Common-Size Income Statement
Quarterly Data
General Dynamics Corp., common-size consolidated income statement (quarterly data)
Based on: 10-Q (reporting date: 2020-09-27), 10-Q (reporting date: 2020-06-28), 10-Q (reporting date: 2020-03-29), 10-K (reporting date: 2019-12-31), 10-Q (reporting date: 2019-09-29), 10-Q (reporting date: 2019-06-30), 10-Q (reporting date: 2019-03-31), 10-K (reporting date: 2018-12-31), 10-Q (reporting date: 2018-09-30), 10-Q (reporting date: 2018-07-01), 10-Q (reporting date: 2018-04-01), 10-K (reporting date: 2017-12-31), 10-Q (reporting date: 2017-10-01), 10-Q (reporting date: 2017-07-02), 10-Q (reporting date: 2017-04-02), 10-K (reporting date: 2016-12-31), 10-Q (reporting date: 2016-10-02), 10-Q (reporting date: 2016-07-03), 10-Q (reporting date: 2016-04-03), 10-K (reporting date: 2015-12-31), 10-Q (reporting date: 2015-10-04), 10-Q (reporting date: 2015-07-05), 10-Q (reporting date: 2015-04-05).
The financial performance from April 2015 through September 2020 reveals a gradual compression of profit margins and a notable shift in the revenue mix. While the company maintained stable margins for the first few years of the period, a transition occurred starting in 2018, characterized by increased costs and a change in the proportion of product and service revenue.
- Revenue Composition
- A structural shift in revenue streams is evident. From 2015 to early 2018, product revenue consistently represented between 60% and 65% of total revenue. However, starting in July 2018, there was a sharp decline in the product mix, falling to a low of 51.75%. Concurrently, services revenue increased from an average of 35-37% to a peak of 48.25% in the same period. Although the product mix recovered partially by late 2019, the overall trend indicates a greater reliance on services compared to the 2015-2017 baseline.
- Gross Profitability and Cost of Revenue
- Gross profit margins remained relatively stable between 19% and 20% from 2015 through 2017. Starting in 2018, a downward trend is observed, with margins dipping to as low as 15.27% by March 2020. This compression is directly attributable to an increase in the cost of revenue, which rose from approximately 80% of revenue in the early period to peaks of 84.73% by June 2020.
- Operating Performance and Expenses
- Operating earnings as a percentage of revenue mirrored the decline in gross profit. Margins were consistent at 13-14% between 2015 and 2017 but entered a period of volatility and decline from 2018 onward, reaching a minimum of 9.08% in June 2020. General and administrative (G&A) expenses remained relatively contained, fluctuating between 5.4% and 7.1% of revenue, suggesting that the erosion of operating income was driven primarily by cost of goods sold rather than administrative overhead.
- Financial Costs and Net Earnings
- A significant increase in interest expenses is observed starting in mid-2018. Interest costs rose from a historical average of approximately 0.3% of revenue to between 1.0% and 1.4% through 2020. This increase in financial leverage or borrowing costs contributed to the decline in earnings from continuing operations. Net earnings margins, which were steady around 9-10% from 2015 to 2017, trended downward to a low of 6.75% in June 2020, though this was partially offset by a reduction in the provision for income tax as a percentage of revenue during the latter half of the period.
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