A contextualised analysis of British

Aerospace Systems

Chapter 1:
British Aerospace Systems Background

BAE Systems plc. is a British international defence, safety and aerospace corporation, having
its headquarters in London in the United Kingdom and global setups. It is amongst the
world's biggest security service provider; it was placed as the second-largest grounded on
relevant incomes of the year 2012 (Launius, 2014). The corporation was founded on 30th of
November, in the year 1999, by the 7.7 billion union of two British establishments; Marconi
Electronic Systems (MES) the security computer electronics and marine shipbuilding
subordinate of the General Electric Company plc. (GEC) and British Aerospace (BAe) an
aeroplane, arms and marine coordination builder.
BAE Systems plc. function as a defence, space, and safety business globally ('BAE Systems
to sell Composite Structures Business', 2011). Its Power-driven Arrangements section
provides automated fighting schemes and electro-optical devices, army and commercial
numerical appliances and aircraft panels, armed message organisms and records links,
determined investigation organizations, cross electronic energy structures, and particular
headsets. The businesss Cyber & Intelligence sector advances and maintains operation
software and schemes in geospatial, aptitude, investigation, survey, and operation controlling
zones; and offers logical resolutions and provision to processes to US central, formal, and
native organizations. This section also provides functioning safe way out to state safety and
acute infrastructure consumers; and assembles, fares, and modifies data to allow
administration and commercial customers to divulge intellect, uphold safety, cope with threat,
and enhance performance, as well as provides facts manipulation, intelligence-grade
safekeeping, and facilities and resolutions incorporated to commercial service area,
broadcastings, and energy and utility businesses (Guo, Gong, Tan & Guo, 2011).
The products and the services that the company offers are civil and military products of
aerospace and space use, defence Electronics, naval Vessels, Munitions and ground warfare

systems. The service section of the company includes maintenance, consultancy and training
in the equipment and the products.
The British Aerospace Systems Stages & Service area (US) section delivers vessel
restoration, ammunitions services board, and stationary and turning wing airplane backing
facilities; and projects, progresses, funds, and elevates armorer warfare automobiles,
weaponry arrangements, marine firearms, rocket launchers, and ammunitions ('BAE Systems
to sell Composite Structures Business', 2011). BAE Systems plc.s Platforms & Services
(UK) section advances, creates, and services deals in mid-air, nautical, warfare automobile,
weaponries, and communal services. The businesss Platforms & Services (International)
division offers operating competency provision to air and marine powers; creates, renovates,
and funds software package in the air, marine, and land areas; and proposes defence boards
and computer-generated safety services. The firm's Typhoon fighter and Tornado fighterbomber are both front line aircraft of the RAF. BAE Systems Terrestrial and Weapons
assemblies the M2/M3 Bradley combat automobile family, the US Merchant navy Advanced
Gun System (AGS), the M113 shatterproof personnel carter, the M109 Paladin, the British
Army's Challenger II, Warrior Tracked Armoured Vehicle, M777 howitzer and the Panther
Command and Association Automobile. The corporation is a chief collaborator in the F-35
Lightning II plan. Its Hawk innovative jet coach aircraft has been extensively traded.

Chapter 2:
Financial Analysis

This section will concentrate on the financial performance of British Aerospace Systems by
the study of significant fiscal statistics and ratios and will put stress on productivity ratios. In
this chapter BAE Systems most recent economic performance will also be equated both with
its recent past performance and with the other competitive companies in the market. The
chapter will initiate with an assessment of the ratios utilized in this research paper.
Literature on ratio analysis:
Ratio analysis is the procedure of defining and inferring statistical associations grounded on
business reports (Kline, 2014). A ratio is a numerical measure that offers a portion of the
association between two variables or data. This association can be stated as a per cent or as a
proportion. Ratios are easier to analyse and comprehend (Investment & Small Business
Accountants, 2013).
Ratio analysis is grounded on line items in fiscal accounts like the balance-sheet, revenue
statement and cash-flow declaration; the ratios of one element or an arrangement of items to a different item or grouping are then summed up (Lohrey, 2015). Ratio analysis is utilized
to assess numerous features of a corporations operational and commercial performance such
as its competence, liquidity, productivity and affluence. The inclination of these ratios over
time is calculated to check whether they are increasing or decreasing. Ratios are also equated
with different businesses in the similar segment to see where they stand, and to get the
knowledge of relative evaluations (Sheppard, 2014).
Ratio analysis is a basis of fundamental analysis. It can offer a prompt caution of a possible
development or decline in a firms fiscal condition or productivity (Jargosch & Jurich, 2014).
Experts get involved in widespread number-crunching of the economic statistics in a
corporations monthly business reports for any such intimation (Anon, 2015). Effective

businesses usually have compact ratios in all extents, and any suggestions of flaw in one part
may stimulate a noteworthy sell-off in the stock.
This study is concentrating on the economic performance of the corporation, BAE Systems in
association to some of its important investor groups, depositors and employees. When
bearing in mind the bondholders in the enterprise the most vital ratios are depositor ratios
(Launius, 2014). These concentrates on the profit that a stockholder of BAE, and will be
utilized to support venture decisions. These may comprise ratios like the dividend income,
incomes per share and price/ earnings (P/E) ratio; these will be examined in the next chapter
(lewis, 2014).
There is not a group of ratios that are evidently targeted at the workers. Though, all the key
ratios that specify the constancy and performance of the business can be relevant
(Demonstratingvalue.org, 2015). For workers, the core concentration would be on increasing
development and steadiness of the firm. Liquidity ratios validate whether the company can
meet the expense of covering its outlays in the short term, this will comprise disbursing the
pays of its workforces (Fernandez, 2013).
Inter-period examination:
In this study, the inter-period analysis is conducted on the basis of resources taken from
investors.baesystems.com (2015). BAE has faced ups and downs in its levels of turnover in
the past four years. There has been a significant decrease in the net profit of the company
from the year 2011 (net profit of 1,256 million) 2014 (net profit of 752 million), as can be
seen in Table 1 and Figure 1 (Investors.baesystems.com, 2015). The fall in profits was
generally because of a slash in orders from the US army (BAE acquires forty seven per cent

of its incomes from the US) after it was ordered to withdraw from Iraq and the postponement
of a huge order for airplanes from Saudi Arabia (Rhodes, Hough & Ward, 2015).
Table 1. Financial performance of BAE Systems (Investors.baesystems.com, 2015)

Year ending

31 March 2011

31 March 2012

31 March 2013

31 March 2014

Turnover (m)

19,154

17,834

18,180

16,637

Profit/(loss)

1,466

1,369

422

882

1,256

1,079

176

752

before tax (m)

Net profit/(loss)
(m)

Annual turnover of British Aerospace System

19,500
19,000
18,500
18,000

Financial turnover of British

Aerospace System

17,500
17,000
16,500
16,000
15,500
15,000
year 2011

year 2012

year 2013

year 2014

Figure 1. Annual turnover of BAE systems (Investors.baesystems.com, 2015).

In the most current fiscal year of 2014, BAE recorded profit before tax of 882 million. This
was a rise in profit from the previous financial year, during which they had profits of 422
million in the year 2013 (Jargosch & Jurich, 2014). These two figures are significantly below
the profit recorded for the financial year of 31st march 2011 and 2012, in which they had
profits of 1,466 million and 1,369 million respectively, as can be seen in table 2 and Figure
2 (Investors.baesystems.com, 2015).
Figure 2. Profit before taxation recorded for British Telecom (Investors.baesystems.com,
2015)

Profit before taxation

Year ended 31 March
2014
Profit before taxation
Year ended 31 March

2013

2012

2011
0

200

400

600

800 1,000 1,200 1,400 1,600

Table 2. BAE Systems profit before taxation (Hargreaves Lansdown, 2015).

Financial year (ended 31st

Profit before

march)

taxation

2011

1,466m

2012

1,369m

2013

422m

2014

882m

As seen above in table 2, in the year 2011, the revenue was much higher at 1,466 million
(Hargreaves Lansdown, 2015). However, since the year 2012 BAE Systems has seen a
significant decline in its profit. The profit (before tax) recorded for the past four years are
1,466 million, 1,369 million, 422 million and 882 million for the year 2011, 2012, 2013
and 2014 respectively. At present, some of the condensed profit of the company can be
credited to the Cold War that has instigated a drop in the Defence financial plan of all the
chief world powers. This has made BAE more dependent on trades in the civil aerospace
segment that would be knocked by any slump in the global economy (Neate, 2014). However,
in the year 2013, the company experienced demand over the next fifteen years for 27,000
innovative huge public aircrafts and 40,000 aerofoil jumbo jets that translated into UK orders
worth 474 billion. This echoed in their annual profit, too, as it increased from 422 million
to 882 million from the year 2013 to 2014 (Markets.ft.com, 2015).
The operating profit margin demonstrates how concrete a firm is at regulating the expenses
and costs related with its standard trade processes (Kontis, 2014). A major advantage of this
ratio is that by utilizing the operating profit the system in which the firm is funded will not
affect the outcome. The profit margin could follow for numerous causes. For instance, profit
margins are valuable in presenting a common notion about the situation of the business;
though these ratios should be contextualised in order to comprehend the cause for any
alteration (lewis, 2014).

