Bombardier Financial Analysis

1455 words - 6 pages

Bombardier Financial Analysis

Liquidity
1) Current Ratio
2) Working Capital

Leverage
1) Debt/Equity Ratio
2) Financial Leverage

Operational Efficiency

1) Inventory Turnover Ratio
2) Receivables Turnover Ratio
3) Fixed Asset Turnover Ratio

Liquidity
Bombardier has maintained a Current Ratio of close to 100% over the past 10 years with the highest being in F’05 (121%) and the lowest in F’08 (95%). This is typical for the industry in which Bombardier operates. Current Ratio has been increasing since F’08 as Bombardier has focused on improving its cash from operating activities.

Historically, Bombardier has efficiently used its cash resources, ...view middle of the document...

The company had a record backlog of $66.6 billion at F’12 year end. The conversation of this backlog coupled with additional cash resources on hand should provide ample funds for capital expenditures related to the new product development.
Bombardier’s ten year average leverage ratio (10.47) is lower than that of Boeings’ (12.61) but is higher than that of Airbus’ (6.06).

Operational Efficiency
Inventory Turnover Ratio was highest in F’08 (3.97) but has trended south since then. It was recorded at 1.85 in F’12 which is the lowest number over the past ten years. This decline can be attributed to overall reduction in sales, mainly in the transportation segment. The ten year average Inventory Turnover Ratio is at 3.15 which aligns with the historical level. Given that Inventory Turnover is an important factor to Bombardier’s success, a reverse of recent trend can be expected going forward.

Bombardier’s average Inventory Turnover Ratio in the last decade is lowest among its competitors (Boeing 5.09, Airbus 4.04 vs Bombardier 3.15).

Receivables Turnover Ratio has averaged 9.66 in the last decade, with the high in F’03 (11.34) and low in F’07 (8.53). Bombardier’s average is higher than that of Airbus’ (7.78) but lower than that of Boeing’s (11.77). It is important to note that Bombardier’s ratio improved significantly from 9.04 in F’11 to 11.00 in F’12 due to better collection of receivables. The trend is not alarming and illustrates Bombardier is effectively managing its assets.

Bombardier’s Fixed Asset Turnover Ratio has fluctuated notably over the last ten years. The ratio mainly improved with increased sales while. It averaged 6.89, peaked at 12.06 in F’10 and was lowest in F’04 (4.36). Even though the ratio has been declining since 2010, the F’12 number is still higher than the 10 year average. Net additions to PP&E and intangible assets totaled $2.0 billion in F’12, compared to $1.3 billion in F’11. The Fixed Asset Turnover Ratio is likely improve in the coming years as sales are expected to rise while net PP&E is not expected to increase significantly.

When compared the Fixed Asset Turnover Ratio to its competitors, Bombardier was able to achieve a higher ratio (6.89) than that of Airbus (3.03) but lower than that of Boeing (7.29).

We manage our creditworthiness using the global metrics as described in the Capital structure section. Our recent debt issuance is expected to have a temporary negative impact on our global metrics but we believe that the addition of liquidity in a relatively high investment period warrants the increased leverage. As a result of this increase in leverage, Standard & Poor’s and Fitch lowered our credit rating from BB+ to BB, in line with Moody’s Ba2.

Profitability

Bombardier has seen its Gross Margin increase steadily over the past 10 years with a 14.9% result in
2012 but peaking at 18.6% in 2009. This period, also mirrored by growing revenues, saw its Cost of
Goods...

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