# Baker Hughes (BKR) Financial Model Free Excel 3-statement financial model and company analysis for Baker Hughes. - Canonical: https://finamodel.com/companies/baker-hughes - Industry: Oil and Gas - Downloadable model: Yes - Excel download: https://finamodel.com/company-models/BKR.xlsx ## Model Purpose This model provides a sum-of-the-parts equity valuation and cash flow forecasting tool for an equity research analyst evaluating Baker Hughes' strategic pivot from traditional oilfield services towards high-growth industrial energy technology and LNG infrastructure. ## Company Overview Baker Hughes Company is a global energy technology firm that provides solutions to energy and industrial customers worldwide. The company operates across the entire energy value chain, from upstream oil and gas production to liquefied natural gas (LNG) infrastructure, pipeline compression, and new energy technologies like carbon capture. Business segments: * Oilfield Services & Equipment (OFSE): Approximately 52% of FY2025 revenue. * Industrial & Energy Technology (IET): Approximately 48% of FY2025 revenue. Key geographies include North America, Latin America, Europe/CIS/Sub-Saharan Africa, and Middle East/Asia, with international markets driving the majority of growth. The business model is a hybrid of asset-heavy equipment manufacturing and high-margin, recurring aftermarket services. Baker Hughes holds a dominant competitive position in LNG liquefaction equipment and ranks among the top three global oilfield service providers alongside SLB and Halliburton. Recent major events include a corporate restructuring in 2022 that consolidated operations into two segments, a stated goal to achieve 20% EBITDA margins by 2028, and the pending strategic acquisition of Chart Industries announced in late 2025. ## Revenue Deep Dive ### Oilfield Services & Equipment (OFSE) * **Segment name:** Oilfield Services & Equipment (OFSE) * **Revenue driver formula:** (Global Active Rig Count x Revenue per Rig) + Production Volume Services * **Historical growth rate:** -8% to +5% (declined 8% YoY in FY2025 due to macro softness) * **Key growth levers and headwinds:** Driven by upstream capital expenditure, international offshore drilling activity, and well intervention needs. Headwinds include capital discipline by North American exploration and production companies and a structural shift away from fossil fuels. * **Pricing dynamics:** Highly competitive and cyclical, often tied to spot market day rates for services and contractual bidding for subsea equipment. * **Revenue recognition notes:** Service revenue is recognised over time as services are rendered; equipment revenue is recognised at a point in time upon delivery or installation. * **Seasonality:** Q4 is typically the strongest quarter due to year-end budget exhaustion by exploration and production clients. ### Industrial & Energy Technology (IET) * **Segment name:** Industrial & Energy Technology (IET) * **Revenue driver formula:** Beginning Remaining Performance Obligations (RPO) x Annual Conversion Rate + In-Period Book-and-Bill * **Historical growth rate:** 10% to 21% CAGR (grew 10% YoY in FY2025) * **Key growth levers and headwinds:** Driven by global LNG final investment decisions (FIDs), data centre power demand, and new energy orders (carbon capture, hydrogen). Headwinds include project delays and supply chain bottlenecks for heavy industrial components. * **Pricing dynamics:** Long-term contractual pricing with inflation-escalation clauses. High pricing power due to a near-duopoly in large-scale LNG liquefaction turbines. * **Revenue recognition notes:** Heavily reliant on percentage-of-completion accounting for long-cycle gas technology equipment. * **Seasonality:** Less seasonal than OFSE, but revenue recognition can be lumpy depending on the delivery schedule of massive gas turbines. ## Cost Structure ### Variable Costs / COGS * COGS includes direct raw materials (steel, specialised alloys), manufacturing facility overhead, field service labour, and logistics. * Gross margin typically ranges between 20% and 23%. * Key input costs include metals, electronic components, and highly skilled engineering labour. * COGS scales with a step-function dynamic; manufacturing facilities require high utilisation to absorb fixed overheads, creating significant operating leverage when volume increases. ### Operating Expenses * **R&D:** Typically 2% to 3% of revenue, heavily focused on the IET segment for new energy and decarbonisation technologies. Costs are generally expensed as incurred unless specific software capitalisation criteria are met. * **SG&A:** Includes corporate overhead, sales teams, and IT infrastructure. The company has actively reduced SG&A through a $150 million cost-out programme completed in 2023. * **Depreciation & Amortisation:** Runs at approximately 4% to 5% of revenue, reflecting the asset-intensive nature of the OFSE tool fleet and IET manufacturing