Leidos is an American-based company that deals with a wide range of services. The company is based in Virginia in the town of Reston. The services it provides range from engineering systems integration, scientific services, and other technical services (Leidos – Program and Logistics Management, n.d). Ledios Company works mainly with the United States government where it provides most of its services to the department of defense and other security organs (PR Newswire, 2014d). Initially, the company operated under the name ‘Science Applications International Corporation’ that it dropped in 2013 to adopt its current name.
The company reported healthy financial returns before splitting into two companies. For 2013, the collected revenues amounted to $11.17 billion (PR Newswire, 2014d). The net income for the same year was $525 million, and this gave it a strong position in a fortune 500 list for the same year (PR Newswire, 2014a). As was expected, the revenue fell after the split, with $7 billion being projected for the year that followed the split. The company is still one of the largest in the world in its respective industry. It has offered jobs to over 20,000 employees. This company presents a good example of a business for financial analysis. Therefore, this paper is a company analysis of Leidos. It looks at the present financial health, the expected financial performance, and the competitors in the industry. The paper also provides the positioning of the company in the industry together with a conclusion on the feasibility of investing in this company’s stocks in the future.
Leidos was founded as Science Applications Incorporated (SAI) in 1969. It has been in existence for over 40 years until its splitting into two companies. The founder of this company lived in the town of La Jolla, which is located in the San Diego neighborhood in California. Robert Beyster is the initiator of this corporation. He lived in the area of California (Leidos – Program and Logistics Management, n.d). The company became publicly listed in 2006 through an initial public offer that was held on 17 October the same year. The initial offer consisted of over 86 million shares, with each of the shares selling at $15 (Leidos – Program and Logistics Management, n.d).
The initial public offer managed to raise over a billion dollars. The company has since been a publicly listed company. The dawn of 2009 saw the repositioning of the headquarters of this company to the current Virginia location. A major development in this company came in 2012 when the company split into two subsidiary companies, which were also publicly owned (Leidos – Program and Logistics Management, n.d). The split into these component companies was completed in 2013. The resultant companies include an IT company and a service company. Both of these companies earn significant amounts of money. They have good revenue returns. However, this report analyzes the Leidos Company.
Since the establishment of Leidos, the company has undergone several developments, including improvement in the revenue and a change of management. Leidos specialized in service delivery, with the major areas where it provides its services being the engineering industry and the health sector. The company has considerable input into the US defense department by providing it with innovative ways of tackling the 21st century security threats (Leidos – Program and Logistics Management, n.d). The engineering part of Leidos is responsible for this part of the company, thus ensuring that the company wins the major contracts in this administration.
The participation of Leidos in the healthcare industry has helped in the diversification of its operations. This effort has offered the company a chance to increase its performance. Over the few years that the company has existed after separation from the mother company, delivery of healthcare services has contributed to its improved profitability and revenue collection. The US government is a major client of Leidos. It offers its services to the various departments and arms of the government. The financial health of this company can be used as an indicator of the financial analysis that may be used to assess the performance of any other company.
Current Financial Health
Leidos is currently performing significantly well in the local and international markets. It is offering a variety of solutions to its clients. The company also focuses on increasing dividends for the shareholders, with the share price being a significant value for the organization. Some of the areas that are of importance include the creation of profits, achievement of a five-year operating income growth, strong cash generation, and improvement in capital allocation effectiveness (Leidos – Program and Logistics Management, n.d). The company focuses on profit in its operations, thus encouraging the provision of quality revenues (PR Newswire, 2014a). The revenues for the past two years have been improving, with these two years being after the split that occurred in 2013.
For 2012, the company reported a revenue collection of $4.631 billion, which was a decent amount compared to its performance before the split. The liquidity of any organization can be used in the assessment of financial health (PR Newswire, 2014a). In the case of Leidos, the liquidity position is generally in the range of the other organizations that operate in the same industry. The average liquidity for Leidos is adequate. The company has liquid assets that are relative to the short-term obligations (PR Newswire, 2014a). Liquidity for organizations is volatile and may move from good to bad in any organization. This concept of the unpredictability of liquidity makes it a relatively good measure of financial health for organizations.
The trends in liquidity best indicate the financial performance of an organization over a period. The raw data that is available in this area provides the best resource for this performance. The liquidity state for Leidos has been on an upward trend, with the most currently calculated one being favorable for the organization (PR Newswire, 2014a). Some reasons for the upward shift in the liquidity for Leidos include the management practices that have been practiced in this organization. The company is relatively new, with the sales in the respective departments and operational sides being measured against the performance observed in the previous year.
