Financial Analysis and Company Valuation of BAE Systems

FINANCE

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUCTION...........................................................................................................................1
2.1 Financial Analysis.....................................................................................................................1
a) Assessment of financial and operating performance of BAE systems plc for the year 2018..1
b) Limitations of using ratio analysis..........................................................................................4
2.2 Company Valuation...........................................................................................................5
a) Calculating the value of BAE systems using different methods.............................................5
b) Valuation methodologies.........................................................................................................7
2.3 Capital structure.........................................................................................................................8
a) Cost of convertible bonds for Absolute plc.............................................................................8
b) Cost of Equity at dividend of 0.30 per ordinary shares...........................................................8
c)Calculation of Weighed Average Cost of Capital of Aboslute plc...........................................8
d) The difficulties faced in calculating the WACC.....................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Finance is the lifeblood for an enterprise. Finance is needed for carrying out different
activities of company. There are various sources of finance through which funds can be raised by
companies. Present report will reveal about the financial analysis of BAE Systems, valuation of
company using different methods and cost of capital using weighted average cost of capital.
2.1 Financial Analysis
a) Assessment of financial and operating performance of BAE systems plc for the year 2018.
BAE Systems Plc
Particulars Formula 2018
Profitability Ratio
Return on capital
employed
Net operating
profit/Employed Capital 7.93%
Employed Capital
Total assets – Current
liabilities (24746-9307) 15439
Net operating profit 1224
Return on Equity
Net Income / Shareholder's
Equity 18.39%
Net Income 1033
Shareholder's Equity 5618
Gross profit margin
Total Sales – COGS/Total
Sales 7.77%
COS 15514
Sales 16821
Operating profit
margin
Operating Income/ Net
Sales 7.28%
Operating income 1224
Revenues 16821
Assets Turnover Sales / Net assets 299.41%
Sales 16821
1

Net assets 5618
Liquidity Ratios
Current assets 9576
Current liabilities 9307
Inventory 774
Quick assets 8802
Current ratio
Current assets / current
liabilities 1.03
Quick ratio
Current assets - (stock +
prepaid expenses) 0.95
Efficiency Ratios
Inventory 774
Trade Receivables 5177
Trade Payables 7740
Days 365
COS 15514
Sales 16821
Inventory days Inventory/COS*365 18.210
Debtor days Debtor/ Sales*365 112.34
Creditor days Creditor / Sales*365 167.95
Investor Return
EPS
Total Earnings/
Outstanding shares
Total Earnings(post
tax) 1370
Outstanding Shares
(in millions) 3192
EPS 0.429
Gearing Ratio
Long-term debt 5050
Shareholder's equity 5618
Debt-equity ratio 0.90
Profitability Ratios
2