Submission Deadline: Week 9 (60%)

You are required to prepare/submit a report discussing the following

Choose a Multinational Enterprise (MNE) listed on an internationally recognised
Stock Exchange (including for example, London, Dublin, New York or Paris).
-----------------------------------------------------------------------------------------------------------------
I have divided the report into sub-headings and provided the sort of information
required under each sub-heading. I have provided an example using Boeing.

Please note the following instructions

The report is divided into the following subsections.
1. Introduction
2. Section A
3. Section B
4. Section C
5. Conclusion
6. References
7. Appendix

 Do not repeat the questions in red font. They have been provided to help you
identify what is expected – the salient points.
 Do not copy and paste other people’s work. Paraphrase and reference all
definitions, claims and information used.
 No fake references – you lose marks for them.

Introduction

Steps
 What is the name of the company?
 What does the company sell?
 What profit did it make in the last 2 years?
 What is the purpose of the report?

Example using Boeing Aircraft Manufacturer

 What is the name of the company?
The Boeing Company is an American Multinational corporation headquartered in
Chicago, Illinios, USA (Boeing, 2019b).

The Boeing Company designs, manufactures and sells planes, satellites, rockets,
missiles (Weiss and Ami, 2019). The Boeing Company is one of the world’s largest
manufacturer of aerospace and defence equipment (Cameron, 2019). The Company
made over $101.billion in revenues in 2018 (Zazulia, 2019) and have been ranked
consistently among the top 100 companies in the Fortune Global 500 list (Fortune
500, 2019). In this report, the financial performance of Boeing is analysed.
Furthermore, developments affecting the financial performance of Boeing are
outlined, including how it manages the risks associated with its sources of finance
and dividend policy.

1 Section A:
Question: Critically discuss two recent developments in the international
environment appear to have impacted on your chosen company’s recent
performance and development. Analyse how these two developments are likely
to impact on the company in the near future. (10 marks)

Steps
 What is the development? State it as development one, development two.
The development can be one that generated a positive or negative outcome
 Describe the development briefly.
 What is effect of the development on the financial performance of the
company? Discuss the financial impacts – positive and/or negative – It can be
increase or decrease of revenues, profit, share price, liabilities, assets etc.
These financial impacts have to be in the form of facts and figures supported
by credible sources. So, provide citation and reference for these.
 Any strategy developed or implemented by the company to mitigate/exploit the
impacts of the development?

Example – Using Boeing

What is the development?

1.1 Development one: Two Plane Crashes

One event that has affected The Boeing Company’s performance is the
faulty Boeing 737 Max aircraft, which caused two crashes that killed over 350
people (Lee, 2019).

Describe the development briefly.

The air crashes were reported widely in the media around the world (Gelles, 2019a).
The crashes were caused by a set of faulty features in the cockpit which when
reported, were ignored by the Boeing (BBC, 2019b). Though Boeing had claimed the
aircraft models were fuel efficient and safe, however, these were not be. Boeing 737
Max was eventually grounded by the Federal Aviation Authority, the airline regulator
in the US (Marshall, 2019; BBC, 2019a)

What is effect of the development on the financial performance of the company?

The effect of the crashes on Boeing was swift and intense. The event made airlines
to ground their existing fleet of Boeing 737 Max series (Hawkins, 2019). Other
airlines cancelled their order for the aircraft (Layne, 2019a), leading to law suits from
several aircraft leasing companies like Avia which sought for a refund of $35million
from Boeing and $75million in compensatory damages (Slotnick, 2019).

The cancellation of aircraft orders also caused Boeing to lose over $5.6Billion in
revenues (MacmIllain, 2019) as inventory piled up (Bogaisky, 2020). On March,
Boeing shares tanked and about $25billion was wiped off its market value(Layne,
2019b; Isidore, 2019). Investment banks such as Walton has cut Boeing target share
price $95 to $375, citing an increase in “likelihood of a pause on the 737 MAX
production system” due to a delay in the jet’s return (Johnson and Ajmera, 2019). At
one point, $4.3billion was wiped off the Boeing Company market value (Winck,
2020). The impact of these crashes led to the loss of $636M in 2019 (Boeing first
annual loss in 23years)

Any strategy developed or implemented by the company to mitigate the effect of the
development?
Boeing CEO has faced a lot of questions regarding the company’s strategy on
handling the crisis. First, Boeing identified the faults that caused the crashes by
working on the software and make updates(Chua, 2019). Boeing assured airline
operators that it would not sell further aircraft until they are certified airworthy by the
FAA (Gelles, 2019b). Boeing has fired its CEO and appointed a new one; suspended
its share buyback, increased its borrowing to cover the cost of compensation, repairs
and suspended further delivery of 737MAX

1.2 Development two: Covid19

What is the development?

