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Textron Case

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Textron Case

1) How does Textron make money?
Textron is able to make money as a result of 4 defining aspects of its business model: a. Textron is a conglomerate: by purchasing a variety of companies, Textron is able to share technology between its business units thus increasing its competitive advantage in these respective units. For instance, lessons learned in aerodynamics at Bell Helicopters can be used in the construction of aircraft at Cessna. Additionally, because of Textron 's size, it increases its buyer power and can take advantage of economies of scale when purchasing from the common suppliers across business units. b. Diversification: Textron has purchased a variety of companies that complement one another …show more content…

Even worse, the increased investment has had little impact in increasing cash inflow. * Assessment of Exhibit 2: All of the above ratios are point towards poor cash flow management except Current Ratio. Thus Textron 's favourable Current Ratio can be interpreted as Textron has the ability to pay off its liabilities only if it sells its large inventory (indicated by its large Days Inventory value).

4) Textron 's use of LIFO and FIFO: e. Textron 's income before taxes in 2006 using FIFO * Under current method: * The beginning inventory of 2006+purchase -COGS=the ending inventory of 2006 * 1,712 + purchase - 8,528 = 2,069(in millions) let this calculation be called "A" * Under FIFO method: * The beginning inventory of 2006+purchase-COGS= the ending inventory of 2006 * (1,712 + 251) + purchase - COGS under FIFO = (2,069 + 276) let this calculation be called "B" * Thus, B - A = 251 - COGS under FIFO + 8,528 = 276 * Then, COGS under FIFO = 251 + 8,528 – 276 = 8,503 (because "purchase" is the same in calculations A and B, the two values cancel each other out) * Interestingly, since the COGS change from 8,528 (current hybrid of FIFO/LIFO) to 8,503 (FIFO only), the income before taxes will increase by 25

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