According to Brigham and Houston (2004), liquidity may be improved in several ways. Some of these ways include the quick billing of customers after service delivery. In Leidos, billing occurs immediately after customers are rendered the services. This has worked positively for the organization in improving liquidity. The other measure is a monthly report of the accounts in an organization. It is useful for publicly listed organizations (Leidos, n.d). Leidos has adopted the practice of monthly record keeping as a way of ensuring that the accounts are well managed and that all relevant reports are made (Leidos – Program and Logistics Management, n.d). The organization also uses trade credit to improve its liquidity status. This case is observable in the last year where the same status has been on an improvement course. Organizations have a better chance of a favorable liquidity state if they use as much of the trade credit as possible (Leidos, n.d). The other favorable move that causes favorable liquidity is adopting a monthly payroll. This strategy has been adopted at Leidos.
A financial indicator that is useful for the current period in the organization is the working capital. Leidos got a share of the original company after the company split into two. This move resulted in an initial capital drop. In the current period, the working capital is over $7 billion, which is favorable for an organization of its size. According to Brigham and Houston (2004), the other figure that may be used to evaluate the financial performance of the company is the accounts payable days, which provide a ratio that indicates the period that goods and services supplied to the organization are paid within (Leidos, n.d). Organizations that have favorable accounts payable days’ ratios often have better liquidity and financial performance. In the case of Leidos, the accounts payable days stand at 15.2 days. This means that the company is performing adequately.
Leidos is able to meet its financial obligations within the period indicated for an organization of its size, and hence a good indicator of its financial health. Brigham and Houston (2004) confirm that the operating cash flow is used to show this ability to generate cash. It may also be known as the earnings before interest. The cash and credit statistics for Leidos are also favorable to its operations and profitability. The cash at spin stands at approximately $450 million. This value is relatively good for the organization (Leidos Health, n.d).
The company also recorded dividends from the NSAIC, with the value of the same standing at $295 million (PR Newswire, 2014a). The estimated revenues for 2014 are $950 million. This finding is an improvement from the previous year. Currently, the debt status for the organization is favorable, with the statistics being favorable for the same. The company has no debt maturities until 12/2020. The total debt is slightly above $1 billion (PR Newswire, 2014a). The average debt rate is 5.6%, which is a relatively good proportion for the organization (Leidos, n.d). The debt situation is currently manageable.
For 2012, Leidos made $5.86 billion in revenue, despite it being the first year of operations since the split (PR Newswire, 2014a). The revenues improved for the year that followed, with the company recording $6.47 billion for that year (PR Newswire, 2014a). The company is likely to proceed with this course of profit-making. The projected profits for the current year are above those recorded in 2013. There are many indications that the company will maintain a favorable performance, especially its interaction with the US government that will see it make considerable profits.
Currently, Leidos has a profitability margin that is better than most other companies that operate within its ranks (Leidos, n.d). The company has managed to keep a better performance in relation to what most other companies can achieve within the given period of its existence. According to Brigham and Houston (2004), most companies often experience challenges with profitability after a split from their mother companies due to the inability to exist as independent entities. Most of these organizations are dependent on the government or on the former organizations in their operations until they can fully support themselves. However, Leidos has remained profitable even after the split that occurred in 2013.
The trend in Financial Health
The trends in financial health for the organization are positive, with the best indicator for this status being the reported revenues since the establishment of the company. The beginning of 2012 saw the company make gains in revenue collection and sales, with a record profit margin being documented in the same year. As reported earlier, the company recorded pro-forma revenue of $5.86 billion in 2012, which was also the year of the split into SAOC when the reported operating revenue for the same year was $300 million.
The dawn of 2013 marked the completion of the split into the current companies. This meant that Leidos inherited some of the problems of the former company as well as employees and clients. Despite the challenges that were observed in this year, Leidos had pro-forma revenue of $6.471 million, with a reported operating income of $741 million (PR Newswire, 2014a). Therefore, the company had an increase of $441 million in operating income, which was significant growth.
The start of 2014 has seen an improvement in the financial health of the organization. The company has recorded improved revenues and service delivery. The financial health of an organization may be interpreted from the changes in the revenues. The change is a more favorable way of assessing the financial performance of the organization (PR Newswire, 2014a). Many organizations with a positive revenue change have an overall positive performance in the financial sector. This claim is true for Leidos, which has recorded a positive performance in the same parameter.
Many individual companies report an increase in revenues to have better performance in their respective industry as compared to other organizations with an opposite performance. According to Brigham and Houston (2004), an organization is likely to have a healthier financial state if the revenues are improving adequately. With an increase of over $0.6 billion in a year, Leidos is on a growth path. Therefore, the company will have positive returns if it keeps up with this trend. The other indicator of the financial trend in the organization is a change in the operating income for the organization. The company recorded a net charge of $441 million dollars between the financial year of 2012 and that of 2013. The change in the operating income constitutes an important aspect in the analysis of the performance of the organization and the trends followed during this period. According to Brigham and Houston (2004), a single statistic in the financial performance of an organization is not as helpful as a trend in evaluating the performance of an organization.
