Financial Analysis of BAE Systems and Rolls-Royce

The provided assignment is an in-depth financial evaluation of two major companies, BAE Systems and Rolls-Royce. The analysis includes a comparison of the five key financial ratios (Liquidity Ratio, Asset Turnover Ratio, Debt to Equity Ratio, Return on Assets, and Return on Equity) for both organizations. Additionally, it assesses market share price fluctuation by evaluating graphical representations of their stock prices over time. References are also provided for further research. This comprehensive analysis is suitable for students in finance or accounting courses looking for a detailed case study.

Analytical review comparing the financial
positions and reporting of two companies
(Rolls Royce Group & BAE System)

EXECUTIVE SUMMARY
Analytical reporting structure is made in terms of managing the section of organisation
for better change and development. Financial ratio analysis and fluctuations in share price
subject to Rolls-Royce holding PLC and BAE System PLC are considered in this report.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
LITERATURE REVIEW................................................................................................................1
FINANCIAL RATIO ANALYSIS..................................................................................................2
SHARE PRICE FLUCTUATIONS.................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
APPENDIXES.................................................................................................................................9

INTRODUCTION
Analytical review of financial position and reporting stands for analysing the profitability
and stability of financial management of organisation (Nobes, 2014). This report is prepared to
analyse the reporting structure of companies and the financial position of two companies such as
Rolls Royce & BAE system Plc. Financial position of both the organisations is evaluated on the
basis of ratio analysis. Independently analysis of statements on the basis of consolidated
statements and figures.
LITERATURE REVIEW
Ratio analysis
According to Edmister, (1972) Ratio Analysis is a type of Financial Statement Analysis
that is utilized to get a fast sign of an association's budgetary execution in a few key regions.
Ratios are ascertained from current year figures and afterwards contrasted with past years,
different organizations, the industry, and furthermore the organization to evaluate the execution
of the organization. It helps to analyse the financial position of organisation by evaluating
following position such as the liquidity, solvency and efficiency of organisation. There are type
of categories formed in subject to analysis of financial statements.
Liquidity ratio
Rivenbark and Roenigk, (2011) This ratio analysis is mainly associated with analysis of
the cash and cash equivalents with short term debts and obligations. This ratio is mainly based
upon analysis of current ratio and quick ratio. It helps to determines the viability of payment of
short term liability and and quick ratio. The A high proportion demonstrates to a greater degree
of financial health which builds adaptability since a portion of the stock things and receivable
adjusts may not be effortlessly convertible to money. The present proportion is a comparative,
yet less stringent liquidity assessment proportion. Organizations can enhance the present
proportion by settling obligation, changing over here and now obligation into long haul
obligation, gathering its receivables quicker and purchasing stock just when essential.
Solvency Ratio
James, (1996) It is the analysis of leverage or debt ratios remain focused upon firm's
ability and long term debt facultative. It helps to determine the company's solvency rate
regarding the payment of long term debt on comparison to long term assets. The regular
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resolvability proportions are obligation to-resource and obligation to-value. The obligation to-
resource proportion is the proportion of aggregate obligation to add up to resources.
Resolvability proportions show money related strength since they measure an organization's
obligation with respect to its advantages and value. The obligation to-value proportion is the
proportion of aggregate obligation to investors' value, which is the distinction between collective
resources and aggregate liabilities.
Profitability ratio
According to Singh and Pandey, (2008) This ratio mainly helps to determine the
profitability condition with the overall revenues. It indicates to the capacity to convert the sales
records in to profits and income. Gross margin is the main ratio that helps to determine the sales
figures and the cost of goods sold. The operating margin is mainly based upon the measurement
of effectiveness of assets and marginality of equity of profits. Return on assets are analysed on
the basis of revenues during the year. These proportions measure how productively the
organisation utilises its assets, how successfully it deals with its activities."How gainful is this
business is analysed through operating margin, return on assets and return on equity.
Efficiency ratio
Halkos and Salamouris, (2004) there are two main ratios are counted essential to analyse
the efficiency of organisation such as receivable turnover ratio, fixed assets turnover. Asset
efficiency ratios are particularly valuable in describing the business from a dynamic viewpoint.
Efficiency of business is mainly helps in determining the changes in debts and the frequency of
inventories. A high records receivable turnover implies that the organization is fruitful in
gathering its remarkable credit adjusts.
