In this study the two companies chosen for comparing the fiscal public presentation for the twelvemonth 2009 are Fluor Corporation and Foster Wheeler AG ( FW ) . Here we examine and assess the fiscal places and public presentations of these two companies by reexamining their one-year studies and by sing subsequent events and remarks of analysts and imperativeness studies.
As for many concerns, non least in the Engineering and Construction ( E & A ; C ) sector, the planetary economic downswing has been a immense challenge for Fluor and Foster Wheeler AG over the last two old ages.
Fluorite: Fluor Corporation is one of the universe ‘s largest E & A ; C companies. Fluor is a FORTUNE 200 Company with 36,000 employees runing globally. Fluor has a really diversified portfolio. The dissolution of each sector based on gross generated in 2009 is shown below in the pie chart.
Foster Wheeler: Foster Wheeler AG is a planetary E & A ; C contractor and power equipment provider. The company employs about 13,000 professionals in more than 25 states. Foster Wheeler is involved chiefly in two major sectors which are oil & A ; gas and power.
As per ENR building News, the Top 100 Global Design Build houses, Fluor topped the list and Foster Wheeler was placed on 5th rank.
In this fiscal study consideration has been given to the principal relevant ratios and tendencies analyses for these two companies in footings of profitableness, efficiency, hard currency flow and funding and what these ratios and tendencies mean with a sum-up of critical position of Fluor and Foster Wheeler ‘s future chances in a tough and competitory E & A ; C market.
Businesss by and large exist with the primary intent of making wealth for their proprietors. Profitability ratios supply an penetration to the grade of success in accomplishing this intent.
Gross Net income
The gross net income border relates to the gross net income of the concerns to the gross revenues gross generated for the same period. The gross net income borders for Fluor and Foster Wheeler are shown in Graph 1.
Fluorite: The gross net income of the Fluor shows fringy upward addition over the last 4-years period. In the 2nd half of 2008, when the universe economic system slid in recession, rough oil monetary values slipped from an all clip high of $ 147 per barrel to a really low of $ 33 per barrel, most of the oil & A ; gas investors shelved their running undertakings which hit Fluor ‘s profitableness. Despite this extraordinary planetary crises state of affairs Fluor was able to keep its gross net income because of its diversified market.
Foster Wheeler: The gross net income of Foster Wheeler shows strong growing in twelvemonth 2005 and 2006 and so slight downward tendency. The company has returned to gain in twelvemonth 2006. After returning to gain FW has shown strong consequences and twelvemonth 2007 proverb profitableness extremum before the universe economic system slid in recession and oil and gas sector was severely affected. Due to its limited portfolio in E & A ; C, the company ‘s gross net income experienced terrible reverse during recession.
Net Net income
Net net income is frequently regarded as the most appropriate step of operational public presentation when used as a footing of comparing, because differences originating from the manner in which the concerns are financed will non act upon the step.
Fluorite: The net net income ( Graph 2 ) of Fluor shows a similar tendency in line with gross net income over the same period. E & A ; C sector has got really intense cost film editing step and works on really low net income border but on a really big graduated table of undertakings ( a individual undertaking may be one million millions of dollars ) . Decreasing rough oil monetary values and deficiency of investors let E & A ; C sector see the most of their undertakings shelved/cancelled which affected Fluor ‘s net net income.
Foster Wheeler: The net net income ( Graph 2 ) of Foster Wheeler shows a strong growing form in twelvemonth 2005 and 2006, so steady growing rate with fringy diminution in 2009. The company has suffered a major reverse on its cyberspace net income because some of its on-going undertakings has shelved/cancelled in ulterior half of 2008. The company besides has really high degree of disbursals comparative to its gross generated.
Tax return on Capital Employed ( ROCE )
The ROCE is a cardinal step of concern public presentation. The ROCE for Fluor and Foster Wheeler are shown in Graph 3.
Fluorite: With mention to ROCE, Fluor public presentation shows an upward and strong consequence with little diminution in 2009. In E & A ; C sector the capital employed is much lesser in comparing with other sectors of concerns. Due to the above ground Fluor were able to set in a really strong public presentation in footings of ROCE.
Foster Wheeler: With mention to ROCE, Foster Wheeler public presentation shows a really strong but a zig-zag return tendency, which goes against their market image. Analyst/investors look for a steady or upward public presentation. The ROCE has dropped in 2007 and once more in 2009 in a similar profile to gain borders worsen but higher than Fluor ‘s public presentation.
The plus turnover is a company ‘s ability to bring forth gross from its plus base. The plus turnover for Fluor and Foster Wheeler are shown in Graph 4.
Fluorite: In the past old ages Fluor has had systematically an plus turnover of 2.5 or above. In twelvemonth 2009 they had an plus turnover of 3.1 taking into history entire grosss of $ 21,990.0m and entire assets of $ 7,179.0m. The plus turnover graph shows an first-class public presentation over five old ages of clip. The public presentation during the last two old ages should be taken as being really positive given the economic clime which demonstrates Fluor ‘s ability to bring forth grosss from its assets in tough times.
