Company DCF analysis file
Lockheed Martin DCF Analysis
Lockheed Martin’s DCF depends on the cash timing and cost to complete government programs. Backlog, recognized sales and customer collections are different quantities. Use the annual cost base and segment economics below, then reconcile program-loss accounting, advances, investment and pension cash before projecting investor cash.
Use the reported program cost presentation
Years ended December 31, 2024 and 2025; consolidated company, $ millions. Amounts are $ millions unless a caption specifies otherwise. Source: annual financial statements. Reported lines retain the issuer’s scope; derived ratios use the displayed denominators.
| Measure | FY2024 | FY2025 |
|---|---|---|
| Sales | 71,043 | 75,048 |
| Product costs | 54,852 | 57,020 |
| Service costs | 10,217 | 11,339 |
| Impairment / other charges | 87 | 66 |
| Unallocated expense benefit | 1,043 | 996 |
| Other income, net | 83 | 112 |
| Operating profit | 7,013 | 7,731 |
| Net earnings | 5,336 | 5,017 |
| Operating profit / sales: derived | 9.9% | 10.3% |
The filing presents product and service costs with separate unallocated items; it does not justify inventing a standalone SG&A cost line. Its consolidated operating profit also includes other income. Preserve this presentation when testing a contract margin, and avoid confusing segment contribution with group earnings available to capital providers.
A fixed-price development overrun can reduce ultimate program profit while its cash cost arrives over remaining performance. A customer advance can improve current cash without increasing total program profit. Those cases need different forecast schedules even when the reported sales path is unchanged.
Reconcile segment contribution to group profit
Source: annual segment results. Segment profit and consolidated operating profit have different adjustment boundaries.
| Business | Sales | Operating profit |
|---|---|---|
| Aeronautics | 30,257 | 2,086 |
| Missiles and Fire Control | 14,450 | 1,989 |
| Rotary and Mission Systems | 17,312 | 1,323 |
| Space | 13,029 | 1,345 |
| Segment total | 75,048 | 6,743 |
| Unallocated net adjustment | Not revenue | 988 |
| Consolidated operating profit | Not revenue | 7,731 |
Set development, production and sustainment assumptions at the program or compatible segment level. A segment with different technical maturity and contract mix should not inherit another segment’s margin. Reconcile corporate and pension adjustments after the operating build; do not add segment profit to consolidated operating profit.
Trace earnings into cash and reinvestment
Reconciliation source: annual earnings and cash-flow statements. Subtotals below are checkpoints, not extra amounts to add. Grouped adjustments are calculated from the disclosed cash-flow lines.
| Step | FY2025 |
|---|---|
| Operating profit | 7,731 |
| Interest / pension / other nonoperating / tax | -2,714 |
| Net earnings: subtotal | 5,017 |
| Non-cash adjustments | 4,523 |
| Working-capital changes | 441 |
| Tax / pension / other net | -1,424 |
| Operating cash: subtotal | 8,557 |
| Capex | -1,649 |
| Issuer-defined free cash flow | 6,908 |
Non-cash adjustments include depreciation, stock compensation, deferred tax, a pension settlement charge, impairments and reach-forward losses. Their add-back reconciles the year; it does not establish that the associated contracts or pension arrangements need no future cash. The working-capital group includes receivables, contract assets, inventory, payables and contract liabilities.
The issuer’s non-GAAP free cash flow is operating cash less capex, which includes capitalized internal-use software. Deducting that software again would double-count investment. The residual still precedes debt repayment and other claims, and it is not automatically an unlevered enterprise cash stream.
Separate a billing delay from a permanent cost loss
Illustration: assume billable sales occur uniformly through a 365-day year and shift collection of 15 days of the historical annual sales basis into the next period. The uniform timing assumption is deliberately simplified; it is not a disclosed receivable-turnover forecast.
| Effect | Amount |
|---|---|
| Receivables increase: calculated | 3,084.2 |
| Current-period operating cash change | (3,084.2) |
| Operating profit change from this timing assumption alone | 0 |
The example changes cash timing, with an equal assumed later collection, rather than changing total contract profit. Compare that with a cost-to-complete increase, which can permanently reduce contract value. Do not combine the timing delay with an additional permanent cash loss unless the scenario deliberately includes both risks.
Keep interim reporting separate from the annual basis
Q3 2026 covers 2026-06-29 through 2026-09-27 and was released 2026-10-22. Revenue was $20,711 million in this quarter. Source: official Q3 2026 results.
The quarter remains separate from the complete annual comparison. An analyst rolling the cash model forward should bridge contract balances, cost revisions and payments from the annual closing date, rather than annualizing one quarter’s sales or replacing program funding with a backlog total.
Turn the financial basis into a DCF case
| Decision | Treatment |
|---|---|
| Contract profit | Distinguish fixed-price overrun risk, allowable-cost reimbursement and incentive terms. |
| Funding timing | Model performance, billing eligibility, customer approval, advances and collection separately. |
| Program-loss cash | Reconcile charges already recognized with remaining delivery expenditure; no free permanent add-back. |
| Pension cash | Separate settlement accounting from contributions and remaining obligations. |
| Enterprise and equity | Apply consistent operating tax/reinvestment assumptions, then reconcile dated debt, cash, pension and other claims once. |
For an enterprise DCF, move from operating profit to after-operating-tax cash, adjust non-cash allocations, and deduct investment and operating funding needs. Starting from operating cash instead requires a financing and tax reconciliation. Terminal production margins must be supported by executable programs and maintenance investment, rather than applying a mature margin to uncertain development work.
The Lockheed Martin company analysis explains the wider operating context. Use the company forecast tool and DCF calculator with explicit assumptions. Use the historical financials to define an explicit operating and reinvestment case, then supply valuation-date capital costs, claims and diluted shares. Check that each cash claim is counted once before deriving a per-share value.
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