Annual Report Project Boeing

BADM212 ANNUAL REPORT PROJECT

We hereby certify that we worked on this annual report project for The Boeing Company together and equally contributed to its completion:

(Electronic signatures)

Brandon R. Larmore

Eduardo A. Rodriguez

Anthony J. Parker

Link to The Boeing Company’s 2012 Annual Report:

https://materials.proxyvote.com/Approved/097023/20130301/CMBO_157699/


_______________________________________________________

ANNUAL REPORT PROJECT (ARP) – BADM 212

PURPOSE

The purpose of this project, required by the Citadel School of Business, is to analyze a current annual report for a US publicly-held company with the goal of strengthening financial statement analysis skills. This provides students the opportunity to apply textbook theory by learning how to use, understand and analyze an actual annual report for the purpose of determining the viability of the company as a potential investment.

The ARP has two parts: a team project and an individually-prepared paper. The team project requires students to work in small groups to analyze the financial status of a publicly-held US company. The 700 word paper is to be written individually, summarizing the analysis of the company using the research information gathered.

TEAM PROJECTDue Date: February 27, 2014 at 11:59 pm (electronic submission only)

Instructions/template are below. This project should be done in groups of three or less. All members of a group should be in the same class section and will receive the same grade, which is 15% of the course grade. Conflicts should be addressed promptly. Individuals found to be negligent in their participation will receive a reduced group and course participation grade as determined by the professor and interviews with other group members.

Students working as a team must create a work strategy. Work may not be divided or split but must be performed as a group, indicating this by signed statement on the cover sheet. Teamwork is important in the business and accounting world; team members must be meaningful contributors to this project. Overall grading on the group project will be based on content & content clarity (60%) completion (15%), accuracy (15%), and mechanics (10%).

TEAM PROJECT: SPECIFIC INSTRUCTIONS & CHECKLIST

• Select a publicly held company in the retail industry. Companies not contained on the suggestion list provided in class must be approved through a forward of the company annual report by email to the professor. Obtain the most current annual report. For many this will be 12/31/12. For some companies with a fiscal year end, a 2013 annual report is available. NOTE: the 12/31/13 annual report will NOT be available for this project.

● Use the Internet as needed. The corporate website, WSJ online and http://finance.yahoo.com, among other websites, are very useful.


• Provide strong comments – not just the percentage change, or dollar amounts. Answer WHY the ratio changed or WHY the corporate trend appears to be increasing or decreasing.

• The annual report and other information used for this project should be attached electronically with the project submission. These are generally PDF files. Links to the website will be acceptable as well.

• All work should be original. Rules regarding plagiarism WILL be strictly followed. Quotes or data from the annual report, or 10K are not required to be cited, however direct quotes must be in quotations. The textbook may be used as a reference for personal information purposes only but may not be cited. If in doubt, please cite or place quotes around the material.• CHECK THAT ALL QUESTIONS/REQUIREMENTS ARE COMPLETED and that you answered “why” in all comments to prevent an unnecessary grade reduction.● Unless instructed, answer all questions with 4-5 clear, concise, grammatically-correct

sentences.

LATE Projects received will be penalized 5 points per day.

The Team Project requirements are listed below. ANSWER EACH QUESTION IN THE SPACE BELOW THE QUESTION. KEEP THE QUESTIONS WITH YOUR SUBMISSION.

● Requirements A – H that follow are to be answered for full credit.

● Several assignments HAVE AN EXCEL SPREADSHEET (EMBEDDED) THAT MUST BE COMPLETED.

● Be sure to round all work no more than TWO DECIMALS

A. Company and Officer Information

A-1. Write the name of your company including the type of business and their primary products below.

The Boeing Company

The Boeing Company is an aerospace technologies manufacturer that produces inventory such as fixed wing aircrafts, satellites, rotorcrafts, and rockets.


A-2. Company stock symbol

BA

A-3. Company corporate office headquarters.

The Boeing Company, Chicago, Illinois, USA

A-4. Do this as a TEAM before you work on the project. Write 3-4 paragraphs containing a general overview of your company’s financial situation based on your first reading of the four financial statements. Are profits up, down or consistent? Is revenue holding steady, increasing or decreasing? Is their debt reasonable? Can you tell from this overview specific areas of strength or weakness in this company? What is your first impression?

Upon our first look at The Boeing Company's profits we noted that 2012 was a successful year. After analyzing Boeing's growth and expenditures we noticed that Boeings expenses were growing at a higher rate than their revenues. Between 2012 and 2011 expenses grew 23% and their revenues only grew 19%. While they were still making a profit of $13,054 million, there could be cause for alarm due to their rapidly growing costs and expenses account compared to their slowly growing revenues account.

For The Boeing Company, the total liabilities from 2011 showed a value of $76,378 million and a value of $82,929 million in 2012. Although this is an increase, the most significant change happened within the equity portion of the balance sheet. This indicates that Boeing does not show a substantial increase in their total debt.

Upon looking at their statement of cash flows we noted that the cash and cash equivalents have slightly increased from 2011 by about $292 million (approximately 3% increase.) On the other hand, Accounts Receivable has decreased by about $185 million (roughly 3%). This shift of cash from their net accounts receivable to cash and cash equivalents account is beneficial to the company.