Foster Wheeler: In the past old ages Foster Wheeler had plus turnover of 2.0 or less except twelvemonth 2008. In twelvemonth 2009 they had an plus turnover of 1.6 taking into history entire grosss of $ 5,056.0m and entire assets of $ 3,187.0m. The assets turnover decreased in 2009 but above its norm and significantly higher than the worst clip a few old ages back.
There are a figure of steps that can be used to mensurate the liquidness of the administrations as follows.
Acid Test Ratio ( Current Ratio )
The current ratio compares the ‘liquid ‘ assets ( that is, hard currency and those assets held which will shortly be turned into hard currency ) of the concern with current liabilities. The higher the ratio, the more liquid the concern is considered to be.
Fluorite: In the past old ages Fluor has had really consistent and upward current ratios. As in the instance of E & A ; C companies, relatively less inventory involved ; the current ratio becomes an acerb trial ratio. The minimal degree of acerb trial ratio is frequently stated as 1.0. Fluor has been traditionally keeping its acerb trial ratio much higher. In twelvemonth 2009, they achieved an acerb trial ratio of 1.55 as shown in Graph 5.
Foster Wheeler: In the past old ages ( 2004 and 2005 ) Foster Wheeler has acid test ratio less than 0.85. This was the clip when the company was in problem and on the threshold of registering for bankruptcy. In twelvemonth 2006, they started constructing their liquidness state of affairs better and in twelvemonth 2009, they have their highest acerb trial ratio of 1.51 as shown in Graph 5.
Tax return on Investing
Graph 6, assumes the investing of $ 100 on December 31, 2004, in each of Fluor, Foster Wheeler, the S & A ; P 500 Index and DJ Heavy, and the reinvestment of dividends paid since that day of the month. Dow Jones Heavy Construction Industry Group Index ( “ DJ Heavy ” ) consists of the undermentioned companies CBI, Jacobs Engg, KBR, McDermott International, and Shaw Group. The DJ Heavy Group consists of companies that were compiled for benchmarking the public presentation of compared portions in this analysis.
Fluorite: Fluor ‘s entire return to stockholders over five old ages comparative to Foster Wheeler is low but higher than the S & A ; P 500 and DJ Heavy. Fluor has been paying hard currency dividends per common portion of $ 0.50 every twelvemonth. Fluor Corporation ‘s public presentation is steady, consistent and upward over the last five old ages.
Foster Wheeler: FW have non declared or paid a hard currency dividend since July 2001 and they do non pay any hard currency dividends due to their current recognition understanding which contains restrictions on their ability to pay hard currency dividends. Foster Wheeler has a really volatile public presentation but strongly above Fluor, S & A ; P 500 and DJ Heavy.
Net incomes per Share Ratio
The net incomes per portion ( EPS ) relates the net incomes generated by the concern, and available to
stockholders, during a period to the figure of portions in issue. Many investing analysts regard the EPS ratio as a cardinal step of portion public presentation.
Fluorite: Fluor has really consistent and upward public presentation. Their EPS is ever higher and shows an upward tendency over last several old ages.
Foster Wheeler: Foster Wheeler, after returning to gain, shown really strong potency with their public presentation.
Fluorites: Cash and hard currency equivalents were $ 1.7 billion as of twelvemonth 2009, basically higher than the $ 1.8 billion as of twelvemonth 2008. Cash and hard currency equivalents in 2008 increased $ 0.7 billion compared to 2007. Cash and hard currency equivalents combined with current and noncurrent marketable securities were $ 2.6 billion and $ 2.1 billion as of twelvemonth 2009 and 2008, severally. Fluor has maintained its hard currency flow to increase its stableness in the current economic clime. Fluor has been successfully cut downing its debt every twelvemonth. Currently ( twelvemonth 2009 ) they are holding a entire debt of 3.7 % of entire capitalisation while in the twelvemonth 2008 it was 5.3 % .
Foster Wheeler: Cash and hard currency equivalents were $ 997.0 million as of twelvemonth 2009, higher than the $ 773.0 million as of twelvemonth 2008. Foster Wheeler reached its highest hard currency flow in the twelvemonth 2007 to the $ 1.0 billion grade. The company has strived to increase hard currency flow to increase its stableness in the current economic clime. As a consequence of an improved hard currency flow direction, entire liabilities were down to 2.3 billion ( twelvemonth 2009 ) from $ 2.6 billion ( twelvemonth 2008 ) .
Fluorite: Fluor employs its maintained net incomes as the chief beginning of internal finance. Cash utilized in funding activities during 2009 and 2008 of $ 317 million and $ 253 million, severally. Cash utilized in funding activities during 2009 besides included company stock redemptions.
