Corporate Finance Report: Analysis of BAE Systems Stock Performance

This report provides a comprehensive technical analysis of BAE Systems (BA.L) stock, examining its historical price evolution, performance relative to the FTSE 100 index, and key financial metrics. The analysis includes a breakdown of the stock's volatility, comparing it to the market, and evaluates its performance across different time periods. The report delves into BAE Systems' capital structure, exploring the mix of debt and equity, and providing details on the composition of current debt, including maturity periods and interest rates. Furthermore, it presents a detailed ratio analysis, including ROCE, operating margin, and inventory turnover, offering insights into the company's financial health and performance over several years. The report also discusses the implications of these financial metrics, providing an overview of the company's financial position.

CORPORATE
FINANCE

INTRODUCTION
Technical analysis of stocks is a method of analysis of stocks using historical chart patterns of
publicly available stocks. In other words, technical analysis means past trends of charts and
volumes to predict the behavior of the share price using their charts and other technical
indicators. No one makes a profit every time in the stock market, and there is a day when there is
a loss too. But, if you have the expertise in spotting market trends, you can make a good profit
from intraday. Fundamental analysis shows which shareholders are expected to invest, while
technical analysis shows when the money can be increased by investing in them.
PART A – Stock Market Analysis
A plot of the price evolution of the stock
BAE Systems, BA.L:
BAE Systems plc is a barrier, aviation and security organization. The Company works through
five portions. The Electronic Systems section comprises of the Company's United States and
United Kingdom-based hardware exercises. The Cyber and Intelligence section comprises of its
United States-based Intelligence and Security business and United Kingdom-based Applied
Intelligence business, and spreads the Company's digital, secure government, and business and
money related security exercises. The Platforms and Services (US) section, with activities in the
United States, United Kingdom and Sweden, produces battle vehicles, weapons and weapons.
Air fragment contains the Company's United Kingdom-based air exercises for European and
global markets, and United States projects, and its organizations in Saudi Arabia and Australia,
together with its enthusiasm for the MBDA Holdings SAS (MBDA) joint endeavor. Oceanic
section includes the Company's United Kingdom-based sea and land exercises.

Date 01/02/2012 01/04/2014 01/06/2016 01/08/2018
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A comparative plot of the stock price evolution and the benchmark index, the
FTSE 100 index.
Stock performance:
As compared to FTSE 100; BA.L has more consistently performing, below graph indicates that
company has shown less volatility in its stock price as compared to market stock price which is
FTSE 100.
Date 01/01/201201/02/201401/03/201601/04/2018
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Summary return statistics of the stock and FTSE 100 Index
Mean = 0.0033
Variance = 0.00111
Standard Deviation = 0.0333
Skewness: -0.11108.
Kurtosis: -0.271791.
Beta calculation =
0.955429
Less than 1; Security’s price tends to be less volatile than the market
Hence, it can be evaluated that, BA.L is less volatile stock than the market. Which indicates it is
less risk asset from the market perspective. There is chance that it will give more secured return
than any other assets available in the market. On the other hand; it is not recommended to
speculator, who wants more volatility in the price of the share.
Analysis broken down into two 5 year periods
2010 -2014 2015 - 2019
Variance Variance
0.00301835 0.00389317
Covariance Covariance
0.00115338 -9.9346E-05
Beta Beta
0.88847529 -0.10752361
2010 - 2014 2015-2019

