CASE STUDY IV

Running Head: CASE STUDY
Case Study
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Lockheed Martin Corporation is viewed as the market leader in the Aerospace and Defense industry especially on the strength of its revenue. It operates a capital structure that is almost equally split between debt and equity with a debt-to-total-capital ratio of 55%. Over the past year Lockheed Martin has experienced a consistent albeit minimal reduction in the return on invested capital – 21.4%, 21.7% and 19.9% in 2007, 2008 and 2009 respectively. This could be associated with the overall contraction of the economy resulting in reduced earnings as a result of increased cost of doing business. Its cash flow position has seen a reversal of trend from what was reported in the year 2008 as a result of the increase in the financing cash flow (Hodder, Hopkins & Wood, 2008). This positive effect was possible as a result of issuance of a new debt that resulted in a positive net change in cash. Overall, Lockheed Martin has seen its share price fluctuate in the past year from a starting point of $75.36, reaching a high of $86.92 before registering a steady decline to the present position of $68.55. The market value added (MVA) of Lockheed Martin currently stands at $20 billion.
Northrop Grumman Corporation is the second placed player in the Aerospace and defense industry measured as denoted by sales. In 2009, it had sales of $9.3 billion dollars. It operates a capital structure that is more equity than debt. This is evident by it having debt-to-total-equity ratio of 31.90%. This has the effect of allowing Northrop Grumman Corporation to easily position itself to take advantage of emerging knowhow as a result of the high equity in addition to allowing it to take on more debt equity should the need arise. In the past year, Northrop Grumman has witnessed a return of invested capital of 15.34%. This is a positive figure especially if viewed in light of global financial crisis which has resulted in the contraction of markets which has resulted in an increase in the price of doing business. However it is still a positive increase from the previous year. The cash flow position has seen a positive growth especially investing cash flow which has risen to positive returns from negative returns the previous year. This coupled with the increase in the financing cash flow has resulted in a positive cash change despite there cash flow from operation activities witnessing a marked reduction. Overall, Northrop Grumman Corporation has witnessed it share price fluctuate from $7.62 to the present value of $63.20 having achieved a high of $69.38. The market value added of Northrop Grumman Corporation currently stands at $6 billion.
Boeing Corporation is occupies position three in the aerospace and defense industry when viewed in terms of sales with sales of just over $8 billion in 2009. It operates a capital structure that has more of debt than equity. It...