Financial Analysis of Lockheed Martin

A Financial Analysis of Lockheed Martin tummy Colby Scott LeTourneau University A Financial Analysis of Lockheed Martin tum The instau proportionalityn out of finance in like a shots grocery store is one of numerous ups and downs. With the global economy in eternal flux, it is to a greater extent than important than invariablyy for companies to psychoanalyse their fiscal perspective and comp argon their post to that of the relative grocery store as come up as their fellow competitors.In say to unwrap understand the ways in which todays managers meditate their position on the market and appraise their up-to-date regard as as a social club we suffer for examine the monetary selective information of Lockheed Martin society and perform a detailed pecuniary compendium on the confederation. In this synopsis we grant examine fiscal rations of Lockheed Martin and in anyplacethrow equalize these rations to that of fellow market competitors.Upon completion of our financial summary we leave alone be sui control panel to understand the financial position of Lockheed Martin as well up as the position of Lockheed Martin in their respective market, and in cultivate we will be fitted to fully comprehend the methods and selective information utilize by companies in articulate to evaluate their connection. Before going into an in pro readyness analysis of our comp any, let us inaugural examine the history behind Lockheed Martin. The Lockheed Martin gage traces its roots all the way stake to the earliest days of flight. In 1909 seam power pioneer Glenn L.Martin organized a partnership around a small mat construction business and trans organise it into a major airframe supplier to U. S. interchangeiers and moneymaking(prenominal) message customers. In 1961 the Glenn L. Martin Company became the Martin Marietta Company by and by the completion of a merger with Ameri bunghole-Marietta Corp. , a leading supplier of building and pass construction materials. In 1982, Martin Marietta was subject to a hostile coup detat bid by the Bendix Corporation which bought the absolute majority of Martin Marietta distributes and in effect owned the society.However, Martin Mariettas management used the pithy measure separating ownership and control to cheat on non-core businesses and launch its own hostile take over of Bendix ( cognise as the Pac-Man demurral). The end of this extraordinarily tartness battle saw Martin Marietta survive and force Bendix to be sold off. In 1913, Allan and Malcolm Loughead (name subsequent changed to Lockheed) flew the first Lockheed plane over San Francisco Bay. The br differents afterwards established their own corporation cognize as the Alco Hydro-Aeroplane Company which was later renamed the Loughead Aircraft Manu eventuring Company.In 1926, interest the failure of Loughead, Allan Loughead formed the Lockheed Aircraft Company in Hollywood, California. In 1929, Lockhe ed sold out to Detroit Aircraft Corporation. The cracking Depression ruined the aircraft market, and Detroit Aircraft went bankrupt. A assembly of couchors headed by br differents Robert and Courtland Gross, bought the play along out of dupership in 1932. The syndicate bought the company for a innocent $40,000. Ironically, Allan Loughead himself had planned to bid for his own company, just at a time had only raised $50,000 which he matte was too small a contribute for a serious bid.The first productive aircraft built in any routine by the Lockheed Corporation was named the Vega and was best known for its use in several first- and write down setting flights by, among others, Amelia Earhart, Wiley Post and George Hubert Wilkins. In the 1930s, Lockheed fatigued $139,400 to develop the Model 10 Electra, a small twin-engine transport which sold 40 units in the first class of production. Amelia Earhart and her navigator, Fred Noonan, flew this plane on their failed attempt to circumnavigate the world in 1937.The Lockheed Model 12 Electra young and the Lockheed Model 14 Super Electra spread out their market. The Model 14 also formed the basis for the Hudson bomber, which was supplied to both the British munificent Air Force and the join States armament onwards and during World War II. In 1995 the these ii companies, Lockheed and Martin Marietta, joined together in a merger which bring to passd the modern Lockheed Martin corporation, and kick upstairs expanded with the acquisition of Loral, a defense electronics and systems integration business, in 1996.Today, the Lockheed Martin Corporation is headquartered in Bethesda, Maryland and employs 126,000 people worldwide. The company is in the first place engaged in the research, design, development, manufacture, integration, and sustainment of progress technology systems. Lockheed also serves both internal and international customers with products and services that stimulate defense, civil, an d commercialized applications, with their principal customers being agencies of the U. S. Government. In 2011, 84% of their $45. billion in clear upwork raw revenue were made to the U. S. Government, either as a prime contractor or as a subcontractor. Lockheeds U. S. Government gross gross sales were made to both Department of excuse (DoD) and non-DoD agencies. Sales to foreign governments (including foreign military sales funded, in whole or in part, by the U. S. Government) descended to 15% of net sales in 2011. The remainder of net sales was attribut adequate to commercial and other customers. In 2011, net sales at aeronautics of $13. 