Huntington Ingalls Industries’ Financial Analysis Essay

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Brief overview of major findings

Huntington Ingalls Industries is one of the largest American shipbuilding companies that specialize in nuclear-powered ships. The company also offers engineering and management services to the oil, gas and nuclear market. The company has invested huge capital in research and development in order to improve the quality of its products and services. Huntington Ingalls is headquartered in Newport, Virginia (DePamphilis 602). The company operates both locally and internationally. Moreover, it has a high liquidity ratio and is financially healthy compared to other companies in the same industry. The company has been reporting high-profit margins in the last four years. For instance, in 2014, it reported high sales revenue amounting to $7billion, which represented a 2 percent increase, compared the previous year. In this paper, we shall critically analyze the liquidity, profitability, debt and asset ratios of Huntington Ingalls Industries. Moreover, the paper analyzes the strengths and weaknesses of the company compared to its main competitors General Dynamic Inc.

Strengths and weaknesses

The strategic strength of Huntington Ingalls Industries lies in the ability of the firm to be innovative using modern technology to build high-tech military warships. Secondly, Orr argues that the company has a well-established capital base that enables management to acquire new technologies on the market (6). Moreover, the company has well-established sales and distribution networks that make it easier to market its products. Finally, Huntington Ingalls Industries has a well-trained and motivated workforce that enables the company to achieve its goals effectively.

Although the company enjoys close relations with the US navy, it operates in a small market compared to its main competitor General Dynamic. Moreover, the level of competition in the market is very stiff that reduces the profitability of Huntington Ingalls Industries.

Comparing financial ratios with those of competitors in the same industry

The major competitor of Huntington Ingalls Industries is General Dynamic Inc. The ratios are compared in the tables below.

Profitability.

Profitability ratioHuntington Ingalls IndustriesGeneral dynamic
Gross margin21%19%
Operating margin20%19%

Huntington Ingalls Industries has a high profit margin ratio compared to its main competitor General Dynamics (Vasiu and Gheorghe 193). This is an indication Huntington Ingalls Industries uses its assets effectively. For instance, the company reported an increase in net profit by 30 percent in 2014. Moreover, the profit per diluted share increased by 32 percent in 2014.

Liquidity.

LiquidityHuntington Ingalls IndustriesGeneral dynamic
Current ratio1.791.17
Quick ratio1.570.05

From the ratios above, Huntington Ingalls Industries has outperformed General Dynamic. For instance, a current ratio of 1.79 shows the number of times current assets cover current liabilities (Altman 592). A high ratio shows that a company is liquid, which also means that it will be able to meet its current liabilities when they fall due (Bansal 52).

Debt ratio.

DebtHuntington Ingalls IndustriesGeneral dynamic
Debt to equity ratio0.850.27

The debt to equity ratio indicates the amount of fixed return capital used to finance a company compared to equity (Damjibhai 33). Huntington Ingalls Industries is highly geared which is an indication $0.85 debt has financed the company for every $1 of equity.

Asset activity ratio of Huntington.

Asset ratiosHuntington Ingalls IndustriesGeneral dynamic
Asset turnover ratio6.575.31

Huntington Ingalls Industries has a high asset turnover ratio compared to its competitor which is an indication the company is utilizing its asset effectively to make profits (Andrijasevic and Vesna Pasic 118). The asset turnover ratio of 6.57 shows the company is utilizing its assets more efficiently to generate sales compared to General Dynamics.

Recommendation

It is recommended that the company should improve its asset management in order to increase future sales.

Work Cited

Altman, Edward I. “Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy.” Journal Of Finance 23.4 (1968): 589-609. Print.

Andrijasevic, Maja, and Vesna Pasic. “A Blueprint Of Ratio Analysis As Information Basis Of Corporation Financial Management.” Problems Of Management In The 21St Century 9.2 (2014): 117-123. Print.

Bansal, Rohit. “A Comparative Analysis Of The Financial Performances Of Selected Indian IT Companies During 2010-2014.” IUP Journal Of Accounting Research & Audit Practices 14.4 (2015): 43-60. Print.

Damjibhai, Sanghani Divyesh. “Performance Measurement Through Ratio Analysis: The Case Of Indian Hotel Company Ltd.” IUP Journal Of Management Research 15.1 (2016): 30-36. Print.

DePamphilis, Donald M. Mergers, acquisitions, and other restructuring activities : an integrated approach to process, tools, cases, and solutions. Amsterdam: Academic Press, 2013. Print.

Orr, Hunter. “HII – Huntington Ingalls Industries Inc – Company Analysis And ASR Ranking Report.” Journal of Alpha Street Research Reports (2013): 1-9. Print.

Vasiu, Diana Elena, and Iulian Nicolae Gheorghe. “Liquidity Ratios. A Structural And Dynamic Analysis, During 2006-2012, Of The Companies Having The Business Line In Industry And Construction, Listed And Traded On The Bucharest Stock Exchange.” Theoretical & Applied Economics 22.3 (2015): 187-206. Print.

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