EXECUTING & REPORTING FINANCIAL MARKET

TRANSACTIONS

FINC 620

The Boeing Company (BA)

Submitted By

DHAIRYA FURIA

ROHAN MACHADO

SUJIT KURIEN

RAHUL JADHAV

DOJENDRA

1. Company Background

The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. The Company was founded in 1916 and is based in Chicago, Illinois. The company operates in five segments:

1. The Commercial Airplanes segment develops, produces, and markets commercial jet aircraft for various passenger and cargo requirements, as well as provides related support services to the commercial airline industry. This segment also offers aviation services support, aircraft modifications, spares, training, maintenance documents, and technical advice to commercial and government customers.

2. The Boeing Military Aircraft segment is involved in the research, development, production, and modification of manned and unmanned military aircraft and weapons systems for the global strike and vertical lift, and unmanned airborne systems programs, as well as mobility, surveillance, and engagement.

3. The Network & Space Systems segment engages in the research, development, production, and modification of electronics and information solutions; strategic missile and defense systems; space and intelligence systems; and space exploration products.

4. The Global Services and Support segment offers integrated logistics, including supply chain management and engineering support; maintenance, modification, and upgrades for aircraft; and training systems and government services, such as pilot and maintenance training.

5. The Boeing Capital segment facilitates, arranges, structures, and provides financing solutions, such as equipment under operating leases, finance leases, notes and other receivables, assets held for sale or re-lease, and investments for its commercial airplanes customers.

Key Financial Statistics:

Market Cap: $102.95 Billion Stock Price: $146.15 as of April 29, 2015 P/E Ratio: 18.46 EPS: 7.99 Dividend: $3.64 Dividend Yield: 2.40% Profit Margin: 6.29% Return on Equity: 51.34% Total Debt: $9.04 Billion

2. Financial Statements

Segment-Wise Revenue and Earnings

Years ended December 3

1,

2010 2011 2012 2013 2014

Amount % Amoun

t % Amount % Amoun

t % Amount %

Growth rate 6.89% 18.86% 6.03% 4.78%

Revenues:

Commercial Airplanes

$31,834

49.50% $36,171

52.62% $49,127

60.13% $52,981

61.16% $59,990

66.10%

Defense, Space & Security:Boeing

Military Aircraft

14,238 22.14% 14,947 21.75% 15,388 18.84% 15,285 17.65% 13,511 14.89%

Network & Space

Systems

9,449 14.69% 8,654 12.59% 7,911 9.68% 8,512 9.83% 8,003 8.82%

Global Services &

Support

8,256 12.84% 8,375 12.18% 9,308 11.39% 9,400 10.85% 9,367 10.32%

Total Defense, Space & Security

31,943 49.67% 31,976 46.52% 32,607 39.91% 33,197 38.32% 30,881 34.02%

Boeing Capital 729 1.13% 620 0.90% 468 0.57% 408 0.47% 416 0.46%

Unallocated items,

eliminations and other

-200 -0.31% -32 -0.05% -504 -0.62% 37 0.04% -525 -0.58%

Total revenues

$64,306

100.00%

$68,735

100.00%

$81,698

100.00%

$86,623

100.00%

$90,762

100.00%

Earnings from

operations:Commercial

Airplanes $3,006 60.47% $3,495 59.80% $4,711 74.90% $5,795 88.31% $6,411 85.79%

Defense, Space & Security:Boeing

Military Aircraft

1,250 25.15% 1,526 26.11% 1,487 23.64% 1,504 22.92% 1,304 17.45%

Network & Space

Systems

705 14.18% 679 11.62% 562 8.93% 719 10.96% 698 9.34%

Global Services &

Support

920 18.51% 953 16.31% 1,019 16.20% 1,012 15.42% 1,131 15.13%

Total Defense, Space & Security

2,875 57.84% 3,158 54.04% 3,068 48.78% 3,235 49.30% 3,133 41.92%

Boeing Capital 152 3.06% 113 1.93% 88 1.40% 107 1.63% 92 1.23%

Unallocated items,

eliminations and other

-1062 -21.36%

-922 -15.78%

-1,577 -25.07%

-2,575 -39.24%

-2,163 -28.94%

Earnings from

operations

4,971 100.00%

5,844 100.00%

$6,290 100.00%

$6,562 100.00%

$7,473 100.00%

Other (loss)/incom

e, net

52 1.05% 47 0.80% 62 0.99% 56 0.85% -3 -0.04%

Interest and debt expense -516 -

10.38%-498 -8.52% -442 -7.03% -386 -5.88% -333 -4.46%

Earnings before

income taxes

4,507 90.67% 5,393 92.28% 5,910 93.96% 6,232 94.97% 7,137 95.50%

Income tax expense -1196 -

24.06%-1,382 -

23.65%-2,007 -

31.91%-1,646 -

25.08%-1,691 -

22.63%

Net earnings from

continuing operations

3,311 66.61% 4,011 68.63% 3,903 62.05% 4,586 69.89% 5,446 72.88%

Net loss on disposal of

discontinued operations,

-4 -0.08% 7 0.12% -3 -0.05% -1 -0.02% 0 0.00%

Net earnings $3,307 66.53% $4,018 68.75% $3,900 62.00% $4,585 69.87% $5,446 72.88%