plants. * **Stock-Based Compensation:** Typically 0.5% to 1.0% of revenue. * **Restructuring / one-time charges:** Frequent in recent years due to segment consolidation and footprint rationalisation, though normalising as the two-segment structure matures. ### Margin Profile * Gross margin: 20% to 23%. * Adjusted EBITDA margin: 15% to 18.5% (FY2025 consolidated was 17.4%). * Operating margin: 9% to 11%. * Margin trend is expanding. The company has a stated target to reach 20% Adjusted EBITDA margins in both segments by 2028, driven by supply chain optimisation and a higher mix of IET services. * Segment margins: IET achieved 18.5% in FY2025, while OFSE achieved 18.1%. ## Balance Sheet Structure * Total assets are approximately $35 billion to $38 billion. * Key asset categories include inventory (heavy equipment work-in-progress), property, plant and equipment (manufacturing facilities and OFSE tool fleets), and goodwill. * Goodwill & intangibles represent roughly 35% to 40% of total assets, a legacy of the GE Oil & Gas merger and subsequent bolt-on acquisitions. * Working capital profile: * Days Sales Outstanding (DSO): 70 to 80 days. * Days Inventory Outstanding (DIO): 90 to 110 days (long manufacturing cycles for IET). * Days Payable Outstanding (DPO): 60 to 75 days. * Net working capital as a % of revenue is typically 10% to 15%. * Working capital is positive. However, the company benefits from significant customer down payments on large IET orders, which act as a source of cash and reduce net working capital needs. * PP&E consists of specialised manufacturing plants, testing facilities, and oilfield service equipment. Useful lives range from 3 to 15 years for machinery and up to 40 years for buildings. * Right-of-use assets are material but manageable, representing leased facilities and vehicles. ## Capital Expenditure & Investment * Capex as a % of revenue ranges from 3.5% to 4.5%. * Maintenance capex accounts for roughly 60% of total spend (replacing OFSE tools), while growth capex accounts for 40% (expanding IET manufacturing capacity). * Major capex programmes are currently directed towards expanding gas technology manufacturing and testing facilities in Italy and the US to meet record LNG and data centre power demand. * Capitalised software is minimal relative to hard asset capex. * M&A pattern: Historically transformational (GE merger), but recently focused on strategic bolt-ons and the pending Chart Industries acquisition to bolster the gas and new energy portfolio. ## Debt & Capital Structure * Total debt is approximately $5.4 billion, with cash and equivalents of $3.7 billion, resulting in a low net debt position. * Net debt to Adjusted EBITDA ratio is exceptionally strong at 0.5x. * Credit rating is 'A' by S&P, upgraded recently due to expanding margins and lower volatility in the IET segment. * Key debt instruments consist primarily of senior unsecured notes. * Maturity profile is well-laddered, with the next major maturity being $599 million in December 2026. * Interest rate profile is predominantly fixed-rate bonds. * Covenants are standard investment-grade incurrence covenants; the company operates well within limits. * Share repurchase programme is highly active. The company targets returning 60% to 80% of free cash flow to shareholders via dividends and buybacks. * Dividend policy: The company pays a steady quarterly dividend, yielding approximately 2.0% to 2.5%, with a payout ratio of roughly 35% to 45% of net income. ## Cash Flow Characteristics * Operating cash flow conversion (OCF / Net Income) is exceptionally strong, typically ranging from 1.2x to 1.5x. * Free cash flow margin (FCF / Revenue) ranges from 8% to 10% (FY2025 FCF was $2.7 billion on $27.7 billion revenue). * Major non-cash items bridging net income to OCF include depreciation, amortisation, and stock-based compensation. * Working capital cash flow impact is heavily influenced by customer down payments (contract liabilities) in the IET segment. Strong order intake generates positive cash flow upfront. * Capex intensity is low to moderate, allowing for a high free cash flow conversion rate (FCF / Adjusted EBITDA) of approximately 50% to 57%. * Cash tax rate is typically lower than the GAAP effective tax rate due to accelerated depreciation and international tax structuring. ## Sheet Structure 1. **Assumptions:** Contains all hardcoded inputs, macroeconomic drivers (rig count, LNG FIDs), segment growth rates, margin targets, and capital allocation policies. 2. **Scenarios:** Toggles for Base, Bull, and Bear cases affecting IET order intake and OFSE pricing. 3. **Income Statement:** Consolidated GAAP income statement projecting revenue down to net income and EPS. 4. **Balance Sheet:** Standard asset, liability, and equity projections balancing in every period. 5. **Cash Flow Statement:** Indirect method starting from net income, detailing working capital changes, capex, debt issuance/repayment, and shareholder returns. 