Honeywell International, Inc. is a multinational conglomerate company based on USA. It
produces variety of products which include aerospace systems, engineering products and
services. Its consumers are from individual customers to various large corporations and also
governments. Honeywell was listed in Dow Jones Industrial Average Index from December 7,
1925, until February 9, 2008. It’s headquarter is located in Morristown, New Jersey. The
workforce of Honeywell includes 130,000 employees and 58,000 of whom are employed in the
United States. It is a Fortune 100 company. In 2012 it became listed in the fortune 500
America’s ranking. The current CEO of Honeywell is chief executive officer is David M. Cote.
Honeywell was founded by Mark C. Honeywell in 1906 in Wabash, Indiana as Honeywell
Heating Specialty Co., Inc. In 1927 it merged with Minneapolis Heat Regulator Company. The
major products of Honeywell is Aerospace which includes environmental control systems,
Electric Power systems, Engine systems accessories, Avionics, displays, flight guidance and
flight management systems, Radios, radar, navigation communication, data link safety systems,
Aircraft lighting, Inertial sensor, Control products, Space products and subsystems, Management
and technical services etc. It also provides Performance Materials and Technologies and
Transportation Systems. It covers the U.S., Mexico, Canada, Brazil, China, India, Australia,
Malaysia, Europe, Middle East and Africa (Investor.honeywell.com, 2014).
The Boeing Company
The Boeing Company is a multinational company based on USA. It produces variety of products
which include aerospace systems, engineering products and services. Its consumers are from
individual customers to various large corporations and also governments. It is listed in Dow
Jones Industrial Average Index. It’s headquarter is located in Chicago. It produces fixed-wing
aircraft, rotorcraft, rockets and satellites. It also offers leasing and product support services.
James McNerney is the chairman and CEO of Boeing (Boeing, 2014).
Summary of Latest Financial Statement
Honeywell’s Income statement shows the net income of Honeywell. It is the net balance of all
the revenue and expense items. Honeywell’s gross profit for the year of 2014 is $10,691 million
that is 27.37% of the Total Revenue. It incurs $5198 million as total operating expense for the
same year. Total operating expense includes Research and development costs, selling, general
and administrative expenses and non-recurring expenses. After deducting total operating
expenses from Gross Profit, we get Total Operating Income that is $5,493 million. It is 14.06%
of the Total Revenue. After adding the other income, we get Earnings before Interest and taxes,
which is $5,739 million. EBIT is 53.68% of Total Revenue. Honeywell incurs interest expense of
$327 million and paid income tax of $1,450 million. After deducting the expenses from the
EBIT, we get the Net Income to Common shares, which is $3,962million.Net Income is 10.14%
of Total Revenue. The following table shows the income statement for the period from 01
January 2013 to 31 December 2013of Honeywell International Incorporation:
A Balance sheet resembles the status of the company’s financial and capital composition.
Honeywell has current assets of $21,164 million as of 31st December, 2013. The items under
current assets are cash & cash equivalents assets, short-term investments, net receivables,
inventory and other current assets. Total assets of this company are $45,435 million as of 31st
December 2013. Long-term asset consists of $393 million of long-term investments, $5,278
million of PPP, $13,046 million of goodwill, $2,514 million of Intangible assets and $3,040
million of other assets. Honeywell has $14,181 million of current liabilities as of
31st
December 2013. It comprises of $5,174 of Accounts payable,$2,028 million of current portion of
long-term debt and $6,979 million of other liabilities. Honeywell has the stockholders equity of
$17,467 million. Retained earnings are of $20,383 million. The organization has common stock
of $958 million.