10

The cold war between the major countries of the world echoed in the profit margins realized
by BAE in the past four years. The income statement of the company demonstrates that due
to the limited changes to their turnover their profit fell in significantly reduced margins
(Markets.ft.com, 2015). Between the year 2011 and 2012 the yearly profit before taxation
dropped from 1,466 million to 1,369 million. However, BAEs attitude for the year 2013
remained careful, with the corporation supposing a diffident growth in the basic earnings per
share and an inhibited market of US and UK (Redmayne.co.uk, 2015). Therefore, between
the year 2013 and 2014, the yearly profit rose from 422 million to 882 million as shown in
the Table 3 (Hargreaves Lansdown, 2015).
Table 3. Income Statement of BAE Systems (Hargreaves Lansdown, 2015).

Financial

Revenue

EBITDA

Year

Operating

Profit before

profit

taxation

2011

19,154m

2,011m

1,678m

1,466m

2012

17,834m

1,821m

1,056m

1,369m

2013

18,180m

1,925m

1,523m

422m

2014

16,637m

1,702m

1,300m

882m

Comparison for rival companies:

Some of the key competitors of BAE Systems are Boeing Co, United Technologies Corp,
Lockheed Martin Corp, Airbus Group SE, General Dynamics Corp, Raytheon Co and
Northrop Grumman Corp among others (Rhodes, Hough & Ward, 2015). The competitors
depend on a mutual expansion of assured equipment in order to reduce improvement charges.
The finial application of those machineries is done by each business on its own, so the
comprehensive operation into deployment coordination is also protected by privacy matters

11

(Dyvik, Herbig, Appleton, O'Reilly & Shin, 2007). Though, the inventions produced in this
net can function also as other dedications like the commercialization on the civic
marketplace. For instance accuracy gears shaped for a specific sample invention were traded
on the open market to observe the companies and aircraft reliability (Curran, 2010).
Some of the BAEs competitors and their market position, as compared to BAE, are shown in
Figure 3 and 4 (Investors.baesystems.com, 2015).
Figure 3. Market Share of BAE Group plc. and its competitors
(Investors.baesystems.com, 2015)

Market position of BAE and its competitors

BAE SYSTEMS
AIRBUS GROUP
BOEING
LOCKHEED MARTIN
RAY THEON
UNITED TECHNOLOGIES
NORTHROP GRUMMAN
OTHERS

Figures for this research paper have been sourced from different financial journals and
companies financial reports. Almost all the major private businesses in the global defence
sector are required to issue a combined economic declaration, which shows summarized
fiscal data, in context to their peers and supply movement in the world economy
(Investors.baesystems.com, 2015). This data is very valuable in this case, as they are all

12

needed to issue this statistics in the similar manner, and bounds the commercial data to that
concerning to the global defence economic guidelines (Gassmann, Enkel & Chesbrough,
2010). But, this material is partial; as a consequence it is merely utilized to study the
evaluations about income, earnings and revenue. Supplementary ratio analysis is done by
means of economic reports from the yearly reports of the individual companies whose data is
required (The Economist, 2014). The information on the other corporations mentioned in
these studies was chosen from the diverse sources and recorded to analyse compulsory ratios,
where they were not assumed in the annual reports.
The exploration will instigate by considering the statistics from the associated segmental
information. Data in this segment is up to financial year end 2014. When reviewing the
profits of each of the defence and aerospace corporations, BAE actually does not have the
highest level of gross revenue (Yahoo! Finance, 2015).
Figure 4. The profit share of the Global Defense Market (Baesystems.com, 2015)

Profits of the Global Defence MarKet

90
80
70
60
50
40
30
20
10
0

Profits of the Global

Defense Market

13

The Figure 4 shows that BAE has a substantial profit share in the Global Defence market.
The highest profit share of the market is credited to Boeing and the Airbus Group, followed
by another large-scale corporation called the United Technologies (Baesystems.com, 2015).
Boeing is the largest defence and Aerospace Corporation functioning in the world and has
been factually; leading the market. Other companies like Lockheed Martin, Ray Theon,
Northrop Grumman and others also have a substantial share of the defence market and
consequently generate profits (Wojtek Kawecki, 2015). The profit margin of BAE must be
sustained, and not allowed to slide in the face of rivalry from other universal companies. Any
slip-up in the profit margin impends an already reduced return on capital employed (ROCE),
with an effect on disbursements as the drive towards inferior gearing remains (Rohrbeck,
2010).
BAE Systems prime setups are in the UK and US, where its BAE Systems Inc. subordinate
is one of the six major contractors to the US Department of Defence. Further key markets
consist of Saudi Arabia and Australia (Dixon, Drakakis-Smith & Watts, 2012). BAE
Systems' benefits in Sweden are an outcome of the acquisitions of Alvis Vickers and UDI,
which had the possession of Hgglunds and Bofors respectively; the businesses have, at
present, a part of BAE Systems AB and have a collective workers of around one thousand
eight hundred and fifty (Reuters.com, 2015). BAE Systems also exists in India under the
name BAE Systems India. Moreover, BAE Systems holds almost fifty per cent shares of Air
Astana, Kazakhstan.
With close to eighty eight thousand employees in six continents, the company work together
with indigenous associates to grow, plan, produce and sustain the modernizations that
upsurge defence power, withstand financial prudence and protect marketable securities
(Gopalakrishnan, Yusuf, Musa, Abubakar & Ambursa, 2012).

14

Comparison with rivals is possibly not imperative for workers, as it is the constancy of the
corporation over time that is more likely to have emotional impact on the situation of the
workers (Park, K., & Vambery, 2010). Nonetheless, the fact that the business has been very
economical in terms of income and income margins may mean that the workers are happy for
the company. Moreover, they may be inspired by the fact that BAE is one of the front-runners
in the market hence if there is a concern in one extent the possibility may blow-out
(Corporatewatch.org, 2015).
Table 4. Showing the total costs and wages/salaries of BAE Systems, Airbus Group,
Boeing & Lockheed Martin (Baesystems.com, 2015).

Company

Total Costs

Wages/Salaries

BAE

63,150m

982m

Airbus Group

89,000m

1,892m

Boeing

97,900m

2,456m

Lockheed

49,100m

791m

Martin

Table 4 displays the share of wages and salaries of total costs for some of the defence
companies in the recent financial year. It shows that the total costs of BAE for the year 2014
was 63,150 million whereas the Airbus Group and Boeing have Higher total costs, as
89,000 million and 2,456 million respectively, compared to the company
(Baesystems.com, 2015) . On the other hand, Lockheed Martin has a lower total cost
(49,100 million) compared to BAE Systems. Similarly, the wages/salaries of BAE and other
companies, shown in the above table, have corresponding salaries/wages as their total costs.

15

BAE is the biggest civic and aerospace company in the world, and evidently commands to
persist on. They have outdone the FTSE 100 over the last few years as they have an order
book of 36.6 billion, an increase of 30% on the preceding year, a stable increase in the P/E
ratio (Hargreaves Lansdown, 2015). Nonetheless, all the aspects indicate to a rising and
prosperous enterprise that BAE already is.
In the following section (Chapter 3) of this research paper, Investor Returns & Risk
Analysis, investor returns and risk analysis of British Aerospace Systems will be emphasized
on as it would give a fair idea of share price performance and returns. The risks experienced
by the firm and the appropriate techniques employed to counterbalance those risks, would
also be discussed in the next chapter.

16

Chapter 3: Investor Returns & Risk

Analysis

17

This section will concentrate chiefly on the stockholders and prospective stockholders of
BAE by evaluating the returns presented by BAE to financiers. This will be done by studying
the share price of the firm and any methods taken to counteract the threat.
Rolls Royce will be the key source of evaluation for this research paper, as both are the two
largest defence companies in the United Kingdom, therefore are the utmost direct rivals.
Moreover, they are both British establishments making assessment easier by removing
subjects such as different exchanges and access to data (Beatty & Liao, 2014).
3.1 Investor Returns
3.1.1 Share Price Performance
This part will cover an assessment of the share price of BAE over the past five years (20102014). The share price will be equated with that of Rolls Royce and the FTSE 100 of which
BAE is an affiliate.

18

Figure 5: Graph showing the share price of BAE, Rolls Royce and FTSE 100 over five years;
Source: (Baesystems.com, 2014)

2011

2010

2014

534
458

398 407

2012

2013

499 512

498

415
315

450
388

298

350

120

BAE
Rolls Royce
FTSE 100

475

19

The five year graph for BAE is progressive towards the end (2013-2014) as there is a strong
increasing trend as can be seen in Figure 5. This is encouraging news for any depositors in
the corporation (Annualreports.com, 2015). Though, as can be seen in Figure 5 the share
price of Rolls Royce over the past five years has generally been better in terms of
performance than that of BAE. This may dishearten the BAE investors to some extent, as
both firms control the same market, but BAE seems to be performing less efficiently
(Baesystems.com, 2014).
The FTSE 100 was much nearer in performance to Rolls Royce over this period (2010-2014).
Although Rolls Royce was usually a better performer however the performance gap was far
less substantial than between BAE and Rolls Royce. The relative distinctness to the FTSE
100 shows that BAE needs to successfully perform in line with the market trend in the near
future (Beatty & Liao, 2014).

20

Figure 6: Graph showing Share Price of BAE, Rolls Royce and FTSE 100 over one year;
Source: (Baesystems.com, 2014)

Share Price of BAE, Rolls Royce and FTSE 100 over one year
Aug-13

FTSE 100 ()

Rolls Royce ()

Nov-13

450

May-14

420

534

BAE () 120

Feb-14

521

135

170

450

511

Aug-14

59

475

510

235

499

298

Figure 6 is useful in representing the noteworthy variation in the share performance which
has taken place in one financial year (August 2013- August 2014). This year was a good year
for the defence industry in the United Kingdom and this is echoed in the share price
performance of both BAE and Rolls Royce (Ficenec, 2014).

