Financial Analysis, Company Valuation, Capital Structure

Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
2.1 ...............................................................................................................................................1
(a)Financial Analysis..................................................................................................................1
(b) Limitations on the usefulness of ratio analysis......................................................................3
2.2 Company Valuation..............................................................................................................3
2.3 Capital Structure....................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Finance is termed as one of the most important element for each business organisation in
order to perform all the required activities so that operations can be conducted in well defined
manner. Financial performance of business organisation is an important tool used to access
success of business in measurable terms. Financial statements are prepared so that financial
performance can be measured and assessment for financial needs can be identified (Knorr Cetina
and Preda, 2012). This project report is based on financial analysis of BAE Systems Plc which is
listed in London stock exchange. The project report includes financial analysis, company
valuation and analysis of capital structure of business organisation so that financial calculations
can be made in appropriate manner.
MAIN BODY
2.1
(a)Financial Analysis
Financial Analysis is a process through which businesses, projects and budgets are
evaluated in order to determine performance as per set targets. In the process of Financial
Analysis number of financial documents needs to be prepared so that performance can be
analysed appropriately. Ratio analysis is one of the tool which helps in financial analysis as it is
purely based on formulas and leads to generation of best results for business organisations.
Comparison for financial performance is made on the basis of industrial standards so that actual
performance can be analysed and most productive results can be generated (Ayub, 2013). In
order to access financial performance of BAE Systems Plc and one of its competitor ratio
analysis needs to be performed which is as follows-
Net-profit Margin:
Year – 2018 BAE Systems General Dynamics Corp
Net Profit Margin ( % ) 5.94% 9.24%
This ratio represents the net profitability situation of business by showing proportion of
net profit and turnover. GD corporation and BAE system has net profit ratio of 5.94% and 9.24%
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respectively. Which shows that BAE has lower efficiency to generate return as in comparison to
General Dynamics Corporation.
Gross Profit Ratio:
Year-2018 BAE Systems General Dynamics Corp
Gross Profit Ratio (%) 65.16% 18.55%
Interpreting this ratio reflects how effectively a business can provide gross profits before
considering indirect expenses. As above table shows BAE System Plc 's gross-margin is 65.16%
while General Dynamics Corporation's gross-margin is just 18.55%. It means that BAE is more
competent to generate gross profits than its competitor.
Current Ratio:
Year-2018 BAE Systems General Dynamics Corp
Current Ratio 1.0289 1.23
This ratio presents liquidity position of company in short-term. This evaluates
corporation's proportionate of current liabilities and current assets (McLean and Zhao, 2014).
Table containing current ratio of companies shows that current ratio of BAE is 1.03 and of
General Dynamics Corporation is 1.23. This shows that General Dynamics Corporation's short
run liquidity position is much better than BAE.
Debt-equity Ratio:
Year-2018 BAE Systems General Dynamics Corp
Debt-equity Ratio 3.46 0.98
It reflects level of total debts in company as in comparison to shareholders' equity. BAE
system has reported debt-equity ratio of 3.46 while its competitor General Dynamics Corporation
has reported debt-equity ratio of 0.98. This means that in company BAE systems debt level is
higher than total equity funds. While in General Dynamics Corporation debts are lower than in
proportion to shareholders' funds.
Return on Equity:
Year-2018 BAE Systems General Dynamics Corp
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