Fluor is considered to be extremely geared as it relies on borrowing in the equity construction. One benefit of this type of funding is that it can be used to increase the return on stockholders ‘ equity as the involvement collectible can be claimed as a revenue enhancement alleviation. Fluor pitching ratio shows declined form in recent old ages, which need to be addressed in close hereafter.
Foster Wheeler: In line with Fluor, Foster Wheeler besides employs its maintained net incomes as the chief beginning of internal finance. Cash utilized in funding activities during 2009 and 2008 of $ 1.4 million and $ ( 46.0 ) million, severally. Cash utilized in funding activities during 2009 besides included company stock redemptions.
Foster Wheeler was considered as being less geared antecedently because of its bad fiscal place. Foster Wheeler started bettering on this facet and now it can be considered as comparatively better geared.
Cash flow in the Engineering and Construction ( E & A ; C ) sector is bettering good, and capital markets are reopening for larger undertakings. Both of these factors might take Fluor and FW to better-than-expected consequences. As the economic system recovers, it will be a driver in acquiring Fluor ‘s and Foster Wheeler ‘s clients to get down undertakings earlier instead than subsequently.
Fluor ‘s backlog is expected to be turning once more in twelvemonth 2010 while Foster Wheeler ‘s expected to worsen. Fluor ‘s chance in excavation continues to demo really strong growing rate.
Fluor reported first-quarter net income ( 2010 ) fell by a 3rd from a twelvemonth earlier, due to a diminution in oil and gas gross. Revenue fell 15 % to $ 4.92 billion. As per prognosis made by analysts, Fluor will be able to keep its net incomes $ 2.88 per portion for 2010 and it will lift in 2011 to a scope of $ 3.38 to $ 3.41 per portion.
Fluor ‘s end-market variegation has enabled them to present good profitableness despite lower new award degrees in recent quarters and the trailing impact of a important decrease in disbursement by oil and gas clients.
Foster Wheeler reported its first-quarter net net income ( 2010 ) reduced to $ 72.1 million or 56 cents a portion, from $ 72.9 million, or 57 cents a portion, a twelvemonth ago ( Rauters ) . Analyst ‘s outlook had been EPS of 54 cents, harmonizing to informations compiled by FactSet. As analysts forecast, Foster Wheeler will be unable to keep its net incomes $ 2.77 per portion for 2010, but it will lift in 2011 to a scope of $ 3.15 to $ 3.31 per portion.
FW gross revenues declined to $ 945.6 million, from $ 1.26 billion a twelvemonth ago. Net income in the first one-fourth of 2010 was below the mean one-fourth of 2009, chiefly due to lower grosss, reflecting the weaker market conditions that began in the center of 2008.
A recent Financial Times article focused on Foster Wheeler and compared them to Fluor – it was reasonably compelling. The comparative survey shows how these two companies have reacted to recent times, with FWAG at the top demoing the most upside over the past twelvemonth, but besides much higher volatility, while Fluor has been steadier with strong public presentation.
Fluor is more extremely valued than FWAG ( frontward PE of 23 versus 16 ) , and it besides has a broader concern footmark. If anyone has to travel with a wide stake on E & A ; C, Fluor would be the first topographic point to look.
On the other manus, Foster Wheeler has the comparative simpleness of the business-they truly have important expertness in two major countries: power and oil and gas. They do work in other countries, excessively, but they are non dispersed rather every bit widely as Fluor.
Foster Wheeler besides has the Siren vocal of a turnaround. The company has turned profitable now, after really about come ining bankruptcy a few old ages ago. They made all the errors that E & A ; C houses tend to do, particularly in underbidding or taking on unproductive concern when concern was n’t so hot, but the degree of enduring and their really near coppice with bankruptcy gives some assurance that they ‘re focused on merely doing profitable commands traveling frontward.
And if large capital undertakings in refineries and in power workss pick up around the universe, no other company is so specifically levered to these two concerns. The demand for traditional power workss is turning exponentially higher in the underdeveloped universe.
In a nut shell, it can be concluded from this comparative analysis that both of these companies are holding really typical features though they are working in the same sectors. Fluor appears to be more geared, better placed and has a really consistent and strong public presentation history. While in the instance of Foster Wheeler, after a bad stage, the company has recovered and is demoing really strong consequences. It has great possible in future with its capableness of doing things turnaround and profitable.
Appendix A: Mention List
Fluor Corporation – Annual Report and Financial Statements 2008 & A ; 2009
Foster Wheeler AG – Annual Report and Financial Statements 2008 & A ; 2009
McLaney, E. & A ; Atrill, P. ( 2008 ) Accounting: An Introduction, 4th edition, FT-Prentice Hall
Zacks Analyst Blog Highlights: hypertext transfer protocol: //www.zacks.com
www.rauters.com / finance
www.businessweek.com / companies
www.ft.comHYPERLINK “ hypertext transfer protocol: //www.rauters.com/ ” / companies