Financial Risk Analysis

Financial Risk Analysis

Analysis of KBR Company

KBR is an abbreviation of Kellogg Brown and Root, which is the formal name of the company. Notably, in 1901, the company was first established under the name of M. W. Kellogg by Morris Kellogg. Primarily, the Kellogg main business was on the fabrication of power plant components as well as power plant constructions (Hanssens & Vanacker, 2016). However, due to the rise of hammer forge welding, it significantly helped the Kellogg Company to move into refining since the petroleum industry was first developing. Besides, in 1919, two brothers, Harman Brown and Daniel Root, founded another company under the name (Brown and Root) in Texas, with the main operation being on building roads and Dams in Texas (Hanssens et al., 2016). In December 1962, Halliburton Energy Services bought Brown & Root Company. This was as a result of the death of Harman Brown. Significantly, in 1989, Halliburton bought a bigger engineering and construction contractor and consequently merged it into Brown & Root.

Formation of KBR, Inc

On April 5^th, 2007, Halliburton publicly announced that it had part ways with KRB, a company that encompasses engineering, construction, contracting units for forty-four years. As a result of this, the KRB Company was formed. Importantly, on November 16^th, the year 2007, the KRB shares were for the first time offered to the public with a share priced at 17 dollars (Hanssens et al., 2016).

Products and Services of KRB, Inc

The main products and services of the KRB, Inc encompasses American engineering, procurement, construction, downstream (petroleum industry), Gas monetization, Hydrocarbons, Private military, constructor, and Government Solutions as a company..

The leadership of KRB, Inc

The KBR Company has executive leadership, which propels the company to achieve its mission, vision, and set goals. The company is headed by Stuart J. B. Bradie as the President & Chief Executive Officer. Mark Sopp as the Chief Financial Officer. Eileen Akerson assumes the role of General Counsel, Ian Mackey, as the Chief Corporate Officer, Greg Conlon as the Chief Digital & Development Officer (Hanssens et al., 2016).

Ratio Analysis of KBR Company

KBR Company consists of several ratios in the business, which assists the analysis of financial statements and progress in the company. The most crucial ratio is a profitability ratio. The company has to develop an analysis based on the returns generated from the business with the invested capital (Kutum & Abu, 2015). The profit margin helps to determine relevant factors influencing business success and eliminate the unnecessary as they retain the positive ones. The company has a proper investment analysis on new products in the market, which justifies the ratio analysis to be of importance (Hanssens, Deloof & Vanacker, 2016).

The operating profit ratio is relevant to the company’s analysis in the business. The ratio aids in determines the ability of the company to pay debts responsibly (Hanssens et al., 2016). In this case, the company’s performance justifies the capability of paying debts and taxes in their business operation despite the negative factors (Kutum & Abu, 2015). Also, it has a high operating profit margin making it financially stable since it can pay fixed costs.

KBR, Inc analysis of ratio makes solvency ratio relevant in the business operation. The ratio proposes whether the company is capable of paying lenders’ debts or not (Hanssens et al., 2016). The ratio is broken down into different sectors that make the analysis precise and straightforward. The debt-equity ratio in the business helps to display the leverage of the company. In this sector, the low ratio is one of them, implies that the company has fewer debts, and it’s more of equity diluted. Thus, the company has to maintain a 2:1 ratio to meet the standards of low ratios (Hanssens et al., 2016).

Ratio Analysis of KBR Company in Comparison to its Key Competitors

The best ratio assessed by KBR Company in comparison with the key competitors is the interest coverage ratio. The company’s gaps created between the product ranges sold made an opportunity for a new competitor in the market (Kutum & Abu, 2015). Therefore, the interest coverage ratio helps the company to establish how the profit generated may cover some of the interest expenses created due to the fluctuation of the products sold in the Company (Kutum & Abu, 2015). To be précised, fluctuating sales of products develop gaps which justifies the above statement.

The ratios that KBR Company evaluates in the situation of linking other coexisting ratios expounded below. Inventory turnover ratio can link with the concurrent ratio in a significant way (Kutum & Abu, 2015). The ratio helps the capability of the company to convert the invented products into sales. Despite the fluctuation of inventories, the company has to establish an average analysis to determine the profit generated when selling the products. On the other hand, the receivable turnovers ratio shows the KBR, Company’s effectiveness in collecting its receivables (Hanssens et al., 2016). The receivables in the company should get converted into sales. The higher the receivable ratio implies that the company raises money, depending on the operation of sales.

Strengths and Weaknesses Based on Ratio Analysis

The KBR Company consists of several strengths and weaknesses, which enables the above-analyzed ratio to exist in the business. Navigating through the strengths, the company has a robust free cash flow in its business operation. It justifies that the concurrent ratios expounded are analyzed, and positive outcomes in the company support the element of cash flow (Wiedman & Zhu, 2018).  The construction company consists of highly skilled workforce established from a successful training and learning programs concerning the field. In this case, the ratio justifies that expenses that cater for the company’s workers get appropriately managed. The company has incorporated several technology companies in the past few years (Wiedman & Zhu, 2018). It is the strength and benefitting factor of the company that signifies the ratios analyzed are effective. The ratios help to identify the factors that influence the company, either positive or negative.