A second development in the global environment that has affected Boeing's financial
performance is the Covid19 pandemic.

Describe the development briefly.

Covid19 assumed a pandemic level in March 2020, which triggered multiple rounds
of travel restrictions and lockdown to curtail its spread around the globe. Countries
closed their boundaries and closed their airspace to air travellers. According to the
International Civil Aviation Organisation in its report (ICAO, 2021), the result was a
60% fall in international air passenger traffic, 65% fall in the revenue of airline
carriers and operators, the introduction of stringent requirements for travellers, and
the 79% decline in international tourism.
Since Boeing provides products and services to the aviation industry, its business
has been gravely affected.
What are the impacts of the development on the financial performance of the
Boeing Company?
The impacts of the pandemic on the financial performance of The Boeing Company
are in two fronts (The Boeing Annual Report, 2020. p. 7)
1. An impact on Boeing operations in the form of suspended operations (like in
South Carolina and Philadelphia), and the increase in operating costs due to
social distancing requirements. Operating costs increased from 3.9billion in
2019 to 4.8billion in 2020 (p.62)
2. A material decline in the demand of Boeing products (pp.35-38). As a
manufacturer of aircrafts and airplanes, the drop in international travel
resulted in a fall in demand for aircrafts leading to a large number of
undelivered airplanes. In addition, the wider impact on the global economy
which impacts on Boeing supply chain and Boeing customers (airlines). The
impact of the fall in demand includes the fall in revenue in 2020 by $18billion,
an increase in debt from $27billion in 2019 to $63bllion in 2020, a negative
operating cash of $18billion in 2020 (p. 68), an impairment in the value of
goodwill and a net loss of $11billion in 2020 ($636m in 2019).

Any strategy developed or implemented by the company to mitigate the effect of the
development?
Boeing has declared it would reduce significantly the size of its workforce due to
falling demand and a large number of non-delivered aircrafts (p. 68). In addition, The
Boeing Company has taken a number of actions to enhance its liquidity – abandon
the share buy-back scheme for 2021 (p.68), reduce production rate of commercial
aircrafts (p.68), substitute share for cash as contribution to pension plan; and
accessing deferring tax payments.

Section B: Dividend Policy and Sources of Finance

Discuss the following key elements of the MNE’s international financial and/or risk
management strategy
(and how they appear to have affected the financial performance of your chosen
company):
• Sources of finance
• Dividend policy

Steps
 Identify and discuss the dividend theory that applies to your company. The
theories are dividend relevance theory and dividend irrelevance theory.
Moving further there are some theories that come under the two mentioned
theories. Check week 4 slides.
 Provide dividend history of the company for the last three years and briefly
discuss the dividend policy - This should include
o dividend paid per share. Interim dividend or final dividend or both? Any
special dividend?
 o Frequency of the dividend payment? Quarterly, biannually?
o Is the dividend policy - Constant? Consistent? Irregular? Regular?
Progressive etc. Again check week 4 slides.
 Note: If you company does not pay dividends, then discuss reason why is this
company policy. Make sure to use irrelevance dividend theory in this
discussion.
 Discuss any influences on decision and capacity to pay dividend due to some
development or events

Example using Boeing

 Identify and discuss the dividend theory that applies to your company. In your
discussion you also need to specify the dividend policy of the company.

The dividend relevance theory applies here. The relevance theory of dividend
states that investors prefer dividends to capital gain as a result of the uncertainty of
capital gains. By implication, shareholders of Boeing have a high appetite for
dividends. To this end, the Bird in Hand theory of dividend (Gordon 1963) applies
here. Furthermore, the Boeing company pays dividend to signal to the market about
its bright future despite existing challenges; this is reflected in the share price jump
that accomplices the announcement of dividend. Therefore, Dividend Signalling
theory also applies. The Dividend Signalling theory states that firms increase the
value of their dividend payment as a signal to the market about its future prospects.

