Investment Thesis
Northrop Grumman exhibits deteriorating financial fundamentals despite positive accounting earnings. The company is burning significant cash with -$1.7B operating cash flow and -$1.8B free cash flow, which is unsustainable given $14.4B in debt. Combined with virtually flat net income growth (+0.2% YoY) and extremely poor capital returns (ROE 5.1%, ROA 1.7%), the company is not generating sufficient value to support its capital structure.
Strengths
- Moderate leverage with 0.84x debt-to-equity ratio provides some financial cushion
- Operating margin of 10% is reasonable for defense sector
- Revenue growing at 2.2% YoY and maintaining positive net income of $875M
Risks
- Negative operating cash flow of -$1.7B is severely concerning and indicates operational distress or working capital problems
- Negative free cash flow of -$1.8B makes debt servicing and capital returns unsustainable long-term
- Critically low returns on capital (ROE 5.1%, ROA 1.7%) suggest inefficient deployment of $50B asset base
- Tightening liquidity with quick ratio of only 1.04x limits financial flexibility
- Flat profit growth (+0.2%) despite revenue expansion indicates margin compression
Key Metrics to Watch
- Operating cash flow trend - must return to positive to validate business model
- Working capital metrics and cash conversion cycle - understand source of cash burn
- Return on equity improvement - currently inadequate for capital-intensive business
Financial Metrics
Revenue
9.9B
Net Income
875.0M
EPS (Diluted)
$6.14
Free Cash Flow
-1.8B
Total Assets
50.0B
Cash
2.1B
Profitability Ratios
Gross Margin
N/A
Operating Margin
10.0%
Net Margin
8.9%
ROE
5.1%
ROA
1.7%
FCF Margin
-18.4%
Balance Sheet & Liquidity
Current Ratio
1.15x
Quick Ratio
1.04x
Debt/Equity
0.84x
Debt/Assets
65.8%
Interest Coverage
N/A
Long-term Debt
14.4B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-04-29T13:28:59.935224 |
Data as of: 2026-03-31 |
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