Market value ratio
This is one the ratio that represents the value of organisation by evaluating the growth
rate of earning per share, revenues and operating income. Net profitability income ration also
analysed on the basis of creating plans for better structure of organisation.
FINANCIAL RATIO ANALYSIS
Liquidity ratio
Current ratio: This is the ratio that helps to determine the proportion of current assets
and current liabilities. There is a calculation of both the organisation such as Rolls Royce and
BAE system PLC ADR.
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Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Current ratio 1.49 1.37 1.09 0.96
As per the above results it is analysed that the current ratio of Rolls-Royce plc for the
year 2017 and 2016 subsequently recorded as 1.49 and 1.37 times. It is seen that all the liquidity
ratio increased by 2017 due to increase in current assets. The current assets are mainly analysed
with respect of current liabilities.
AS per the above analysis of BAE system PLC it is analysed that the organisation is
mainly associated with analysing the liquidity position of organisation such as 1.09 for the year
2017 and 0.96 times for 2016. comparatively the current assets of Rolls Royce PLC found better
than BAE system PlC.
Quick ratio
Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Quick ratio 1.06 0.97 0.93 0.8
As per the quick ratio analysis it is observed that quick ratio of Rolls Royce holding Plc
get increased by 0.11 for the year 2017 due to increased in quick assets. The quick ratio of BAE
system also get increased by .13 for the year 2017. however the quick ratio position of Rolls-
Royce is in favourable condition that may increase the feasibility of organisation and make the
changes in favourable conditions.
Workings
Rolls-Royce holding plc
2017 2016
Current ratio 14595 / 10925 12858 / 9534
Quick ratio: 10878 / 10262 8449.67 /8711
BAE system Plc
2017 2016
Current ratio 7715/ 7106 7029 / 7299
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Quick ratio: 6580/7076 5882/7087
Solvency Ratio
Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Debt to equity ratio 0.47 0.29 0.86 1.29
Debt equity ratio of organisation indicates following ratios such as 0.47 for the year 2017
and 0.29 for the year 2016. the solvency rate get increased due to changes in variability and the
scale of business long term liabilities.
Debt equity ratio of BAE system also get decreased due to increment in long term
liabilities of organisation. 0.86 was recorded in 2017 and 1.29 for the year 2016. it is analysed
that solvency position is beneficial for BAE system in comparison to Rolls-Royce Plc.
Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Debt to assets ratio 0.79 0.93 0.79 0.85
The above results indicates the debts to assets position of organisation. As per the above
analysis the it is analysed that debts to assets was recorded as 0.79 for the year 2017 and 0.93 for
the year 2016.
Debts to assets ratio for BAE system was analysed essential for better change and
development. For the year 2017 debts to assets was calculated as 0.79 and .85 for the year 2016.
Workings
Rolls-Royce holding plc
2017 2016
Debt to equity ratio 2900/6170 540/1864
Debt to assets ratio 2900/3670 540/635
BAE system Plc
2017 2016
Debt to equity ratio 4114/4784 4468/3464
Debt to assets ratio 4114/5207 4468/5256
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Profitability ratio
Gross profit margin
Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Gross profit margin 19.46 20.38 25.62 27.5
Gross profit margin for the year 2017 was evaluated as 19.46 and 20.38 for the tear 2016
of Rolls-Royce company. It is observed that gross profitability of organisation get decreased due
to increase of administration changes.
Gross profit profit margin of BAR system was analysed as 25.62% for the year 2017 and
27.5 for the year 2016. the gross profit margin of company get decreased in comparison to last
year.
Net profit margin
Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Net profit margin 25.8 -26.96 4.66 5.13
Net profit margin for Rolls-Royce company was analysed as 25.8% for the year 2017 and
-26.96 for the year 2016. there was a loss bear by the organisation due to crisis in payment of
long term debts and liabilities. Net profit margin of BAE system was analysed as 4.66% for the
year 2017 and 5.13% for the year 2016. the profitability condition of Rolls Royce is found better
and management is considered essential for better management and control.