21

3.1.2 Analysis of Returns

This part will put forward an exploration of the returns offered by BAE to their stockholders.
These returns will be equated with returns of the past five years (2010-2014) and also with
Rolls Royce.
3.1.3 Total Return
The study will first review the total return for stockholders of BAE over the past five years
and equate it with that received by Rolls Royce stockholders (Annualreports.com, 2015).
Table 6: Table showing Total Return for BAE and Rolls Royce 20010-2014; Source:
(Ficenec, 2014)
Financial

2010

2011

2012

2013

2014

Year
Total Return

15.6%

16.4%

15.2%

18.1%

22.5%

15.9%

13.6%

16.8%

9.5%

11.9%

for Rolls
Royce
Total Return
for BAE

Figure 7: Total Returns for BAE and Rolls Royce 2019-2014

22

Total Returns for BAE and Rolls Royce 2019-2014

2010

2011

2012

2013

2014

22.5
15.6 16.4

15.2

18.1
15.9

16.8
13.6
9.5

11.9

Rolls Royce(%)
BAE (%)

Figure 7: Graph showing the Total Returns of BAE and Rolls Royce from; Source:
(Siriwardane, 2013)
Table 6 and Figure 7 show that the total return for BAE shareholders has been unsteady over
the past five years. Some of the returns are reasonable when considering the marginal
increase and decrease in profits at BAE between 2010 and 2012 (Ficenec, 2014). However, it
may remain a positive picture to investors that their return has increased marginally from
2013 to 2014. Rolls Royce Stockholders may be not being worried at all as the return for
Rolls Royce is more compared to BAE in the past five years (Siriwardane, 2013). This is
likely an echo of the fact that Rolls Royce is a bigger corporation and has had higher profits
than BAE lately.
3.1.4 Earnings per Share:
The Earnings per Share (EPS) is an important measure of performance for BAE and is an
extremely significant piece of Data for stockholders and prospective stockholders. Basic EPS
is considered as in IAS no.33 in which the net income or loss attributable to regular

23

stockholders is divided by the sum of average shares. Stakeholders utilize EPS in abetting
their assessment of future growth and therefore future share prices. EPS is chiefly a portion
utilized to view the inter-period performance of a single body. Though, there are certain
restrictions to using EPS as it does not take price rises into account and consequently real and
actual evolution may vary (Kollewe, 2011). EPS can also be employed by the use of share
buy-backs. These permit corporations to decrease the quantity of regular shares and hence
decrease the denominator of the EPS calculation.
It is assumed that as EPS is grounded on the quantity of mutual shares remaining so one
cannot make evaluations of different corporations as one will not able to compare the
numbers. Inter-company assessments founded on EPS should only be carried out if the
quantity of mutual shares remaining represents a practical scaling degree for company size. In
spite of these restrictions EPS will be utilized in this study, as many businesses and
shareholders view it as a main pointer of a firms performance.
Table 7: Table showing EPS of BAE and Rolls Royce for 2011-2014; Source: (Phuong
Truong, 2012)
Financial

BAE Earnings per Rolls Royce

Year

share

Earnings per
share

2011
2012
2013
2014

36p
29p
5p
37p

45p
123p
72p
64p

24

Earnings Per Share of BAE and Rolls Royce 2011-2014

2011

2012

2013

2014
123

72

36

37

29

64

45

5
BAE

Rolls Royce

Figure 8: Graph showing Earnings per Share of BAE and Rolls Royce between 2010-2014;
Source: (Phuong Truong, 2012)
There was an increase in basis EPS of BAE from 2013 to 2014 from 5 pence to 37 pence.
This recent level of progression in the EPS may hearten the investors as it validates that the
company has seen a significant development in the last one year (Phuong Truong, 2012).
Rolls Royces EPS has been overall steady unlike that of BAE; and in the four years
(discussed in the paper) it has been greater than BAEs (Kollewe, 2011). Though, as was
specified in the hypothetical component of this chapter, EPS might not all the time be
effective when associating with different firms, as it is subjective to diverse accounting
procedures (World Finance, 2015).
3.1.5 Price/Earnings Ratio
The price-earnings (P/E) ratio is regarded by some as the most significant ratio when
evaluating stock selection. The P/E ratio is considered by dividing the market value per share
by the earnings per share (Moneysupermarket.com, 2015). The P/E ratio gives an idea to

25

depositors as how great the market price is than the existing level of earnings of a firm. Study
has revealed that on an average if a corporation has a low P/E ratio, shareholders will get an
above average return (Moneysupermarket.com, 2015).
Some have demanded that P/E ratio is defective as it is not able to take into account variances
in short-run earnings progression (Adler, 2011). There is also some recommendation that P/E
does not completely recognize the effect of risk on the impending return. Regardless of these
reviews the P/E ratio remains one of the most vital ratios for investment verdicts (Kollewe,
2011).
Table 8: Table showing P/E ratios of BAE and Rolls Royce from 2010-2014.Source:
(Baesystems.com, 2014)
Financial

2010

2011

2012

2013

2014

Year
P/E Ratio of

12.1

13.8

15

14.5

15.49

Rolls Royce
P/E Ratio of

8.2

9.2

11.1

6.9

8.1

BAE

26

P/E Ratio for BAE and Rolls Royce 2010-2014

BAE

Rolls Royce

10

12

2010

2011

2012

2013

2014

14

16

18

Figure 9: Graph showing P/E ratios for BAE and Rolls Royce from 2010-2014; Source:
(Patterson, Chanmugam, Selley, Sutherland & Stagg, 2015)
The P/E ratios of BAE in the past five years are relatively high, and show that the market
price is much greater than the level of earnings (Adler, 2011). This is reassuring for existing
stockholders as it indicates that the market value of their stocks is much more than the
earnings made.
Rolls Royce has in general a much greater P/E ratio than BAE, and is stable unlike that of
BAE (Patterson, Chanmugam, Selley, Sutherland & Stagg, 2015). This displays that the
market value of stocks and the incomes of the corporation are much closer in this case. The
higher P/E ratio in system may point to the higher opportunity of progression of the share
price, though the level of steadiness presented in Figure 16, may specify that this is not the
case (Chiang, Nouri & Samanta, 2013).
3.1.6 Dividend per Share and Dividend Yield

27

Dividend per share is considered by dividing the dividend paid out over the year by the sum
of remaining regular shares (The Economist, 2013). Though EPS and dividend per share are
parallel, EPS demonstrates how much stockholders receive in the period through earnings,
while dividend per share displays how much they are paid in dividend. The dividend yield
ratio is considered by dividing the dividend per share by the dividend tax credit rate of
income tax, and later this is all divided by the market value per share (Patterson,
Chanmugam, Selley, Sutherland & Stagg, 2015). This ratio benefits investors as it helps them
to measure the cash return they will be paid on their stock. Study has shown that dividend
yield is a worthy forecaster of share returns (Beatty & Liao, 2014).
Table 9: Table showing Rolls Royce Dividend per Share and Dividend Yield 2010-2014;
Source: (The Economist, 2013)
Financial

2010

2011

2012

2013

2014

Year
Dividend

7.40p

8.30p

9.50p

10.90p

12.40p

Per Share
Dividend

1.98%

2.12%

2.96%

3.48%

3.99%

Yield

Table 10: Table showing BAE per share and Dividend Yield 2010-2014; Source: (Patterson,
Chanmugam, Selley, Sutherland & Stagg, 2015)
Financial

2010

2011

2012

2013

2014

Year
Dividend

5.47p

7.18p

20.15 p

5.42p

6.15p

1.25%

1.68%

4.65%

0.63%

0.99%

Per Share
Dividend

28

Yield

Dividend per Share of BAE and Rolls Royce 2010-2014

2010

Rolls Royce

BAE

7.4

5.47

8.3

7.18

2011

2012

9.5

20.15

2013

2014

10.9

12.4

5.42

6.15

Fi

igure 10: Graph showing Dividend per Share of BAE and Rolls Royce from 2010-2014;
Source: (Patterson, Chanmugam, Selley, Sutherland & Stagg, 2015)
As Figure 10 illustrates the dividend per share of BAE has been very unsteady over the past
five years. It is at 6.15 as of 2014, which is an increase from 5.42 of the year 2013. Rolls
Royces dividend per share has been on the rise consistently since 2010 (Williams, 2014).
Also, when compared with BAE, Rolls Royce has a higher dividend per share. However, this
is a positive financial state of BAE from a depositor viewpoint as it has presented a greater
dividend per share in the recent two years (Moneysupermarket.com, 2015).

29

Chart Title
2010

2011

2012

2013

2014
3.99
3.48

Rolls Royce (%)

2.96
2.12
1.98
0.99
0.63

BAE(%)

4.65
1.68
1.25

Figure11: Graph showing Dividend Yield for BAE and Rolls Royce from 2010-2014; Source:
(Patterson, Chanmugam, Selley, Sutherland & Stagg, 2015)
BAE has a relative dividend yield, of around 0.63% in 2013. There was a significant increase
in 2014 (0.99%), which means that stockholders could anticipate a greater cash return on
their share in the coming years (Patterson, Chanmugam, Selley, Sutherland & Stagg, 2015).
Rolls Royce has consistently offered a higher dividend yield than BAE , as Rolls Royce has
been around 1.98% to 3.99% since 2010 to 2014 (Quotes.wsj.com, 2015). This is partially an
outcome of their much greater dividend per share and the greater market value of Rolls
Royce shares (Kollewe, 2011).
3.1.7 Returns Analysis Summary
BAE does offer a higher total return than its close rival Rolls Royce, it also have certain
ratios and methods that are vaguely positive. It has a higher EPS and higher dividend yield in
2014 from 2013, and this means that shareholders can anticipate a greater cash return on their

30

share; this may be heartening for depositors and prospective Financiers

(Moneysupermarket.com, 2015).
The next segment will present an exploration of the risks faced by BAE and any actions that

have been occupied to reduce their effect.