6. **Segment Revenue & RPO:** Detailed roll-forward of Remaining Performance Obligations (Backlog) for both OFSE and IET. Calculates revenue based on RPO conversion and book-to-bill ratios. 7. **Segment EBITDA:** Calculates Adjusted EBITDA for OFSE and IET based on segment-specific margin assumptions, reconciling to consolidated Adjusted EBITDA. 8. **Working Capital:** Schedules for accounts receivable, inventory, accounts payable, and contract liabilities (customer down payments). 9. **PP&E & Intangibles:** Waterfall schedules for capital expenditure, depreciation, amortisation, and goodwill tracking. 10. **Debt Schedule:** Tranches of senior notes, interest expense calculations, and debt repayment logic based on available cash flow. 11. **DCF Valuation:** Unlevered free cash flow calculation, WACC assumptions, terminal value, and implied share price. ## Key Financial Relationships 1. `IET Orders = Prior Year IET Revenue x IET Book-to-Bill Ratio` 2. `Ending IET RPO = Beginning IET RPO + IET Orders - IET Revenue` 3. `IET Revenue = (Beginning IET RPO x IET RPO Conversion Rate) + (IET Orders x In-Period Conversion Rate)` 4. `OFSE Revenue = OFSE Base Revenue x (1 + OFSE Market Growth Rate)` 5. `Consolidated Revenue = IET Revenue + OFSE Revenue` 6. `IET Adjusted EBITDA = IET Revenue x IET Adjusted EBITDA Margin (Targeting 20% by 2028)` 7. `OFSE Adjusted EBITDA = OFSE Revenue x OFSE Adjusted EBITDA Margin (Targeting 20% by 2028)` 8. `Consolidated Adjusted EBITDA = IET Adjusted EBITDA + OFSE Adjusted EBITDA - Corporate Costs` 9. `Free Cash Flow = Cash Flow from Operations - Capital Expenditures` 10. `Target Shareholder Returns = Free Cash Flow x Target Return Percentage (60% to 80%)` 11. `Share Repurchases = Target Shareholder Returns - Total Dividend Payments` 12. `Ending Share Count = Beginning Share Count - (Share Repurchases / Average Share Price)` ## Cross-Sheet Dependencies * The **Segment Revenue & RPO** sheet is the critical engine of the model. It feeds top-line figures to the **Income Statement** and **Segment EBITDA** sheets. * The **Segment EBITDA** sheet feeds operating profitability to the **Cash Flow Statement** (via net income proxy) and the **DCF Valuation**. * The **Working Capital** sheet calculates changes in contract liabilities (driven by IET orders on the Revenue sheet) and feeds the **Cash Flow Statement**. * The **Cash Flow Statement** determines cash available for debt paydown or share repurchases, feeding the **Debt Schedule** and **Balance Sheet**. * Circularity risk exists between the **Debt Schedule** (interest expense), the **Income Statement** (net income), and the **Cash Flow Statement** (cash available for debt paydown). A circularity breaker toggle must be included. ## Sign Convention * **Income Statement:** Revenues are positive. All expenses (COGS, SG&A, R&D, Interest, Taxes) are negative. Net Income is positive if profitable. * **Balance Sheet:** Assets are positive. Liabilities and Equity are positive. * **Cash Flow Statement:** Cash inflows (net income, depreciation, increase in payables) are positive. Cash outflows (capex, dividends, share repurchases, increase in receivables) are negative. * **Segment EBITDA:** Margins are expressed as positive percentages. ## Things Most Likely to Go Wrong 1. "The model fails to capture the RPO (backlog) conversion dynamic in the IET segment; revenue must be driven by backlog burn and new orders, not just a flat growth rate." 2. "Customer down payments are a massive driver of operating cash flow; failing to link contract liabilities to IET order intake will severely understate cash generation." 3. "The company changed its segment reporting from four segments to two (OFSE and IET) in 2022; historical data prior to 2022 must be manually mapped or excluded to ensure comparability." 4. "Corporate unallocated costs must be subtracted from the sum of segment EBITDA to reach consolidated Adjusted EBITDA; ignoring this will overstate profitability." 5. "The pending Chart Industries acquisition will significantly alter the balance sheet and revenue mix; the model needs a toggle for pro-forma integration." 6. "OFSE margins are highly sensitive to volume; the model must reflect operating leverage where a 5% drop in revenue causes a disproportionate drop in EBITDA." 7. "Free cash flow conversion is a primary management metric; the model must explicitly calculate FCF / Adjusted EBITDA to validate against the company's 50%+ target." 8. "Stock-based compensation is excluded from Adjusted EBITDA but is a real expense; the DCF must treat SBC appropriately to avoid overvaluing the equity." ## Validation Checks 1. "Consolidated Adjusted EBITDA margin should trend towards the management target of 20% by 2028; flag if it exceeds 21% or drops below 16%." 2. "Free Cash Flow conversion (FCF / Adjusted EBITDA) should remain between 50% and 60% based on historical performance." 3. "IET Book-to-Bill ratio should hover around 1.0x to 1.2x; flag if it drops below 0.9x for extended periods." 