BAE Systems is the merger of British Aerospace (BAE) and Marconi Electronic Systems (Marconi Electronic Systems) which was established in November 1999. In September 2004 BAE Systems acquired Alvis Vickers and merged it with its RO Defence ordnance division to form BAE Systems Land Systems.In June 2005 BAE Systems acquired United Defense and reorganised its land systems businesses into BAE Systems Land and Armaments, with Land Systems and Land Systems Hägglunds as subsidiaries of this U.S. based operating group.
It is an international company engaged in the development,delivery and support of advanced defence and aerospace systems in the air,on land,at sea and in space. In 2000, it becamed the third of the world's 100 largest military companies. Now, the company employed more than 100,000. An annual turnover of the company is 12.3 billion pounds and orders amounted to 37.5billion pounds. In 1999 the net sales of the company was 89.29 billion pounds (14.449 billion U.S. dollars)of which military sales was 5.837billion pounds.
2.General situation of BAE
BAE Systems has major operations across five continents and customers in some 130 countries. Global businessof the company is based around six home markets in US, Saudi Arabia Australia, Sweden ,South Africa, and the UK. It is the world's second-largest defense company and the third-largest Airline's defense and also the third-largest electronics Airlines. The company has the ability to provides first-class system. Own very mature technology in Navy platforms. Military craft, electronic products, systems integration and other technologies have achieved nine domestic markets worldwide. This allows the company can make good ues of a major defense system and the domestic space flight market to provide services for international clients. The company's development goal is very simple, but very ambitious,that is going to become a multinationals of reference system, the field of space flight and defense.
3.Business of BAE
BAE Systems is the premier transatlantic defence and aerospace company which delivering a large range of services and products for air,land and naval forces as well as advanced electronics,information technology solutions and customer support services.
BAE Systems Company designs,manufactures and supports military submarines, avionics aircraft,surface ships, electronics combat vehicles,radar, ,communications, and guided weapon systems .Business of the company includes Underwater Systems, CS&S International, Regional Aircraft, Integrated System Technologies (Insyte), BAE Systems Australia, Intelligence & Support, Detica, Surface Ships, Land & Armaments, Shared Services, Electronics, Submarine Solutions Military Air Solutions.
4.Development Strategy of BAE Systems
BAE Systems is a large international companies who has the responsibilities to its clients shareholders, employees and partners.Its strategy goal is to maximize the interests of shareholders. In order to achieve the company's strategic goals, the Board promotes to enhance the company's culture atmosphere and establish Operational Framework. .That is based on principles of good governance, aset of de nitions, values, policies and processes that guide the company's work and behaviour, and a uesful system of delegated authority(David Tyrrall,2007). In order to realise the management of the company's business and deliver their strategy,the Operational Framework covers all wholly andmajority-owned businesses and describes the Group's mehods to its organisation, culture which including ethical principles of business conduct, values and governance framework vision, delegated authorities , and corebusiness processes.
Financial Analysis for BAE Systems
This article want to analysis the five-year of financial data which from 2004 to 2008 of BAE ,in order to understand the company's business profitability and development capacity and found the further possibility to enhance the utilization efficiency of it ,so that to promote the investment activities of the enterprise 's business goal of maximizing value in accordance with a benign operation.
Financial analysis is based on financial reporting data and other relevant information as the basis using a range of specialized analytical techniques and methods to analysis and assess enterprises and other economic organizations in the past and present related to financing activities,investment activities, business activities, the allocation of activity.( Susana Callao,2007) It provides businesses with investors, creditors, business operators and other concerned organizations or individuals to understand the past of the business and evaluation of corporate status, likely future, to make the right decisions to provide accurate information.
I collect the relevant data of the BAE for five years. These data, which I think is important can best reflects the company's operation. The preparation of data sheets is as follow. The following will use dynamic ratio of fixed base method and ues the data of 2004 as a fixed base period to analyze the indicators. Dynamic ratio of fixed base method is useins a fixed period as a base to calculated the dynamic rates. Its calculation formula is : Dynamic ratio of fixed base= (amount of the analysis period/ amount of the fixed base period) *100%.
Profitability Analysis
1.EBITA
EBITA refers to a company's income before the deduction of interest, tax and amortization expenses. It is also consistent with the profi t measure which is used by BAE to analysis internal performance and as a measure of operating profitability that is comparable over time.。Underlying EBITA increased 86.7% in 2008 which reaches to ￡1,897m compared with 2004,and 31% compared witn 2007.according to the calculation ,compared with 2004, EBITA increased 45.4% in 2007,18.8% in 2006 and 16.3% in 2005. Underlying EBITA during the five years is increasing growth all the time .
Because EBITA targets can more purely reflect the enterprise's profit level, more accurately reflect a company's assets, earnings and reflects the ability of enterprises returns on assets ,so it can be used to help investors to select stocks . View of the circumstances from the BAE, there is a very good return on investment .That is very likely to achieve value and hedging to buy its stock.