3.2 Risk Analysis

3.2.1 Risk Analysis Literature

This segment will concisely assess the literature on risk analysis, and precisely one chief
process of risk assessment that is beta.
Study on risk analysis encompasses a great number of zones. One such zone is that of beta
and its utilization in investment choices. The beta of a corporation asses the receptiveness and
security of its activities in the selected markets (Kollewe, 2011). Beta processes methodical
market threat, not disorganized firm specific threat, as this can be differentiated by
shareholders. The greater the Beta the more receptive it is, the beta displays as to how much a
security changes in the market if the market changes by just one per cent (Chiang, Nouri &
Samanta, 2013). As an outcome greater beta shares are considered to be more precarious as
they will change further when the market changes either up or down.
The practicality of beta in the speculation practice has been argued profoundly over the years.
It is asserted that over time betas incline to return to one, which is in line with the market,
there are also complications regarding the approximation of beta that may make it incorrect

31

(Barkemeyer & Figge, 2013). Though, few researches have revealed that beta is a valuable
tool both as a measure of risk and in portfolio selection. There has been no inference of this
argument; nonetheless beta is still utilized as an instrument of risk exploration.
Risk can be segregated into business risk and financial risk. Financial risk can encompass
areas such as gearing and exchange rates, which may become a threat to the corporation.
Business risk encompasses wider subjects within the business or sector, which may have an
undesirable effect on the business in the future. The next segment will look at the risks
experienced by BAE in both these zones and the actions implemented to reduce their effect.
3.2.2 Analysis Risk
3.2.2.1 Beta
As of the November 2014 BAE had a beta of 0.8341. This is a comparatively low beta,
representative that BAE is not perceived to be an unsafe corporation in which to capitalize,
when bearing in mind methodical risk. This displays that if the market changes by 1%, BAE
will change by around only 0.8341% (Chiang, Nouri & Samanta, 2013). This will demand to
risk as opposing to shareholders, owing to the fact that if there is an unexpected change in the
market BAE shares will either decrease or increase in values less or more than the market as
a whole (Phuong Truong, 2012).
3.2.2.3 Business Risk
There are a number of risks faced by BAE at present and also by the UK defence sector as a
whole. BAE states that they have a "limited appetite and tolerance for risk" (Siriwardane,
2013).

3.2.2.4 Defence spending cutbacks

32

BAE is open to a small number of domestic markets -- mainly, the US, the UK, Saudi Arabia
and a few other nations, including Australia and India. As per BAE, with restrictions on
government disbursement in total of the company's markets, and nations in the Eurozone area
presently suffering severe fiscal problems, affordability lingers to be a main focus for
consumers.
In order to manage these risks, BAE is making sure that the British and American
administrations remain dedicated to guarding the magnitude and powers of their combat
forces (Williams, 2014). Also the company is applying cost-cutting methods and increasing
its service area business, which is less open to financial reductions.
3.2.2.5 Large contracts
A noteworthy ratio of BAEs income comes from a trivial number of large contracts. Every
one of these contracts is usually worth or potentially worth over one billion (The
Economist, 2013). The damage, termination, postponement, annulment or cessation of any

one of these large contracts, for any cause, could have a substantial opposing outcome on the
company's impending consequences and monetary situation.
Modification, the business notes, takes the form of upholding a well-proportioned spread of
programs and a large forward order book, combined to consistent appraisals and close
observing.
3.2.2.6 Fixed price contracts

Fixed-price contracts are a significant threat to the company. According to BAE, a substantial

33

share of the company's income is derivative from fixed-price contracts. An intrinsic risk in
these fixed-price contracts is that real performance budgets may surpass the expected prices
on which the fixed prices for such contracts are decided.
BAEs risk management of fixed-price contracts is taking initiatives to evade high-risk R&D
deals, controlling fixed-price construction contracts, and by having a vigorous bid
groundwork and sanctions procedures in place.

3.2.3 Summary of Risk Analysis

This study proves that BAE and the telecom sector in the United Kingdom face a number of
major risks. A lot of these challenges are long term concerns, that are basically out of the
hands of the corporation; however they have implemented techniques that they are able to
make an effort of alleviating these risks (Jones Christensen, Mackey & Whetten, 2013). The
risks discussed in this chapter could also have an influence on personnel, not just
shareholders, as they may lead to insecurity of the business.
The next chapter will discuss corporate governance subjects, and whether BAE is
accommodating with the UK Corporate Code. It will also discuss BAE's CSR activities and
the influence these have on the trade and its workforces.

34

Chapter 4: Corporate Governance &

CSR

35

4.1 Corporate Governance

The chapter 4 will discuss corporate governance concerns and the approach in which BAE
take care of them. In this section the corporate governance exercises of BAE will be equated
with Rolls-Royce Holdings plc. The Rolls-Royce Company has been utilized as the company
to be compared with BAE because both are British multinational companies, are into
aviation business and are both strong competitors (Bishop, 2012). Also, Rolls Royce, just
like BAE, has to conform with the UK corporate code.
The meaning of corporate governance is still argued upon by scholars. In the United
Kingdom the chief goal of the business is to make the most of investors capital
(Barkemeyer & Figge, 2013). Though, in other business settings such as in continental

Europe, personnel are most vital to the goal of the establishment.

36

Corporate and social responsibility can be assumed in expressions of corporate responsibility,

though with more pressure upon the responsibilities a firm has towards the public, chiefly in
terms of altruistic events and conservational initiatives (Aguinis & Glavas, 2012). CSR is
occasionally referred to as being an unstated agreement between corporate and a civic, so that
the community could authorize the industry to function in its dominion to acquire
employments for inhabitants and income by tax policy (Prendergast, 2015). Moreover, the
civic believes that the corporate would preserve the atmosphere and help the society to
become a healthier place to exist and function through benevolent actions. Bansal, Gao &
Qureshi (2014) states that CSR are generally liable business performs that reinforce

corporate responsibility, regarding moral standards in the benefits of all investors.

Accountable corporate undertakings respect and protect the environment. Serving to develop
the class and prospects of existence, they authorize individuals and capitalize in societies
where an industry functions (Federalregister.gov, 2015).
Presently, British owned businesses seem to be accommodating interventions of commercial
green and public obligation more often than the firms of United States. It must be assumed
that certain corporate integrities groups consider that CSR covers all duties that a business
has to all of its shareholders, which comprises moral, communal and ecological duties
(Brammer, He & Mellahi, 2014).

4.1.1 Board Structure

The construction of the panel is a chief corporate governance concern. This points to the sum
of and the stability among executive and non-executive boards, this is supposed to validate
the level of unconventionality (Adams, Hermalin & Weisbach, 2010). The Corporate
Code blatantly claims that the board of directors of every company should consist of a right
balance of executive and non-executive directors (Robertson, 2015).
BAE conforms with the Corporate Code in this aspect as it has nine board members,

37

of whom five are non-executive directors (Aerosociety.com, 2015). This equilibrium

among the executive and non-executive directors surely fulfills the codes obligation to
have a balanced number of dependent and independent directors. Rolls-Royce, too,
act in accordance with the Code in this aspect and has seven out of thirteen board
members that are non-executive (Rolls-royce.com, 2015).
4.1.2 Separation of CEO and Chairperson:
Another important corporate governance concern is whether the Chairperson and
the CEO should have a similar role to play in a company or should it be seperated.
Sorting out their roles is assumed to be better for a company as it would lower the
risk of an individual having greater influence on corporate judgements causing
duality of power (Ghobadian, Money & Hillenbrand, 2015). Though, the business reports of
different coporation, globally, has shown that seperating the work and authorities of
Chairperson and CEO has no influence on the productivity of the firm. Yet, further
proof has been established both in support of the notion of duality and against it.
Nonetheless, it is evidently recommended by the UK Corporate Code that there
should be a segregation of their operative roles in order to avoid a single person in
possession of too much power. This has been a basic norm of UK corporate
governance codes since their existence (Pillay, 2015).
BAE completely conforms with the rules on duality in the UK Corporate Code, and
has a distinct segregation among the workings of CEO and Chairman. Rolls-Royce
,too, trails this part of the code in a smilar manner like BAE, by an evident
segregation of these roles, with distributed accountabilities. This split-up between the
roles of CEO and Chairperson has become mainly ordinary, as businesses work in
accordance with the basic philosophies of the UK Corporate Codes.