However, with the significant fall in demand and the resulting negative operating
cashflow, Boeing has come under pressure in terms of its capacity to pay dividend.
Boeing stopped its share buybacks in March 2019 as Max 737 Max was grounded
and decided to suspend its dividend payment (Bogaisky, 2020, The Boeing
Company Annual Report, 2020. p. 47)

Provide dividend history of the company for the last three years and briefly discuss it
Boeing has paid dividend consistently in the last three years. Record from (Nasdaq,
2019) shows that Boeing pays dividends quarterly, that is 4 times a year. In 2019,
Boeing paid $8.22 as dividend for a share ($2.055 x 4 quarters), in 2017 Boeing paid
$6.84 ($1.71 x 4 quarters) and in 2016, Boeing paid $5.68 ($1.42 x 4quarters) - see
table 1 below. Boeing did not pay dividend in 2020 as the Board suspended the
declaration and payment of dividends till further notice (p.47)
Fig 1: Boeing dividend paid between 2017-2019 (Nasdaq, 2019)

Annual dividend per share –(2016-2020) (The Boeing Annual Report, 2020 p. 23)

From the above stated dividend values, it shows Boeing operates a dividend growth
policy as the dividend paid has increased over the 3 years considered (2020
excluded). Boeing has a rich dividend history as its fundamentals are strong
(Downey, 2019):

 Three-year dividend growth rate: +23.4%

 Current dividend per share: $2.055
 Current yield: 2.41%

.
Any influences on decision and capacity to pay dividend
Prior to the air crashes with its associated impacts and the pandemic, the Boeing
company has consistently paid dividends to her shareholders. Dividend payment to
shareholders has consistently and gradually increased to the delight of Boeing
shareholders with high appetite for dividends. As profitability and cashflow increased,
Boeing has continued to pay dividend.
This was consistent with the pattern of decision and policy associated with past
CEOs at Boeing who promoted shareholders’ interest via funding share back and
steady dividend increases using operating cashflow (Bogaisky, 2020).
As The Boeing Company dividend grew, the share price has grown over the years
Zach Equity Research, 2021). This reflects the confidence of investors (Bailey,
2019). Even with the challenges associated with the 737Max aircraft at the end of
2019, there was optimism among the board and management at Boeing that the
setback would and should not hamper its ability to continue to pay dividend as its
annual report for 2019 has shown (Ben, 2019).

1.3 Sources of Finance

Steps
 Discuss the company source of finance – Such as Equity and Non-current
liabilities. Here you will need to provide discussion on the some of the reason
behind the changes in the elements of equity and non-current liabilities over
the last periods. This discussion should include the figures related to those
elements.
 Calculate gearing ratio for last three years. Two years in case if the third-year
data is not available in the annual report provided.
o Examine the mix of equity and debt
 Discuss the capital structure of the company in light of the calculated gearing
ratio.
There are two types of capital structure theories, identify and discuss with
valid comments which one applies to your chosen company. Justify why the
company has chosen to use that capital structure theory.
Traditional view (net income approach/ relevancy theory) – Normally
when the gearing ratio is low
M & M view (net operating income/ irrelevancy theory) – Normally when
gearing ratio is high.
 Discuss
o Cash management and financial risks concerned with the capital
structure such as high gearing can make capital structure more risk in
some situations.
o Any other influences on the capital structure of the company

Example of Boeing has been used here

 Discuss the company source of finance – Such as Equity and Non-current
liabilities. Here you will need to provide discussion on the some of the reason
behind the changes in the elements of equity and non-current liabilities over
the last periods. This discussion should include the figures related to those
elements.

The Boeing Company utilizes equity financing and debt financing as its sources of
finance Boeing has a total shareholders’ equity of ($8,300m) and ($18,075m) for
2019 and 2020 respectively. In terms of debt, Boeing has both short term liabilities
and long-term liabilities. The total current liabilities were$121,642m in 2020 and
$102,229m in 2019 while the long-term liabilities were $87,931m and $44,613 in
2020 respectively (The Boeing Company Annual Report, 2020).