2.Underlying earnings per share
Underlying earnings per share is widely used by investors as a measure of a company's performance. EPS based on overall profit or loss, which used to calculate the price earnings (PE) ratio. P/E ratio=share price/EPS. Underlying EPS provides a measure of shareholder return that is comparable over time.From the table we can see that Underlying EPS is 37.1p in 2008 which increases 23% compared with last year.And there is a 28.1% increase in 2007, 30.6% in 2006,29.3% in 2005.All these increase are compared with the year brfore. Companies and the stock market do not like fluctuating EPS's.
The Underlying earnings per share of BAE does not fluctuate badly,so it is good for its sharehooders.And Underlying EPS continue to rise mainly reflecting higher underlying EBITA of the BAE.
BAE as an aviation industry leader，in the 2004-2008 years, the company's revenue and profit growth.From 2006 to 2008 BAE's profitability continued to rise.In particular, rising faster in 2008.
Solvency analysis
Overall there is a very strong solvency.In particular, in year 2005 and 2006, current ratio were more than 2，quick ratio exceeds 1.But it is also the performance of the low efficiency of fund utilization。Although the 2007 and 2008, the flow rate and the liquid have declined more .But does not affect the solvency，and the increased utilization of funds. Assets is responsible for rising rates, leading to long-term solvency has been reduced low，But the asset-liability ratio does not exceed 50% ,the long-term solvency remains strong.
Analysis of operational efficiency
1.Sales
Sales represents the amounts derived from the provision of goods and services, and includes the Group's share of sales of its equity accounted investments. It reflects the total market potential of the product and competitive conditions and market position of its competitors.It also shows the market status of the products and theachieved sales of regional sales and development trend of the company.from the table we can calculate that compared with 2004,the sales of BAE increased by 14.2% in 2005,2.1%in 2006,16.4% in 2007 and 37.6% in 2008.
Overall,BAE's sales revenue is in a increase trend. Starting in 2006, a significant increase had been showed and compared with 2007 the sales of 2008 increased by 18%.he significant increase in sales in 2008 has primarily been caused by the Land & Armaments operating group due to high armoured wheeled vehicle volumes in the US and full- year impact of the Armor acquisition. This shows that BAE's products have strong market potential.
2.Operating profit
Operating profit is a indicatore to measure of business efficiency. It reflects without considering non-operating costs the the profitability of managers through the operation. In certain circumstances, the higher operating profit shows that sales of enterprise products to provide more operating profits, and the stronger corporate profitability. Operating profit in 2008 is 2.2 times of 2004,in 2007 it increased 52.1%,from ï¿¡774m in 2004 to ï¿¡1177m. Operating profit is showing the trend of rising year by year reflects a good profitability of BAE's business. There is a very good market prospects of the enterprise.
Decline in inventory turnover .However, when compared with the same industry Boeing it is still very high. Boeing 2008 inventory turnover rate is 6.8. Accounts receivable turnover in 2005 and 2006 was lower than the Boeing. However, in 2007 and 2008, BAE's accounts receivable turnovera increased substantially，Total asset turnover ratio is relatively stable, but slightly higher than the industry standard.
3.Order book
Order book reflect the popularity of the product, it also shows the potential of products in the market.However, the number of orders can not be a comprehensive response to the operating performance of companies.between 2005 and 2004,the order book was increasing ,while in 2006 the book order was only 31.7 bn ,reduced almost by 37%.then there was a recover and in 2008 the order book was 46.5bn although it was still less than 2004. Reduction in order book illustrates the business sales market in the shrinking . Reduction in main business volume, indicating that the development of enterprises might have gone wrong strategy.
4.Return on sales
From the table we can see that the return on sales is increasing year by year , But the order is indeed the in reduction.The Prorfit for the year in 2006 is very high however the cash inflow from operating activities in this year was the lest.I think there is something can not be reflect in the financial report.
Cash Analysis
1.Cash inflow from operating activitie
Cash inflow from operating activities is used to determine the the actual gap between company's operating cash flow and financial reporting operating income or net income. It can demonstrate a sufficient level of corporate earnings rather than income. Because even if the company's financial reports show a positive net income, which still might not be able to repay debts(Hans,2007) .The income gap between operating cash flow and financial report can reflect the revenue-cash expenses or non-cash sales. If the the company's financial reports reflect a high income however, operating cash flow was negative, the company is likely to use aggressive accounting methods or techniques. With operating cash flow divided by operating revenue will get operating cash flow ratio(CFO).( Steven M. Bragg,2006,pp271) If the operating cash flow ratio is less than 1 or in a long-term downward trend,that may means the company's cash flow on a major problem.
Operating business cash flow represents net cash flow from operating activities after capitalexpenditure (net) and financial investments, and dividends fromequity accounted investments.we can see from the table that the operating business cash flow show a downward trend during the five years.That is to say compared with 2004 the cash inflow from operating activities reduced by 10.7% in 2005, 61.1%,in 2006, 8% in 2007, 14.5%, in 2008.The 2008 reduction in operating business cash flow largely reflects utilisation of Saudi Typhoon advances received in 2007 and an agreed repayment to the UK Ministry of Defence in respect of the Astute programme.However, it reflacted there is something wrong with the company's cash flow.
