Textron Corporation—Benchmarking Performance

The case provides an opportunity for students to use financial statement information to assess Textron’s financial performance and benchmark the company’s performance against several other aerospace and defense companies. Textron’s top management is interested in improving its supply chain and reducing investments in net working capital. But differences in accounting methods across companies in the same industry may affect the interpretation of differences in financial performance. One area when accounting methods differ is in how inventory is valued. Textron uses a combination of LIFO and FIFO to value its inventory, while other aerospace and defense companies use FIFO, average cost, LIFO, or a combination to value inventory. Thus, the case provides sufficient information for students to make appropriate adjustments to inventory and cost of sales data in order to make an “apples-to-apples” comparison between the companies. This case has been used in the first financial accounting course in the Thunderbird MBA program to illustrate financial ratio analysis and the impact of inventory accounting methods on reported financial measures.