After analyzing the financial data of both Lockheed Martin and Northrup Grumman I would conclude that Northrup Grumman is in slightly healthier financial condition in 2013 out of these two companies. This conclusion is based on a number of different financial ratios calculated from the figures in each company’s annual report. These include liquidity ratios, solvency ratios, funds management ratios, and profitability ratios. Comparison of these ratios between each company show Northrup Grumman having slightly better numbers and an advantage in some key ratios such as the Current Ratio, Acid-Test, and Profit Margin. The spreadsheet used to calculate these ratios is attached and will be referenced to through the analysis discussion.
The first data analyzed was looking at a couple ...view middle of the document...
In this set Lockheed Martin has a slight edge in Times Interest Earned; however Northrup Grumman has quite the advantage in Times-Fixed-Charges-Earned and Debt-to-Equity. Times Interest Earned shows how well a company is positioned to pay interest on long term debt, with both companies having fairly even figures for that ratio. Debt-to-Equity is an important solvency ratio as it shows the relationship between debt capital and ownership capital. Northrup Grumman has a much better ratio here as this ratio shows most of Lockheed Martin’s capital is from debt rather than ownership.
The next set is looking at funds management ratios. This deals with how a company manages its investment in accounts receivable, inventories, and fixed assets. This category was split about even between the two companies, with Northrup Grumman taking two and Lockheed Martin taking three of the five ratios calculated. The main differences found in this category were the average accounts payable period and inventory turnover. In these two categories Lockheed Martin had much lower values than Northrup Grumman. This shows that Lockheed is able to pay off their bills at a quicker rate and have a higher inventory turnover rate, which could be a positive or negative depending on your company’s business model.
The last category is profitability ratios which include the profit margin and return on investment. These two ratios were split between the companies, with Northrup Grumman gaining the edge in profit margin and Lockheed Martin leading on return on investment. This means that Northrup has the edge in overall profit but Lockheed is doing better with their purchases and gaining greater asset numbers.
Throughout all of these ratio calculations the two companies were fairly even, but because of Northrup Grumman’s advantage in some key ratios I believe they are the healthier company in 2013.