While Boeing is still a strong company, their earning per share has been looking unfavorable for shareholders recently. The earnings per share dropped from $5.34 to $5.11 from 2011 to 2012 (about a 5% decrease.) This could be due to the production of the new 787 Dreamliner, causing an increase in accounts payable (increase of $988 million) and a decrease of cash on hand to pay to shareholders.

A-5. Stock closing price as indicated on the template below. This information can be found at Yahoo.Finance.com (see Historical Prices to the left of the screen)and other websites Use the “adjusted close” price. If the date is not available due to the stock market being closed, select the next day the market is open.

STOCK HISTORY A-5

Dividend

Stock Close YLD * VOL

Date Price DIV * % PE Ratio 100s 12/31/09 54.13 .42 3 32.4 61, 871

12/31/2010 65.26 .42 2.4 14.3 75, 071 12/31/201

1 73.35 .42 2.3 14.7 49, 231 12/31/201

2 75.36 .44 2.3 13.3 39, 872 3/31/2013 85.25 .485 2.3 16.7 47, 649 6/30/2013 103.24 .485 1.9 19.4 28, 973 9/30/2013 117.5 .485 1.7 21.5 39, 986 10/30/201

3 129.68 .485 1.5 23 45, 828 11/30/201

3 134.25 .485 1.5 23.8 33, 787 12/31/2013 136.49 .485 1.4 24.2 20, 962 today** 130.16 .73 2.2 21.8 48, 139 Found in the WSJ *Write NA if your company does not pay dividends*Note if the date given falls on a day the market is closed, please select the next date that the stockmarket is open**Fill in the date you're preparing this project


**please put down ANNUAL dividends so that the PE Ratio is accurate.

A-6. Look on the Internet for the most recent important news releases related to your company, typically found where stock quotes are given (see yahoo.finance). Write 4 - 5 sentences regarding the event and how this may have affected stock prices since the last annual report. Cut & paste a copy of the news article below.

The Boeing Company’s stock may be due for a rise in its stock price by predictions made examining the following article. This is partly due to the rise in customer orders as well as Boeing’s expansion plans. The article states that between 2009 and 2013 Boeing had a drastic increase in orders for the 737 models that went from 178 aircraft to 1,208 aircraft. With such big orders and a backlog on deliveries, Boeing plans to expand its facilities in South Carolina as well as the Helena, WA facility. These expansion plans will allow Boeing to produce 42 aircraft a month compared to the 38 aircraft they are now producing and decrease their backlog of aircraft to customers. Overall, Boeing will increase its total revenues with these expansion plans and orders as well as make its presence known in the industry as a top competitor according to the following article.

Boeing: Getting Stronger With 737 AircraftFeb. 20, 2014 3:19 AM ET | 2 comments | About: BA, Includes: EADSY, GE

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Editors' Note: This article covers a stock trading at less than $1 per share

and/or with less than a $100 million market cap. Please be aware of the risks

associated with these stocks.


Boeing's (BA) fuel-efficient aircraft like the 737, 787, and 777 helped the company gain new orders for its commercial airplanes. Boeing's commercial-aircraft segment contributed around 63% to the total revenue in the third quarter of 2013. In the same quarter, Boeing reported commercial-aircraft delivery growth of 7.8% (yoy) to 648 aircraft, mainly driven by the redeliveries of Boeing 787 Dreamliner, 737, and 777 aircraft. Its 737-Family aircraft are generating significant revenue growth opportunities for the company and contributed nearly 79% of Boeing's total orders in 2013.

Boeing's 737-MAX aircraft is one of the fuel-efficient aircraft in 737-Family, with advanced LEAP-1B engines, developed by CFM international, a joint venture between General Electric (GE) and Snecma. With superior fuel efficiency of 737, Boeing received orders for this aircraft. By upgrading their fleets with 737 family aircraft, airliners will reduce fuel consumption by 14% compared to current-generation aircraft model.

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Strong order book

Boeing recently received an order of 40, 737 aircraft from General Electric Capital Aviation Services (GECAS), the financial and leasing arm of General Electric. This order consists of 20, 737-MAX 8 and 20 Next-Generation 737-800 worth $3.9 billion. With this order, GECAS's total order for 737-MAX reached 95 aircraft and the Next-Generation 737 reached 387 aircraft. Another airliner, Spice Jet recently ordered 40-737-MAX aircraft worth $4


billion and will replace its existing fleet of current-generation 737 with these fuel-efficient aircraft. One more airliner, Fly Dubai also placed an order of 75 Boeing 737-MAX 8 and 11 Next-Generation 737-800 worth $8.8 billion last month.

Boeing had a steep rise in its order book for 737 models from 178 aircraft in 2009 to 1,208 aircraft in 2013. Its 737 models are leading the company's order book as depicted in the graph below.

(click to enlarge)

Source: Company data

Boeing struck deals with more than 30 customers, which leads to a backlog of 1,763 Boeing 737-MAX aircraft. It is expected the company with the strong backlog for its 737 aircraft and its timely deliveries could significantly boost its top line.

Boeing's backlog as on December 2013


Source: Company Data

In the fourth quarter of 2013, Boeing received orders of 366 aircraft for 737 models and delivered 110 aircraft. With the 737 aircraft, its backlog for 2013 grew by $26 billion to $441 billion. Furthermore, I expect the company's initiatives for expanding the manufacturing facilities will monetize the company's backlog into revenue, to support its 2014 revenue guidance of $87.5 billion-$90.5 billion.

