Annual Audited Report for Boeing Corporation - Assignment Example

? Analysis of Annual Audited Report for Boeing Corporation of the T. Saracina MGMT 210 Financial Accounting Embury Riddle Aeronautical University Date Submitted Analysis of Annual Audited Report for Boeing Corporation Introduction Boeing is one of the world’s largest aerospace companies, defense contractors and aircraft manufacturers. The company was founded by William Boeing in 1916 and was originally headquartered in Seattle, Washington but moved to Chicago, Illinois in 2001. The company merged with McDonnell Douglas, a former competitor, in 1997. Boeing has a number of separate business divisions dealing with commercial aircraft, defense and security, operations, capital and shared services. Over its eventful history, the company has been responsible for a number of innovations like the Boeing B-1, B-8 and Monomail, Model C, Boeing 80 and the 737. Boeing earned a profit of $4.018 billion for the year ended December 30, 2011 and had total assets of $79.986 billion on the same date. Since 2005, the company’s Chairman, President and CEO have been W. James McNerney Jr. The company has a total of 164,545 employees worldwide and the top 1.5 % of them go through the Technical Fellowship program, which sets the technical direction for the company. We will now move on to the analysis of Boeing’s financial statements as given in their Audited Annual Reports for 2011. Their accounts have been audited by Deloitte & Touche LLP, one of the Big Four accounting firms in the world. The report is unqualified and this means that Boeing Company has met the financial standards for record keeping and presentation as required by the FASB and other relevant authorities. Analysis of Net Income and Cash Flows According to the financial statements for the year ended 30 December 2011, Boeing has reported net income from sales of products and services for fiscal year 2011 of $ 4.018 billion. According to their Consolidated Statement of Cash Flows, cash provided from operating activities for 2011 was $5.844 billion (Boeing Annual Report 2011, 55). The difference between the two numbers can be explained on the basis of accrual accounting principles where revenue is recognized when it is earned and expenses are recognized when they are incurred (Porter & Curtis, 2013). Meigs, Meigs and Meigs further distinguish the importance of assessing operating activities through the measure of operating cash flow. Using accrual-based net earnings can lead to ambiguous performance indications, unless a company can convert its revenues/profits into cash (Meigs et al., 1995). Thus from a comparison of Boeing’s net earnings and net cash from operating activities in 2011, it can be concluded that the company is effectively converting their profits into cash. Ratio of Net Income to Net Revenue Looking further at the Consolidated Statement of Earnings, the following figures give a comparison of Boeing’s Net earnings to Net sales for the three years ending in December 2009, 2010 and 2011 respectively. All dollar amounts have been shown in millions: 2011 2010 2009 Net Earnings $4,018 $3,307 $1,312 Net Sales 68,735 64,306 68,281 Ratio 5.84% 5.14% 1.92% (Source: Boeing Annual Report, 2011) Wood and Sangster (2008) state that an efficient business is one who can keep the costs of providing their products or services relatively low compared to their selling price of those products or services. That said, the numbers in the above table are indicative of a fairly efficient business. While Boeing’s net sales had decreased from $68 billion in 2009 to $64 billion in 2010, yet the company managed to increase its net earnings from $1.3 billion to $3.3 billion over 2009-2010. The net sales and net earnings both show an increase in 2011 being $68 billion and $4 billion respectively so the company has once again done well Company Assets A further inspection of the Boeing Company’s Consolidated Balance Sheet for 2011 shows that their three largest assets are Inventories ($32.24 billion), Cash and cash equivalents ($10.049 billion), and Property, Plant and Equipment, net ($9.313 billion). It is highly understandable that with the cost of airplanes and related supplies, a high amount of working capital would be needed as well as liquidity needs to be ensured and Boeing is doing just this by keeping $10 billion in cash and cash equivalents and $32 billion in Inventories. Quite possibly the company has suffered a financial or liquidity crisis in the past and has learned from that experience and keeps itself considerably liquid as a matter of policy. It is noteworthy that this figure of $32.4 billion in inventories has risen from $24.3 billion in 2010, as Boeing has a backlog in orders worth $60 billion till 2010 and has also concluded deals for $28 billion in 2011for its 737 and related aircraft. Similarly the figure of Cash and cash equivalents has increase from $ 5.3 billion in 2010 to 10 billion in 2011, which is nearly double of the previous year. Quite possibly the company wants to keep itself liquid considering the orders it has to fulfill which will require a good amount of both working capital and liquidity. Considering the third largest asset, Property Plant and Equipment, this has increased from a net figure of $8.9 billion in 2010 to $9.3 billion in 2011. With facilities all around the world and production largely concentrated in the USA and Europe, it can be seen that this investment in property, plant and equipment has been necessary. Although Boeing has tried to take advantage of economies of scale and wage differences, it cannot outsource its aircraft manufacturing to the Third World as it needs specialized and technical skills not easily available in that part of the world. Although the company uses lean management, JIT inventory and supply and value chain concepts to