Business Analysis - Improving Earnings Outlook

Business Analysis

Improving Earnings Outlook

Through 2002-2006, UTC has had positive earnings. Over the past 5 years UTC’s revenues, net income, and working capital have all gone up.

To help achieve positive earning every year, UTC uses a process throughout all of their companies called ACE (Achieving Competitive Excellence). ACE has been implemented at UTC for seven years and is really improving their appearance, customer service and sales by employees implanting ACE tools.

Some of the most important ACE tools implemented to help UTC receive such positive earnings every year are:

- 6S (Safety, Sort, Straighten, Shine, Standardize and Sustain) - This tool helps employees improve the workplace organization, efficiency, safety and employee morale.

- Benchmarking- A process of measuring and comparing products, practices, and services against industry leaders.

- DIVE (Define, Investigate, Verify and Ensure) - A customer service problem solving process tool.

- Kaizen- Improves process organization and flow by employees taking apart a product, studying it, and then putting it back to together better than it was.

- MFA (Market Feedback Analysis) - Using customer feedback to identify and improve a problem.

- Mistake Proofing- Asking employees to brainstorm and implement techniques and devices, which prevent defects from occurring.

- QCPC (Quality Clinic Process Charting) - Used to continuously analyze a process for quality improvement by tracking turn backs to solve inefficiencies or delays in a process.

- Standard Work- Defined sequence of specific activities and work methods.

Within ACE, you have ACE gold, silver, bronze and qualifying. Qualifying means that your group of employees understands ACE and that they are starting to implement the tools to improve customer service, turn backs, and sales. ACE gold (the highest and most prestigious award you can receive) means that your group of employees completely understands the ACE tools and implements them in their daily work to achieve low turn back, high customer service, and high sales. Right now only a handful of sites are ACE gold within UTC. It is UTC’s goal to have every site ACE gold in the years to come. With every UTC site striving for ACE gold, the earnings are bound to go up every year.

Below is a graph that shows UTC’s earning outlook from 2002-2011. This shows that UTC’s earning outlook will be positive for the next 5 years to come.

Cost Structure

By looking at the income statement, 82% of UTC’s revenue is made up of variable cost. 54% of their revenue comes from cost of products sold, 18% comes from cost of service sold. 3.4% is research and development, and 6.4% comes from interest expense. While UTC’s fixed assets only make up 39% of their revenue, 28% is from land building, and machinery and 11% is from accumulated depreciation.

Key Operating Segments

UTC is made up of six different operating segments that produce completely different revolutionary products. This chart gives the six companies and where they stand against each other in 2006:

The descriptions of each company and the products that they produce are reasons why these companies did so well in 2006:

- Carrier, UTC’s highest revenue company, provides heating, ventilation, air conditioning, and refrigeration systems for residential, commercial and industrial and transportation applications. Currently, their 13 SEER air conditioning will save consumers $1 billion in energy costs and avoid the need to construct 39 power plants.

- Hamilton Sundstrand provides electrical power generations and distribution systems, engine and flight controls, propulsion systems, space vechicles, and military ground vehicles. They perform crucial functions on 100% of current commercial and regional jet aircraft. Their new aircraft that they are lifting is the Boeing 787 Dreamliner, which standards are unmatched to any plain flying today.

- Otis designs, manufactures, services, and installs elevators, escalators and moving walkways. Their Gen2 elevator is their highest selling elevator because of how it saves space and energy, reduces the need for lubrications and frees up design space for architects.

- Pratt & Whitney