Enhancing production rate

To speed-up its 787 Dreamliner production, Boeing will expand its South Carolina facility and Helena facility. With this, Boeing will raise the production rate of its 737 from 38 aircraft to 42 aircraft a month. Boeing will incur capital expenditure of around $35 million to enhance the Helena manufacturing area by around one-third of the current area, to 167,099 square feet.

By enhancing the production activity of 737 aircraft, Boeing could boost its top line with additional revenue of around $4.8 billion from 737-Family aircraft in this year. This calculation is based on the increased production rate, and at the average 737-Family aircraft price of $95 million, without considering the discounts.

Boeing's expansion plan will also enable it to compete with Airbus, a unit of European Aeronautic Defense and Space Company (OTCPK:EADSY),


which had 53% market share last year. Airbus is manufacturing A320 aircraft, a close competitor of Boeing 737, at the production rate of 42 aircraft a month. Boeing, with the above discussed production enhancement strategy will deliver higher aircraft compared to Airbus A320. Boeing's decision of increasing the production rate will help it face the competition from Airbus.

On the other side, Airbus is also expected to raise its aircraft list prices by around 2.6% this year. I expect the increase in aircraft prices by Airbus will give Boeing the leverage to raise its prices, which will further enhance revenue.

Conclusion

The strong order growth for its 737 family from various airline operators will enhance Boeing's top line. With more fuel-efficient 737 aircraft, Boeing is expected to strengthen its presence in the industry and help the company achieve its revenue guidance of $86 billion. Further, the production expansion plan will enable the company to convert its backlog into revenue at a good pace.

A-7. Officers–Provide a brief background/bio (paragraph) of CEO and/or President & CFO. Do not plagiarize or cut and paste this information. Summarize please. Include current salary and bonus information, if available, for each (found on the 10-K or elsewhere online). Use your own words.

The Chairman, President and Chief Executive Officer at Boeing is W. James McNerney Jr. As a student athlete, he received an education from Yale and participated in athletic activities, such as baseball and hockey. On June 30, 2005, he was hired as the Chairman, President and Chief Executive Officer at Boeing. Last year, he accumulated a total salary of $21,117,344, of which $10,819,580 was received as a bonus.


A-8. Write the name of the company’s auditor and date the audit report was signed. (Report of Independent Registered Public Accountant). Discuss the specific language that appeared important to you in the audit report.

The Boeing Company’s independent auditor is Deloitte and Touche LLP. The audit report was signed on February 11, 2013. The auditors clearly state that they were working with the standards of the Public Company Accounting Oversight Board. They continue to explain that the financial statements are free of material misstatement, and believe that Deloitte and Touche LLP’s audits provide a reasonable basis for their opinion.

A-9. Does the company work in an international market? Are there foreign currency transaction adjustments found on the Statement of Stockholders’ Equity due to global sales? What comments do you find in the MD&A related to their global business?

Boeing is one of the two major manufacturers for 100+ seat airplanes. Boeing has a vast network of international partners, key suppliers and subcontractors. Boeing was able to manipulate the exchange rates of other countries to their favor and make $18 million dollars. Boeing noted that there was a $20 million dollar increase from their 2011 international exchange rate. In Boeing’s MD&A they realized the importance of adjustments to the exchange rate account by discussing how a 10% increase or decrease could result in the gain or loss of millions of dollars. Boeing uses their transactions overseas to the maximum efficiency. They analyze past exchange rates of countries and move their cash and assets to the regions of the world with the most profitable estimated future exchange rates. They will move their assets and cash around based on things, such as the predicted price of electricity in 5 years.

B. FINANCIAL STATEMENT INFORMATION


B-1. Show how the financial statements are related (net income found on the Statement of Stockholders’ Equity (SE), SE found on the balance sheet, cash found on the Statement of Cash Flows)

Complete the Financial Statement Articulation chart (B-1) below,

Financial Statement Articulation B-1

Financial Statements ------>

Income Statement

Balance Sheet

Statement of Stockholders' Equity

Statement of Cash Flows

$ AMOUNTS

Net income $3, 900 $3, 900 $3, 900

Cash $10, 341 $10, 341

Ending Retained Earnings

$30, 037 $30, 037

Many of the dollar amounts found in column A are located on numerous places on the four financial statements

Please fill in the dollar amount and where it's found on the financial statement as listed in the column headings. Note each amount will be listed at least twice.

SAMPLE

Financial Statements ------>

Income Statement

Balance Sheet

Statement of Stockholders' Equity

Statement of Cash Flows

AMOUNTS

Net income $40,000 $40,000 * $40,000 *found on the operating section using the indirect

Cash $32,000 $32,000


method Ending Retained Earnings

$100,350 $100,350

B-2. Was there a significant change in total assets? What was the percentage change from last year to this? What caused the change? Which account appeared to change the most? If MD & A discusses this account please describe their comments along with your own words.

Boeing had a significant increase of $8,910 million in total assets from the year 2011 to 2012, which shows an 11.1% increase. The biggest change for the total current assets was the increase of short-term and other investments. Boeing’s MD&A didn’t state very much about other investments, but for short term assets they noted how the failure of the Sea Launch program affected the account. They also discussed how the exchange rate between countries was affecting the short term assets account.