Consolidated Statements Of Financial Position (USD $)In Millions, unless Dec. 31, 2014 Dec. 31,

Assets  Cash and cash equivalents $11,733  $9,088 Short-term and other investments

1,359 6,170

Accounts receivable, net 7,729 6,546Current portion of customer financing, net

190 344

Deferred income taxes 18 14Inventories, net of advances and progress 

46,756 42,912Total current assets 67,785 65,074Customer financing, net 3,371 3,627Property, plant and equipment, net

11,007 10,224Goodwill 5,119 5,043Acquired intangible assets, net

2,869 3,052Deferred income taxes 6,576 2,939Investments 1,154 1,204Other assets, net of accumulated amortization 

1,317 1,500Total assets 99,198 92,663Liabilities and equity  Accounts payable 10,667 9,498Accrued liabilities 13,343 14,131Advances and billings in excess of related costs

23,175 20,027Deferred income taxes and income taxes payable

8,603 6,267Short-term debt and current portion of long-term debt

929 1,563

Total current liabilities 56,717 51,486

Accrued retiree health care

6,802 6,528Accrued pension plan liability, net

17,182 10,474Non-current income taxes payable

358 156Other long-term liabilities 1,208 950Long-term debt 8,141 8,072Shareholders' equity:  Common stock, par value $5.00 â€“ 1,200,000,000 

5,061 5,061Additional paid-in capital 4,625 4,415Treasury stock, at cost -23,298 -17,671Retained earnings 36,180 32,964Accumulated other comprehensive loss

-13,903 -9,894

Total shareholders equity 8,665 14,875Noncontrolling interests 125 122Total equity 8,790 14,997Total liabilities and equity $99,198  $92,663 

FCFF Calculation

  2013 2014 2015 2016 2017

Sales Growth rate 4.78% 10% 7% 5%

NOPAT 4585 5446 5991 6410 6730

NOWC 34917 42208 46429 49679 52163

TOC 45141 53215 58537 62634 65766

NIOC 8074 5322 4098 3132

FCFF -2628 669 2312 3599

FCFF growth 125.46% 245.60% 55.63%

ROIC 10.16% 10.23% 10.23% 10.23% 10.23%

WACC 8.40% 8.40% 8.40% 8.40% 8.40%

3. Bond Details

Issue Size: $750 Million

Par Value: $1000

Coupon Rate: 4.875%

Coupon Type: Fixed

Coupon Frequency: Semi-Annually

Issue Date: 02/15/2010

Maturity Date: 02/15/2020

Payment Currency: US Dollar

Benchmark Treasury: US Treasury 10-20 year yield USD

Yield Spread: -0.39%

Treasury Yield: 2.32%

4. Bond Analysis

Semi-Annual Bond : N = 10*2=20 , Rd= 5/2= 2.5%

Effects on the Value of the Bond if expected inflation rate rises or falls

The Value of the 10-year bond if the required rate of return remained at 3%,5%,7% & 10%

  Value of Bond for every 6 month period

N 3% 5% 7% 10%

0 ₹1,160.96 ₹990.26 ₹848.99 ₹680.66

1 ₹1,154.00 ₹990.64 ₹854.33 ₹690.31

2 ₹1,146.93 ₹991.03 ₹859.86 ₹700.45

3 ₹1,139.76 ₹991.43 ₹865.58 ₹711.10

4 ₹1,132.48 ₹991.84 ₹871.50 ₹722.28

5 ₹1,125.09 ₹992.26 ₹877.63 ₹734.02

6 ₹1,117.59 ₹992.69 ₹883.97 ₹746.35

7 ₹1,109.98 ₹993.14 ₹890.53 ₹759.29

8 ₹1,102.26 ₹993.59 ₹897.33 ₹772.88

9 ₹1,094.42 ₹994.05 ₹904.36 ₹787.15

10 ₹1,086.46 ₹994.53 ₹911.64 ₹802.13

11 ₹1,078.38 ₹995.02 ₹919.17 ₹817.86

12 ₹1,070.18 ₹995.52 ₹926.96 ₹834.38

13 ₹1,061.86 ₹996.03 ₹935.03 ₹851.72

14 ₹1,053.41 ₹996.56 ₹943.38 ₹869.94

15 ₹1,044.84 ₹997.10 ₹952.03 ₹889.06

16 ₹1,036.13 ₹997.65 ₹960.97 ₹909.14

17 ₹1,027.30 ₹998.21 ₹970.23 ₹930.22

18 ₹1,018.34 ₹998.80 ₹979.82 ₹952.35

19 ₹1,009.24 ₹999.39 ₹989.73 ₹975.60

20 ₹1,000.00 ₹1,000.00 ₹1,000.00 ₹1,000.00

Effect of interest rate on bond with different maturities

7-Yr Maturity 10-Yr Maturity 5-Yr Maturity

Rate Price Rate Price Rate Price

  $992.77   $990.35   $994.59

1.0% 1,260.72 1.0% $1,367.01 1.0% $1,188.07

3.0% 1,116.82 3.0% $1,159.94 3.0% $1,085.87

5.0% 992.77 5.0% $990.35 5.0% $994.59

7.0% 885.48 7.0% $850.75 7.0% $912.87

10.0% 750.49 10.0% $685.09 10.0% $805.72

1.0% 3.0% 5.0% 7.0% 10.0%$700.00

$800.00

$900.00

$1,000.00

$1,100.00

$1,200.00

$1,300.00

$1,400.00

$1,500.00

10 Yr. versus 5 Yr.Series1

Series2

Your Choice

YTM

You can see that as the interest rate goes from 1% to 10%, the price changes are bigger for a 10-year bond.