Workings
Rolls-Royce holding plc
2017 2016
Gross profit 3173/16304*100 3048/14955*100
Net profit 4208/16307*100 4032/14955*100
BAE system Plc
2017 2016
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Gross profit 5028/19626*100 5230.5/19020*100
Net profit 884/19626*100 938/19020*100
Efficiency ratio
Assets turnover ratio
Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Assets turnover ratio 19.46 20.38 25.62 27.5
Assets Turnover ratio was analysed essential for better control and management. The
assets turnover was analysed as 19.46 for the year 2017 and 20.38 for the year 2016. the capacity
of organisation in terms of assets stability is considered essential for both the organisation.
Fixed assets turnover ratio
Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Fixed assets turnover ratio 19.46 20.38 25.62 27.5
Fixed assets to Turnover ratio for the Rolls-Royce holding Plc was calculated as 19.46
for the year 2017 and 20.38 for the year 2016. the profitability position of BAE system was
analysed as 25.62 for the year 2017 and 27.5 for 2016. solvency position of organisation is
decreased for both the organisations due to lack of inconsistency payments.
Workings
Rolls-Royce holding plc
Particulars 2017 2016
Assets turnover ratio 3172/16304*100 /4112.62/14955*100
BAE system Plc
2017 2016
Assets turnover ratio 3172/19626*100 3876/19020*100
Growth or market value ratio
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EPS growth rate
Rolls-Royce holdings PLC BAE system PLC
2017 2016 2017 2016
Fixed assets turnover ratio - - -6.97 -0.69
Gross profit rate was calculated as -6.97 for the year 2017 and -0.69 for the year 2016.
there is no growth rate was counted for Rolls-Royce plc in terms of share price fluctuations.
SHARE PRICE FLUCTUATIONS
Share price variation in Rolls-Royce holding PLC ADR
(Source: Share price fluctuation in RRL, 2018)
Shares in aero-engine maker Rolls gained 13 percent to 939 pence on Wednesday, their
highest level since November, after its 2017 pretax profit rose 25 percent to 1.071 billion pounds
($1.49 billion), beating a consensus forecast of 878 million pounds. The 16 analysts offering 12
month price targets for have a median target of 964.87, with a high estimate of 1,259.00 and a
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low estimate of 675.00. The median estimate represents a 20.67% increase from the last price of
799.60. Rolls had recorded a record loss for 2016.
Share price variation in BAE system
(Source: Share price fluctuation of BAE system, 2018)
The gathering's offer cost is somewhere near about 13% from its 52-week high of 680p.
Be that as it may, notwithstanding the market auction, BAE shares are still up 3% this year,
contrasted with a 7% drop for the FTSE. At current dimensions, BAE exchanges on a 2018
estimate P/E of 13.7, with an imminent yield of 3.8%. it is a reasonable cost for long haul
purchasers, however given the pattern towards rising loan costs and higher security yields.
CONCLUSION
The above report summarises the analytical analysis of financial review by evaluation of
financial ratios of organisation. There is a stability of both the organisations are evaluated on the
basis of five key financial ratios. Evaluation of market share price fluctuation also done in terms
of making the fluctuations. Graphical representations also made subject to both the organisations.
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REFERENCES
Books and Journals:
Nobes, C., 2014. International classification of financial reporting. Routledge.
Rivenbark, W. C. and Roenigk, D. J., 2011. Implementation of financial condition analysis in
local government. Public Administration Quarterly. pp.241-267.
Edmister, R. O., 1972. An empirical test of financial ratio analysis for small business failure
prediction. Journal of Financial and Quantitative analysis. 7(2). pp.1477-1493.
James, C., 1996. Bank debt restructurings and the composition of exchange offers in financial
distress. The Journal of Finance. 51(2). pp.711-727.
Singh, J. P. and Pandey, S., 2008. Impact of Working Capital Management in the Profitability of
Hindalco Industries Limited. ICFAI journal of financial Economics. 6(4).
Halkos, G. E. and Salamouris, D. S., 2004. Efficiency measurement of the Greek commercial
banks with the use of financial ratios: a data envelopment analysis
approach. Management accounting research. 15(2). pp.201-224.
Online
Share price fluctuation of RRL, 2018. [online]. Available through:
<http://www.stockmaster.in/rr-rolls-royce-holdings-share-price.html>.
Share price fluctuation of BAE system, 2018. [online]. Available through:
<http://www.stockmaster.in/ba-bae-systems-share-price.html>.
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APPENDIXES
BAE system financial statements
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Rolls-Royce financial statements
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