Boeing Case Study

Boeing

Boeing (stock symbol BA) is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems (Morningstar 2013). I will be looking at whether or not this companies stock should be a bought or sold, with analysis of the Liquidity, Profitability, and Solvency of the company over a three year period 2009-2011. The company’s principle clients are the U.S. government and commercial airlines. Unlike Lockheed, one of its largest and closest competitors, Boeing is not as dependent on government spending. With the 1997 merger of Boeing and McDonnell Douglas, the company further enhanced its presence in the commercial aviation arena. Today, Boeing has nearly 12,000 commercial jetliners in service worldwide, which is roughly 75 percent of the world fleet. The company has more than 170,000 employees worldwide and reported revenues of nearly $69 billion in 2011 (Boeing Website 2013).

Financially, the company is divided into two main segments:

• Commercial Jetliners

• Defense, space and security systems

LIQUIDITY

Demand in the airline industry is driven by the government’s military spending and the overall global economic climate, which affects airline traffic and demand for new commercial aircrafts. Despite uncertainties, Boeing finished 2011 with record revenues of $68.7 billion and net earnings equaled an all-time high at more than $4 billion.

Boeing’s profitability depends on technical expertise and the ability to accurately price long-term contracts. Revenues are generally higher in the second half of the year after the new federal budget is approved. Cash flow and overall liquidity has not been an issue as contracts are paid based on percentage completion and cost-plus. In addition, manufacturers are paid as work is completed and final products are delivered on an agreed-upon schedule. Liquidity ratios measure the short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash. In this section, the discussion will focus on all relations with relation to Boeing’s stock liquidity (Walther 2012).

The working capital ratio measures the difference between the total current assets and current liabilities. My analysis of Boeing’s working capital ratio has shown a steady increase from $2.4 million in 2009 to $8.5 million in 2011. This is a positive indicator that the company has the ability to pay it liabilities. Boeing has a massive $374 billion backlog, amounting to five times 2011 sales. Such strong revenue visibility should allow the firm to adjust production rates and ride out economic downturns (Boeing website 2012).

The current ratio takes Boeing’s current assets and divides it by their current liabilities. Boeing