Before the establishment of Leidos from the mother company, the collected revenues were adequate for the organization as a whole. The split into Leidos and another service company was a starting point. The figures obtained in the year that followed acted as a baseline for the measurement of the general company performance. The improvement in the various sectors of the organization above the baseline means that the financial performance and health of this company are favorable for the future and current trends. Another positive thing about the financial trend for this company is that the quarterly earnings reported so far indicate that the company will record even better improvement for the current financial year (Leidos Health, n.d). Therefore, the trend in financial health for this institution is on a positive financial path. The trends in the available financial data are also favorable. The organization is headed for financial maturity and success after its formal establishment.
Comparison with Competitors
In any industry, the performance of an organization in comparison with that of its competitors provides a reliable indicator of performance. Competitors also act as benchmarks for organizations as a way of allowing a good analysis of the company’s performance against the expected performance. The company’s competitors can be categorized according to the various operations that it is engaged in such as the engineering sector and the health sector where Leidos has invested significantly. In the engineering sector, the company’s competitors include system integrators and solutions companies such as BAE systems that offer intelligence and security, Northrop Grumman which offers information systems, general dynamics business that offers both information system services and technology services, and Lockheed Martin (PR Newswire, 2014a). In addition to these competitors, the other competitors include L3 communications and Raytheon, both of which offer intelligence and information services (PR, Newswire, and 2014c).
The other competitors that are largely in the engineering sector include the companies such as Aecom, SKM, Black & Veatch, and Tetratech. Other rivals include Siemens, Smith’s Detection, ICF, Balfour Beatty, Willbros, Worley Parsons, AS&E, Power Engineers, and Rapiscan Systems (PR Newswire, 2014b). These competitors are generally private institutions. Leidos uses the advantage of being a publicly funded company to ensure that it stays on top of the competition.
The general performance of the competitors in the engineering field can be described as being average, with Leidos performing better than most of these companies. Some of the competitors enjoy better performance in comparison with Leidos based on their relatively longer existence in the industry and the strong financial base that they have managed to establish. The relative performance of these companies compared to that of Leidos is good. However, the engineering sector is predictable, with companies investing highly in areas that are deemed more profitable. However, Leidos has invested in many engineering areas, thus ensuring that it diversifies its operations in the areas. The average performance of the competition is better than Leidos because these companies are also multinationals with a large market. According to Brigham and Houston (2004), one way of winning competition in the business sector is investing in diversity.
Competitors are an important influence on the performance of any organization and industry. They provide the available challenge to enable the organizations to achieve the desired results. In the area of health care, Leidos has different competitors that it frequently has to keep in check. Companies that are in direct competition with Leidos in this sector include those that are affiliated with federal health and/or those that offer commercial health for the public. Leidos is a leader in the provision of federal health since it leads this sector. The competitors include ICF, CSC, Harris, SRA, and Northop Gruman. In the commercial health area, the competition includes Deloitte, Impact Advisors, Encore Health Resources, and Accenture (Leidos, 2014). These companies offer an important competition for Leidos besides demonstrating an extensive competition network.
Leidos is among the best-performing companies in the engineering sector in the United States. It provides engineering solutions for the variety of needs that are present in the country and on the international front. The financial returns of the competitors can be used as an accurate measure of the performance of the organization in the country and around the globe. Over the last few years, Leidos has reported growth in revenues contrary to its competitors. The company has improved more in relation to any other company in the industry, thus making it one of the top movers for the same period. The competitors have adopted strategies that are aimed at keeping competition at bay. These strategies include the formation of alliances and partnerships.
Analysis of Industry Sector
Leidos operates in the health and engineering sectors. It has considerable contributions in these areas. In the US defense industry where Leidos has a significant share of the market, the company has managed to grip on the sector. The average revenues are in the range of $4 billion annually, with this money being significantly large for the company. The US has a vast defense and intelligence requirement. Leidos has positioned itself to provide for the needs of this nation. According to Brigham and Houston (2004), the present global security condition makes it impossible to live without intelligence gathering, analysis, and/or acquisition of data expertise.
The company has a long history of operations in this sector. It has won many tenders to provide the country with the latest defense and intelligence systems. The company is also highly regarded in the industry because of the provision of special services. The US intelligence budget has been in a rising trend since 2006, with a significant amount of the defense budget going to this area. The defense budget in the US has also been increasing since 2001. The onset of several wars is a contributing factor to the rise in this budget.
