Question

Analyzing Segment Disclosures

Raytheon Company disclosed the following data related to segment sales and operating profits for

fiscal 2018.

$ millions

   Total Net Sales Operating Income

2018 2017 2016    2018 2017 2016

Integrated defense systems . . . . . . . . . . . $ 6,180 $ 5,804 $ 5,529 $1,023 $ 935 $971

Intelligence, information and services . . . 6,722 6,177 6,169    538 455 467

Missile systems . . . . . . . . . . . . . . . . . . . . 8,298 7,787 7,096 973 1,010 921

Space and airborne systems . . . . . . . . . . 6,748 6,430 6,182 884 862 808

Forcepoint. . . . . . . . . . . . . . . . . . . . . . . . . 634 608 586 5 33 90

Eliminations . . . . . . . . . . . . . . . . . . . . . . . (1,514)(1423)(1361)

(1,423) (1,361)

Total net sales . . . . . . . . . . . . . . . . . . . . . $27,068 $25,383 $24,201

The company also reported the following on its balance sheet.

$ millions 2018 2017

Receivables, net of allowance for doubtful accounts of $12 and $8. . . . . . . . . . . $1,648 $1,324

Required

a. Which segment is largest in 2018? Has this ranking changed over the three‑year period?

b. Calculate the operating profit margin for each segment and determine which segment is most profit‑

able in 2018 by this measure.

c. Which segment’s sales grew the most in 2018? How does this compare to 2017 sales growth?

d. Calculate the company’s accounts receivable turnover and its days sales outstanding (DSO) for

2018. Does this seem reasonable? What might explain the DSO?

e. Assess the size of the receivables allowance. Does it seem reasonable?

Answer 1

Ans a:

% of product sales to total sales.

from the above table we can clearly see that missile system is the highest contributor in net sales of the company. further there has been no change in the ranking in last 3 years based of sales of the company.

Answer b:

Integrated defense system is the most profitable business in term of operating profit %.

Answer c:

sales in Intelligence, information and services segment has grown most in 2018, further Missile systems had grown most in 2017. for calculating growth we have used following formula:

in similar way we can calculate sales growth % in 2017.

answer d:

*since we are not given credit sales specifically, therefore we have assumed that all the sale is done on credit basis.

17.65

17.53

=365/17.65 = 20.68

or 365/17.53 = 20.82

in both the cases DSO would be 21 days since this ratio can not be in fraction.

importance of DSO: DSO is important part of working capital cycle/operating cycle. it shows us the duration in which we are receiving money from our debtors. this helps us in calculating working capital requirements.

suppose this company pays all its expenses in cash and creditors for purchased are paid in 10 days lag, then complains' operating cycle would be 21-10 = 11 days which means that it needs working capital funds for 11 days only.

in all of the above answers Eliminations segment has negative sale and negative profits. negative sale can not happen therefore it might be a supporting department to other segments. (this is my assumption since nothing is mentioned in questions so i have solved the problem based on information given)

please provide feed back in the comment section to refine the answer,

i also politely request those who gave thumb-down rating to please share the reason for the same, so i can improve in future.

thanks.