State the component of each

Equity – Negative Equity
As can be seen in the below table (from the Balance sheet), the total equity shares
issued is a little above 1billion units. Additional capital is 6745m and $7,745m.
Noticeable in the Balance sheet of the Boeing company is the large amount of
treasury stock (share buyback) , retained earnings and accumulated other
comprehensive loss (The Boeing Company Annual Report, 2020).
Large scale share buy-back over multiple accounting periods accounts for the large
value of treasury shares for 2020 and 2019 ($52b for 2020 and 54billion for 2019).
The Boeing company has a negative equity value for 2020 and 2019, which is due to
the shares buyback. The Boeing company has a robust share repurchase program,
which involves a large scale repurchase of its shares. Boeing repurchased 6.9million
(worth $2.7billion) and 26.1 million shares (worth $9 billion) in 2019 and 2018
respectively. Share repurchase was suspended in April 2020 (The Boeing Company
Annual Report, 2020. p. 47

But comparing the two recent years, Boeing equity is significantly reduced due to
decline in the retained earnings and increase in accumulated other comprehensive
losses.

Title and reference

Debt
A breakdown of the long-term debt/borrowing (found in the Notes to the Account) is
shown below. It consist of Unsecured debt securities, non-recourse debt and notes,
capital lease obligations, commercial paper, and other notes. See the table below
(The Boeing Company Annual Report, 2020)
Fig 4. A breakdown of debt for Boeing 2020 and 2019 The Boeing Company Annual
Report, 2020. p. 105)

 Calculate gearing ratio for last three years. Two years in case if the third-year
data is not available in the annual report provided.
o Examine the mix of equity and debt

Calculating the gearing ratio for Boeing for 2018, 2019, 2020 shows a very high
level of debts in Boeing. This poses a financial risk for Boeing.
2020 2019 2018
Non-current liabilities x 100 82,931 x 100 44613 x 100 35359 x 100
Non-current liabilities + total equity 82,931+(18,075) 44613 + (8300) (410 + 35,359)
127.86% 122.85% 98.85%

The gearing ratio shows 127.86% of debt in 2020, 122.85% in 2019 and 98.85% in
2018. It can be seen that Boeing is heavily leveraged as its liabilities constitute over
90% of its capital structure. The debt level has increased gradually over the past
three years.

 Discuss the capital structure of the company in light of the calculated gearing
ratio.
There are two types of capital structure theories, identify and discuss with
valid comments which one applies to your chosen company. Justify why the
company has chosen to use that capital structure theory.
 Traditional view (net income approach/ relevancy theory) – Normally
when the gearing ratio is low
M & M view (net operating income/ irrelevancy theory) – Normally when
gearing ratio is high.
 Discuss
o Cash management and financial risks concerned with the capital
structure such as high gearing can make capital structure more risk in
some situations.
o Any other influences on the capital structure of the company

Very high levels of debt in Boeing’s Balance sheet shows the irrelevance theory
(MM view) i.e. net operating income theory of Capital Structure. The higher
borrowing is due to debt acquired due to covid impacts.
However, with the threat of financial risk increasing for Boeing as a result of heavy
debt to equity ratio, it shows that Boeing capital structure is not optimal
(FitchRatings, 2020).

Influences => 737Max Grounding, Undelivered Commercial Planes, Dividend

Payment
Boeing recorded an outstanding and increased operating cash flow to a record of
$15.3 billion and maintained cash and marketable securities of $8.6 billion, providing
strong liquidity for the payment of debt (The Boeing Company Annual Report, 2019).
However, accrued liabilities increased from £14b to $22b due to 737 MAX customer
concessions and the grounding of 737 MAX (The Boeing Annual Report 2019. p. 84;
2020. p. 46). Furthermore, total debt increased from $3b to $7b as more commercial
papers were issued. The increase in debt level was designed to provide Boeing with
the capacity to absorb the increasing cost of compensation (about $1.2billion),
delays, cancelled contracts, disruptions to suppliers and production systems; arising
from the suspension of the 737 Max program (Boeing Annual report, 2019. p. 8;
2020. p. 46). Furthermore, additional net borrowing increase of $29.3billion in 2020
was used to cover dividend payment for dividend declared for the 2019 accounting
year (The Boeing Company Annual Report, 2020. p. 47). The net result of this
scenario is high debt level and negative operating cashflow.

Cash Management and Liquidity Risks - Negative operating cashflow

In 2020, the negative operating cash flow worsen as the effects of the pandemic
(Covid19) with its associated reduction in air travel, and a fall in commercial aircrafts
delivery took its toll. Further borrowing has contributed to increasing in the cost of
borrowing. However, Boeing acknowledges that interest rate risk is non-material
(The Boeing Company Annual Report, 2020. p. 58). Boeing dependence on loans
and debt has resulted in the downgrade of its credit rating by credit agencies (Franke
2019; The Boeing Company Annual Report, 2020. p. 48) and further downgrade
could close its access to capital markets.