38

4.1.3 Area of Non-Compliance:

It is reported that BAE, disapprovingly, does not fulfil all the principles of the
Corporate Code (Glassdoor, 2015). Though, the standing of UK on nonfulfillment is to
provide the board members a chance to give details of their situation if they feel there
is honest explanation.
The aspects in which BAE is accused of non-compliance with the Corporate Code is
in respect to Unauthorized Discharge, Deficient Monitoring, Late Report and
Limitation Exceedance (Phuong Truong, 2012). Even Rolls Royce has been accused of
malpractise, lobbying, corruption, bribery and kickbacks in the last few years.
However, it is evident by the success of both the companies that most priciples of
Corporate Code are fulfilled by BAE and Rolls Royce.
4.1.4 Summary:
BAE complies with most of the commendations in the Corporate Code, except the
ones mentioned above, and proves that they have a solid corporate governance
structure in the business. Rolls-Royce, too, seem to conform with maximum
principles of the Corporate Code, and this perhaps echo in the fact that large-scale
civic businesses in the United Kingdom do make tremendous efforts in fulfilling the
Corporate Code requirements.
4.2 Corporate Social responsibility:
This part of the research paper will discuss the subject of corporate social
responsibility (CSR) and the CSR undertakings of BAE; it would even endeavour to
present a concise comparison of BAEs CSR activities with that of Rolls Royces. In
the beginning of this section, an analysis of the pertinent literature is discussed along

39

with the CSR's influence on the financial performance of a company.

4.2.1 Literature:
Corporate Social responsibility (CSR) is said to be the on-going obligation by
corporate to act morally and subsidize to the financial improvement even though
refining the quality of work and life of the personnel and their children as well as
the native public and the world at large (Crane, Matten & Spence, 2014). This evaluation
of CSR includes a comprehensive choice of undertakings that big businesses may
conduct in its name. This section of the thesis will put emphasis on two
fundamentals, environmental protection and relations with workers.
Businesses, at present, frequently operate in the outer market that would come
under CSR. Nevertheless, there is argument whether CSR undertakings really
develops a companys productivity, or whether it has an adverse effect (El Akremi,
Gond, Swaen, De Roeck & Igalens, 2015).

According to some studies , the administrator or

the manager does not work in the best possible manner and hence the shareholders
wealth is not increased. Some even assume that directors could utilize the money,
that is present in the corporation as disbursements or lucrative share, for their
individual commitments or as initiatives of CSR.
Researches have revealed that particular CSR events come under the agency problem group,
while the rest are supposed to improve a companys productivity. Dobkowski-Joy (2010)
divided CSR undertakings into two types. One type was shareholder organization, which
comprises effort to develop employee dealings, the other type was social issue involvement
which encompassed functioning on subjects that are separated from the company. They
discovered that shareholder organization was useful to the firms productivity because of

40

enhanced employee relationships. On the contrary, the social issue involvement is damaging
to a companys performance due to the agency problem.
Having a good relationship with the shareholders together with the personnel is a
significant part of CSR, particularly in nations where the business culture does not
encourage it , such as in the United Kingdom. Scholars are of opinion that
developing a relationship with investors can increase a companys productivity, and
it is proved in most companies owned by British (World Finance, 2015). This confirms
that not only can involvement with staffs improve their quality of work and life, but
it can also be profitable for the investors by enhanced business performance.

4.2.2 Environmental protection:

Environmental protection is one imporatant component of CSR practice (Hahn, Figge,
Aragon-Correa & Sharma, 2015).

Though, as the remunerations of such undertakings do

not openly help the company, they are sometimes thought to be damaging to a firms
productivity.Yet, to an assured level environmental protection is measured,
particularly for a corporation like BAE, and consequently nonconformity might
turn out to be expensive (Greenaironline.com, 2015). This research paper will now
discuss BAE's CSR undertakings pertaining to environmental protection.
BAE have decreased the environmental influence of their processes - and encouraged their
clienteles and contractors to do the same which has in turn lowered the businesss costs and
helped them to conform with permitted and governing requirements. The company is alarmed
about the increasing energy expenses and energy safety and firmly believe that the ecological
performance of products is of increasing importance to their clienteles.
BAE have introduced an Environmental Sustainability Maturity Matrix (ESMM) that

41

offers a roadmap for their productions to recover their conservational performance. It

encompases their processes, the strategy of their goods, and their contractors. Each
corporate has been requested to run a self-evaluation program against the matrix to define
their existing situation and set objectives for where they would like to be in every region.
BAEs importance is to reduce the sum of waste they create by refining the effectiveness of
their engineering procedures. This benefits their trade by decreasing the quantity of resources
they purchase and reducing landfill expenses. Dropping the ecological impression of their
merchandises by utilizing less resources also backs the sustainability aims of their consumers.
Waste is one of three effect zones the company is needed to control and set drop targets as a
part of their ecological sustainability objects (Militaryaerospace.com, 2015). While their
processes produce both dangerous and harmless excess, most of the waste BAE yield is
harmless and is predisposed of as per the local and national guiding principle.
BAE targets to reprocess waste from their locations wherever feasible. Many locations in the
United Kingdom have announced office recycling amenities and the companys waste service
dealer has been hired and paid for to offer their services to the companys sites for the waste
to be separated at source (Kleinman, 2013). The company is also functioning thoroughly with
the Scottish Environmental Protection Agency (SEPA) to diminish the influence of the effort
on the local community adjacent to the location. BAEs priority is to reduce the sum of waste
created and the company is get the most out of recycling and the reuse of resources where
feasible. The planned work includes the destruction of earlier factory constructions,
fortifications for the new building and soil treatment procedures (Wald & Dobson, 2015).
BAE utilize water and amounts of harmful and harmless resources containing chemicals,
turpentine, dyes and metals through the steps of the engineering procedures, from assemblage

42

to vacuuming and location washdowns. Their companies have set water decline objectives as
a part of their ecological sustainability purposes (Jones Christensen, Mackey & Whetten,
2013). Atomic resources utilized by the Submarine Solutions units of BAE need additional
supervision and are subject to stringent laws and principles.

BAE follow Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)

meticulously as there is a threat that particular substances which they presently depened on
may vanish from their resource chain. Annualy, they analyse their carbon footprint to achieve
a comprehensive idea of their CO2 discharges across all BAE sites.
BAE has testified that their greenhouse gas discharges have reduced by 4% between 2013
and 2014. They have also continued a per member of staff rate of 18 tonnes CO2e (Horisch,
Freeman & Schaltegger, 2014).

Rolls-Royce, too, concentrate on preserving their effort to decrease their ecological effect of
their companies undertakings worldwide (Csr-resources.com, 2015). This is a part of
their Group green policy. Rolls Royce has laid strict policies to achieve the promises they
have made. Their aim is to be recognised for the distinction in their HS&E performance in
all their corporate accomplishments, and their merchandises (Dowell, 2013). No wonder
there were no trials or execution action against the Group in the year 2014 for environmental
non-conformity.
4.2.3 Employee Relations:
The second element of CSR that will be discussed in this paper is that of employee
relations (Hart, David, Shao, Fox & Westermann-Behaylo, 2015). This would fall under the
category of shareholder organization, and would consequently be more prospective

43

to profit the company commercially.

BAE intents to invite and preserve top talent by making its company a better place to
work where individuals from all experiences can improve their professions and feel
content for what they do. Pleasing personnel is imperative in helping the business meet
their commercial purposes and placing their business accountability strategies into
practice (Shen & Benson, 2014). Employees response also assists them to measure the
contentment levels and highlight zones where they can progress.

BAE continually capitalize in training and improvement of their employees to assist

them attain their full potential and guarantee that they have the expertise to carry on with
the progresses in technology to help the business remain competitive (The Economist,
2013).

Growing rivalry for individuals with the required abilities and knowledge makes

capitalizing in their workers and increasing their talent pool even more of a precedence.
BAE also inspires more womenfolk to consider professions in conventionally man ruled
industrial and engineering roles and they have solid provision set-ups for woman
personnel and those from different backgrounds.

In certain domestic markets, there is a dearth of capable engineering and knowledgable

graduates. Hence, BAE want more fresh persons to reflect their careers in science,
technology, engineering and mathematics to seal this opening and support their imminent
development.

44

BAE want all their staffs, whether trainees, graduates or high-ranking frontrunners, to grasp
their full potential. Making sure their individuals have the correct competences and abilities
to meet their future requirements and changing customer needs is essential to providing their
overall performance policy.
At BAE, staffs work with their supervisors to plan career paths and recognise the abilities
they might require. Yearly individual growth appraisals offer an opportunity for workforces to
get a response on their performance and decide on the preparation needs carried through the
companys Developing You plan. BAE leadership programmes comprise mentoring and
worldwide assignments to give directors the abilities and knowledge desirable to back their
commercial objectives.
BAE value diversity because it profits their workers and helps their business grow. A diverse
employees, with staffs drawn from all backgrounds inspires invention, advances efficiency
and brings the company closer to their clienteles.The company concentrates on enticing and
absorbing capable individuals from diverse backgrounds, and assisting them to improve their
expertise and form a prosperous business with them. BAE targets to make an inclusive
atmosphere where every one of its workers are respected and has the chance to fulfill their
potential and add to their business accomplishment (Peshawaria, 2015).Diversity and
inclusion help the company generate a constructive work experience and to be known as an
establishment of choice.
Even at Rolls Royce, the companys Human Resources plays an important role in making
sure that the staffs and the administration as a whole are functioning together to create a
better future (Makovicky, 2013). This includes examining, evolving and applying the best
HR resolutions and novel concepts across the corporation, as well as guaranteeing that the
company has a reliable plan, facility and rule across all of their sites, irrespective of nation.

