The leading American Corporation
How would you assess the overall financial health of your organization?
What are good and bad signs, if any, in your outlook? KBR, Inc (formerly Kellogg Brown and Root) is a leading American Corporation that is involved in a number of businesses such as engineering and construction (KBR, Inc. , 2008). The company is involved in two segments, Energy and Chemicals; and Government and Infrastructure. It also features in technology and joint ventures.
KBR was hired by the George W.
Bush Administration to fix damaged oil fields and other related assignments in Iraq (Eckholm, 2005). KBR was paid a whopping $ 2.5 billion for the work. Now, in the Obama Administration, the Government and Infrastructure segment will be less operative as Obama continues to reveal plans to pull out of Iraq (ObamaBiden. com, 2009). KBR’s financial situation can be understood by viewing some of the key financial ratios of the company. Sales have dropped by 9.22 % in the year ended 2007 as compared to the previous year.
However gross profit has increased by around 50 % over the same period, indicating a greater decrease in Cost of Goods Sold, therefore KBR have been more efficient in their operations over the year 2007. This has resulted in an increase of around 80 % in the Net Profit and the Operating Expenses rose by only 19 % in the same period. Current ratio has risen from 1.31 times to 1.55 times. This means that the liquidity of the company is improving and it is in a better position to manage its daily operations.
Debt to equity ratio has decreased from 2.
03 times to 1.30 times. This is evidence that the riskiness of the firm has decreased and it is taking a more stable stance in the wake of the financial scenario. Return on equity has increased from around 5 % to 9 % because of the increase in Net Profit over the year. Looking at the figures above, the overall strength of the company has improved over the year. The company needs to consolidate as it will have fewer operations related to military as the current US government is planning the pullout from Iraq.
It has to invest more time and money in other sectors.
To what extent is your organizations financial health affected by the Fed’s policy on money and interest rates?
As KBR is a large organization with billions of dollars and thousands of employees working in various states, it is similar to other large corporations in the fact that it is affected to a larger extent than smaller companies are affected.
If the Fed follows a contractionary monetary policy and reduces the supply of money from the market, the price of money, that is the interest rates increases according to the natural . If supply decreases, as in the case above, the interest rates are pushed up and it becomes more expensive to borrow money. This means that investments will decrease as people take fewer loans. Growth in the economy decreases and as a result, inflation decreases and unemployment figures increase.
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