The purpose of this company analysis is to discover why one company would be better to invest in over the other. The analysis is based on two competing companies within the same industry. While these two companies compare in products and services, they do not relate in overall size. To assist in making an educating decision, many areas of each company were looked at. A comprehensive financial ratio analysis was completed for each company, as well as an evaluation of their strengths, weaknesses and future opportunities. While it is important to consider how a company manages its finances, it is equally important to consider its future prospects as well. Below you will find ...view middle of the document...
Also, for 2010, they were able to generate $1.9 billion in operating cash flow, have a 14.6% return on invested capital, and ended the year with almost zero net debt (Request-Raytheon).
To get a further look at Raytheon’s financial position, the data from a financial ratio analysis can be viewed. To compare both Raytheon and Northrop Grumman, a financial ratio analysis was constructed for the two companies. There were 19 total ratios and other financial factor utilized to compare both companies. Out of all 19, Raytheon was able to best Northrop Grumman in 11. Some of the bigger areas that are of concern are: current ratio, debt to asset ratio, times interest earned ratio, gross profit rate, and asset turnover ratio. This is a good accomplishment for a company that sees’s much smaller revenues than many of its competitors.
Although the company has much going for it, there are still some concerns that should be taken into consideration. As mentioned above, the company does see smaller revenues than many of its competitors. This lower generation of revenues could end up putting the company at a disadvantage in such a competitive market. Raytheon’s size could also lead to a reduction in bargaining power against its competition (DATAMONITOR). Another weakness is the company’s dependence on government contracts. Since these contracts are funded by congressional appropriations, there is always the risk of contracts being suspended or terminated completely.
The good news is there seems to be some good opportunities for Raytheon in the future. Given that the company is a major defense contractor, and they supply the U.S. military and its allies with numerous products, demand for its services should remain high for the next several years. The company currently has a back log of over $33 billion, and they are continually expanding operations (Value Line). In addition, defense spending is a stable long-term industry that is not usually affected by economic downturns. All of this should give Raytheon plenty of possibilities to continue increasing profits and shareholder expectations.
Like Raytheon, Northrop Grumman is a major player in the defense industry. The company focuses on four different business sectors that include: aerospace systems, electronic systems, information systems, and technical systems. Northrop Grumman continuously works to leverage existing capabilities and enhance development and delivery of products and services. To accomplish this, they will acquire or sell off business, realign contracts, programs or business areas within their operating segments (Northrop Grumman Website). An example of this can be seen by the recent spin-off of its recent ship building business. This will benefit the company by allowing them to focus on its core defense projects.
Northrop Grumman’s ability to remain flexible in a competitive environment is essential to success. Another great strength for...