The ratios help in identifying several weaknesses in the company to establish the fundamental strategies of solving them. The company faces a challenge in the inventory process (Wiedman & Zhu, 2018). It gets prejudiced by making the company raise more capital for investing in new products, which affect the growth of the company. KBR has a challenge in the expenditure section, where some parts are left out in the company, which is for proper and healthy business operations (Wiedman & Zhu, 2018). Research and development expenses are no fully catered for in the business hence limits some part of the company.

Different risks faced by the company and their Impact on the Company Environment as well as Recommendations for Risks Management Techniques to Minimize the Associated Risks

The company is faced with a number of risks that have a huge impact on the company’s financial statements. For instance, demands in investing in new technologies are a factor that alters financial statements (Novoselova et al., 2015). In this case, the company has to put more money into expansion planning (Wiedman & Zhu, 2018). Currently, investment in new technology is not in line with the company’s vision. Since the KBR Company isn’t ready to invest in new technology, I would recommend avoiding risk management techniques as a measure to minimize the risk and consequently maximize the return for the company.

Another critical risk displayed is the profitability ratio and net contribution percentage, which is below the industry average. The gaps made on the product range sold in the company created opportunities for a new competition in the market due to lack of choice (Wiedman & Zhu, 2018). In this case, the market of the company gets altered, which affects the financial flow of the company. As a result of this, I would recommend spreading risk as a management technique to measure and minimize the risk and consequently maximize the return for the Company (Hanssens et al., 2016). Also, spreading risk as a management technique is essentially an inexpensive way to reduce risks as well as a calamity for the KBR Company.

The company has a challenge of government corruption in its business operation. It affects the financial state of the business as unnecessary expenses made. Also, the company has also been faced with a number of corruption cases, with the recent one being on a case of bribing the Nigerian officials in order to award it the lucrative government tenders (Hanssens et al., 2016). Due to this, I would recommend preventing or reducing loss as a risk management technique that will typically minimize the company associated risks hence maximizing the return for the KBR Company.

Evaluation of the Perception of the KBR Company’s stock

The company is well established both financially and in internal operations. Investors may look upon to do business and generate income from KBR services due to its quality production of goods and services. Investors may invest in different ways, depending on their interests and specialization (Villanueva, 2017). In this case, the best way to spend in KBR is through buying of stocks for its dividend. The investor views it as the best technique in growing its income since KBR has high rising earnings that make it suitable for such investment. KBR has a consistent payment of dividends, which makes it great for an investor to carry out the business transaction with the Company (Wilson, 2016). The factor justifies that an investor may operate on earning profits for an extended period since the company pays for it every year.

Recommendation of KRB Stock to Potential Investors and Portfolio Managers

Investors, as well as the portfolio managers, may view the company as the best platform for business growth as the financial status, justify that the company has no risk of debt risk. It provides a liberal ideology of trust between the investor and the company as debts are sorted out. Also, the investor may view the company as financially fit as he or she may invest in earnings per share.

Conclusion

In a nutshell, the paper has exhaustively discussed KBR, Inc, which is an abbreviation of Kellogg Brown and Root. It has also explicitly discussed the history of KBR, Inc, the main products and services of the company, and its key leaders. Ratio Analysis of KBR Company in Comparison to its Key Competitors, as well as the strengths and weaknesses of the company, are also discussed adequately. The paper has further looked at a number of risks faced by the company and their impact on the company environment as well as recommendations for risk management techniques to minimize these associated risks.

Recommendations

The company has a valid business strategy that can help society by solving some of the technical issues. Due to this, the KBR, Inc should focus on a plan to develop consultation services and technology aiming in gas, oil, and chemicals investment. This will significantly improve technical and financial profit for their customers. The company should also aim at enhancing its profits through globalized projects supply and distinguished engineering, procurement, construction, commission, and maintenance services. In a nutshell, the KBR, Inc is a good investment opportunity more so to portfolio managers as well as to the investors since the company has no risk such as debt risk, and its quality production of goods and services is adequate.

References

Hanssens, J., Deloof, M., &Vanacker, T. (2016). The evolution of debt policies: New evidence from business startups. Journal of Banking & Finance, 65, 120-133.

Kutum, I., & Abu Rumman, G. M. (2015).Evaluating the Stability of the Financial Ratios of Jordanian Industrial Companies. International Journal of Accounting and Financial Reporting, 5(1).

Novoselova, N. N., Alikaeva, M. V., Ksanayeva, M. B., Nalchadzi, T. A., &Zalim-Geriyevna, L. K. (2015).Institutional and financial aspects of the implementation of the concept of state-private partnership at the federal and regional levels.Mediterranean Journal of Social Sciences, 6(5 S3), 338.

Villanueva, G. C. (2017). Arbitration and Investment Protection within the Context of the Energy Reform in Mexico: A First Approach based on COMMIS v. PEMEX and KBR v. Mexico.

Wiedman, C. I., & Zhu, C. (2018). Do the SEC Whistleblower Provisions of Dodd-Frank Deter Aggressive Financial Reporting?.

Wilson, J. M. (2016). U.S. Patent Application No. 29/501,867.