Financial Ratio Analysis of Boeing Stock: How the Aerospace Giant Stacks Up

Source: Boeing.

The aerospace industry has been one of the strongest in the overall economy in recent years, with cash-flush airlines investing like mad to modernize their fleets and reap the efficiencies of flying newer aircraft. Boeing (BA -0.20%) has capitalized on that opportunity by coming out with new aircraft models, and it has collected its fair share of orders in what promises to be a multitrillion-dollar market over the next couple of decades. Its stock has followed suit, giving shareholders impressive gains in recent years.

Many investors never look beyond earnings and sales, but taking an in-depth look at financial ratios can be illuminating. By looking at the right measures, you can get a deeper sense of how a company is truly performing. With that in mind, let's look at some select financial ratios for Boeing.

Stats on Boeing

Source: S&P Capital IQ.

1. Boeing's returns on capital have fallen slightly, but they're still solid.

With a return on capital of almost 20%, Boeing has done quite well in executing its business strategy. But some investors might be concerned about the drop we've seen since 2011 and 2012, when returns on capital were in the 22% to 23% range. You can see the same trends in YCharts data on Boeing's return on invested capital, with YCharts using a slightly different methodology but coming up with similar trends. Boeing's returns on capital are generally favorable compared to those of peers General Dynamics (GD -0.29%), Northrop Grumman (NOC 0.38%), and United Technologies (RTX -0.09%).

BA Return on Invested Capital (TTM) data by YCharts.

Most of the recent drop in Boeing's return on capital has come from the fact that Boeing has dedicated more capital resources toward growing its business. In the long run, Boeing hopes that those investments will pay off with higher operating earnings. That hasn't happened yet, but given time, Boeing should start to see the money it's spending to make its operations more efficient lead to higher profits.

2. Boeing's balance sheet looks a lot healthier.

As recently as 2012, Boeing's balance sheet looked to be in grave danger. Boeing had huge amounts of debt with very little shareholder equity. That created debt-to-equity ratios that verged on the meaningless.

BA Debt to Equity Ratio (Annual) data by YCharts.

Since then, though, Boeing has done a good job of improving its debt-to-equity ratio on both fronts. On one hand, long-term debt has fallen markedly. Yet a much bigger impact has come from rising levels of shareholder equity, reflecting the efforts Boeing has made to sustain its profitability and realize its full potential. Most of Boeing's competitors haven't seen those wide swings -- but on the whole, Boeing has gotten itself back into shape.

3. Low interest rates have helped Boeing's financing operations.

The Federal Reserve's low-interest rate policy has drawn scorn from some advocacy groups, pointing to its impact on savers. But for corporate borrowers like Boeing, low rates have made it a lot easier to sustain debt loads without eating into profits too much.

BA EBIT to Interest Expense (TTM) data by YCharts.

Since 2009, keeping control of debt loads while also taking advantage of low rates has helped Boeing cut its financing costs in relation to its operating and pre-tax earnings. Although levels haven't returned to their pre-crisis highs, current multiples leave Boeing plenty of room to handle any unanticipated increases in debt-finance costs.

4. Profit margins have held up even as gross margin has fallen.

Boeing's margins tell two different stories. On one hand, gross margins have steadily declined over the past decade. On the other, however, profit margins have held up quite well, showing few signs of deterioration.

BA Profit Margin (TTM) data by YCharts.

One concern that some have is that more defense-oriented companies have sustained higher margins than Boeing has. But part of the explanation has to do with where Boeing is manufacturing its profitability. Higher gross margins simply mean that less money is spent on cost of goods sold and other immediate hits to gross profits. Recently, more costs have been absorbed at that early level, but that has been offset by fewer expenses showing up on the operating side of the business. The net result is that by the time you calculate net income, Boeing has managed to sustain its profitability quite well.

Boeing flies high

Boeing has long aimed to make the most of its opportunity in the commercial aerospace realm. By following through with its new aircraft models, Boeing could well make shareholders happy for years to come.