B-3. Was there a significant change in total liabilities? What was the percentage change from last year to this? What caused the change/what were the most significant changes? If MD & A discusses this account please describe their comments along with your own words.

Total Liabilities increased by $6,551 million, an 8.2% increase, from the year 2011 to 2012. Boeing managed to cut down on their short-term debt and current portion of long-term debt in the total current liabilities section and cut down long-term debt by $1,045 million in the total liabilities section.

B-4. Was there a significant change in total stockholders’ equity? What was the percentage change from last year to this? What caused the change? If MD & A discusses this account please


describe their comments along with your own words.

Long Term Assets - Chapter 9 in the BADM 211 text: Were once called fixed assets, but this term has fallen out of favor because it implies that the assets last forever, which they do not. Long-term assets have the following characteristics: They have a useful life of more than one year, they are used in the operation of the business, and they are not intended for resale to customers.

(if any) does the company have? Please list. Explain any large amounts by searching in the footnotes for detailed information.

There was a significant increase in stockholders equity, approximately 65%. Between 2011 and 2012 stockholder’s equity increased from $3,608 million to $5,967 million. Upon looking through the MD&A it was noted that on October 29th, 2007, the board approved the repurchase of $7,000 million of common stock. As of December 31, 2012, $3,610 million in shares are still able to be repurchased.

Statement of Cash Flows – Chapter 12 in the BADM 211 text: Shows how a company’s operating, investing, and financing activities have affected cash during an accounting period.

B-7. How much did the company spend on new property, plant and equipment (capital expenditures)? Explain. (see footnotes & MDA)

$_1,703 million____________________

In 2012 The Boeing Company spent $1,703 million on new property, plant and equipment (PPE). Their investments of new PPE decreased by $10 million compared to 2011. We could say that the equipment Boeing purchased during the year was greater than the equipment they purchased during the year.


B-8. Did they have to finance the business through loans or were their cash flows from operations adequate? Explain, including a comment whether this company appears liquid or not.(see the statement of cash flows)

In 2012, Boeing only borrowed $60 million. Their cash flows from financing activities were only $3,477 million compared to $7,508 million in operating activities. This implies that Boeing has an adequate operating cash flow.

Are they selling or buying more assets? Explain.See if MDA has further information (i.e. expansion into Asia).

In 2012, The Boeing Company had bought about $1,703 million in assets while only selling $97 million. While looking through MD&A’s comments, it was noted that Boeing’s purchase of Argon Inc. contributed greatly to the amount spent on the purchase of assets.

Are they paying off more loans or borrowing more? Explain.

The Boeing Company in 2012 made strong efforts to work on repaying their debts. They repaid $2,076 million in debts while only borrowing $60 million. Our group believes that because Boeing was profitable in their flows from operations, they used a large portion of that to pay off their debts.

What does their cash flow picture look like? (4 -5 sentences)

The Boeing Company’s cash flows in 2012 looked strong and favorable for the company overall. They made $7,508 million from operations and spent most of the money earned in investing and financing activities. Out of the $7,508 million, $7,216 was used in investing activities ($3,757 million) and financing activities ($3,477 million.) This left Boeing a $292 million increase in cash and cash equivalents. This increase in cash and cash equivalents will help out greatly with Boeing’s liquidity.

Stockholders’ Equity - Chapter 11 in the BADM 211 text: Represents the claims of the owners of a corporation (the stockholders) to the assets of the business.


B-9. How many shares of stock are outstanding? How many shares are authorized? What is the par value? What is paid-in-capital in excess of par (also known as capital surplus)? Explain. [use the company’s statement of Stockholders’ Equity to answer this question}

There were 751,347,709 million common shares outstanding as of June 30, 2012 and as of December 31, 2012 and 2011, there were 1,200 billion shares of common stock and 20 million shares of preferred stock authorized. The par value was $5.00 and the paid-in-capital in excess of par was $4,122 million.

B-10. If the company has treasury stock (also known as “repurchased stock”) what is the amount? Does it appear they continue to acquire more each year? [note: this can be found on the Stockholders’ Equity Statement and possibly the Statement of Cash Flows]

The Boeing Company does have treasury stock. The value of treasury stock for 2012 was $15,937 million. It seems as though their treasury stock value has a sporadic flow as it varies year to year. From 2011 to 2012 though, the treasury stock decreased by $666 million.

C. RATIO ANALYSIS (chapter 14 in the BADM 211 text)

Locate ratios from a reliable online source and complete ARP Template C: Ratio Analysis. Any ratios not located should be calculated from the financial statements using formulas from the text.

Review your work for reasonableness, using the ratio definition found in the text.

Company Name:


_____________________The Boeing Company__________________________ Team Members: _____________________________Larmore, Rodriguez, Parker__________________

COMPREHENSIVE RATIO ANALYSIS "C"(see chapter 13 for formulas)

prior currentYEAR 2011

YEAR 2012

LIQUIDITY RATIOS Current ratio 1.21 1.27 Quick ratio 0.41 0.43 Receivable turnover 12.3 14.3 Average days' sales uncollected 29.7 25.5 Inventory turnover 1.98 1.96 Average days inventory on hand 184.8 186.1

PROFITABILITY RATIOS Profit margin 5.80% 4.80% Asset turnover 0.9 1 Return on Assets 5.40% 4.60% Return on Equity 127.90% 83.10%

LONG-TERM SOLVENCY RATIOS Debt to equity 2.9 15.2 Interest coverage ratio 11.8 13.8

CASH FLOW ADEQUACY RATIOS Cash flow yield 1 1.9 Cash flow to sales 5.90% 9.20% Cash flows to assets 5.00% 8.50%

MARKET STRENGTH RATIOS Price/earnings (P/E) ratio* 14.1 14.7 Dividends yield* 2.30% 2.30% *Use market price on same day as annual report or previous day(s).


