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Financial Health Analysis and Improvement Recommendations for Textron Inc.
Student Name
4th Jul 2024
Executive Summary
This report presents an analysis of the financial performance of Textron Inc., a company in multi industry operating through its subsidiaries within aerospace, defense and other industrial segments. By performing vertical, horizontal and ratio analyses using Textron's financial statements as well comparing it to a competitor analysis with General Dynamics due give recommendations of each part on the graphical presentation of its results for this report. The analysis shows that although Textron is in a strong financial position, there are areas of operations along with working capital management and revenue mix where improvement can be made.
1. Financial Statement Analysis
a. Vertical Analysis
Key takeaways using this data as a vertical analysis of Textron's income statement for 2023 are:
· Cost of Sales: 83.4% of Total Revenue
· Gross Profit: 16.6% of Total Revenue
· Selling and Administrative Expenses: 9.0% of Total Revenue.
· Net income: 6.7% of Total Revenue
Roger et al (2019) argue that the successive breakdown shows a potential for Textron to increase its profitability through reduction of obscene off operating expenses as well improving overall subcontractor gross margin.
The balance sheet vertical analysis for 2023 shows:
· Current Assets: 46.0% of total assets
· Long-term Assets: 54.0% of total assets
· Current Liabilities: 26.0% of total liabilities and shareholders' equity
· Long-term Liabilities: 32.6% of total liabilities and shareholders' equity
· Shareholders' Equity: 41.5% of total liabilities and shareholders' equity
This structure indicates the company internally takes a balanced approach to asset management and has relatively high equity through its outstanding share accounts thus allowing greater financial leverage (Titman et. al., 2018)
b. Horizontal Analysis
The horizontal analysis comparing 2023 to 2022 reveals several notable trends:
· Total revenues increased by 6.3%
· Gross profit increased by 10.1%
· Net income increased by 6.97%
· Total assets increased by 3.5%
· Total liabilities increased by 7.5%
· Shareholders' equity decreased by 1.8%
This all signals concerning sales expansion but with everything lifting at Textron its now just that, a signal; an impression of strengthening in broad top and bottom line trends. Yet the rise in liabilities outperforms asset growth, as does the slight decrease of shareholders' equity (Ross et al., 2019).
2. Ratio Analysis
a. Liquidity Comparison
· Current Ratio: Textron (1.77) vs. General Dynamics (1.44)
· Quick...