The Boeing company anticipates its negative operating cash flow would continue into
2023. However, its has put in place some mechanism and plans to mitigate the
effects of negative liquidity: by reducing the production of new aircraft, making share
contributions to the pension plan, reduction in size of workforce to save cash.

Section C: Ratio Analysis

With reference to your chosen Multinational Enterprise (and using the most recent
annual report published),analyse the financial performance (in terms of profitability,
liquidity, efficiency and investment) of the company in the two most recent
consecutive financial periods ( e.g. 2019/2020 or 2021/2020, ) using 8 different
accounting ratios (prior year comparative figures will be available in the annual report

Steps
 Select the 8 ratios
 Define the 8 ratios
 Calculate the 8 ratios (don’t copy and paste ratios ) either in the
appendix or on the body of your report. Show your calculations.
 Interpret the ratios
i. What do the ratio values reveal? – i.e. the significance of the
ratios
ii. Any reason for the movement in the ratios across the two years?

 Note: Paste an image of the Balance sheet/income statement in the

appendix of your report. Do not attach a separate spreadsheet******
I have used Boeing as an example – The calculations are in the appendix

PROFITABILITY RATIOS

ROCE –
This measures (get the definition in a textbook and put a textbook reference after the
definition)
2020 2019
Return on Operating Profit (PBIT) x 100 Operating -12,767 -1,975
Capital Capital employed profit
Employed (Earnings
Capital employed = Total non- from
current liabilities + Total equity Operations)
or Total Assets 152,136 133,625
Capital employed = Total assets – Current 87,280 97,312
Current liabilities liabilities

-19.69% -5.44%

PBIT – Profit before interest and tax – This is the profit before interest and tax are
deducted.
Explanation
1. What is the significance of the ratio you have calculated? – LOOK AT THE
DEFINITION
ROCE measures the return relative to capital employed. The ROCE fell from
--5.44% in 2019 to -19.69% in 2020. Since, ROCE measures returns relative
to capital, that means for every £100 of capital invested, Boeing lost £5.44 in
2019 and £19.69 in 2020.
2. Identify reasons for the movement in the ratio across the two years

 First discuss the relationship between the numerator and denominator

A number of reasons account for the deterioration in the value of
ROCE. Operating loss of $1,975m was made in 2019. This went
further south in 2020 to a loss of $12,767m. Though the value of the
capital increased (due to increase in debt), Boeing could not generate
or improve on its return in 2020. Therefore it is sufficient to say that
Boeing has not been able to effectively utilize its working capital in
generating profits.
 Second present contextual reasons for the movement
Some contextual issues can be cited for the movement in the ratio. The
deep impact of the pandemic on commercial air travel and the
grounding of the 737 Mx airplanes (both were involved in crashes) as
 well as Covid which affected demand for aircraft and aircraft deliveries
(The Boeing Annual Report, 2020, p. 27, 35)

Operating Profit Margin

This measures (define and attach a reference)
2020 2019
Operatin Operating Profit x 100 Operating profit -12,767 -1,975
g profit Total Revenue (Earnings from
margin Operations)
Total Revenue 58,158 76,559
Operating profit is PBIT -22.0% -2.6%

Explanation
1. What is the significance of the ratio you have calculated?
Operating margin fell from -2.6% to -22.0% from 2019 to 2020. Boeing made
operating loss in both years. Since Operating margin measures the operating profit
relative to the revenue, that means for every £100 of sales, Boeing lost £2.6 in 2019
and £22 in 2020. The performance was poorer in 2020.
2. Identify reasons for the movement in the ratio across the two years
 First discuss the relationship between the numerator and denominator
A number of reasons account for the decline in the operating margin.
Operating loss of $1,975m was made in 2019. This went further south in
2020 to a loss of $12,767m. The main cause of the operating loss in 2020
was the fall in sales. Major contributor to the loss were sales which fell
from $76b in 2020 to $58b in 2019. Another was increase in General and
administrative expense which were $3909m in 2019 and $4817m in 2020.
 Second present contextual reasons for the movement
Covid19 and the fall in the demand for commercial aircrafts and deliveries
accounts for the dismal performance in both years (The Boeing Annual
Report, 2020, p. 27, 35)
Gross profit margin
This measures …..(put a textbook reference after the definition)
 Formula
Gross profit x 100
Revenue
2020
(5685) x 100 = profit margin
58158
= -9.77%
2019
4466 x 100 = profit margin
76559

Explanation
What is the significance of the ratio you have calculated?