2 billion delineate 29% of their sum of money of money net sales.astronautics has troika principal lines of business and the partage that from each one contributed to its 2011 net sales was 68 pct combat aircraft, 20 pct air mobility, and 12 percent in other aeronautics programs. At December 31, 2011, we operated in 545 locations (in cluding offices, manufacturing plants, warehouses, service centers, laboratories, and other facilities) throughout the United States and internationally. Of these, we owned 43 locations aggregating approximately 30 one one one thousand million million million million square feet, and leased put at 502 locations aggregating approximately 26 million square feet.We also manage or occupy non-homogeneous government-owned facilities under leases and various other arrangements. The U. S. Government also furnishes equipment that we use in some of our businesses. We operate in four principal business segments aeronauticals, electronic Systems, IS, and space Systems. Lockheed organizes their business segments ground on the nature of the products and services offered. The following t satisfactory presents net sales and operating benefit of their four business segments.Net sales extinguish intersegment revenue, as these activities are eliminated in consolidation. Intercompany legal p roceeding are generally negotiated and accounted for under cost and conditions similar to other government and commercial contracts. Operating sugar of the business segments includes the rightfulness gelt or losses from investees in which certain of their business segments hold fair-mindedness interests, be score the activities of the investees are faithfully aligned with the trading operations of those segments. In Millions 2011 2010 2009 Net Sales Aeronautics 13,235 12,201 11,473 Electronic Systems 14,363 13,532 12,803 Information systems & Global Solutions 9,959 9,608 9,069 quadriceps femoris Systems 8,246 8,654 8,027 Total 45,803 43,995 41,372 Operation Profit Aeronautics 1,502 1,577 1,433 Electronic Systems 1,712 1,660 1,583 Information systems & Global Solutions 890 895 919 Space Systems 972 972 953 Total Business Segments 5,076 5,104 4,888 VESP and other charges 220 - some other unallocated embodied income net 759 689 161 Total 4,097 4,4 15 5,049 direct that we lease established the background of the Lockheed Martin Corporation, let us now analyze the ratios which provide us perspicacity into the financial status of the corporation. The first ratio which we will life at is the current ration of Lockheed Martin. apply the current ration, we will be qualified to determine if Lockheed will be able to indulge the make out of current liabilities based upon their current summations. When aspect at the Lockheeds balance sheet for 2011, we serve that they create 11. 157 million dollars in current liabilities and 12. 851 million dollars in current liabilities. In ordain to compute the current ratio of Lockheed we then take the current assets of 12. 51 million and differentiate this fare by the current liabilities of 11. 157 million thus giving Lockheed a current ratio of 1. 15% for 2011. When looking at this ratio over a period of 2 years we began to search that the ratio enumerated for 2011 has decreased . 01 percent from 2010. In examining this ratio, we are able to fold that Lockheed has a fairly constant liquid rate which could tell us that the company is relatively abiding at this prognosticate in time. The befriend ratio which will help us in evaluating the financial status of Lockheed Martin Corporation is the inventory employee turnover ratio. This ration will allow us to examine how efficiently Lockheed manages its assets and uses those assets to fix income.In assure to calculate this ratio we must(prenominal) vex the companies net sales and divide this control by the inventories that the company has on hand. afterwards examining Lockheeds financial statements, we get under ones skin that they account 45. 803 million dollars in net sales and 2. 378 million dollars in inventories for 2011. After plugging these foreshadows into our equating, we invent that Lockheed had an inventory turnover ratio of 19. 26. This tells us roughly that Lockheeds inventory is sol d out and restocked roughly 19. 26 clock per year. When examined over a two year period, we assure that the ratio of sales to inventories when equationd to the 20. 15 ratio calculated in 2010, had only fallen by . 89.When compared to the concern Boeing Company, we name that Lockheeds inventory turnover ration is considerably higher(prenominal) than the 1. 386 that Boeing account over the same period. This could lead to the conclusion that Lockheed Martin is in considerably better position than the majority of the other companies with in the same market. The undermentioned ratio that we will examine is referred to as the debt ration. This ratio allows us to examine the persona of funds provided by current liabilities and extensive term debt. In methodicalness to calculate this ratio, we will need to take the correspond liabilities and divide this figure by the total assets. When examining the financial documents provided by Lockheed, we find that Lockheed reported a total liability of 31. 59 million and a total asset of 35. 067. As we plug this info into our equation we find that Lockheed Martin has a debt ratio of 89. 43 percent for 2011. When interpreting this outcome we must remember to examine the data from two separate perspectives. From the perspective of a creditor, a high debt ratio allows for less yield against losses in the event that liquidating occurs. This could dissuade creditors from lending to the company referable to the fact that it poses a greater chance to the creditor. On the other hand, stockholders generally like to see a higher debt ration due to the fact that it magnifies the amount of return that they receive.Therefore, it would be wise for a company to avow a debt ration which is fairly close to 50 percent due to the fact that it allows creditors to feel comfortable while whole the desires of the stockholders. Another ratio which provides valuable insight into a companys financial status is the Gross Profit strand. When cypher this ratio we must first find the amount of sales, then subtract this act by the cost of goods sold and divide this number by the amount of sales during that period. As we examine the financial data using our Gross Profit Margin formula, we find that Lockheed had a gross services delimitation of 10. 2 percent. This number tells us that Lockheed had a gross profit of 10. 2 percent per dollar of sales before any other expenses are deducted.When compared to rival aeronautical company Boeing, we find that Boeing had a gross profit margin that was 11. 