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Northrop Grumman NYSE: NOC

Introduction

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Founded in 1939 as Northrop Aircraft Incorporated

Acquired Grumman Corporation in 1994 and became Northrop Grumman Corporation

Organized into four Operating Sectors:

Aeronautics Systems

Defense Systems

Mission Systems

Space Systems

Corporate Headquarters is in Falls Church and Lebanon, VA.

President and CEO – Kathy Warden

Oversight provided by a Board of Directors

Approximately 97,000 employees

Diversified portfolio across U.S. DoD

Revenue and Net Income

 $ in billions20202019
Product$27.015$23.852
Service$9.784$9.989
Sales$36.799$33.841
COGS$32.734$29.872
Operating income$4.065$3.969
Net earnings$3.189$2.248
Net Profit Margin8.67%6.64%

Revenue was recognized using identifiable performance obligations in contracts

84% of sales was comprised of long-term contracts with the U.S. Government

Sales increased by 9% in 2020

Operating income increased by 5% in 2020

Net Profit Margin exceeded industry average of 6.33% for 2019 and 2020

3

Assets

 $ in billions20202019
Current assets$15.34410.685
Non-Current assets$44.469$41.089
Total assets$44.469$41.089
A/R Turnover24.5225.52
Return on Assets7.17%5.47%

Cash and cash equivalents was 11.03% and 5.46% of total assets in 2020 and 2019 respectively

Unbilled receivables was 11.56% and 12.98% of total assets in 2020 and 2019 respectively. This item made up the largest percentage of current assets for both years

Goodwill accounted for the largest portion of total assets reported for the last two years

2020: 39.39% of total assets reported

2019: 45.53% of total assets reported

Briefly describe your company’s investments and intangible assets.

4

Liabilities

Non-current liabilities equate to 71.73% of total liabilities reported in 2020

In 2020, unsecured notes totaling $2.250 billion were issued

Long-term debt includes several fixed-rate notes and debentures with $10.285 billion maturing after 2025

 $ in billions20202019
Current liabilities9.5809.434
Long-term debt14.26112.770
Total liabilities33.89032.270

Stockholders Equity

 $ in billions20202019
Preferred stock00
Common stock$.167$.168
Paid-in capital.0580
Retained earnings$10.482$8.748
Accumulated other comprehensive loss($.128)($.097)
Total shareholders’ equity$10.579$8.819
20202019
Return on Stockholders equity26.4%32.4%
Common stock repurchased$1.4 million$3.2 million
Dividends declared($951 million)($880 million)
Earnings per share$19.08$13.28
Payout ratio9.8%10.3%

ROE has trended higher than the industry average for the last 10 years.

Pg 25

6

Cash Flow

$ in billions20202019
Net Income$3.189$2.248
Net Cash provided by Operating Activities$4.3054.297
Net Cash used in Investing Activities($1.211)($1.207)
Net Cash used in Financing Activities($.432)($2.424)
Cash and Cash Equivalents at End of Year$4.907$2.245
Adjusted Free Cash Flow (note 1)$3.683$3.128

2020 Operating Activities: Net cash was impacted by higher net earnings, increased working capital, and $630 million in increased discretionary pension contributions as compared to 2019.

2020 Investing Activities: Net cash used was similar to 2019. This amount includes $205 million in proceeds due to sale of equipment to a customer.

2020 Financing Activities: Net cash used decreased due to the issuance of long-term debt in the amount of $2.239 billion.

note 1:

Adjusted Free Cash Flow = net cash provided by operating activities – capital expenditures + proceeds from sale of equipment + after-tax discretionary pension contributions. This is a non-GAAP measure and may be calculated differently by other companies.

7

Non-GAAP Financial Measures

Adjusted Free Cash Flow

May be defined and calculated differently by other companies

Used to make decisions regarding acquisitions, dividend payments, and share repurchases

Market to Market – Adjusted Diluted EPS

Adjusts the diluted EPS by excluding MTM expense and related tax impacts

Useful in evaluating diluted EPS before pension and benefit plan impacts

Segment Operating Income and Segment Operating Margin Rate

Allows analysis of the different operating segments within the company

Critical Audit Matters

Revenue Recognition – Cost and Revenue Estimates for Development Contracts

Reported as a critical audit matter due to challenging, subjective, or complex judgements

Based on the judgment necessary to make estimates regarding revenue and costs associated with the companies contract types

Income Taxes – Uncertain Tax Positions

Based on tax positions not yet sustained

Outcomes are uncertain and subjective, making judgement of outcomes challenging

Conclusion

Will draft after I complete my paper

References

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