Honeywell’s Cash flow statement represents the net cash position and net changes in cash flow
as of 31 July 2014. Honeywell’s Cash flow statement shows the total cash flow from operating
activities is $4,335 million, total cash flow from investing activities is $(1,959) million and total
cash flow from financing activities is $(433) million. The exchange rate effect is amounted to
$(155) million. The following table shows the cash flow statement of Honeywell as of 31
December 2013:
In the Honeywell’s statement of owner’s equity the ending balance of common stock is $5,640
million. The beginning balance of retained earnings is $17,799 million, comprehensive Net
Income is $3,924 million and ending balance of Retained Earnings is $20,383 million. The total
stockholder’s equity is $17,579 million that also includes the changes caused by treasury stock,
accumulated other comprehensive loss and non-controlling interest. The following table
represents the changes in common stock and retained earnings of the company for the period
2012 to 2013:
In this section the current ratio, cash ratio and quick ratio of Honeywell for the last five years
have been calculated.
Current ratio determines the firm’s capability to pay its short-term
obligations with existing short-term assets (Horrigan, 1978). It is calculated by dividing total
current assets by total current liabilities. The current ratio of Honeywell in December 2013,
December 2012, December 2011, December 2010 and December 2009 is 1.5, 1.3, 1.3, 1.3 and
1.3 respectively. Quick ratio determines the firm’s capability to pay its short-term obligations
with existing assets that are more liquid compared to that of current ratio. The denominator of
quick ratio is summation of cash & cash equivalents with short term investment and account
receivables and the numerator is current liabilities. The quick ratio of Honeywell in December
2013, December 2012, December 2011, December 2010 and December 2009 is 1.1, 1.0, 0.9, 0.8
and 0.8 respectively. The cash ratio determines how quickly the company can meet its
obligations. The denominator of Cash ratio is summation of cash & cash equivalents and short
term investment and the numerator is total current liabilities. The Cash ratio of Honeywell in
December 2013, December 2012, December 2011, December 2010 and December 2009 is 0.6,
0.4, 0.3, 0.3 and 0.3respectively.We can conclude from these ratios that Honeywell’s capability
to meet its obligations are not up to the mark. But, as the ratios are in an increasing trend we can
expect that it will reach to a satisfactory level of ability to pay short-term liability. The trend of
its liquidity ratios are given below in a chart:
In this section the Debt ratio, Debt to Equity ratio and Times Interest Earned ratio of
Honeywell for the last five years have been calculated. The debt ratio represents the state of a
company’s leverage (Nissim & Penman, 2001). It is calculated by dividing total liabilities by
total assets. The Debt ratio of Honeywell in December 2013, December 2012, December 2011,
December 2010 and December 2009 is 0.62, 0.69, 0.73, 0.72 and 0.75 respectively. The debtequity ratio represents the proportion of debt and equity that are used to finance the assets. It is
calculated by dividing total liabilities with total stockholders’ equity. The Debt-equity ratio of
Honeywell in December 2013, December 2012, December 2011, December 2010 and December
2009 is 160%, 223%, 268%, 255% and 306% respectively. The times interest earned measures
the company’s ability to pay its interest .It is calculated by dividing the interest expense with net
income. The times interest earned ratio of Honeywell in December 2013, December 2012,
December 2011, December 2010 and December 2009 is 0.083, 0.120, 0.202, 0.197 and
0.3.respectively. We can conclude from these ratios that Honeywell’s capability to meet its longterm debt obligations is in an increasing trend .The trend of its debt ratios are given below in a
chart:
In this section the profitability ratios of Honeywell for the last five years have been calculated.