4. "Capex as a % of revenue must remain in the 3.5% to 4.5% range." 5. "Net Debt to Adjusted EBITDA should remain below 1.0x; flag if leverage spikes without a corresponding M&A event." 6. "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period." 7. "Effective tax rate should remain between 22% and 26% per management guidance." 8. "Total shareholder returns (dividends + buybacks) should equal 60% to 80% of Free Cash Flow." ## Key Assumptions (Default Values) | Assumption | Default Value | Unit | Rationale | |---|---|---|---| | OFSE Revenue Growth | -2.0 | % | Reflects recent macro softness and capital discipline in traditional oil & gas. | | IET Book-to-Bill Ratio | 1.1 | x | Based on recent historical averages and strong LNG/data centre demand. | | IET RPO Conversion Rate | 35.0 | % | Approximate annual burn rate of long-cycle gas technology backlog. | | OFSE Adjusted EBITDA Margin | 18.1 | % | Actual FY2025 performance, trending towards 20% target. | | IET Adjusted EBITDA Margin | 18.5 | % | Actual FY2025 performance, trending towards 20% target. | | Corporate Unallocated Costs | 380.0 | $M | Based on recent annual run-rate for corporate overhead. | | Capex as % of Revenue | 4.0 | % | Historical average required to maintain OFSE fleet and expand IET capacity. | | Effective Tax Rate | 24.0 | % | Midpoint of management's 22% to 26% guidance range. | | Target FCF Payout Ratio | 70.0 | % | Midpoint of management's 60% to 80% shareholder return framework. | | Annual Dividend per Share | 0.84 | $ | Based on recent quarterly dividend run-rate. | | Average Interest Rate on Debt | 4.5 | % | Estimated weighted average cost of fixed-rate senior notes. | | WACC | 9.5 | % | Standard discount rate for oilfield services and industrial technology hybrid. | | Terminal Growth Rate | 2.0 | % | Long-term GDP growth proxy, balancing fossil fuel decline with new energy growth. | ## Data Sources & Benchmarks * **Filings:** SEC EDGAR (Form 10-K, 10-Q, 8-K) and the Baker Hughes Investor Relations website. * **Key Peers:** SLB (Schlumberger), Halliburton (HAL), TechnipFMC (FTI), and Chart Industries (GTLS). * **Industry Data:** Baker Hughes Rig Count (proprietary data published weekly), Rystad Energy for upstream capex trends, and Wood Mackenzie for global LNG FID tracking. * **Consensus Estimates:** FactSet or Bloomberg for forward-looking revenue and EBITDA validation. ## Sources * Baker Hughes Q4 and Full-Year 2025 Earnings Release (investors.bakerhughes.com) * Baker Hughes 2025 Form 10-K * S&P Global Ratings: Baker Hughes Upgraded To 'A' From 'A-' (March 2025) * Quartr: Baker Hughes (BKR) Investor Relations, Earnings Summary & Outlook * Seeking Alpha: Baker Hughes: Best Picks And Shovels Play In The Energy Sector * StockTitan: BKR Financials: Income Statement, Balance Sheet & Cash Flow --- ## Frequently asked questions ### What does Baker Hughes do? Baker Hughes is a global energy technology firm providing solutions across the energy value chain, from upstream oil and gas production to liquefied natural gas (LNG) infrastructure and new energy technologies like carbon capture. It serves energy and industrial customers worldwide with a hybrid business model of equipment manufacturing and recurring aftermarket services. ### What are the main revenue drivers for Baker Hughes? Baker Hughes' revenue is driven by its Oilfield Services & Equipment (OFSE) segment and its Industrial & Energy Technology (IET) segment, with international markets contributing the majority of growth. The company benefits from demand for LNG liquefaction equipment and its position as a top-tier oilfield service provider. ### What is Baker Hughes' target for EBITDA margins? Baker Hughes has a stated goal to achieve 20% EBITDA margins by 2028, reflecting its strategic pivot towards higher-growth industrial energy technology. This target is a key indicator of its operational efficiency improvements and portfolio shift. ### What is the purpose of the Baker Hughes financial model? The Baker Hughes financial model provides a sum-of-the-parts equity valuation and cash flow forecasting tool for equity research analysts. It helps evaluate the company's strategic pivot towards high-growth industrial energy technology and LNG infrastructure. ### Can I download an Excel financial model for Baker Hughes? Yes, a downloadable Excel financial model for Baker Hughes is available. This model provides a forecast horizon from FY2026 to FY2030 and is designed for general corporate analysis. ### How does Baker Hughes manage its capital expenditures? Baker Hughes' capital expenditure as a percentage of revenue ranges from 3.5% to 4.5%, with maintenance capex for OFSE tools making up 60% and growth capex for IET manufacturing capacity accounting for 40%. Major investments are currently focused on expanding gas technology manufacturing and testing facilities. [Interactive forecast calculator](https://finamodel.com/companies/baker-hughes/forecast)