45

On a more personal level, Rolls Royces managemnt works as a trusted resource for all
workers looking for assistance on both ordinary troubles and those of a further thoughtful
topics (Smith, 2011). The companys HR is also at the heart of creating an extraordinary
performance beliefs capable of providing revenue-doubling progress over the next six to
seven years. With the initiation of Rolls Royces Graduate Leadership Programme, the
company has been looking to draw high-calibre Leadership Graduates. These graduates will
work at the front position of Rolls-Royce's venture in invention and competence, and be open
to incomparable growth opportunities (Kottasova, 2015).
4.2.4 Summary:
Endorsing diversity supports BAEs determinations to entice and preserve the finest talent
and inspires new methods of discerning (Career.au.baesystems.com, 2015). In fact, the drill
programmes of both the companies, BAE and Rolls Royce, improve workers abilities to
help them nurture as a corporate professionals and develop their professions. The worker
assessment and support networks of both the firms add to the companys productivity and
help staffs feel involved with their commerce (Hartley, 2014). BAE wishes to distinguish not
only what they do, but also how they do it through offering an economical recompense
package to guarantee that they remain a better place to work for. The next chapter will
complete this study, and concisely look to the possible future performances of BAE.

46

Chapter 5: Future Prospects

47

This section will concisely determine the study and argument in this paper. The chapter aims review the
prospective future performance of BAE, grounded on BAE predictions and the data in the former chapters.
financial analysis of BAE exhibited that their fiscal performance in the past four years(2011, 2012, 2013 and
2014) have been extremely inconsistent, this makes forecasts of future performance difficult. BAE state that their
annual profit before taxation has increased from the year 2013 (422m) to the year 2014 (882m). The company
The

expects the similar increase in their profits for the coming years. Though it is subjected to market situations, it

indeed is a positive statistics for both stockholders and workforces (Ficenec, 2014).
BAE s Earning Per Share (EPS) has been mixed broadly over the past four to five years, corresponding with the
changes in incomes. Since the company is expecting a rise in profit as discussed above, their EPS is also bound
to increase, and they firmly believe it will be high in 2015/2016 (Hartley, 2014). Though they are being
cautionary and claim that there might even be a decrease in EPS in coming years owing the to the challenging
market situations. Nevertheless, BAE is predicting a growth in dividend per share, so this may be heartening for
depositors as they could expect a rise in their cash return

(Baesystems.com, 2014).

The defence business has suffered a difficult time in recent years (Federalregister.gov,
2015). Cost reduction across the technologically advanced world and, specifically in, United
States confiscation, have affected demand for BAEs merchandises, which led to a drop in the
corporations bottom line of ten per cent in the year 2014 (Kollewe, 2011). And, even
though demand from developing markets is on the rise, it is not yet enough to make up for the
condensed order numbers from the countries that conventionally paid huge on defence
products. Though, the improving attitude for the technologically advanced countries means
that BAE is set to upsurge its bottom line by two per cenr in the year 2015 and by additional
six per cent by the year 2016 (Marketviews.com, 2015). Definitely, these statistics are not
on the whole astounding. After all, the FTSE 100 is likely to post an improvement in the
standard to great single figures during the period. But it demonstrates that, from the year
2016 onwards, BAE , hopefully, will be able to counterpart the wider index progress rate
(Phuong Truong, 2012). As such, there is great possibility for a rising rerating to its
evaluation, with its price to earnings (P/E) ratio of thirteen being low when equated with the
FTSE 100s P/E ratio of around sixteen (Robson, 2014).
The impending years are expected to see most important legal and judicial alterations in the major policies of
BAE that could rigorously influence its overall performance. Nonetheless, they do expect that having expanded
their capitals and supply of resources they will be able to overcome the fluctuations with restricted harm to their
financial productivity (Aerosociety.com, 2015). This could indicate that the effect on both stockholders and
personnel is lowered, but this improbability may be a reason for concern for both the parties.

When analysing the impending share price performance, BAEs industry is on a

high, with demand set to upsurge (Stephens, 2015). This should serve
as a facilitator for a share price that, while having performed good in the year
2014, still has a long way to go (The Economist, 2013). Defence bonds are by
their nature, well, defensive. But at P/E ratio of 11.6 in the first quarter of 2015,
falling to 11 at present, BAE is also underrated compared to its rivals (Tovey,
2015).
BAE is the biggest civic and aerospace company in the world, and evidently
commands to persist on. They have outdone the FTSE 100 over the last few
years as they have an order book of 36.6 billion, an increase of 30% on the

48
preceding year, a stable increase in the P/E ratio (Williams, 2014). Nonetheless,
all the aspects indicate to a rising and prosperous enterprise that BAE already is.
As of Aug 29, 2015, the agreement estimate between the major polled
speculation forecasters including BAE Systems plc recommends stockholders to
hold their position in the corporation (World Finance, 2015). It is assumed that
BAE Systems plc would outperform the market in the coming years.

References
1. Anon, (2015). [online] Available at:
http://www.savannahstate.edu/misc/dowlingw/3155/Daily%20Class%20Sessions
%20-%20Spring%202012/Sessions/2-08-01.pdf [Accessed 21 Aug. 2015].
2. BAE Systems to sell Composite Structures Business. (2011). Reinforced Plastics,
55(3), 15. doi:10.1016/s0034-3617(11)70060-1
3. Baesystems.com,. (2015). Retrieved 20 August 2015, from
http://www.baesystems.com/news-&-features-rzz;baeSessionId
4. Cooke, P., & Wells, P. (2015). Globalization and its Management in Computing and
Communications. Towards Global Localization (Routledge Library Editions:
Economic Geography), 61.

49

5. Corporatewatch.org,. (2015). BAE Systems: Overview | Corporate Watch. Retrieved

26 August 2015, from https://corporatewatch.org/company-profiles/bae-systemsoverview
6. Curran, J. (2010). Technology foretold. New media, old news: Journalism and
democracy in the digital age, 19-34.
7. Demonstratingvalue.org, (2015). Financial Ratio Analysis | Demonstrating Value.
[online] Available at: http://www.demonstratingvalue.org/resources/financial-ratioanalysis [Accessed 21 Aug. 2015].
8. Dixon, C. J., Drakakis-Smith, D., & Watts, H. D. (2012). Multinational Corporations
and the Third World (RLE International Business) (Vol. 11). Routledge.
9. Dyvik, J., Herbig, J., Appleton, R., O'Reilly, J., & Shin, J. (2007). Recent activities in
electrothermal chemical launcher technologies at BAE systems. Magnetics, IEEE
Transactions on, 43(1), 303-307.
10. Fernandez, P. (2013). Price to earnings ratio, value to book ratio and growth. Value to
Book Ratio and Growth (November 11, 2013).
11. Fernandez, P. (2013). Valuation using multiples: How do analysts reach their
conclusions?. Available at SSRN 274972.
12. Gassmann, O., Enkel, E., & Chesbrough, H. (2010). The future of open innovation.
R&d Management, 40(3), 213-221.
13. Gopalakrishnan, K., Yusuf, Y. Y., Musa, A., Abubakar, T., & Ambursa, H. M. (2012).
Sustainable supply chain management: A case study of British Aerospace (BAe)
Systems. International Journal of Production Economics, 140(1), 193-203.
14. Guo, C., Gong, S., Tan, L., & Guo, B. (2011). Extended GTST-MLD for Aerospace
System Safety Analysis. Risk Analysis, 32(6), 1060-1071. doi:10.1111/j.15396924.2011.01718.x
15. Hargreaves Lansdown,. (2015). BAE Systems plc | Financial statements & reports.
Retrieved 20 August 2015, from http://www.hl.co.uk/shares/shares.
16. Investment & Small Business Accountants, (2013). WHAT IS RATIO ANALYSIS?
IMPORTANCE, USES AND SIGNIFICANCE OF RATIOS - Investment & Small
Business Accountants. [online] Available at:

50

http://www.accountantnextdoor.com/what-is-ratio-analysis-imporatnce-uses-andsignificance-of-ratios/ [Accessed 21 Aug. 2015].

17. Investors.baesystems.com,. (2015). Investors - BAE Systems. Retrieved 20 August
2015, from http://investors.baesystems.com/
18. Jargosch, R., & Jurich, J. (2014). BAE Systems plc Patent Landscape Analysis
January 1, 1994 to December 31, 2013 (pp. 5-15). IPGenix LLC.
19. Jazayeri, M., & Scapens, R. W. (2008). The Business Values Scorecard within BAE
Systems: The evolution of a performance measurement system. The British
Accounting Review, 40(1), 48-70.
20. Kline, P. (2014). An easy guide to factor analysis. Routledge.
21. Kontis, K. (2014). AerospaceAn Open Access Journal. Aerospace, 1(3), 97-97.
doi:10.3390/aerospace1030097
22. Launius, R. D. (2014). Realizing the New Aerospace History. Historical Studies in
the Natural Sciences, 44(2), 187-195.
23. lewis, M. (2014). What Is the Price to Earnings (P/E) Ratio - Definition, Formula &
Limitations. [online] Money Crashers. Available at:
http://www.moneycrashers.com/price-earnings-pe-ratio-definition-explained/
[Accessed 21 Aug. 2015].
24. Lohrey, J. (2015). Importance of Ratio Analysis in Financial Planning. [online]
Small Business - Chron.com. Available at:
http://smallbusiness.chron.com/importance-ratio-analysis-financial-planning80600.html [Accessed 21 Aug. 2015].
25. Markets.ft.com,. (2015). BAE Systems PLC, BA.:LSE forecasts - FT.com. Retrieved
20 August 2015, from http://markets.ft.com/research/Markets/Tearsheets/Forecasts?
s=BA.:LSE
26. Megginson, W. L. (2010). Privatization and finance. Available at SSRN 1544889
27. Neate, R. (2014). Why aerospace and defence are Britain's engines of growth. the
Guardian. Retrieved 26 August 2015, from
http://www.theguardian.com/business/2014/jul/13/aerospace-defence-britain-growthfarnborough-airshow