2.Net cash
Net cash refers to in a period of time, cash and cash equivalents inflow (income) minus outflows (expenditures) balance (net income or net expenditure), it reflects during the period the amount of a net increase or decrease in cash and cash equivalents of the enterprise.
Net cash flow = Cash inflows - Cash outflows. Technology assets assessment commonly choose the invest type of net cash flow, generally use the total investment of the net cash flow as the expected return. The fundamental purpose of corporate tax planning is in different tax planning programs by comparing the different options of net cash flow to select a larger net cash flow programs as the best option.
The cash flow was ï¿¡700m in 2006,however, in 2007 it reduced by 28% and becomed to ï¿¡435m,even worse in 2008, it is only ï¿¡39m.
The reduction of the net cash flow shows that there is some problem in the cash inflow of the company,it may have a bad effect on the operating and develpoment of BAE.
A decline in cash flow ,on the one hand shows that the decline in corporate short-term solvency, on the other hand shows decline in utilization of funds of enterprises. In 2008, 83.43% of the cash flow ratio is too high compared to the same industry. Capital utilization rate is low, so I think that a decline in cash flow to investors is a positive message. And in 2008 29.65 percent of the cash-flow ratio compared to the industry is relatively high. Therefore, the financial risk does not appear. Note the rise in the ratio of cash sales shows that the cash recovery rate is better, which is echoed accounts receivable turnover rise .
The above analysis of the various projects,provides a great help for my evaluation of the company's profitability and growth analysis. I will be up to the general comments on BAE as following.
BAE in a leading position in the aviation industry .Both operating profit margin or asset turnover ratio is higher than the level of the same industry.However, compared with Boeing, the use of financial leverage is not very good, capital utilization rate is not high. From the above we can see there is still great room for BAE development.The future development considerations from the following two：One is to raise operating margin，Second, make full use of financial leverage effect,because of its financial leverage below the level of the same industry.
Conclusions
Capital Structure Policy Analysis
Now is a low debt, low-risk capital structure. Because it is low-risk, so returns are not high. In the same industry it is at the middle level.This shows that the company can be increased levels of debt, in order to raise more funds to expansion the enterprise scale. Or invest in a number of high-profit or high-risk industries to make some appropriate investment, in order to enhance shareholder returns.
Operating capital policy analysis
Inventory turnover rate of BAE declined from the year 2004-2008 ,but the decline is not serious and is far higher than the level of the same industry. There is an upward trend in accounts receivable recovery period, but also slightly higher than the level of the same industry. There is a slight increase in working capital requirements, operating capital is sufficient. Short-term debt levels and cash reserves of basically the same，it shows that its strong solvency and financial flexibility can be increased.
EPSAnalysis
In the past BAE EPS growth rate 35.25%，growth potential is still very good and EPS Stability is very good too.Companies operate is stable and reasonable.
Recommendations
While in the company's business operations and financial aspects thereare good performances of the BAE,but there is still room for the company to improve in some places. With the company's business operational status I think that the company's business should be improved ,if they can make some adjustment in the business strategy maybe it will reach better results.
Business strategy
For the British BAE Systems there are two major changes have taken place in its business strategy：
First, its business focus to ground weapons systems. This strategy should further be strengthened and implemented 　
Second,the company should not confined to the European market and push into the U.S. market and other international markets. The Group has experienced growth through acquisitions. Through a seriesof important domestic and foreign arms enterprises acquisitions,especially acquisitie the British company Alvis ,United Defense Industries (UDI) all these significantly increased the fast-growing areas of ground-based weapons operational capacity of BAE Systems.However anticipated benefits of acquisitions may not be realised,so the company should make out a more reasonable strategy to achieve its goals.
BAE Development Strategy
Put the clients in the first place. For domestic and overseas customers, make every effort to meet their needs, and even do much better than they expected.
Strehghten the role of staff：encourage the staff to strengthen their work passion and enthusiasm。Encouraged to develop their greatest potential，At the same time to improve the working environment，providing better welfare conditions，so to realize their dedication to the value.The key to success is the outstanding performance.Each member and theentire company team to achieve the objectives of the company's firstly and continue to face challenges and to improve the way in which work been done.
Most of the Group's businesses are focused on the defence industry and subject to competition from national and multi-national arms with substantial resources and capital, and many contracts
are obtained through a competitive bidding process. The Group's ability to compete for contracts depends to a large extent on the effectiveness and innovation of its research and development programmes, its ability to offer better programme performance than its competitors at a lower cost to its customers, and the readiness of its facilities, equipment and personnel to undertake the programmes for which it competes. So the company should continue to strengthen its comprehensive strength, make good use of their advantages and also develop partnerships with its competetors.Strive to become the partners' cooperationobject，and respect the company's partners.
I think the most important thing for the company is upgrading in innovation and technological.Encourage the development of a new ideology，new technologies and new ways of working and bring them with a lasting competitive edge.
