Financial Analysis, Valuation, and Capital Structure of BAE Systems Plc

Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Financial Analysis:......................................................................................................................3
Company valuation:....................................................................................................................6
Capital structure:.......................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Finance is a wider concept which mainly in business sense involves procedures which are
dedicated towards raising capital/funds for conducting business operations and expenditures.
Funds are basic need of any business which can be fulfilled by finance. Fundamentally, it covers
effective management of monies/cash and framework for acquisition of required funding in
business (Ayub, 2013). The study report covers three major aspects of finance: Financial
analysis, Valuation of BAE system and Capital structure. It involves comparative ratio analysis
of BAE systems and its competitor Airbus Plc, and Valuation of BAE through different methods.
Further it consists of practical sum related to capital structure like WACC, cost of debts etc. BAE
Systems plc is UK based multinational corporation and top British aerospace, defence and
security company, headquartered in London (BAE Systems Annual Report, 2018).
TASK
Financial Analysis:
Financial analysis is a component of the total role of finance which includes reviewing
historical data to extract information regarding the need for an entity's present and long term
financial health. In a broad range of circumstances, financial analysis could be used to provide
business executives with the data they require to undertake strategic decisions. For every
business executive, the capability to comprehend fiscal details is important (Besley and Brigham,
2013). Financially, company targets and priorities are established and their performance are
evaluated in financial context. It enables to align the overall financial and operational results
with industry norms and rivals. In this context Airbus is biggest competitor of BAE and
international pioneer in aerospace industry. Here is the BAE Systems' ratio analysis along with
comparison with rival and competitor Airbus SE (Airbus Annual Report, 2018), as below:
Profitability Criteria: This is major criteria which assist in interpreting the profitability status
of any corporation. This criteria in ratio analysis is satisfied by ratios such as net-profit margin
ratio, gross-margin ratio etc (De Mooij, 2012). Here are some profitability ratio to compare BAE
and Airbus Plc, as follows:
Net Profit Ratio:
Period: Year-2018 Companies

BAE Systems Plc Airbus SE
Net-Profit Margin Ratio (In
Percentage Form) 5.94 percent 4.79 percent
This ratio help to define extent of profits company is generating after all the business
expenses. Here in it proportion among net profit amount and aggregate revenue amount is used
to analysis the net profitability level of company. As presented in above table, net-profit ratio of
BAE and Airbus are 5.94 percent and 4.79 percent in year-2018. It shows that BAE is
comparatively more efficient to provide net-profits from total revenue.
Gross Profit ratio:
Period: Year-2018
Companies
BAE Systems Plc Airbus SE
Gross Profit margin Ratio (In
Percentage Form) 65.16 percent 13.79 percent
This ratio reveals how productive an entity is in gross profit creation only through its
primary operations are without contemplating indirect incomes or expenditures. It indicates the
operational efficiency of the business (Frieden, 2015). As shown in table gross profit percentage
of BAE and its competitor Airbus Plc are 65.16 percent and 13.79 percent respectively in 2018.
BAE is more able or efficient to generate profits from its core business operations without
deducting any indirect expenditure.
Liquidity: This another fundamental criteria in analysing performance of any corporation.
Liquidity position can be classified as short-term and long-term liquidity position. With help of
ratio analysis it is easy to evaluate the both kind of liquidity status of any corporation. Here are
some ratio in this regard of both enterprises, as follows:
Current Ratio:
Period: Year-2018
Companies
BAE Systems Plc Airbus SE
Current Ratio 1.0289 times 0.96 times