Using the information from the template, prepare a 4-5 sentence assessment (below) commenting or explaining the changes between the 2 years – you do not have to do this for each ratio, just each category (liquidity, profitability, etc) as instructed below. Explanations should be provided for material changes and should answer WHY. Do not define the ratio as this is well-known and doesn’t truly answer the question. Comments should note any information provided by management in the Management Discussion and Analysis (MD&A) section and/or notes to the financial statements.

C-1. Liquidity Ratios (on template) Please write your comments (4-5 sentences) below regarding these ratios. Be sure to answer “why” these ratio changes are significant.

Boeing’s current ratio has stayed above 1.0 from 2011 to 2012 which shows that they are able to pay off short term debt efficiently. They have showed an increase in paying off deferred income tax and income taxes payable which has helped increase current liabilities. Boeing’s quick ratio has increased from .41 to .43 which is good. However, they still can’t seem to manage liquefying assets fast enough. Their receivable turnover ratio increased from 12.3 to 14.3 and the average days’ sales uncollected decreased from 29.7 days to 25.5 days. This means that Boeing has been able to collect more dues in a shorter period of time.

C-2. Profitability ratios (on template) Please write your comments(4-5 sentences)below regarding these ratios. Be sure to answer “why” these ratio changes are significant.

The Boeing Company’s profitability ratios remained relatively the same between 2011 and 2012 (except for return on equity which spiked 44.8%). Profit margin jumped up exactly 1%, which is indicative that costs need to be better controlled. The asset turnover ratio fell .1, possibly meaning that management made better use of its assets in 2011. In 2012 return on assets increased by .8% illustrating that management had become more disciplined in turning assets into earnings. The most noticeable


ratio change was return on equity. Return on Equity increased from 83.1% to 127.9%, this means that Boeing Company was able to better utilize shareholders invested money to produce profit. Overall, Boeing’s profitability ratios showed favorable growth in almost every area.

C-3. Long-Term Solvency Ratios (on template) Please write your comments(4-5 sentences)below regarding these ratios. Be sure to answer “why” these ratio changes are significant.

For the Boeing Company there was a solid increase in the long-term solvency ratio between 2011 and 2012. A company’s ability to meet its short term and long term debt is measured by the solvency ratios, Debt to Equity and Interest coverage. Between 2011 and 2012 Boeing’s Debt to Equity ratio increased from 2.9 to 15.2 and their Interest Coverage ratio increased from 11.8 to 13.8. This is good for Boeing as it is an indication that the company can meet its debt and other obligations and that their cash flow is sufficient.

C-4. Cash Flow Adequacy (on template) Please write your comments(4-5 sentences) below regarding these ratios. Be sure to answer “why” these ratio changes are significant.

The cash flow adequacy ratios show positive changes for Boeing. Their cash flow yield increased from 1.0 to 1.9 from 2011 to 2012. With a cash flow adequacy ratio greater than 1, the company is producing sufficient cash funds in order to satisfy its obligations. If Boeing’s ratio had been less than 1 it might indicate that they are having issues with liquidity.

C-5. Market Strength Ratios (on template) Please write your comments below regarding these ratios. Be sure to answer “why” these ratio changes are significant.

Boeing’s P/E ratio increased from 14.1 to 14.7 from 2011 to 2012 respectively. Their investors are purchasing more shares as they expect a higher growth in the future, considering that the company’s shares are steadily earning more than they are worth. This is probably due to the fact that Boeing has a substantial increase in assets from 2011 to 2012. No noticeable change was


observed for Boeing’s Dividends yield from 2011 to 2012, which stayed at 2.3%.

NOTE: Review your answer to ensure you have 4 - 5 clear sentences answering “WHY” for each category. This will insure a better grade. MD&A has a wealth of information.

**********************************************************

D. COMPETITOR/INDUSTRY COMPARISON:

Compare your company’s ratios to either the industry standards or one of its close competitors. Select the same year for comparison. Data should be formatted just as in section C above, but instead of two years, the information should contain your company (include year) and the industry or competitor in the other column. Use the Excel template titled ARP Template BADM 212 (Competitor/Industry analysis- D). You may use ratios for your competitor/industry comparison that have been already calculated from the Internet or, if you have a classmate that prepared the project on one of your competitors, exchange information. It may be easier to locate a competitor rather than industry comparisons. Please provide a copy of this.

• Industry comparisons can be found through library research as well as online. The industry or competitor comparison research must be attached. The reference materials found in the library are noted below:

The Almanac of Business and Industrial Financial Ratios -- the call number is REF HF5681.R25 A45.