Gross profit margin fell from 5.83% to -9.77% from 2019 to 2020. That means Boeing
made less profit for every dollar of sales after paying direct cost (production related).

Identify reasons for the movement of the ratios between two years.
1. First discuss the relationship between the numerator and denominator
The ratio has decreased due to decrease in sales revenue from $76559m in
2019 to $58158m in 2020. This decline is more severe in sale of product
component of sales which decreased from $66094m to $47142m. On the
other hand cost of services have also increased from $9154m to $9232m over
the last two years.

2. Second present contextual reasons for the movement

The fall in aircraft demand and delivery occasioned by Covid19 and the Max
grounding caused by the air crashes underpin the fall in gross profit (The
Boeing Annual Report, 2020, p. 30)
 EFFICIENCY RATIOS –
Inventory Turnover – define it, reference it
2020 2019
Inventory Inventory x 365 Inventory
Turnover days 81715 76622
Days Cost of sales Cost of sales 63,843 72,093
468 388

The above is closing inventory which can be found under Assets in the statement of
financial position.
Average inventory can also be used instead of it. But for average inventory you must have
opening inventory, which is the closing inventory for the year before.

Average inventory = Opening inventory + Closing inventory

2
Explanation –
1. What is the significance of the ratio you have calculated?
Inventory Turnover days increased from 344 days to 468 days. It took Boeing
more days to deliver aircraft in 2020. It indicates a less efficient management
of inventories. However, the situation was largely due to external factor which
was outside the control of Boeing.
2. Identify reasons for the movement of the ratio across the two years.
 First - discuss the relationship between the numerator and denominator
The increase in inventory and decrease in cost of sales is the cause for the
decline in turnover ratio, hence increase in inventory days. This is
indicating management intention to keep high level of inventory to support
trade. But this increase level of inventory would subsequently increase the
inventory holding cost of the company.

 Identify reasons for the movement of the ratios between two years.
Boeing admits that there were a large number of undelivered plans in
inventory as at December 2020, which accounted for the large value on
inventory in 2020.
Covid19 and the fall in the demand for commercial aircrafts and deliveries
caused inventory to accumulate (The Boeing Annual Report, 2020, p. 28)
 Receivable Turnover Days – define it and reference it

2020 2019

Receivables Receivables x365 Receivables 1955+7995 3266+9043

turnover Total Revenue = 9950 = 12309
days (sales) Total 58,158 76,559
Revenue
(sales)
62 59

The above is receivables which can be found under Assets in the statement of financial
position.
Average receivables can also be used instead of it. But for average receivables you must
have opening receivables, which is the receivable amount for the year before.

Average receivable = Opening receivable + Closing receivable

2
Explanation –
1. What is the significance of the ratio you have calculated?
2. Receivable turnover days was 59 days in 2019 but increased to 62 days in
2020. Although, this might look like some decrease in efficiency as the
customers are taking slightly more time to settle their dues with Boeing.

3. Identify reasons for the movement in the ratio across the two years

 Discuss the relationship between the numerator and denominator

Receivable turnover days was 59 days in 2019 which increased to 62 days in
2020. Although the receivables (Account and unbilled) are decreasing along
with the sales. But the rate of decline in receivables is slower than the sales.
Which shows company ineffective ability to retrieve cash from customer.
Increase in the receivable days can mainly be due to two reasons:
a. The customer are having financial difficulties and delaying their
payments.
b. It can be company sales strategy to give more time to the customers to
settle their debt, which can potentially bring more sales.
But as in this case Boeing sales are decreasing, therefore more likely case is
the customer (airline companies) are facing financial difficulties.
 Present contextual reasons for the movement in the ratio across the two
years
 Boeing admits that there were a large number of unbilled receivables as
contract execution takes a long period. While it recognises revenue, it
cannot issue involve under the terms of the contract with the customer
(The Boeing Annual Report, 2020, p.73)

LIQUIDITY RATIOS
Current Ratio- define and attach a reference

2020 2019
Current Current Asset Current Asset 121,642 102,229
Ratio Current Liabilities
Current 87,280 97,312
Liabilities
1.39:1 1.05:1

Explanation
1. What is the significance of the ratio you have calculated?
The current ratio for Boeing is above 1, for year 2020 and 2019, which means
Boeing can meet its short term obligation as they fall due.