cut costs and expenses, this has affected its delivery schedules considerably and resulted in a large share of the business being taken over by Airbus, manufacturer of the A380. Still, I would estimate that $9.3 billion invested in Property Plant and Equipment is fair enough considering the product and the industry sector it is in. Current Ratio Looking once again at the figures in the Consolidated Balance Sheet for 2011, the following table gives a comparison of Boeing Company’s current assets to current liabilities. Once again all dollar amounts have been stated in millions: 2011 2010 Total Current Assets $49,810 $40,572 Total Current Liabilities $41,274 $35,395 Current Ratio: 1.20 1.14 Working Capital: $8,536 $5,177 (Source: Boeing Annual Report, 2011) The Current Ratio, which is also a measure of working capital, indicates a company’s liquidity (Porter & Curtis, 2013). The value of this ratio depends on the nature of the business and the industry sector as well as the industry average. Although it seems that Boeing’s current ratio is relatively low, it might indicate difficulties in meeting short-term obligations. However, it is noteworthy that its working capital has gone up by $3 billion from $5 billion in 2010 to $8 billion in 2011. Ratio of Total Liabilities to Total Assets Based on Boeing’s Consolidated Balance Sheet for 2011, the following table gives a comparison of Boeing’s total liabilities to total assets. As before, all dollar amounts are being reported in millions: 2011 2010 Total Liabilities $76,378 $65,703 Total Assets $79,986 $68,565 Debt/Asset Ratio 95.48% 95.82% (Source: Boeing Annual Report, 2011) While the debt to asset ratio helps determine the percentage of assets that has been financed by debt rather than equity, it also shows the contribution of equity investment that has been made by the owners. It is quite evident from the ratios here that over 95 percent of the business has been financed by loans or debt, while the equity contribution is just 5 percent. Once again we would have to look at the industry averages to see whether this is the norm rather than the exception. Statement of Stockholders Equity The consolidated statement of Stockholders Equity for the year ending December 30, 2011 shows that Boeing started with an equity of $5.061 billion and there have been additional capital investments of $3.4 billion as of 2009, $0.3 billion in 2010 and 0.142 billion in 2011. There has also been some movement in Treasury Stock and Retained Earnings. There has also been a Cash Dividend declaration of $1.70 per share in 2011(Annual Report, 2011). It is a good business decision to pay dividends out of retained earnings to shareholders because it indicates to potential investors that the company has been profitable and also that they recognize the shareholders’ contribution to the company’s growth (Mathur, 1979). Statement of Cash Flows The Consolidated Statement of Cash Flows for Boeing in 2011 indicates that cash flow from operating activities to be $4.023 billion, and from investing activities to be $ 2.639 billion while $1.7 billion was used up due to financing activities including payment of dividends. The positive element here is that the net cash flow from operating activities has continued to be positive for all three years 2009-2011 as per the consolidated statements, although it has decreased from $5 billion in 2009 to $2 billion in 2010 before rebounding to $4 billion in 2011. It can therefore be concluded that generally Boeing is in good financial health. As such, a company can be considered to be performing well when operating activities indicate a positive cash flow (Shukla et al, 1999). Independent Auditors Report The Independent Audit Report prepared by Deloitte and Touche LLP gives an unqualified opinion, based on the fact that they did not express any limiting conditions or exceptions (Wood and Sangster, 2008). In my opinion, the independent auditor’s report is reliable since they conducted the audit in accordance with the standards of the Public Company Accounting Oversight Board. In addition, the audit report clearly states that Boeing’s financial statements conform to generally accepted accounting principles. Conclusion It is clear from the above that with increasing revenues, controlled costs of operations and other activities that enhance productivity, Boeing stands to profit from its technological superiority, confirmed orders in defense contracts and aerospace, missile warfare and other initiatives. The sales from its products and services have increased in all three years despite a very tenuous economy. I conclude that the Boeing company is operating in an effective and efficient manner. References Annual Report 2011 of the Boeing Corporation (2012). Accessed on 12 May 2012 at http://www.envisionreports.com/BA/2012/14427FE12E/default.htm#p=62&c=0&v=2?voting=false Mathur, I. (1979). Introduction to Financial Management. Macmillan. Meigs, W; Meigs, R. & Meigs, M. (1995). Financial Accounting, 9th ed. McGraw Hill. Porter, G. & Norton, C. (2013). Using Financial Accounting: the alternative to debits and credits (8th Ed.) South-Western /Cengage Learning. Shukla, M.; Grewal. T and Gupta, S. (1999). Advanced Accounting. S. Chand & Company. Wood, F. & Sangster, A. (2008). Business Accounting, Volume 1, 11th ed. Pearson. Appendix 1: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The Boeing Company Chicago, Illinois We have audited the accompanying consolidated statements of financial position of The Boeing Company and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a) 2. The financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Boeing Company and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 9, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting. / S /    D ELOITTE & T OUCHE LLP Chicago, Illinois February 9, 2012 Read More