RMA Annual Statement Studies –the call number is REF HF5681.B2 R58

Company Name: _________________The Boeing Company______________________________ Team Members: ___________________Larmore, Parker, Rodriguez____________________________

Competitor/ Industry Comparison "D"Company year end: ___________12/31/12___________________


Where competitor information below was found_______financials.Morningstar.com_____________Corporation Competitor or

Industry ** year 2012 year 2012

LIQUIDITY RATIOS Current ratio 1.27 1.1 Quick ratio 0.43 0.7

PROFITABILITY RATIOS Profit margin 4.80% 4.70% Asset turnover 1 1.2 Return on Assets 4.60% 7.20% Return on Equity 83.10% 527.90%

LONG-TERM SOLVENCY RATIOS Debt to equity 15.2 157.9 Interest coverage ratio 13.8 11.6 CASH FLOW ADEQUACY RATIOS Cash flow yield 1.9 0.6 Cash flow to sales 9.20% 3.30% Cash flows to assets 8.50% 4.00%

MARKET STRENGTH RATIOS Price/earnings (P/E) ratio* 14.7 11 Dividends yield* 2.30% 4.50% *Use market price on same day as Annual report or previous day(s).

**Note: you may obtain competitor/industry ratios from the internet

D-1 Provide an 2-3 paragraph assessment comparing your company to the industry or its competitor by ratio category in the space below. Include comments on EACH of the following areas: Liquidity, Profitability, Marketability, Long Term Solvency, and Cash Flow.

In 2012, Boeing and Lockheed had similar liquidity ratios with not much significant difference between the two numbers. Boeing had a higher current ratio than Lockheed Martin with a


1.27 (Lockheed only had a 1.1.) This shows that The Boeing Company is more likely to be able to pay off its short term obligations than Lockheed Martin. Some accounting analysts debate that while current ratio is a good measure of liquidity, the quick ratio is more accurate. Quick ratio excludes inventories, and Lockheed Martin had a .27 higher ratio than Boeing (Lockheed had a .7 and Boeing had a .43 quick ratio.) Lockheed Martin’s profitability ratios were better than Boeing’s in almost every category. This illustrates how Lockheed Martin is able to produce revenues whilst compared to its expenses. Lockheed Martin’s return on equity ratio (a measure of a company’s ability to effectively use shareholder’s invested money) was 444.26% higher than Boeing’s. Also, Boeing’s return on assets was 2.6% lower than Lockheed Martin’s. This shows that Lockheed Martin’s management was able to turn its assets into earnings more efficiently than The Boeing Company’s. Overall, it might be assumed that Lockheed Martin’s management is doing a better job at producing revenues from its resources.

Lockheed Martin’s debt to equity ratio (157.9) is incredibly high when compared to Boeing’s (15.2.)This indicates that Lockheed Martin has been heavily financing its company with debt. Boeing’s interest coverage ratio (13.8) was slightly higher than Lockheed Martin’s (11.6.) This means that Boeing is able to more effectively pay off interest expenses than Lockheed Martin. Although The Boeing Company has a higher interest coverage ratio, it has been suggested by accounting analysts that a company should have above a 1.5. Both companies had well above a 1.5 indicating that both companies have strong ratios. The Boeing Company outclassed Lockheed Martin in every ratio pertaining to cash flow adequacy. This indicates that Boeing was able to produce enough cash to meet its obligations more effectively than Lockheed Martin. Boeing’s cash flow yield ratio was 1.3 higher, their cash flow to sales ratio was 5.9% higher, and their cash flows to assets was 4.5% higher.

Market strength ratios are a great indicator of how a company is doing in the stock market. The first ratio that our group analyzed was the P/E ratio. The P/E ratio for Boeing was 3.7 higher than Lockheed Martin’s. This indicates that Boeing’s earnings per share can be expected to grow at a better rate than Lockheed Martins. The other ratio our group analyzed was the


dividends yield ratio. Lockheed Martin’s dividend yield ratio exceeded Boeing’s by 2.2%. This means that Lockheed Martin pays higher dividends when compared to the price of each share. While Lockheed Martin is paying more to their investors, Boeing’s stock can be expected to grow more than Lockheed Martin’s.

D-2 Searching the Internet, what do you see that suggests this company has a strong position related to the industry? This is a good place to include market strengths and weaknesses.

One of the largest cost structures to airlines is fuel cost. Fuel cost has driven manufacturers to produce more efficient airplanes while encouraging airlines to pursue cost reductions and revenue enhancements by purchasing Boeing’s new carbon fiber lightweight aircraft. This has enhanced Boeing’s business as it now has a robust commercial order book which is due to an increase in the demand for its new airplanes. With that in mind, a weakness Boeing has is its execution. Boeing has been behind on delivering orders of aircraft to their customers and as a result accounts payable have gone up.

D-3 Provide a copy of your industry source (cut & paste below). For example if you used a website, make (and shrink) a screenshot of the main page containing data. If you use another team’s information (for example you are analyzing Home Depot and you borrow someone’s ratio analysis for Lowe’s) include a copy and show whose work you use).


E. COMMON-SIZE INCOME STATEMENT

Complete the common size income statement below(ARP Template BADM 212 Common Size Analysis - E) and show each item as a percentage of sales. Do so for the current year and prior year. Include dollar and percentage changes. Round 2 places only.

Be sure the numbers add up. If you need to combine numbers (for example “other items”) be consistent from year to year.

