Boeing Company Financial Analysis

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Introduction

It is almost one and half years since the world was hit by the Covid-19 pandemic, the

economy for the first time since the 2008/09 economic crisis is experiencing a recessionary

cycle. Aviation industry was the most hit by this pandemic since most of the countries restricted

flights in and out of the country. According to Willis Tower Watson report, airlines lost almost

$80.3 billion in 2020 due to a decline in demand for air transport as people were working and

meeting at home.

The Boeing Company (BA) , the leading aerospace company in the United States, was

one of the most affected companies since airlines around the world halted their orders for aircraft

as a result of decrease in air travel. According to the company reports, the company lost $8.4

billion in the last quarter of 2020 and $561 million for the first three months of 2021. The

company has posted six consecutive quarterly losses as a result of production struggles.

Before Covid-19, the company was still struggling after its Fast moving airplanes Boeing

737 max were grounded world wide after two of its planes were involved in two fatal accidents

due to electric failure. However, in May 2020 the company resumed production of this model

after repairing the existing fleet. Although the company planes have been allowed to fly again

the company is expected to continue to register negative results as the demand for air travel

remains low and airlines around the world are minimizing their capital investment and

expenditure.

In this paper we will carry out the financial analysis for The Boeing Company for the last

three years. The analysis will be compared with Lockheed Martin Corporation the company

competitor in the United States to determine how the company performance and financial
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position was affected by Boeing 737 max grounding and the Covid-19 pandemic. The analysis

will help the investor determine whether to buy or sell the company stocks.

The Boeing Company (BA) Company Profile and Industry

The Boeing Company is the leading company in Aerospace and Defence Industry, the

company together with its subsidiaries is involved in designing, developing, manufacturing and

sale of commercial jetliners, military aircraft and space flights. The company was founded in

1916 by William Boieng In Chicago, since then the company has become one of the only two

major manufacturers the other being Airbus from the Netherlands of 100+ seats airplanes for

commercial industry. Currently the company has several commercial jetlines models that

include; 737 narrow body, 747 and 767 and in 2020 the company introduced Boeing 777x which

is the world largest and most efficient twin engine jet.

According to yahoo finance the company operates through four major segments; Boeing

Commercial Airplanes, Defence Space & Security (BDS), Boeing Global Services and Boeing

Capital (BCC). Boeing Commercial Airplanes is the most profitable segment since it contributes

more than 40% of the company net revenue followed by the Defence, Space & Security segment

that generates almost 35% of the company revenue.

Before investing into any company it is important to understand how the company makes

money, according to the company financial report the company makes money through three

major ways; selling and leasing commercial jet aircrafts and providing fleet support worldwide,

production and modification of manned and unmanned military aircrafts and weapons and space

communication and space exploration.

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Currently the company is headquartered in Chicago, Illinois and is headed by David L.

Calhoun who leads the company's over 140,000 workforce working in the company headquarters

and company outlets around the world.

Financial Analysis

In the last five years the company performance and financial position has been

flatuatioting due to the changes in the economic conditions. For instance, in 2018, the company

recorded an 8.28% increase in net revenue from $93.392 billion in 2017 to $101.127 billion in

2018, however, in 2019 the company revenue dropped by 24.28% after the company Boeing 737

Max jet were grounded in 2019. In the last financial years, the company revenue sunked by 24%

to $58.158 billion in revenue.

The last two financial years for the company has been the worst in the last decade since

the company recorded a net loss of $636 million in 2019 after the company two Boeing 737 max

were involved in fatal crashes which led to ground. In the last financial years, the company

posted a record annual loss of nearly $12 billion as result of the Covid-19 pandemic. The

pandemic caused a plunge in travel demand as people were working, learning and meeting at

home.

In the next five years, the company performance is expected to rebound to pre-Covid-19

level as people resume travelling as countries and states ease their Covid-19 restrictions

measures. The company's future is still uncertain since most of the countries have yet to

vaccinate the majority of their population. However, according to ...analysts in NewYok Times,

the aviation industry is unlikely to have the worse year than it had during the pandemic in 2020

which implies that although the future is glimsy, there is hope for stocks in this industry.
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Horizontal Analysis

Horizontal analysis is a finance tool that investigates the trend of the financial statement

by showing the changes in the amounts of corresponding financial statement items over a period

of time. The horizontal analysis is useful to the investors since it shows what has been driving

company financial performance over years.

The Horizontal Analysis was done in excel and the result are presented in the Appendix

Analysis

The horizontal analysis of the income statement indicates that The Boeing Company

performance declined significantly in the last three years. For example, the total revenue

declined by 24% in 2019 and 42% in 2020. The gross profit for the company declined by 77% in

2019 while in 2020 the gross profit declined by 129% in relation to 2018. The company has not

managed to make profit in the last three years since the horizontal analysis indicates that the net

loss declined by 106% in 2019 and 214% in 2020. The last time the company made profit was in

2108, the company earned $10.460 billion. THe company is expected to resume this level of

profitability in the next 3 years when the Covid-19 pandemic will be eradicated.

Even though the company performance declined in the last three years, the company's

financial position improved slightly as evidenced in balance sheet horizontal analysis. For

instance, the company's current assets increased by 16% in 2019, and 38% in 2020. The

company's total assets increased by 14% in 2019 and 30% in 2020. Since the company

performed poorly in the last two years it financed the increase in assets by increasing current

liability by 19% in 2019 and 7% in 2020. The company also increased long term debt by 87% in

2019 and 481% in 2020. In the last three years, the company did not issue new stocks, the

company only exhausted the $55.941 billion retained earnings that were there before 2019.
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The Liquidity Analysis

The liquidity analysis helps the investor to understand the company's ability to pay the

current liability using the current assets. The company is considered to be in a better liquidity

position if the current assets exceed the current liability. Moreover, the company with more

liquid assets is considered to be in a better position since the current assets are easily converted

into cash. Apart from paying the current liability, the company should have enough working

capital to finance company operations which implies that the current liability must be less than

the current assets. If the current liability exceeds the current assets the company will struggle to

run its operations and pay the current liability.

The table below show the Summary of the Liquidity Ratios