Mean 358.10333 Mean 546.58333
Standard Error 7.6964905 Standard Error 8.0344015
Median 341.55 Median 537.5
Mode 340 Mode 571.40
Standard
Deviation 59.616759
Standard
Deviation 62.234206
Sample Variance 3554.1579 Sample Variance 3873.0965
Kurtosis -0.988375 Kurtosis -1.060049
Skewness 0.4249004 Skewness 0.1197521
Range 218.5 Range 232.70001
Minimum 260.10001 Minimum 437.29999
Maximum 478.60001 Maximum 670
Sum 21486.2 Sum 32795
Count 60 Count 60
PART B - Capital Structure
1. Mix of Debt and Equity:
2019 2018 2017 2016 2015
Debt 3,020.00 3,514.00 4,069.00 4,425.00 3,775.00
Equity 5,407.00 5,546.00 4,712.00 3,485.00 2,989.00
Debt/
Equity 0.558535 0.63361 0.86354 1.269727 1.262964
Interpretation: From 2015 to 2016, debt equity ratio is more than 1; which indicates that
company has more debt than equity. It also indicates that company is more risky to become
insolvent if fail to earn regular income, but at the same time its weighted average cost of capital
is lesser than 2017, 2018 and 2019 finance mix. In rest of the year 2017, 2018 and 2019; debt
equity mix is lesser than 1; which indicates less risk of insolvency, but at the same time high cost
on equity has to pay in the form of heavy tax on earnings.
2. Details of composition of current debt
At present the difference between long term and short term debt of BA.L is – 4,997 Million
GBP. The maturity period of long term debt is 12 years, interest payable annually at the rate of
9.5%. And the maturity of short term debts or liabilities is between 6 to 7 months. The long term

debt is raised from different sources, it has been categories as follows; bonds = 1,556 mill GBP
and directly from bank = 2,580 Mill GBP. The debt is denominated in pounds, which has current
rate equivalent to 1.26 of dollars.
3. Ratio analysis
BAE Systems Plc.’s ROCE ratio for last 5 years
ROCE
The ROCE ratio for company decreased sharply to 2.15% at the end of 2009.Themain reasons of
this result are huge amortization and impairment of intangible assets and regulatory penalties of
company. BAE Systems was alleged to have paid bribes to win overseas contracts, including the
sale of Tornado jets to Saudi Arabia.
Operating Margin
Working overall revenue expanded from 8,23% to 10,31% in light of the fact that ascending of
other all out pay and intrigue got from £1257 m in 2007 to £3380 m in 2008.Then there was a
noteworthy fall in 2009 because of 33% expansion in organization costs and 207% expansion in
net intrigue. Another fascinating point is that when ROCE proportion was somewhat diminishing
from 11,67% to 11,43%, working overall revenue expanded from 7,13% to 8,89% somewhere in
the range of 2010 and 2011.It was because of 17% reduction in organization costs in 2011 in
spite of 16% abatement in deals income in a similar period.
Return to share holders Funds:
There is a noteworthy increment in ROSF proportion by 60% somewhere in the range of 2007
and 2008 because of high measure of intrigue got in 2008.The explanation of sharp fall
somewhere in the range of 2008 and 2009 is that gathering needed to pay tremendous quantities
of amortization costs and other intrigue paid. Moreover, BAE was fined £256 million by the U.S.
department of equity subsequent to conceding to scheming to offer bogus expressions to its
administration.
Inventories turnover period:

There is a negative pattern somewhere in the range of 2008 and 2010 in stock turnover periods
regardless of the positive circumstance from 2007 to 2008 in light of the fact that when cost of
deals was expanding, it reflected adversely to turnover period and when cost of deals was
diminishing, inventories turnover period was turning out to be lower and lessening stock
expenses.
Receivables turnover period:
Regardless of the expanding from 2007 to 2008, bunch was effective on hazard and credit the
executives those receivables turnover days had been tumbling from 64,41 days in 2008 to 47,35
days toward the finish of 2010.After that there is a somewhat increment from 47,35 days in 2010
to 53,82 days in 2011.
Current Ratio:
Somewhere in the range of 2007 and 2009, current proportion hasn't changed so a lot and
remained stable. However there is a 10% tumble from 2009 to 2010 on account of diminishing
current resources from £878 8 m to £7616 m. At the point when we search for 2010 and 2011,
this pattern proceeds from 65% to 62% regarding declining ebb and flow resources from £7616
m to £6381 m while liabilities diminished from £11658 m to £10275 m.

REFERENCES
Online
https://www.academia.edu/3840583/
A_report_evaluating_and_reviewing_the_financial_and_non-
financial_Business_performance_of_BAE_Systems_Plc._and_its_competitor_Rolls_Royce_Plc