Industries: engineering and construction, equipment
General Dynamics is a global aerospace and defense company that offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; command, control, communications, computers, intelligence, surveillance and reconnaissance solutions; and shipbuilding.
| Most recent | Growth rate (CAGR) | |||
|---|---|---|---|---|
| 1 year | 5 years | 10 years | ||
| Book value of equity per share | $40.48 | 10.7% | 3.8% | 2.8% |
| BV including aggregate dividends | 20.4% | 10.4% | 7.6% | |
| Most recent | Median | |||
|---|---|---|---|---|
| 1 year | 5 years | 10 years | ||
| ROE | 25.5% | 26% | 25.7% | 20.2% |
| ROA | 7.7% | 8.4% | 8.4% | 8.1% |
| Most recent | Growth rate (CAGR) | |||
|---|---|---|---|---|
| 1 year | 5 years | 10 years | ||
| EPS | $7.50 | -22.8% | — | 2.6% |
| Annual dividends | $3.54 | 13.1% | 10.6% | 10.7% |
| Share price | $202.86 |
| Most recent | Median | |||
|---|---|---|---|---|
| 1 year | 5 years | 10 years | ||
| P/B ratio | 5.01 | 5.4 | 4.0 | 2.5 |
| P/E ratio | 27.05 | 20.9 | 18.1 | 14.4 |
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
DuPont
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures
the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On July 30, 1999, the company acquired Gulfstream through a merger of a subsidiary of the company into Gulfstream. As a result, the holders of Gulfstream common stock became entitled to receive one share of the company's common stock for each Gulfstream share. The common stock of Gulfstream was traded on the New York Stock Exchange through the close of business on July 30, 1999, at which time there were 72,165,645 shares of Gulfstream common stock outstanding. An additional 4.1 million shares have been reserved for issuance upon the exercise of stock options which, prior to the acquisition, had been options to purchase Gulfstream common stock. Gulfstream is a leading designer, developer, manufacturer and marketer of advanced business jet aircraft.
On September 1, 1999, the company completed the $1.01 billion cash acquisition of three business units comprising GTE Government Systems Corporation, a subsidiary of GTE Corporation, (renamed, General Dynamics Government Systems Corporation). The company financed the purchase through its commercial paper program. Government Systems Corporation is a leader in the advancement of command, control, communications and intelligence systems; electronic defense systems; communication switching; and information systems for defense, government and industry in the United States and abroad.
On January 26, 2001, the company acquired Primex Technologies, Inc., for $334 in cash plus the assumption of $204 in outstanding debt, $149 of which was repaid at the time of the acquisition.
On June 5, 2001, the company acquired substantially all of the assets of Galaxy Aerospace Company LP, for $330 in cash, after a purchase price adjustment received during the first quarter of 2002. The company may be required to make additional payments to the selling parties, up to a maximum of approximately $300 through 2006, contingent on the achievement of specific revenue targets.
On September 28, 2001, the company acquired IISG from Motorola, Inc., for $825 in cash.
On June 14, 2002, the company acquired the outstanding stock of Advanced Technical Products, Inc., for $214 in cash, plus the assumption of $43 in outstanding debt, which was repaid at the time of the acquisition.
On March 1, 2003, the company acquired GM Defense of London, Ontario, a business unit of General Motors Corporation, for approximately $1.1 billion in cash.
On August 11, 2003, the company completed its acquisition of Veridian Corporation, headquartered in Arlington, Virginia, for approximately $1.5 billion in cash.
In 2006, the company completed three acquisitions for a total of $2.3 billion. On January 17, the company acquired FC Business Systems, Inc., of Fairfax, Virginia. On June 8, the company acquired Anteon International Corporation (Anteon) of Fairfax, Virginia. As a condition of the Anteon acquisition, the company divested several of Anteon's program management and engineering services contracts. The company received approximately $150 of after-tax proceeds from the sale of these contracts, resulting in a net purchase price of approximately $2.1 billion. On July 7, the company acquired Chamberlain Manufacturing Corporation's Scranton, Pennsylvania, operation.
In 2008, we acquired five businesses for an aggregate of approximately $3.2 billion in cash.
In 2012, we recorded a $2 billion goodwill impairment in the Information Systems and Technology group, resulting from a decline in the estimated fair value of the group caused by topline pressure from slowed defense spending and the threat of sequestration, and margin compression due to mix shift impacting the projected cash flows of the group
On April 3, 2018, we acquired 100% of the outstanding shares of CSRA Inc. for $41.25 per share in cash. CSRA has been combined with General Dynamics Information Technology to create a premier provider of IT solutions to the defense, intelligence and federal civilian markets. The cash purchase price totaled $9.7 billion.