51

28. Park, K., & Vambery, R. G. (2010). Value creation through international acquisitions
in a world of one-way globalization: Toward a new paradigm. International Business
& Economics Research Journal (IBER), 9(4).
29. plc, b. (2015). BAE SYSTEMS PLC (BA/:London): Financial Statements Businessweek. Businessweek.com. Retrieved 20 August 2015, from
http://www.bloomberg.com/research/stocks/financials/financials
30. Redmayne.co.uk,. (2015). BAE Systems Financials: Profit & Loss, Balance Sheet,
Key Facts & Figures. Retrieved 20 August 2015, from
http://www.redmayne.co.uk/research/securitydetails/financials.htm?tkr=BA.
31. Reuters.com,. (2015). BAE Systems PLC (BAES.L) Quote| Reuters.com. Retrieved 26
August 2015, from http://www.reuters.com/finance/stocks/overview?
symbol=BAES.L
32. Rhodes, C., Hough, D., & Ward, M. (2015). The aerospace industry: statistics and
policy.
33. Rohrbeck, R. (2010). Harnessing a network of experts for competitive advantage:
technology scouting in the ICT industry. R&d Management, 40(2), 169-180.
34. Sheppard, J. (2014). The Value of Acquiring: An Event Study on Shareholder Value
for Defence Sector M&A's.
35. Tapia, J. (2012). The duty to finance, the cost of capital and the capital structure of
regulated utilities: Lessons from the UK. Utilities Policy, 22, 8-21.
36. The Economist,. (2014). Flight plan. Retrieved 26 August 2015, from
http://www.economist.com/news/britain/21597903-can-britain-remain-planemakingsuperpower-flight-plan
37. Vogel, H. L. (2014). Entertainment industry economics: A guide for financial
analysis. Cambridge University Press.
38. Wojtek Kawecki, A. (2015). ReportAlert.info | BAE Systems (LON:BA) publishes
2014 Annual Report. Reportalert.info. Retrieved 26 August 2015, from
http://www.reportalert.info/reportprofile.php?ID=71612&year=2015
39. Yahoo! Finance,. (2015). BAE Systems plc. Retrieved 20 August 2015, from
http://finance.yahoo.com/q?s=BA.L

52

40. Bondy, K., Moon, J., & Matten, D. (2012). An institution of corporate social
responsibility (CSR) in multi-national corporations (MNCs): Form and implications.
Journal of Business Ethics, 111(2), 281-299.
41. Fooks, G., Gilmore, A., Collin, J., Holden, C., & Lee, K. (2013). The limits of
corporate social responsibility: techniques of neutralization, stakeholder management
and political CSR. Journal of Business Ethics, 112(2), 283-299.
42. PLC, B. (2015). CSR & sustainability info for BAE Systems PLC | CSR Ratings.
Csrhub.com. Retrieved 28 August 2015, from
http://www.csrhub.com/CSR_and_sustainability_information/BAE-Systems-PLC/
43. Pillay, R. (2015). The changing nature of corporate social responsibility. London:
Routledge.
44. Phuong Truong, T. (2012). QFINANCE: The Ultimate Resource20121Edited by
Conrad Gardner. QFINANCE: The Ultimate Resource . London: Bloomsbury
Information Ltd. J Acc & Organizational Change, 8(2), 236-238.
doi:10.1108/18325911211230407
45. Glassdoor,. (2015). BAE Systems USA Employee Benefits and Perks. Retrieved 29
August 2015, from http://www.glassdoor.com/Benefits/BAE-Systems-USA-USBenefits-EI_IE18934.0,15_IL.16,18_IN1.htm
46. Career.au.baesystems.com,. (2015). Your Benefits. Retrieved 29 August 2015, from
https://career.au.baesystems.com/your-benefits
47. Wensveen, J. G. (2015). Air transportation: A management perspective. Ashgate
Publishing, Ltd..

48. Bailey, D., Cowling, K., & Tomlinson, P. (Eds.). (2015). New Perspectives on
Industrial Policy for a Modern Britain. OUP Oxford.

53

49. Aerosociety.com,. (2015). Royal Aeronautical Society | Insight Blog | Britain decides
- aerospace & aviation and the 2015 UK General Election. Retrieved 29 August
2015, from http://aerosociety.com/News/Insight-Blog/3035/Britain-decidesaerospace-aviation-and-the-2015-UK-General-Election
50. Greenaironline.com,. (2015). GreenAir - Reporting on aviation and the environment.
Retrieved 29 August 2015, from http://www.greenaironline.com/
51. Wald, R., & Dobson, C. (2015). ENVIRONMENTAL LAW UPDATE. Retrieved 29
August 2015, from http://www.39essex.com/content/wpcontent/uploads/2015/01/Environmental-Caselaw-Update-Feb-2015-Paper-CDRW.pdf
52. Dobkowski-Joy, A. (2010). BAE Systems Corporate Responsibility Report 2009 Fighting to regain reputation | Ethical Corporation. Ethicalcorp.com. Retrieved 29
August 2015, from http://www.ethicalcorp.com/communications-reporting/baesystems-corporate-responsibility-report-2009-fighting-regain-reputation
53. Liu, G., Liston-Heyes, C., & Ko, W. W. (2010). Employee participation in causerelated marketing strategies: A study of management perceptions from British
consumer service industries. Journal of Business Ethics, 92(2), 195-210.
54. Peloza, J., & Shang, J. (2011). How can corporate social responsibility activities
create value for stakeholders? A systematic review. Journal of the academy of
Marketing Science, 39(1), 117-135.
55. Boddy, C. R., Ladyshewsky, R. K., & Galvin, P. (2010). The influence of corporate
psychopaths on corporate social responsibility and organizational commitment to
employees. Journal of Business Ethics, 97(1), 1-19.
56. Kinderman, D. P. (2011). Why do some countries get CSR sooner, and in greater
quantity, than others? The political economy of corporate responsibility and the rise
of market liberalism across the OECD: 1977-2007.
57. Li, S., Fetscherin, M., Alon, I., Lattemann, C., & Yeh, K. (2010). Corporate social
responsibility in emerging markets. Management International Review, 50(5), 635654.

54

58. Yekini, K. C., Burrows, L., & Omoteso, K. (2014). Semiotic Approach to Evaluating
the Quality and Veracity of CSR Reporting.
59. PLC, R. (2015). CSR & sustainability info for Rolls-Royce Group PLC | CSR
Ratings. Csrhub.com. Retrieved 29 August 2015, from
http://www.csrhub.com/CSR_and_sustainability_information/Rolls-Royce-GroupPLC/
60. Csr-resources.com,. (2015). Rolls-Royce - Annual Report - CSR-Resources. Retrieved
29 August 2015, from http://www.csr-resources.com/company-profiles/rolls-royce--annual-report
61. (2015). Retrieved 29 August 2015, from
http://www.ethicalperformance.com/PDFs/EPBP8rollsroyce.pdf
62. Bishop, H. (2012). Rolls-Royce case study | Magazine | Global Partner Network:
Corporate Social Responsibility. Csr360gpn.org. Retrieved 29 August 2015, from
http://www.csr360gpn.org/magazine/feature/rolls-royce-case-study/
63. Makovicky, D. (2013). Rolls Royce-Ethics and Social Responsibility. YouTube.
Retrieved 29 August 2015, from https://www.youtube.com/watch?v=J44TV1ZCZh8
64. Crane, A., Matten, D., & Spence, L. (2014). Corporate social responsibility. London:
Routledge.
65. Rolls-royce.com,. (2015). Board. Retrieved 29 August 2015, from http://www.rollsroyce.com/about/who-we-are/board.aspx
66. World Finance,. (2015). Corporate governance should not be a book ticking exercise.
Retrieved 29 August 2015, from http://www.worldfinance.com/strategy/corporategovernance-strategy
67. Dowell, K. (2013). Rolls-Royce hires ex-Herbies chief Gold for corporate
governance review | News | The Lawyer. Thelawyer.com. Retrieved 29 August 2015,
from http://www.thelawyer.com/rolls-royce-hires-ex-herbies-chief-gold-forcorporate-governance-review/1016383.article
68. Robertson, S. (2015). The role of the board, chairman and non-executive directors
the UK Corporate Governance Code. Out-law.com. Retrieved 29 August 2015, from
http://www.out-law.com/page-8215

