sell their finished goods but are still continuing to produce them, or in other words they are producing more goods than they can sell which is leading to a surplus.
A less obvious implication is the current recession has reduced demand for Boeing’s products, and rather than halt production and cut their workforce the company is waiting out the recession. Using the Inventory Turnover ratio the same conclusions can be drawn: in 2011 Boeing was able to sell their finished goods only 1. 93 times, whereas the competitor average was 17. 81 times per year. Regardless of whether or not the products are similar, Boeing is simply not getting rid of excess inventory, which ultimately will drive up their fixed costs such as rent for additional storage space or additional buildings.
The payables ratios signify Boeing’s Payables Turnover has increased overall; it is taking Boeing longer to pay off their suppliers than the competitor average. An interesting note is that Boeing may have strict collection policies (as shown in the receivables analysis previously), and at the same time they could be simply neglecting their obligation to their suppliers. Shorter collection times and longer outstanding payable times are not typically associated with a well-developed company, but again the high number of risky business contracts could be the reason for this oddity.
The Working Capital turnover ratios for Boeing do not fare well at all when compared to the competition. Working capital funds operations and purchases inventory, and a high ratio is favorable; this means the company is generating more sales than what it takes to fund the sales. As shown in the inventory ratios, Boeing is having trouble selling off their inventory, and perhaps they are increasing their marketing and selling expenses to such an extent they are essentially breaking even.
Over the five years Boeing’s Working Capital turnover has fluctuated but is overall very close to zero and this is also not indicative of a mature and developed company. The competitor average is 14. 58, which signifies other companies may have an advantage over Boeing in terms of sales generation. This leads to the large and steady increase of both the Operating Cycle and Trade Cycle for Boeing, which are both drastically higher than the competitor average. This is further evidence there may be a fundamental problem with inventory or their basic process.
The Working Capital ratio for Boeing does appear to shed some light on Boeing’s likely inventory problem, but only within the last year. Between 2007 and 2010 Boeing’s Working Capital went from negative to just slightly positive, which means up until 2010 Boeing did not have enough liquid assets to cover their short-term debt, which really could have been a major problem. Even though 2011 yielded a much better value for Boeing and thus a better liquidity stance, the company is still far below the competitor average, and needs to continue its recent improvement to stay competitive.
On a related note, Boeing’s Current Ratio was comparatively weak in 2007 (0. 726), but over the years it has steadily increased to 1. 235. Even though it is still well below the competitor average of 2. 17, a Current Ratio value over 1 means there are enough short-term assets to cover outstanding short-term debt indicating some recent improvement for Boeing. However, in regards to the Quick Ratio, a 2011 value of 0. 40 for Boeing is additional proof they have too high a proportion of their current assets in the form of idle inventory.
The Cash Ratio is a more conservative measure of liquidity, and Boeing’s 2011 value of 0. 258 is weak compared to the competitor average of 0. 37. This suggests these industries do not have a high concentration of cash equivalents, but Boeing does not even meet their competitors. Finally, there is additional evidence there is a problem regarding cash generation, which comes to light in the Cash Flow from Operations Ratio. Boeing’s overall decrease from 0. 311 in 2007 to 0. 103 in 2011 and the competitor average of 0. 33