United Technology Vs Honeywell International

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Freshman (College 1st year) ・Business ・APA ・2 Sources

Industry Averages

The financial health of a company is determined by the amount of assets the company has and the level of income available to pay for the expenses, the profitability level, and the operating efficiency (Titman, S., Keown, A. J., & Martin, J. D. 2016). The net profit margin is used to indicate the profits from the sales and the profit of Honeywell International in the year 2014 to 2016 is increasing. It is an indication that the rate of production is high due to increased level of sales and, therefore, Honeywell has a high level of operating efficiency. An increase in the cash flow from the increased sales improves the liquidity position of the company, and therefore the Company can pay the short-term and long-term obligations when they fall due. In united technologies, the net profit margin decreased in year two and increased in year three but since all the margins are positive, the operating efficiency is still high, and the company can pay the debts. Therefore, both the two companies have sound financial health status.

Performance over Time

The financial performance of Honeywell over the three-year period is increasing because the liabilities of the enterprise are decreasing. The free cash flow is positive, and the trends are rising; an indicator that the liquidity position of the company has improved. The major strength of Honeywell is the increasing free cash flow. The company can use the resource to cater for the short-term obligations and therefore improve the efficiency of operations. The company weakness is that it has a high debt to equity ratio. In this regard, it will spend most of the revenues to pay the debts, and these will affect the future growth and performance of the firm.

United Technology is generating profits, but the debts are extremely high. The income generated from operations will be used to pay the debts and hence lower the retained profits that can be used to expand the scope of activities. The biggest strength of the company is that it has a capacity to generate profits and if it reduces the debts it will have more resources in the future. The weakness of United Technology is that the free cash flows are negative in the three years and therefore affecting the liquidity position.

The two companies have a positive net profit margin, but United Technology has a negative free cash flow. It is an indicator that the capital expenditures for United Technology are high which affects the cash flow. They can minimize the rate of investments at the moment so that it does not influence the level of resources the company has.

Investment

The growth companies are those whose stock has high earnings while value companies are the ones which appear to be undervalued and therefore have a capacity to generate more revenue (Powers, 2010). The two are growth companies the earning per share of Honeywell in year one is 1.39 and the Net profit margin is 10.50 in year two an increase of profit to 12.40 increased the earnings to 1.43 a decrease in year 3 to 10. 20 reduced the earnings to 1.38. In United Technology, a decrease in profit from 15.01 to 13.01 in year 2 reduced the earnings to 0.64 from 0.6, therefore, the earnings per share increase with the increase in the net profit margin.

The best stock to invest is Honeywell as the company has a high earning per share; in year one the earnings were 1.39 compared to United 0.6.  The goal of the shareholder is to generate a high return on the investment. When the two Companies are compared, the stock price of Honeywell is small 90.81 in year one compared to Uniteds’ 113.80. Despite the low share price, the rate of return for Honeywell in the same year is 1.39 compared to United 0.6 making it the best for investment. Before making an investment decision, it is important to consult those who have information, for instance, financial advisors who will help you to make the appropriate choices.

References

Titman, S., Keown, A. J., & Martin, J. D. (2016). Financial Management: Principles and Applications. Pearson Custom.

Powers, M. (2010). Uncertainty principles in risk finance. The Journal Of Risk Finance, 11(3), 245-248. Retrieved on August 12, 2017 from http://dx.doi.org/10.1108/15265941011043620

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