1 Financial Comparison Between The Boeing Company and Lockheed Martin Keith L. Hohl EMGT 452 Semester Project 14 December 1999

2 Agenda Objective Background –The Boeing Company –Lockheed Martin Consolidated Financial Comparisons –Total Assets –Income Sales and Earnings –Ratio Analysis Profitability, Liquidity, Asset Management, and Debt Management Military Aircraft & Space Divisional Financial Comparison –Total Assets and Net Capital Expenditures –Income Sales and EBIT Conclusions

3 Study Objective To research and analyze two major defense contractors to determine the company’s financial position To financially compare the Military and Space divisions

4 The Boeing Company Background Corporation divided into four major divisions –Commercial Airplane Group –Military Aircraft and Missiles Group –Space and Communications Group –Customer and Commercial Financing group Company Statistics –Largest Aerospace Company in the world as measured by Total Sales –Largest manufacturer of Commercial Jetliners and Military Aircraft –Largest NASA Contractor –Merged with McDonnell Douglas corporation in August 1997 –Subdivided the Information, Space and Defense Group into the Military Aircraft and Missiles Group and the Space and Communications group in 1998

5 Lockheed Martin Background Corporation divided into five major divisions –Space & Strategic Missiles –Electronics –Aeronautics –Information & Services –Energy and Other Company Statistics –Includes a two for one stock split as of December 1998 –Merged with Loral Electronic Corporation in April 1996 –Merged with Martin Marietta Corporation in March 1995 –Merged with General Dynamics Fort Worth Division and GE Aerospace in 1993

6 Consolidated Total Assets Financial Comparison Boeing’s total Assets are 1.30 times greater than LM Boeing’s assets are decreasing while LM are remaining roughly the same

7 Consolidated Sales Financial Comparison Boeing sales are increasing while LM remain basically flat Boeing sales are 1.69x greater than LM over the last three years Commercial a/c division accounts for 63% of Total Sales

8 Consolidated Net Earnings Financial Comparison LM operations more efficient than Boeing over this three year period Earnings are comparable to Boeing and yet Boeing has much more sales LM earnings are decreasing

9 Consolidated Earnings From Operations Financial Comparison LM cost of operations much lower than Boeings respect to Sales LM earnings remain consistent with flat sales receipts Boeing needs much improvement in its cost of operations

10 Consolidated Earnings per Share Financial Comparison LM has generally higher earnings per share than Boeing More efficient costs of operations Effectively utilizing assets and inventories Boeing has much room for improvement

11 Consolidate Return on Assets(ROA) Profitability Financial Comparison Shows that LM much more efficient at operations than Boeing

12 Consolidated Return on Equity (ROE) Profitability Financial Comparison Shows that LM much more efficient at operations than Boeing

13 Consolidated Profit Margin Profitability Financial Comparison LM Profit Margins are decreasing even though Sales have remained the same Shows LM has a more efficient operations than Boeing Beta coefficients: Boeing = LM = 0.80

14 Consolidated Inventories Financial Comparison LM inventories are increasing while Boeing’s inventory is decreasing LM inventory to Total Assets ratio is 50% less than Boeing’s Shows that LM operations are more efficient than Boeing’s

15 Consolidated Current Ratio Liquidity Financial Comparison Ability to meet short term obligations Ratio is much lower than industry average Shows the 1998 Liquidity position relatively weak Must liquidate current assets at 97% (1/1.03) for LM and at 61% (1/1.22) for Boeing of book value and still payoff creditors in full

16 Consolidated Quick Ratio Liquidity Financial Comparison Ratio is decreasing compared to the industry average Both companies would have to liquidate its inventory in order to payoff its current liabilities Inventories are the least liquid of current assets

17 Consolidated Inventory Turnover Ratio Asset Management Ratio Financial Comparison Inventory sold out and restocked higher than the industry average LM ratio is higher than Boeing Shows possibly superior merchandising and/or a shortage of needed inventory to support sales for both companies

18 Consolidated Fixed Asset Ratio Asset Management Ratio Financial Comparison Shows that LM is effectively using its plant and equipment compared to the industry average and to Boeing Boeing requires improvement to better utilize its plant and equipment

19 Consolidated Total Asset Ratio Asset Management Ratio Financial Comparison Evaluates Total Asset usage LM is generating less sales than total asset investment Boeing is generating more sales than total asset investment

20 Consolidated Day Sales Outstanding Ratio Asset Management Ratio Financial Comparison Represents the average length of time after making a sale before receiving a cash payment Boeing is approximately 2.5 times better than industry average LM is exceeding the industry average on collecting payments

21 Consolidated Debt Ratio Debt Management Ratio Financial Comparison Shows how the company is financed Both companies debt ratios are higher than the industry average Creditors have supplied approximately 67% of the total financing May make it costly to borrow additional funds without raising more equity capital

22 Consolidated Times Interest Earned Ratio Debt Management Ratio Financial Comparison Shows the ability to pay interest Both companies have sufficient funds to meet annual interest costs even if operating incomes declines

23 The Boeing Company and Lockheed Martin Divisional Financial Comparisons

24 Divisional Sales Military Aircraft & Space Financial Comparison Boeing and LM Military Aircraft and Space divisions Sales are nearly equal Note Boeing Overall Sales exceed LM by 1.6 times Boeing’s sales are increasing while LM are remaining flat

25 Divisional EBIT Military Aircraft & Space Financial Comparison Military a/c and Space divisions did not contribute to the overall 1997 earnings per share loss

26 Divisional Total Assets Military Aircraft & Space Financial Comparison

27 Divisional Net Capital Expenditures Military Aircraft & Space Financial Comparison

28 Conclusions

29 The Boeing Company Financial Summary Boeing 1999 Profitability is increasing –Lowering their long term debt –Reducing overall inventories –Lowering Operating costs –Increasing usage of fixed assets –Generating more Sales than total Asset investment –Improving account receivables payments Areas of Improvement Required –Further reduction in operating costs –Further improvement of asset utilization Boeing may have merged with McDonnell Douglas to “Prop up” Earnings for interim fix due to the lagging Earnings performance from the Commercial Division

30 Lockheed Martin Financial Summary Lockheed Martin profitability is decreasing –Sales are Decreasing –Cost of operations are increasing –Short term debt increasing Areas of Improvement –Reduce operating costs –Reduce time of Account Receivables –Increase Sales –Reduce short term and long debt

31 Military Aircraft & Space Division Summary Sales, EBIT, Total Assets, and Capital Expenditures are nearly equal between both companies. Outstanding Contribution to Overall 1998 Net Earnings –Boeing: 127% –Lockheed Martin: 65% Satisfactory 1998 Sales Contribution –Boeing: 35% –Lockheed Martin: 51% Overall the Military Aircraft and Space Divisions are contributing more than fair share to the overall company performance