Profitability ratio measures a company’s capability to generate revenues in comparison with its
costs and other expenses that are incurred in a period of time. I have estimated the profit margin
ratio, return on asset and return on equity ratio .The profit margin ratio assesses how much of
each dollar the company retains in its earnings from its sales. It is calculated by dividing net
income with total revenues. The Profit margin ratio of Honeywell in December 2013, December
2012, December 2011, December 2010 and December 2009 is 10%, 8%, 5%, 6% and 5%
respectively. The return on assets (ROA) assesses how efficiently the management is utilizing
the company’s assets to generate earnings. It is calculated by dividing net income with total
assets. The ROA ratio of Honeywell in December 2013, December 2012, December 2011,
December 2010 and December 2009 is 9%, 7%, 5%, 5% and 4% respectively. The return on
equity (ROE) assesses the firm’s profitability by finding out how much earnings the company is
generating with the money invested by equity holders. It is calculated by dividing net income
applicable to common stockholders’ with the total stockholders’ equity. The ROE ratio of
Honeywell in December 2013, December 2012, December 2011, December 2010 and December
2009 is 23%, 23%, 17%, 18% and 17% respectively. We can conclude from these ratios that
profitability is in an increasing trend and they are consistent. The trend of its profitability ratios
are given below in a chart:
In this section the asset utilization and management efficiency ratios of Honeywell for the last
five years have been calculated. I have estimated the total asset turnover, inventory turnover and
account receivable turnover. The total asset turnover measures a firm’s efficiency in generating
earnings by using its assets. It is calculated by dividing total revenue with average total assets.
The total asset turnover of Honeywell in December 2013, December 2012, December 2011,
December 2010 and December 2009 is 0.9, 0.9, 0.9, 0.9and 0.8 respectively. The inventory
turnover assesses a firm’s ability to manage and maintain its inventory. It is calculated by
dividing cost of revenue with the average inventory. The inventory turnover of Honeywell in
December 2013, December 2012, December 2011, December 2010 and December 2009 is
7,7,7,7 and 7 respectively .The account receivable turnover assesses the firm’s efficiency in
providing credit and collecting debts. It is calculated by dividing net total.
Analysis of Key Statistics
The total dollar value of all outstanding shares of Honeywell is $74.26 billion. The PEG ratio is
1.65 against its projected 5-year growth. So, it indicates a positive result. The adjusted EPS is
4.99 which is satisfactory. Beta coefficient is 1.29.It is not perfectly correlated with the market.
The 52-week change and S&P 52-week change show that the share price has fluctuated
slightly.50 day moving average price is $93.21 and 200-day moving average price is $91.96. The
expected dividend in the current year is 1.8.The 5-year average dividend yield is 2.5% and also
forward annual dividend yield is 1.9%. There is a table below which presents the key statistics of
the company:
Historical Stock Price Analysis
We have collected the historical monthly prices data of the 5 years starting from 2009 to 2013.
The purpose of this data collection is to forecast the next year’s stock price. I have used moving
average for this purpose. At first, I opened Microsoft excel software and then data analysis
toolpack to estimate the moving average. From this analysis, I concluded that the stock price is
$87.63 for the next year.
To decide if the corporation’s stock is a good buy or sell the historical monthly prices
data of the 5 years period from January 2010 to December 2013 of Honeywellis used here. To
forecast the stock price for the next year I have used the moving average technique in the excel
spreadsheet from data analysis tool pack. From the moving average method, the forecasted stock
price is $37.33 for the next year. There is as graph below which presents the firm’s historical
share price and the trend of the forecasted value through moving average.
Relevant Information Analysis
Honeywell’s capital structure represents that it is using 39% of equity and 61% of debt to finance
its activities. Although it may seem higher but it is much lower than the industry benchmark.
Again, it makes Honeywell exposed to financial risk. Honeywell’s dividend policy is motivating
and attractive to investors. It shows stability and consistency during the last five years.
Honeywell has low price to earnings ratio compared to that of industry average. It signifies that
Honeywell is a less risky corporation to invest in. The volatility of its stock is low according to
the experts’ opinion. The market information of this company is also available. The stocks are
fairly valued. The bankruptcy risk is very low. It has a low-key hype condition. It almost mirrors
the market.
So, all these information provides a positive sign that it will provide a high
performance in the long run.
Recommendation & Justification
I can say that the stock is a very good buy. I would definitely invest my financial capital in the
Honeywell International Incorporation. I would also like to invest my human and intellectual
capital in the firm as a respectable employee. On the basis of my above analysis and explanations
it can be said that the company will have potential growth in the long-run. The performance of
Honeywell is aligning with the high profitability, efficiency and continuous development.