The engineering sector in which Leidos operates mostly is occupied by a variety of other companies, which are in direct competition with Leidos. The performance of the industry is dependent on the available resources. Since most nations have increased their budgetary spending on defense, there are many opportunities for organizations operating in this field (Leidos, 2013). The exact number of companies and the contributions by the various industry players influence an industry’s performance. The engineering industry has been on positive performance, with recovery being observed after the global economic crisis that occurred in the period around 2007.
The industry’s performance can also be measured using estimates on the various areas and sectors in this particular industry. The approximate performance of the industry may be measured through its contribution to the national or global economy. Upon observing the industry in which Leidos is situated, the performance is average. There is a marked improvement of this industry compared to the performance recorded in previous years. The performance of the industry is likely to improve in the next few years and hence good news for the company is under scrutiny.
In the health sector where Leidos also operates, performance has been observed to be improving. There were a series of changes in this industry in the recent past when legislation brought about change to the sector. The health bills introduced in the United States have brought about changes in the industry. Leidos has had to change in response to these changes. The average performance of the health sector in the recent past has been good, with the companies operating here experiencing a good overall performance (Leidos, 2013). Leidos has been at the forefront in the provision of services in the health sector, with many of the competitors not being able to match the company’s performance (Leidos, 2013).
President Obama’s administration has been instrumental in the provision of healthcare for US citizens by introducing a number of changes in healthcare delivery for the country. The country has also experienced several changes in the industry in response to the global disease burden. The health sector was charged with the responsibility of offering well-priced services. Leidos operates in an industry that is dominated by large public and private companies. However, it still offers its services to a significant proportion of the population. The performance of these industries is favorable for Leidos.
Company’s Position in the Industry
As stated above, Leidos operates in more than one industry, although it mainly provides its services to the health and engineering industries. The company’s position in the industry can be decided by the competition available in the respective industries. In the health sector and healthcare industry, Leidos occupies a favorable position compared to other businesses in the same industry. The company is a leader in the industry. It offers quality services to a large population base that seeks the services it provides.
In the engineering industry, Leidos has an edge over its competitors through its provision of services that are better than most of the other competitors. Many organizations have services that are similar to those offered by Leidos. These companies offer significant competition to Leidos. In the engineering sector, the company has a considerable lead over other companies by providing valuable industry leadership. Leidos leads in innovation and the use of technology. Besides, the company is a pioneer in many of the defense systems that are currently in use in the US defense department (PR Newswire, 2014a). The company also has a large sales turnover, thus making it one of the most profitable businesses in the industries where it is positioned.
The positioning of Leidos in the healthcare industry is favorable in comparison with other publicly owned companies in the country. Most of these companies have challenges in their acquisition of services and delivery of these services to the public. Some of the reasons behind these observations include the legal environment that is in place. However, the conditions are favorable for Leidos. This atmosphere has made it more successful than most other public institutions (PR Newswire, 2014a). Dividends are much higher in relation to other companies of their size. This means that the company is financially stable and productive.
In the positioning of public institutions, Leidos is among the leaders in the respective industry. It leads in the engineering sector. The company has a reputation of being among the best of its kind. It manages to report its financial statements in time. There are few companies in the respective industries that can achieve the same level of success that is achieved by this company. The company qualifies to be an industry leader in engineering, with the basis of this achievement being its financial performance in comparison with other key industry players. Leidos has a financial performance that cannot be compared with many other public institutions. Its relationship with stakeholders is adequate to facilitate success.
In conclusion, the financial analysis of the organization provides an important means of evaluating its performance. Publicly listed companies are some of the companies whose financial performance should be analyzed. This paper has presented an analysis of Leidos. It has established that the company is a well-performing one among other publicly listed companies. The current financial state of the company is favorable, with profits being reported since the company’s establishment. Its competitors are in the healthcare and engineering industries. These sectors are performing relatively well. The industrial sectors that have been analyzed indicate a positive future performance. The company’s position in these industries is likely to improve. Investment in the bonds of this company is a recommendation since the company will be able to offer its interest and principal obligation in a timely manner. The company will also be a recommendable one to invest in stocks since it is performing very well with good dividends.
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PR Newswire. (2014a). Leidos Awarded Contract By California Army and Air National Guard. Reston, Virginia: PR Newswire US.
PR Newswire. (2014b). Leidos To Assume Ownership Of Plainfield Biomass Power Facility. Reston, Virginia: PR Newswire US.
PR Newswire. (2014c). Leidos Commemorates New Company’s Launch As A National Security, Health And Engineering Solutions Leader. Reston, Virginia: PR Newswire US.
PR Newswire. (2014d). Leidos Receives FedRAMP Accredited Third Party Assessment Organization Status. Reston, Virginia: PR Newswire US.