2. Identify reasons for the movement of the ratios between two years.
 Discuss the relationship between the numerator and denominator
In 2020, current ratio was 1.39. However, there was increase from 1.05 to
1.39 between 2019 and 2020. This was due to increase in current assets such
as customer financing and short term investment. Also current liabilities are
also decreasing which is also a contributing factor.

 Second present contextual reasons for the movement in the ratio

across the two years.
Boeing admits that there were a large number of undelivered
inventories due Covid19 and travel restrictions (The Boeing Annual
Report, 2020, p.73)

Acid Test/Quick Test Ratio – define and attach a reference

 2020 2021
Quick (Current Asset - inventories) Current Asset 121,642 102,229
Ratio Current Liabilities
Inventories 81,715 76,622

Current 87,280 97,312

Liabilities
0.46 0.26
Explanation
1. What is the significance of the ratio you have calculated?
Acid test ratio falls below 1. That means - with the removal of inventory,
Boeing is illiquid and might not be able to meet its short obligations as they fall
due. Which means still there remains a higher probability that Boeing will not
be able to meet short term liabilities in the scenario of quick payments
demanded by creditors.
2. Identify reasons for the movement of the ratio across the two years.
The increase is caused by the an increase in short-term investment made in
2020. Short-term investment increased from $545m in 2019 to $17,838m in
2020.This was used to pay benefits and used as a liquidity vehicle (The
Boeing Annual Report, 2020, p.113)

GEARING RATIOS
Interest Coverage Ratio – define and attach a reference

2020 2019
Interest Operating Profit (PBIT) Operatin -12,767 -1,975
Coverag Interest on Loan (Finance costs) g profit
e
Interest 2,156 722
on loan
-5.92 -2.74

Explanation
1. What is the significance of the ratio you have calculated?
 Boeing had an interest coverage ratio of -2.74 in 2019 and -5.92. The
negative values show that Boeing might struggle to pay its interests in loan
since it made a loss in 2019 and 12020
The fall in operating profit is largely due to the fall in sales with a lower
percentage fall in operating profit
2. Identify reasons for the movement of the ratio across the two years.
The negative cash position of Boeing means it would delay the payment of its
interest on loan as it is uncertain with respect to when commercial flights
would return to pre-pandemic levels

Conclusion
Here you can write short summary of the report

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Appendix

2020 2019
Profitability
-12,767 -1,975
Operating Profit (PBIT) x 100 Operating profit (Earnings from Operations)
Return on Capital Total Asset - current liabilities Total Assets 152,136 133,625
Employed Current liabilities 87,280 97,312

-19.69% -5.44%

-12,767 -1,975
Operating profit
Operating Profit (PBIT) x 100 Operating profit (Earnings from Operations)
margin
Total Revenue Total Revenue 58,158 76,559
-22.0% -2.6%

Profit attributable to the shareholders x -11,873 -636

Profit attributable to the shareholders
100
Return on Assets 152,136 133,625
Total Assets Total Assets
-7.80% 0.48%

Liquidity Ratio
Current Asset 121,642 102,229

Current Ratio Current Asset 87,280 97,312

Current Liabilities Current Liabilities
1.39 1.05
 (Current Asset - inventories) 121,642 102,229
Current Liabilities Current Asset
Quick Ratio Inventories 81,715 76,622
Current Liabilities 87,280 97,312
0.46 0.26

Efficiency Ratios
79, 69,594
Average Inventory x 365 days Average inventory 168.50 .50
Inventory Turnover
Cost of sales
Days Cost of sales 63,843 72,093
453 352

Average receivables 2610.5 3572.5

Receivables turnover Receivables x 365 days
Total Revenue 58,158 76,559
days Total Revenue
16.4 17.0

Gearing Ratios

Operating Profit (Earnings from

Operating profit -12,767 -1,975
Operations)
Interest Coverage
Interest on Loan (Finance costs)
Interest on loan 2,156 722
-5.92 -2.74

Investment Ratio Per share Per share

Earnings per Share Net income (Profit for the Year) Net income -11,941 -636
Number of ordinary shares Number of ordinary shares 569 566
-20.99 -1.12