UK2543

### Bombardier 2019 Annual Report Analysis

#### Univariate Ratio Analysis (2019)

1. **Summary Profitability and Asset Turnover Ratios**

    - **Gross Margin**:
      \[
      \text{Gross Margin} = \frac{\text{Revenue} - \text{Cost of Goods Sold}}{\text{Revenue}}
      \]
      
    - **Accounts Receivable Turnover**:
      \[
      \text{Accounts Receivable Turnover} = \frac{\text{Revenue}}{\text{Average Accounts Receivable}}
      \]
      
    - **Inventory Turnover**:
      \[
      \text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}
      \]
      
    - **PP&E Turnover**:
      \[
      \text{PP&E Turnover} = \frac{\text{Revenue}}{\text{Net PP&E}}
      \]

    **Data from 2019 Annual Report**:
    - Revenue: CAD 15,757 million
    - Cost of Goods Sold: CAD 12,986 million
    - Accounts Receivable (2018): CAD 2,245 million
    - Accounts Receivable (2019): CAD 1,988 million
    - Inventory (2018): CAD 4,929 million
    - Inventory (2019): CAD 4,703 million
    - Net PP&E: CAD 2,508 million

    **Calculations**:
    - Gross Margin:
      \[
      \text{Gross Margin} = \frac{15,757 - 12,986}{15,757} = \frac{2,771}{15,757} \approx 17.6\%
      \]
      
    - Average Accounts Receivable:
      \[
      \text{Average Accounts Receivable} = \frac{2,245 + 1,988}{2} = 2,116.5 \text{ million}
      \]
      
    - Accounts Receivable Turnover:
      \[
      \text{Accounts Receivable Turnover} = \frac{15,757}{2,116.5} \approx 7.45
      \]
      
    - Average Inventory:
      \[
      \text{Average Inventory} = \frac{4,929 + 4,703}{2} = 4,816 \text{ million}
      \]
      
    - Inventory Turnover:
      \[
      \text{Inventory Turnover} = \frac{12,986}{4,816} \approx 2.70
      \]
      
    - PP&E Turnover:
      \[
      \text{PP&E Turnover} = \frac{15,757}{2,508} \approx 6.28
      \]

2. **Solvency Ratios**

    - **Debt to Equity Ratio**:
      \[
      \text{Debt to Equity Ratio} = \frac{\text{Total Liabilities}}{\text{Total Equity}}
      \]

    - **Interest Coverage Ratio**:
      \[
      \text{Interest Coverage Ratio} = \frac{\text{EBIT}}{\text{Interest Expense}}
      \]

    **Data from 2019 Annual Report**:
    - Total Liabilities: CAD 19,770 million
    - Total Equity: CAD 1,905 million
    - EBIT: CAD 924 million
    - Interest Expense: CAD 732 million

    **Calculations**:
    - Debt to Equity Ratio:
      \[
      \text{Debt to Equity Ratio} = \frac{19,770}{1,905} \approx 10.38
      \]
      
    - Interest Coverage Ratio:
      \[
      \text{Interest Coverage Ratio} = \frac{924}{732} \approx 1.26
      \]

3. **Liquidity Ratios**

    - **Current Ratio**:
      \[
      \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}
      \]

    - **Quick Ratio**:
      \[
      \text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}
      \]

    **Data from 2019 Annual Report**:
    - Current Assets: CAD 9,013 million
    - Current Liabilities: CAD 10,385 million

    **Calculations**:
    - Current Ratio:
      \[
      \text{Current Ratio} = \frac{9,013}{10,385} \approx 0.87
      \]
      
    - Quick Ratio:
      \[
      \text{Quick Ratio} = \frac{9,013 - 4,703}{10,385} = \frac{4,310}{10,385} \approx 0.41
      \]

#### Interpretation of Ratios

- **Profitability Ratios**: The gross margin of 17.6% indicates a moderate profitability level. 
- **Asset Turnover Ratios**: Accounts receivable turnover of 7.45, inventory turnover of 2.70, and PP&E turnover of 6.28 suggest efficient use of assets.
- **Solvency Ratios**: A high debt-to-equity ratio of 10.38 indicates significant leverage, while an interest coverage ratio of 1.26 shows limited ability to cover interest expenses.
- **Liquidity Ratios**: Current and quick ratios below 1 (0.87 and 0.41) indicate potential liquidity issues.

#### Multivariate Analysis (2019)

1. **Altman Z-Score (Original Model)**:
   \[
   Z = 1.2 \times \frac{WC}{TA} + 1.4 \times \frac{RE}{TA} + 3.3 \times \frac{EBIT}{TA} + 0.6 \times \frac{MC}{TL} + 1.0 \times \frac{S}{TA}
   \]
   
   **Data**:
   - Working Capital (WC): Current Assets - Current Liabilities = 9,013 - 10,385 = -1,372
   - Total Assets (TA): CAD 21,675 million
   - Retained Earnings (RE): CAD -4,982 million
   - Market Capitalization (MC): CAD 4,025.6 million
   - Sales (S): CAD 15,757 million

   **Calculation**:
   \[
   Z = 1.2 \times \frac{-1,372}{21,675} + 1.4 \times \frac{-4,982}{21,675} + 3.3 \times \frac{924}{21,675} + 0.6 \times \frac{4,025.6}{19,770} + 1.0 \times \frac{15,757}{21,675}
   \]
   \[
   Z \approx 1.2 \times -0.0633 + 1.4 \times -0.2298 + 3.3 \times 0.0426 + 0.6 \times 0.2037 + 1.0 \times 0.7270
   \]
   \[
   Z \approx -0.076 + -0.322 + 0.141 + 0.122 + 0.727 \approx 0.592
   \]
   
   **Interpretation**: A Z-score of 0.592 indicates a high risk of bankruptcy.

2. **Ohlson O-Score**:
   \[
   O = -1.32 - 0.407 \log \left( \frac{TA}{GNP} \right) + 6.03 \frac{TL}{TA} - 1.43 \frac{WC}{TA} + 0.0757 \frac{CL}{CA} - 2.37 \frac{NI}{TA} - 1.83 \left( \frac{TL + TE}{TA} \right) + 0.285 LIQ - 1.72 EQ
   \]

   **Data**:
   - GNP (Gross National Product for US): Use appropriate value (e.g., USD 21.43 trillion)
   - Net Income (NI): CAD -1,607 million
   - LIQ (indicator variable for negative net income): 1 (as NI is negative)
   - EQ (indicator variable for negative equity): 1 (as Equity is positive)

   **Calculation**:
   \[
   O = -1.32 - 0.407 \log \left( \frac{21,675}{21,430,000} \right) + 6.03 \frac{19,770}{21,675} - 1.43 \frac{-1,372}{21,675} + 0.0757 \frac{10,385}{9,013} - 2.37 \frac{-1,607}{21,675} - 1.83 \left( \frac{19,770 + 1,905}{21,675} \right) + 0.285 \times 1 - 1.72 \times 1
   \]

   **Interpretation**: O-Score calculation provides the probability of default, with higher scores indicating higher probability.

#### Overall Assessment

1. **Going Concern**:
   - Based on the quantitative analysis (e.g., Altman Z-score and liquidity ratios), there are concerns about Bombardier’s ability to continue as a going concern.

2. **Comparison with External