Current Year

Percentage Prior Year Percentage

Sales $81,698 100% $68,735 100%

Cost of Goods Sold ($68,644) 84% ($55,867) 81.30%


Gross Margin 13,054 16% $12,868 18.70%

Operating Expenses ($6,743) 8.30% ($7,024) 10.20%

Operating Income $6,311 7.70% $5,844 8.50%

Other Items (net these) ($401) 0.40% ($451) 0.70%

Income from Continuing Operations Before Tax

$5,910 7.20% $5,393 7.80%

Income Tax Expense ($2,007) 2.50% ($1,382) 2%

Income from Continuing Operations

$3,903 4.80% $4,011 5.80%

Other Items (net these) ($3) 0% $7 0%

Net Income $3,900 4.80% $4,018 5.80%

E-1. Comment below on any significant changes and known causes. Be sure to answer “why” these percent changes are significant. Explain any significant increase or decrease in revenues, expenses or net income by examining the changes from year to year. Include 4 -5 well-developed sentences

One of the first things that stand out upon our first look at the common sized income statement was the change between 2011 and 2012 in revenue and cost of goods sold. There was nearly a 2.3% difference in cost of goods sold in 2012. Upon further analyzing the two accounts side by side we noticed that both accounts had increased nearly $13,000 million. Revenues were high which meant that income tax was high as well, resulting in a 625 million dollar increase in income tax in 2012. This increase in income tax greatly affected net income causing Boeing to fall


$118 million dollars short of their $4,018 million dollar net income in 2011.

E-2. Were there any “special” items such as extraordinary items, non-operating items, reorganization or restructuring costs, gains or losses on sales of businesses, etc? If so, please explain. Note…these should be included in the “other items” category. Further information is found in the footnotes.

The Boeing Company had very few “special items” listed in their 2012 annual report: although it should be noted that there was a $3 million dollar loss on disposal of discontinued operations. Boeing stated that in 2012 they had no requests for restructuring of contracts, although from time to time they do receive requests for such arrangements. No effect on earnings, cash flows or financial position was recorded due to restructuring costs. They also stated that non-operating investments are held onto for non-strategic purposes. These losses or gains are recorded on the consolidated statements of operations sheet. So it can be assumed that the $3 million dollar loss on the consolidated statements of operations sheet is due to Boeing’s non-operating investments.

F. HORIZONTAL ANALYSIS

F-1. Complete the two year horizontal analysis template for the balance sheet (grouping into large categories using your judgment where necessary) and show the actual dollar amount of increase/decrease as well as the percentage change (see ARP Template BADM 212 Horizontal Analysis - F). Round no more than two decimal places

Comparative Balance Sheet Horizontal Analysis In Dollars


Current Year 2012

Prior Year 2011 Dollar change Percentage change

Current Assets $57,309 $49,810 7,499 15.1

Plant, Property, and Equipment

$9,660 9,313 $347 3.70%

Other Assets (group all others together)

$21,927 $20,863 $1,064 5.10%

Total Assets $88,896 $79,986 $8,910 11.10%

Current Liabilities $44,982 $41,274 $3,708 9.00%

Long-Term Liabilities $37,947 $35,104 $2,843 8.10%

Total Liabilities $82,929 $76,378 $6,551 8.60%

Contributed Capital $9,183 $9,094 $89 1.00%

Retained Earnings $30,037 $27,524 $2,513 9.10%

Total Equity $5,967 $3,608 $2,359 65.40%

Total Liabilities and Equity $88,896 $79,986 $8,910 11.10%

* Note 1: you may have to subtract TOTAL liabilities from current liabilities to determine Long Term Liabilities.

**Note 2: use your best effect for grouping these. Be consistent from year to year. Contact the professor with any questions.


F-2. Comment below on any significant changes and known causes. Be sure to answer “why” these ratio changes are significant.

Upon looking at the chart our group noticed two percent changes that really stood out; current assets and current equity. Current assets increased by nearly $7.5 billion (about 15%). Factors contributing to the rapid increase of current assets include cash and cash equivalents (2.9% growth), short term and other investments (163% growth), and inventories (17.1% growth.)Nearly all accounts (including those not listed above) included in the current assets account showed significant positive growth from 2011.

Total Equity was one of the most significant percent changes in the horizontal analysis (increasing by 65.4%). The main account influencing total equity was total shareholder’s equity, which increased by 66.9%. Non-controlling interest affected total equity as well, but not enough to cause any drastic change.

G. 5-10 YEAR TREND ANALYSIS

Based on the five – ten year trend analysis found in the annual report, comment on any positive or negative trends. Include 2 – 3 well worded paragraphs to explain your observations.

From the years 2008 to 2011, Boeing’s revenues have hovered around $60 to $70 billion from year to year. In 2009, Boeing was highly affected by the recession and the company’s net income dropped to about $1,312 million, which was shockingly low. They managed to recover and in 2012 their revenues had increased tremendously by 19%, which is due to higher airplane deliveries for commercial airplanes and Boeing Military Aircraft.

In 2012 Boeing’s PE ratio climbed to 14.7 which was a distinct increase from previous years. As well their operating earnings increased by $467 million compared to their earnings in 2011. This is a positive trend as it indicates that sales are increasing faster than cost and that the company is continuing to do well in efforts to recover from the recession.


