Northrop Grumman Economic Climate Northrop Term Paper

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Fortunately for this sector the main opportunities for ships are in fulfilling existing contracts and the delivery of two Virginia-class submarines in the 2012 timeframe which are on schedule for delivery. As post-Katrina efforts to get production back on schedule continue it's believed the company can generate 8% margin in this specific sector going into FY 2007.

In summary, the table Analysis of Key Business Segments shows the success the company has had in distributing revenue over more segments, thereby alleviating risk while being able to position itself to take advantage of greater market opportunities in the process. The growth Mission Systems and Space technology, while much of the product development is confidential, show strong revenue and income growth which will continue given budgeting for space-based monitoring and defense systems.

Analysis of Key Business Segments

Revenues 12/31/2005 (%) 12/31/2004 (%) 12/31/2003 (%) 12/31/2002 (%) 12/31/2001 (%) Electronic Systems 6,042,000 20% 6,417,000 21% 6,039,000 22% 5,339,000 30% 4,719,000 34% Information Technology 4,999,000 16% 5,051,000 16% 4,754,000 18% 4,237,000 24% 3,783,000 27% Integrated Systems 5,550,000 18% 4,742,000 15% 3,800,000 14% 3,273,000 19% 3,001,000 22% Ships 5,784,000 19% 6,252,000 20% 5,451,000 20% 4,712,000 27% 1,880,000 14% Mission Systems 4,959,000 16% 4,947,000 16% 4,115,000 15% -- Space Technology 3,345,000 11% 3,269,000 11% 2,823,000 10% -- Component Technologies -- 427,000 3% Totals 30,679,000 100% 30,678,000 100% 26,982,000 100% 17,561,000 100% 13,810,000 100% Operating Income 12/31/2005 (%) 12/31/2004 (%) 12/31/2003 (%) 12/31/2002 (%) 12/31/2001 (%) Electronic Systems 710,000 29% 670,000 29% 590,000 30% 435,000 33% 359,000 47% Information Technology 355,000 15% 301,000 13% 281,000 14% 249,000 19% 170,000 22% Integrated Systems 474,000 20% 412,000 18% 380,000 19% 331,000 25% 258,000 34% Ships 241,000 10% 389,000 17% 295,000 15% 306,000 23% 19,000 2% Mission Systems 381,000 16% 321,000 14% 258,000 13% -- Space Technology 255,000 11% 222,000 10% 193,000 10% -- Component Technologies -- -38,000 -5% Totals 2,416,000 100% 2,315,000 100% 1,997,000 100% 1,321,000 100% 768,000 100%

Five Year Performance Analysis

In terms of overall financial performance the company has been able to stabilize and slightly grow corporate wide net profit margins, while greatly increasing overall Return on Equity (ROE) through the use of better project management and the aggressive growth of the Information & Services sector.

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Additionally, Northrop-Grumman has successfully branched into more sectors than ever before, relying on same-account sales to accomplish a higher lifetime value per customer, often at the agency or state government level. The bottom line is that the company is well-positioned to attain its guidance of $31B in Sales with an operating margin of 7%, which is what the company delivered at the close of last year.

Northrop Grumman Corp Ratio Analysis

Profitability Ratios

Return on Equity (%)

Return on Assets (%)

Return on Investment

Gross Margin

EBITDA of Revenue (%)

Operating Margin (%)

Pre-Tax Margin

Net Profit Margin (%)

Effective Tax Rate (%)

Liquidity Ratios

Quick Ratio

Current Ratio

Working Capital/Total Assets

Debt Management Ratios

Current Liabilities/Equity

Total Debt to Equity

Long-Term Debt to Assets

Asset Management Ratios

Revenues/Total Assets

Revenues/Working Capital

Interest Coverage

Risk Assessment of Northrop-Grumman Stock

The following are the consensus risks as sampled from the investment analysts who attended the Northrop Grumman Investor's Conference November 9, 2006:

Slight risk of a reduction in defense spending in the near-term is counterbalanced by contracts now in execution phase of development.

Continued difficulties with the Shipbuilding operation due to the costs of reconstructing production centers destroyed by Hurricane Katrina.

The company's greatest risks come from budget and cost over-runs that could lead to project cancellations in the aerospace and defense sectors.

Continual competition from the large-cap defense contractors who also bid on all projects Northrop Grumman competes for.

Opinions of Financial Analysts

The majority of investment analysts including those from Credit.....

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