rd 5-Year P Change 10-Year P Change

1.0% $1,188   $1,367  

    19.5%   38.0%

5.0% $995   $990  

    23.4%   44.6%

10.0% $806   $685  

5. Stock Analysis

Risk free rate=2% , Rm = 8% , b = 0.89

Cost of Capital (rs) = rRF + b (rM – rRF)

= 2% + 0.89(8% - 2%)

= 2% + 0.89 (6%)

= 7.34%

Constant Growth Model

Current Stock Price = P0 = $119.51

Stock Price 1 year from now:

P1 = D2 / ( rs – g )

D2 = D1 (1+g) = $3.2058

P1 = $3.2058 / 0.0256

P1 = $125.23

Dividend Yield = D1/P0 CG Yield = (P1 – P0)/ P0

Dividend Yield = $3.06 / $119.51 CG Yield = $5.71 / $119.51

Dividend Yield = 2.56% CG Yield = 4.78%

Total Yield = Dividend Yield + CG Yield

Total Yield = 7.34%

What percentage of the stock price is based on long term and short term expectations

Year (t) 0 1 2 3

Dt = D0 (1+g)t   $3.0596 $3.2058 $3.3591

PV(Dt) = Dt/(1+rs)t   $2.8504 $2.7824 $2.7160

         

Sum of PV(Divs.) $8.35      

P0 $119.51      

% of P0 due to 3 PV(Divs.)

7%  

% of P0 due to long-term divs.

93%

Effect on the Stock Price when ‘g’ & ‘r’ fall or rise

Growth Rate: g Required Return: rs      

  5.3% 6.3% 7.3% 8.3% 9.3%

4% $194.25 $118.37 $85.12 $66.46 $54.50

5% $546.35 $196.13 $119.51 $85.94 $67.10

6% -$701.99 $551.57 $198.00 $120.66 $86.76

Value of the stock if the growth rate is not constant

Current Stock Price = $293.86 $294

Expected Dividend and CG Yields at t = 0

Dividend Yield = 1.2%

CG Yield = 6.1%

Total Return = 7.3%

Expected Dividend and CG Yields at t = 3

Dividend Yield = 0.0%

CG Yield = 7.3%

Total Return = 7.3%

Valuation of Stock Price

 INPUTS:  

Value of operations = $92,668.04

Value of nonoperating assets = $1,359.00

All debt = $8,141.00

Preferred stock = $0.00

Number of shares of common stock = 1000.00

ESTIMATING PRICE PER SHARE

Value of operations $92,668.04

+ Value of nonoperating assets 1,359.00

Total estimated value of firm $94,027.04

− Debt 8,141.00

− Preferred stock 0.00

Estimated value of equity $85,886.04

÷ Number of shares 1,000.00

Estimated stock price per share = $85.89

6. Conclusion

We can confer from the above analysis, that Boeing is a very solid and stable company. From the financial statements, we can see that the revenue and earnings have been growing at a good rate & the cash flow is positive and growing. Boeing is constantly increasing it’s commercial segment and cutting back on costs from it’s lagging defence segment. It’s Return on Invested Capital (ROIC) is also greater than the Weighted Average Cost of Capital (WACC), this means that they are creating value by investing in their operations. But from the stock valuation and looking at the P/E Ratio, we can conclude that Boeing’s stock is a bit overpriced. But it is still a safe investment as Boeing pays a dividend yield of over 2% and it has positive prospects to keep on growing.

Comparing the performance of Boeing’s bond with it’s stock, we can say that investing in bonds would be a better option as they provide an ongoing return on investment at a rate of 4.875% and you receive the face value on maturity. Any return rates generated by a bond investment equals a percentage of the bonds original price, which means that the bonds rate of return remains relatively consistent so there is little risk of losing the initial investment amount unless the company goes under. The effects of interest rate and inflation rate changes are also comparatively less on bonds than that on stocks, thus making bonds less risky whereas, stock investments have virtually no limit on how high or low they can go in terms of market value.

7. References

http://quicktake.morningstar.com/StockNet/Bondsquote.aspx? cid=0C000006YX&bid=f40721b9917c0e66a96e2c5d760df708&bname=Boeing+4.875%25+%7c+Maturity%3a2020&ticker=BA&country=USA&clientid=dotcom

https://www.sec.gov/cgi-bin/browse-edgar? action=getcompany&CIK=0000012927&owner=exclude&count=40&hidefilings=0

Mini Case Study : Chapter 5 & 7.