H. OVERALL ASSESSMENT

Based on the results of your analysis, would your team invest in this company and why? Provide your team’s carefully worded 3-4 PARAGRAPH response using your ratio analysis and assessments above. The team’s opinion for the project does not have to be unanimous, just a majority. Your assessment can be based on the team consensus or your differences and why. This will provide a good basis for the individual paper.

After careful discussion, our group decided that we would invest in Boeing. Boeing is one of the premiere aerospace manufacturers in North America and throughout the world. Boeing’s label can be found on rockets, helicopters, commercial fixed wing aircraft, military aircraft, and satellites worldwide. In 2012, Boeing made nearly $4 billion dollars in net income. This is leaps and bounds from where the company was in 2009, and this speaks highly of the company’s management and the determination that they possess to succeed.

As investors one of the things we looked upon heavily is the P/E ratio. Boeing’s P/E ratio (14.9) is very favorable and has been growing over the past several years. Boeing’s ratio is also very high as compared to other companies in the aerospace industry, beating out Lockheed Martin’s ratio of 11.0. Also, cash and cash equivalents have been increasing, allowing for Boeing to utilize money in different sectors to fund growth.

Retained earnings have also shown positive growth, nearly $3 billion dollars. This allows Boeing to fund sectors and create growth throughout the company. Also, Boeing has been paying off a lot of their debt, repaying nearly $2 billion dollars in 2012. This frees them from previous obligations and allows growth for future years to come. Boeing has shown increased positive growth in almost all accounts between the years 2011 and 2012. Our group firmly believes that Boeing will be a strong competitor and will remain a dominant force in the aerospace industry for years to


come, and we would trustingly invest in The Boeing Company.

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FINALLY: The individual paper uses information obtained from this analysis. Each team member should retain a copy of this project (electronically) for assistance in writing the paper. Please save your work in more than one place.


INDIVIDUAL PAPER Due Date: March 13, 2014 at 11:59 pm (ELECTRONIC SUBMISSION)

A summarizing paper submitted by each individual student will count 5% of the course grade. The paper should be an analysis of your assigned company discussing the financial statements, ratio analysis, trends, current events, industry comparisons, etc. This paper should indicate your knowledge of the company. Teams may gather information together but must WORK ALONE on the paper.

Use professional, clear business language as if writing for a newspaper. The paper should be 700 words long (maximum) in MLA format (1 in. margins, 12 pt font). Be succinct and clear. Extra pages may include original graphs, charts etc. Begin your paper with a clear introduction, followed by a well-organized body and summarizing conclusion. Incorporate a variety of financial statement analysis from your team project.

Plagiarism is a serious offense. Your paper must properly document your sources-whether from the corporate website, annual report or other location. Use of extensive quotes in the paper will result in a greatly reduced grade.

The paper grading will be based on an assessment of the following areas: Appropriate introduction/conclusion; professional, clear business language; financial statement analysis appropriately incorporated; and a good mix of ratios, trends, current events, industry comparisons, and overall knowledge of the company.

For five points extra credit, have The Academic Support Center review you’re typed, completed paper. After their review make necessary revisions. To receive the extra credit, include the reviewed paper stapled to the back of the final copy. The Academic Support Center will not review any papers AFTER March 12, 2014 so set up your appointment in advance.

Individual Paper: SPECIFIC INSTRUCTIONS & CHECKLIST

• No less than 700 words. Maximum 750 words.

● MLA referencing general format: see the Academic Support Center or the web if there are questions about MLA.

• Do not write about marketing, new ventures, or advertising unless it relates directly to accounting analysis. This is an analysis of the company financial statements and should be directly related to your work on the team project.


• Do not use first or second person. (Our, my, we, they, I, us, you)

• Write your paper as if writing for a newspaper

• Limited or no quotes

• Academic Support Center = excellent resource. Papers generally will be enhanced MORE than 5 points due to the quality.

• Watch fragments, comma splices

• Introduction should show just an overview. Conclusion should have just a summary

• Be sure your paragraphs are well formed.

• Do not write about marketing, new ventures, or advertising unless it relates directly to accounting analysis. This is an analysis of the company financial statements and should be directly related to your work on the team project.

• Do not use first or second person. (No we, they, I, us)

• Write your paper as if writing for a newspaper

• Limited or no quotes

• Academic Support Center = excellent resource. Papers generally will be enhanced MORE than 5 points due to the quality.

• Watch fragments, comma splices

• Introduction should show just an overview. Conclusion should have just a summary

• Be sure your paragraphs are well formed.

Suggested inclusions:

o general analysis of the company based upon your calculations

o Ratio analysis, economic conditions, current events from news releases, corporate strategy, industry/competitor comparison, growth in assets, revenue or net income, significant changes in assets, debt or equity, etc.

o actual current and prior year ratios compared through actual and percentage changes, including reasons why this ratio increased or decreased. For example was it the economy? Loss or gain of a specific customer or market? Management turnover?


o determination of whether you would recommend this company as a promising investment.

REMEMBER: If the Academic Support Center (ASC) stamps your typed rough draft, this may be submitted for 5 points XC (optional) given a determination that extensive improvements were made to your paper. Take a hardcopy to the ASC, and once they have reviewed your paper, send me a screen shot of your paper (attached to your submission)

Papers received after midnight on the due date will receive a 5 point per day (or partial day) grade reduction

Annual Report Project Boeing

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