55

69. Kleinman, M. (2013). BAE Systems Hires Firm To Find New Chair. Sky News.
Retrieved 29 August 2015, from http://news.sky.com/story/1064507/bae-systemshires-firm-to-find-new-chair
70. Adams, R., Hermalin, B., & Weisbach, M. (2010). The Role of Boards of Directors in
Corporate Governance: A Conceptual Framework and Survey. Journal Of Economic
Literature, 48(1), 58-107. doi:10.1257/jel.48.1.58
71. The Economist,. (2013). Shareholders at the gates. Retrieved 29 August 2015, from
http://www.economist.com/news/business/21573134-americas-proxy-season-will-pitmanagement-against-owners-never-shareholders?
zid=294&ah=71830d634a0d9558fe97d778d723011d
72. Peshawaria, R. (2015). The Other Duty of Corporate Governance. Forbes. Retrieved
29 August 2015, from http://www.forbes.com/sites/rajeevpeshawaria/2012/12/01/theother-duty-of-corporate-governance/
73. Prendergast, K. (2015). Corporate Governance and the Companies Act 2014 - Kevin
Prendergast, FCA - Chartered Accountants Ireland. Charteredaccountants.ie.
Retrieved 29 August 2015.
74. Smith, R. (2011). Defining Corporate Social Responsibility: A Systems Approach For
Socially Responsible Capitalism.
75. Ghobadian, A., Money, K., & Hillenbrand, C. (2015). Corporate Responsibility
Research: Past--Present--Future. Group & Organization Management, 40(3), 271294. doi:10.1177/1059601115590320
76. El Akremi, A., Gond, J., Swaen, V., De Roeck, K., & Igalens, J. (2015). How Do
Employees Perceive Corporate Responsibility? Development and Validation of a
Multidimensional Corporate Stakeholder Responsibility Scale. Journal Of
Management. doi:10.1177/0149206315569311
77. Bansal, P., Gao, J., & Qureshi, I. (2014). The Extensiveness of Corporate Social and
Environmental Commitment across Firms over Time. Organization Studies, 35(7),
949-966. doi:10.1177/0170840613515564

56

78. Barkemeyer, R., & Figge, F. (2013). Corporate Social Responsibility in the Context
of Multiple Environments. Academy Of Management Proceedings, 1(1).
doi:10.5465/aomafr.2012.0242
79. Hart, T., David, P., Shao, F., Fox, C., & Westermann-Behaylo, M. (2015). An
examination of the impact of executive compensation disparity on corporate social
performance. Strategic Organization, 13(3), 200-223.
doi:10.1177/1476127015585103
80. Brammer, S., He, H., & Mellahi, K. (2014). Corporate Social Responsibility,
Employee Organizational Identification, and Creative Effort: The Moderating Impact
of Corporate Ability. Group & Organization Management, 40(3), 323-352.
doi:10.1177/1059601114562246
81. Shen, J., & Benson, J. (2014). When CSR Is a Social Norm: How Socially
Responsible Human Resource Management Affects Employee Work Behavior.
Journal Of Management. doi:10.1177/0149206314522300
82. Aguinis, H., & Glavas, A. (2012). What We Know and Don't Know About Corporate
Social Responsibility: A Review and Research Agenda. Journal Of Management,
38(4), 932-968. doi:10.1177/0149206311436079
83. Hahn, T., Figge, F., Aragon-Correa, J., & Sharma, S. (2015). Advancing Research on
Corporate Sustainability: Off to Pastures New or Back to the Roots?. Business &
Society. doi:10.1177/0007650315576152
84. Horisch, J., Freeman, R., & Schaltegger, S. (2014). Applying Stakeholder Theory in
Sustainability Management: Links, Similarities, Dissimilarities, and a Conceptual
Framework. Organization & Environment, 27(4), 328-346.
doi:10.1177/1086026614535786
85. Hartley, K. (2014). The political economy of aerospace industries.
86. Robson, S. (2014). BAE Systems plc Flat On Results, But Advises Caution
Over Future Share-Price Performance | The Motley Fool UK. Fool.co.uk.
Retrieved 31 August 2015, from http://www.fool.co.uk/investing/companycomment/2014/09/29/bae-systems-plc-flat-on-results-but-advises-cautionover-future-share-price-performance/

57

87. Baesystems.com,. (2014). Retrieved 31 August 2015, from

http://www.baesystems.com/article/BAES_176879/bae-systems-interimmanagement-statement-for-the-period-from-01-july-2014-to-28september-2014?
_afrLoop=890664922757000&_afrWindowMode=0&_afrWindowId=null#!
%40%40%3F_afrWindowId%3Dnull%26_afrLoop
%3D890664922757000%26_afrWindowMode%3D0%26_adf.ctrl-state
%3D17xhv7sqbs_4
88. Stephens, P. (2015). Why Id Rather Buy BAE Systems plc Instead Of BAE
Group plc | The Motley Fool UK. Fool.co.uk. Retrieved 31 August 2015,
from http://www.fool.co.uk/investing/2015/06/04/why-id-rather-buy-baesystems-plc-instead-of-BAE-group-plc/

89. Earnshaw, R. A. (Ed.). (2014). Virtual reality systems. Academic press.

90. Ayuso, S., Rodrguez, M. A., Garca-Castro, R., & Ario, M. A. (2014). Maximizing
Stakeholders Interests An Empirical Analysis of the Stakeholder Approach to
Corporate Governance. Business & society, 53(3), 414-439.
91. Beattie, V., Fearnley, S., & Hines, T. (2013). Perceptions of factors affecting audit
quality in the post-SOX UK regulatory environment. Accounting and Business
Research, 43(1), 56-81.
92. Scott, W. R. (2014). Financial accounting theory. Pearson Education Canada.
93. Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry:
A review of the empirical literature. Journal Of Accounting And Economics,
58(2-3), 339-383. doi:10.1016/j.jacceco.2014.08.009

94. Chiang, B., Nouri, H., & Samanta, S. (2013). The Effects of Different
Teaching Approaches in Introductory Financial Accounting. Accounting
Education, 23(1), 42-53. doi:10.1080/09639284.2013.833724

95. Holderness, D., Myers, N., Summers, S., & Wood, D. (2014). Accounting
Education Research: Ranking Institutions and Individual Scholars. Issues
In Accounting Education, 29(1), 87-115. doi:10.2308/iace-50600
96. Siriwardane, H. (2013). Kiondo Bag Boutique: A Serial Case for
Introductory Financial Accounting. Accounting Education, 23(1), 95-113.
doi:10.1080/09639284.2013.847307

97. Erhemjamts, O., Li, Q., & Venkateswaran, A. (2013). Corporate social responsibility
and its impact on firms investment policy, organizational structure, and performance.
Journal of business ethics, 118(2), 395-412.

58

98. Estrada, J., & Vargas, M. (2010). Black Swans, beta, risk, and return. Beta, Risk, and
Return (October 15, 2010).
99. Council, F. R. (2010). The UK corporate governance code. London: Financial
Reporting Council.
100.
Council, F. R. (2012). The UK stewardship code. London, September.
101.
Code, U. C. G. (2010). The UK corporate governance code. London:
Financial Reporting Council.
102.
Luo, Y., & Salterio, S. (2014). Governance Quality in a Comply or
Explain Governance Disclosure Regime. Corporate Governance: An
International Review, 22(6), 460-481. doi:10.1111/corg.12072

103.
Van den Berghe, L. (2012). International standardisation of good corporate
governance: Best practices for the board of directors. Springer Science & Business
Media.
104.
Karolyi, G. A. (2012). Corporate governance, agency problems and
international cross-listings: A defense of the bonding hypothesis. Emerging Markets
Review, 13(4), 516-547.
105.
Brealey, R. A. (2012). Principles of corporate finance. Tata McGraw-Hill
Education.
106.
Hilb, M. (2012). New corporate governance: Successful board
management tools. Springer Science & Business Media.

107.
Kasilingam, R., & Ramasundaram, G. (2011). Price Earnings Multiples:
Actual Determinants. SCMS Journal of Indian Management, 8(3), 108.
108.
Kheradyar, S., Ibrahim, I., & Nor, F. M. (2011). Stock return predictability
with financial ratios. International Journal of Trade, Economics and Finance, 2(5),
391.
109.
Kollewe, J. (2011). GDP figures mean Britain will miss its economic
growth targets.. Retrieved 31 August 2015, from
http://www.theeuardian.com/business/2011/iul/26/gdp-fieures-economicerowth-tarRets

110.
Lakshan, A. I., & Wijekoon, W. M. H. N. (2014). The use of financial ratios in
predicting corporate failure in Sri Lanka. Journal on Business Review (GBR), 2(4).
111.
McLaney, E. J., & Atrill, P. (2010). Accounting: an introduction. Jean Morton.
112.
Kottasova, I. (2015). Rolls-Royce entangled in Brazil's corruption
scandal. CNNMoney. Retrieved 31 August 2015, from
http://money.cnn.com/2015/08/31/news/companies/rolls-royce-brazilcorruption/index.html?section=money_news_companies
Marketviews.com,. (2015). Expert Views - Market Views. Retrieved

113.

31 August 2015, from https://www.marketviews.com/expert-views/#ufh-i41616326-investment-companies-roundup

59

114.

Ficenec, J. (2014). Questor share tip: BAE Systems lifted by global

tension. Telegraph.co.uk. Retrieved 1 September 2015, from

http://www.telegraph.co.uk/finance/markets/questor/11069591/Questorshare-tip-BAE-Systems-lifted-by-global-tension.html
Tovey, A. (2015). Questor share tip: Buy BAE Systems for value and

115.

dividend yield. Telegraph.co.uk. Retrieved 1 September 2015, from

http://www.telegraph.co.uk/finance/markets/questor/11828420/Questorshare-tip-Buy-BAE-Systems-for-value-and-dividend-yield.html
116.
Williams, C. (2014). 'Double whammy' for FTSE exporters from
strong pound and slowing emerging markets. Telegraph.co.uk. Retrieved
1 September 2015, from
http://www.telegraph.co.uk/finance/markets/ftse100/10993881/Doublewhammy-for-FTSE-exporters-from-strong-pound-and-slowing-emergingmarkets.html