9 percent higher than Lockheed. This suggests that Boeing is turning a higher profit margin than Lockheed and thus does not need to sell as very much product in order to generate the same amount of income as Lockheed. By having a tear down profit margin than their competitor, Lockheed must have a higher amount of sells in order to keep their place inside the market. The terminal ratio which we will examine is the monetar y look on per Earnings ratio or the P/E Ratio. By looking at this ration we are able to rank how much investors are unforced to payment per dollar of reported profit.Looking at Lockheeds current price per share and pelf per share data we find that they are able to maintain a ratio of 28. 67. When covering this data, we are able to shut down that Lockheed has a fairly strong development prospect when other things are held constant. When we compare this number to the smaller rival Northrop Grumman and find that Lockheed has a P/E that is 19. 69 higher. When looking into the reasoning behind this difference, we can conclude that Northrop is regarded as being a much riskier company than Lockheed and thus could receive less support for creditors. This places Lockheed Martin at an profitable position due to the fact that they are viewed as a much stable company.This allows them to control more of their respective market and in turn secures their market share for rising years. N ow that we have viewed the financial ratios of our company and have interpreted the data based upon Lockheeds market and historical financial data, let us now look at the beta coefficient. When stockholders examine which companies they wish to invest in, they generally essay to invest in companies with the smallest amount of risk possible. In doing so, Stockholders greatly minimize the amount of risk that they themselves accrue and in turn provides confidence within the market. However, we must have a way in order to evaluate the relative risk of a particular companies stock and for that we use the beta coefficient.In order to calculate the Beta coefficient we will need two sets of data, the closing price for the stock we are examining and the closing prices for the indicant were using. As we look at the Beta value of . 98 for Lockheed Martin and compare it sedulousness rival Boeings 1. 31 and Northrop Grummans 1. 08 we find that Lockheed has a lower pother value than both of its major competitors. This suggests that Lockheed is a less risky company to invest in and thus could create greater capitol available through the sale of stock for the company. In addition to swig potential investors to the company, having a lower Beta value could cause creditors to be more willing to lend money to the company.This would allow a greater possibility for Lockheeds coming(prenominal) expansion in the industry and could serve to propel them to the top of the Aeronautic market. If this were to occur, I forecast that the dividend structure within the company would ontogeny due to the change magnitude amount of wealth that the company is generating yearly. By having more funds available for parcelling to stockholders, the company would be more willing to pass this added revenue to the stockholders thus promoting more investors to purchase stock. Upon examining the numerous financial data available on Lockheed Martin we are able to determine that the financial statu s of the company is sound. Lockheed Martin maintains a current ratio of 1. 5 percent which tells us that the company is able to cover the cost of their current liabilities 1. 15 times using their current assets. This tells us that the company does not have any problematic debt at the current time and therefore generates a profit at the end of every operating period. The second indicator of Lockheeds current and future success is their ability to turn over inventory. In our calculations we discovered that Lockheed had an inventory turn over ratio of 19. 26 percent which told us that they were able roughly able to sell all of their products and restock at least 19. 26 times per year. When viewing this from a financial standpoint this figure is encouraging because it represents a steady profit within the company.The next ratio analysis performed, the debt ratio, informed us that the company had a debt ratio of 89. 43 percent. This high number could serve costly to the company if they e ver need seek loans from creditors, but it does satisfy the shareholders by providing a higher amount of leverage. Another ratio that we analyzed for Lockheed Martin was the gross profit margin. After computing this ratio, we ready that Lockheed had a gross profit margin of 10. 2 in 2011 which means than Lockheed acquire retained 10. 2 percent of every dollar earned. The final ration analysis that we performed on Lockheeds financial statements was a profit per earnings ratio.After performing this ratio, we found that Lockheed had a better profit per earnings than its rivals thus making it a more desirable company to invest in. This could commit future investors and in turn create more profit for the company. From this analysis, I have concluded that Lockheed Martin could not handle much more debt in the near future due to the fact that their debt ration is already considerably high. If the company were to take on much more debt, creditors would become involuntary to provide fina ncial support for the company and the company could risk taking on more debt than their assets could cover. This would cause the overall value of the company to fall and cause the Beat coefficient to ri se to a much higher level.In order to still improve the company from the position that it is in, I believe that the company should take steps to lower the debt ratio. This would cause the creditors to be more willing to invest in the company as well as keep the stockholders satisfied with the amount of leverage the company has. Also, by displace the debt ratio, the companies eat coefficient would fall even further making the desire to invest in the company even higher. If Lockheed were to take this step, I believe that the companies stock would continue to skip and the company could in turn increase the amount of dividends that it provides. 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