FINANCIAL PERFORMANCE

Financial Performance

Financial Performance

Introduction

BAE Systems is a defence and aerospace company delivering products and services for air, land and naval forces as well as electronics, information technology solutions and customer support services.

Financial Performance for BAE Systems

Profitability Ratios

12/31/2008

12/31/2007

ROA % (Net)

7.58

4.69

ROE % (Net)

26.19

17.78

ROI % (Operating)

13.79

10.38

EBITDA Margin %

19.58

14.58

Calculated Tax Rate %

25.43

27.13

Liquidity Indicators

12/31/2008

12/31/2007

Quick Ratio

0.58

0.6

Current Ratio

0.75

0.74

Net Current Assets % TA

(10.6)

(12.16)

Debt Management

12/31/2008

12/31/2007

LT Debt to Equity

0.36

0.37

Total Debt to Equity

0.38

0.42

Interest Coverage

11.36

11.35

Asset Management

12/31/2008

12/31/2007

Total Asset Turnover

0.72

0.75

Receivables Turnover

5.26

6.06

Inventory Turnover

20.44

26.11

Accounts Payable Turnover

17.35

-

Property Plant & Equip Turnover

7.88

8.13

5.85

4.64

Per Share

12/31/2008

12/31/2007

Cash Flow per Share

0.42

0.54

Book Value per Share

2.07

1.71

Evaluation

If we compare the company's last two year's performance we will that the company's performance has not increased with a marginal difference.

Financial performance of BAE Systems

If we look at the financial performance of BAE System it is obvious that BAE's financial position has not increased much(Altman 2008 ). Here we will discuss the financial performance of the BAE Systems by discussing its different ratios individually.

Profitability ratios

Profitability ratios show a company's overall efficiency and performance. If we look at the profitability ratio of BAE's System, the company's profitability has increased from 2007 to 2008. BAE's ROA was 4.69 in 2007 which has increased to 7.58 in 2008. BAE System's return on equity ratio has increased from 17.78 in 2007 to 26.19 in 2008 (Altman 2007 ). This shows that company is earning good from its equity. Company's return on investment ratio has also increased from 10.38 in 2007 to 13.79 in 2008. These ratios indicate that company is going well in terms of its profitability.

Liquidity Ratios

If we look at the liquidity ratios of BAE Systems it is observed that company's liquidity performance is not going good. The company's quick ratio was 0.6 in 2007 whereas it was 0.58 in 2008. Its current ratio has gained a slight increase from 0.74 in 2007 to 0.75 in 2008 (Altman 2007 ). These ratios indicate that company's financial performance has not increased much in the last two years and the company is not utilizing its current assets effectively.

Financial Leverage Ratios

If we observe the debt management ratios of BAE Systems it is observed that there has not been much change in the debt of BAE Systems(Altman 2008 ). The company's long term debt to equity ratio was 0.37 in 2007 which has decreased to 0.36 in 2008, whereas its total debt to equity ratio has decreased from 0.42 in 2007 to 0.38 in 2008. This shows that there has not been much improvement in the company's debt management section.

Asset Management Ratios

By observing BAE Systems asset management ratios it is observed that company is not managing its assets in an effective way (Altman 2007 ). The company's asset turnover, receivable turnover, inventory turnover, Accounts Payable Turnover, and Property Plant & Equip Turnover has decreased from 2007 to 2008 showing that company's performance has not increased much.

Ratios Limitation

Attention should be given to the following issues when using financial ratios:

A reference point is needed. To be meaningful, most ratios must be compared to historical values of the same firm, the firm's forecasts, or ratios of similar ...