Overview of the company
The Boeing Company, headquartered in Illinois, United States, is a multinational public company that trades on the New York Stock Exchange. The company operates in the Aerospace and Defense industry. The company designs and manufactures commercial jetliners and aircraft for defense. Some of the other products that the company offers are satellites, missiles, information, and communication systems (Boeing Company, 2014). The company sells its products and services in approximately 150 countries across the world. The report generated for the financial year ended in December 2013 shows that the company had 168,000 employees (Boeing Company, 2014). William Boeing founded the company in 1916. In that year, it operated as Pacific Aero Products Co. In the early years, the company manufactured seaplanes. In 1917, the company name was changed to Boeing Airplane Company (Boeing Company, 2014). Over the years, the company has survived the competition and dynamic economic environment through diversification and innovation. Currently, it is considered as one of the main exporters in terms of volume of sales. The paper seeks to evaluate the financial performance of the Boeing Company for the financial year ended in December 2013.
Overview of the financial statements
The company reported growth in the income statement values. The total revenue earned increased from $81,698 million in 2012 to $86,623 million in 2013. A significant proportion of total revenues (about 90%) are generated from the sale of products. The remaining 10% is generated from the sale of services. Similarly, the total costs and expenses increased from $68,665 million in 2012 to $73,268 million in 2013 (U.S. Securities and Exchange Commission, 2014). Earnings from operations increased by 4.32% that is, from $6,290 million in 2012 to $6,562 million in 2013 while net earnings increased by 17.56%. The increase in net earnings resulted in an increase in diluted earnings per share by 16.63%. A review of the income statement for 2013 shows that 75.76% of the total revenue was spent on the cost of products, 8.72% of the cost of services, 4.57% on general and administrative expenses, and 3.55% on research and development expenses (U.S. Securities and Exchange Commission, 2014).
The current assets increased by 13.55% that is, from $57,309 million in 2012 to $65,074 million in 2013. Inventories balance was 65.94% of current assets. The total assets increased by 4.24% that is, from $88,896 million in 2012 to $92,663 million in 2013. Inventories were 46.31%, while property, plant, and equipment were 11.03% of total assets. On the liabilities and equity section, the current liabilities increased by 14.69% that is, from $44,892 million in 2012 to $51,486 million in 2013, while the shareholders’ equity increased by 251.33% that is, from $5,967 million in 2012 to $14,997 million in 2013. The growth in equity was caused by growth in retained earnings and a decline in the amount of accumulated other comprehensive loss. Thus, it can be observed that there was growth in balance sheet values (U.S. Securities and Exchange Commission, 2014).
The income statement of the company gives information on the profitability level of the company. Various ratios are often used to analyze the profitability of a company. The gross profit margin decreased from 15.98% in 2012 to 15.42% in 2013. The ratio shows that the ability of the company to manage the cost of inventory and pricing declined. Further, it can be observed that the company has a low gross profit margin. This can be explained by the high cost of production and the nature of the products that the company deals with. The net profit margin increased from 4.77% in 2012 to 5.29% in 2013. The increase in net profit margin implies that the ability of the company to manage the total cost of operation increased over the period. The return on assets increased from 4.62% in 2012 to 5.05% in 2013. The increase indicates that the efficiency of the company in generating profit from the asset available increased. Finally, return on equity declined from 83.14% in 2012 to 44.21% in 2013. The ratio is significant to potential and current investors because it shows the return on their investment. The decline in the ratio was caused by the increase in the total equity balance by 251.33%. Based on the analysis above, it can be concluded that the overall profitability of the company increased. However, the company faced challenges in managing the cost of production (U.S. Securities and Exchange Commission, 2014).
The future growth of profitability of the company relies profoundly on the success of commercial airlines. Thus, the revenue earned by the company depends on critical factors such as terrorism, availability of financing, intergovernmental relationships, competition, technological changes, swings in economic conditions, and fuel prices among others. These factors cause fluctuations in the profitability of the company. Further, the operational challenges which the company faces affect the entire production system. This may cause delays which in turn affect profitability. Further, incorporating changes in the design of the products is costly and also exerts pressure on profitability. Thus, these risk factors hurt the future profitability of the company. However, the company has put in place measures to mitigate the risks and reduce the overall cost of production (U.S. Securities and Exchange Commission, 2014).
The inventory balance increased by 13.67% that is, from $37,751 million in 2012 to $42,912 million in 2013. The inventory cost reported is made up of direct engineering cost, non-recurring costs, cost of production, and other related overhead. The inventory balance is a reported net of advances and progress billings. Inventory before advances and process billings is made up of long-term contracts in progress, commercial aircraft programs, and commercial spare parts among others. The inventory before advances and progress billings increased by 9.15%, while the advances and progress billings increased by 2.32% between 2012 and 2013. These changes contributed to the increase in inventory balance (U.S. Securities and Exchange Commission, 2014).
The balance of accounts receivables increased by 16.73% that is, from $5,608 million in 2012 to $6,546 million in 2013. In 2012, accounts receivables were 6.31% of the total assets. In 2013, accounts receivables were 7.06%. Thus, it can be observed that the proportion of accounts receivables about the total assets increased. The account receivables are reported net of the valuation allowance. The valuation allowance increased from $82 million in 2012 to $104 million in 2013. The balance of accounts receivables reported in 2013 was made up of U.S. government contracts (55.06%), defense, space & security customers (16.39%), commercial airline customers (16.38%), reinsurance receivables (8.02%), and others (5.74%). The percentages indicate that the main customer of the company is the US government (U.S. Securities and Exchange Commission, 2014).
Auditors’ discussion and internal control
The internal controls and financial reports of the company at the end of 2013 were audited by Deloitte & Touché LLP (U.S. Securities and Exchange Commission, 2014). The overall responsibility of establishing adequate internal control rests with the management of the Boeing Company. Besides, the management has the responsibility of reviewing and reporting on the status of the internal controls. At the end of 2013, the management reported that the internal controls of the entity were effective. Further, the management indicated that there were no major changes in the internal controls that could have an impact on the reported financial statements. The independent external auditor thought that the company had effective internal controls over financial reporting in all material respects. Their opinion is arrived at after evaluating the internal controls based on the guidelines outlined on the Internal Control-Integrated Framework that was established in 1992 (U.S. Securities and Exchange Commission, 2014). Thus, it can be noted that the auditor’s opinion on internal controls is consistent with the report issued by the management. Further, the auditors expressed an unreserved view on the financial statement of the company reported in December 2013. The audit of the financial statement was carried out based on the guidelines provided in the Public Company Accounting Oversight Board (United States) (U.S. Securities and Exchange Commission, 2014). The unqualified opinion issued by the auditor implies that the financial statements of Boeing Company are sound and free from substantial misstatements. This shows that the financial records and statements are fair in all respects and comply with various accounting standards.
Boeing Company. (2014). About us.
U.S. Securities and Exchange Commission. (2014). BA – Boeing Company form 10K. Web.