L3Harris Financial Model
Aerospace and Defence Company Financials Example (Free Excel Download)
L3Harris Technologies is an aerospace and defence technology innovator that provides mission-critical solutions across space, air, land, sea, and cyber domains.
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About this model
This model provides a comprehensive three-statement forecast and discounted cash flow valuation to help an equity research analyst determine the intrinsic value of L3Harris Technologies and assess its capital deployment capacity for share repurchases and dividends.
L3Harris Technologies is an aerospace and defence technology innovator that provides mission-critical solutions across space, air, land, sea, and cyber domains. The company positions itself as the defence industry's "Trusted Disruptor", focusing on agile development and rapid deployment of advanced technologies for the US Department of Defense and international allies.
Business segments include:
- Space & Airborne Systems (SAS): Approximately 31% of revenue.
- Integrated Mission Systems (IMS): Approximately 30% of revenue.
- Communication Systems (CS): Approximately 26% of revenue.
- Aerojet Rocketdyne (AR): Approximately 13% of revenue.
The company generates the vast majority of its revenue from the US Government, either as a prime contractor or a tier-one subcontractor. The business model is contract-based, relying on a mix of firm-fixed-price and cost-plus contracts. L3Harris competes directly with traditional defence primes such as Lockheed Martin, Northrop Grumman, General Dynamics, and RTX. Recent major events include the $4.7 billion acquisition of Aerojet Rocketdyne in July 2023, the acquisition of Viasat's Tactical Data Links business, the divestiture of its Commercial Aviation Solutions (CAS) business in 2024, and the ongoing "LHX NeXt" cost-saving restructuring programme.
The downloadable L3Harris financial model includes SEC-sourced historical financials, forecast assumptions, core operating schedules, and valuation outputs in an Excel workbook built for review and scenario analysis.
A turnkey financial model
Live formulas, no hardcoded values
Outputs are driven by live formulas, so the workbook updates from its assumptions instead of relying on hardcoded results.
All assumptions in one tab
Inputs are clearly marked in the Assumptions tab and separated from calculations, making it clear what to change and what to leave intact.
Statements always balancing
For integrated-statement models, the balance sheet, cash flow, and supporting schedules tie through properly.
Distinct schedules for clarity
Debt, working capital, taxes, and cash flow can get messy quickly. We group calculations in clear schedules, not across disconnected tabs.
No hidden macros or external links
There are no unexplained external workbook links or macros to undermine auditability or portability.
Changes flow through the model
Update a key driver and see the impact carry through the forecast, financing, and return outputs. We never use hardcoded numbers in formulas.
Historicals & AssumptionsL3Harris financial modelCompany, Historicals & Assumptions used
Source: SEC EDGAR · values in USD
| Line item | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| General and administrative expenses | -$3.28B | -$3.01B | -$3.26B | -$3.57B | -$3.43B |
| Impairment of goodwill and other assets | -$207.0M | -$802.0M | -$374.0M | -$38.0M | -$85.0M |
| Operating income | $2.11B | $1.13B | $1.43B | $1.92B | $2.11B |
| Net income | $1.85B | $1.06B | $1.23B | $1.50B | $1.61B |
Forecast assumptions
Defaults used in the downloadable model. Forecast horizon: FY2026–FY2030.
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How to build a detailed financial model for L3Harris
A complete walkthrough of every driver, margin, working-capital input, and capital-allocation assumption used in the downloadable model.
Revenue Deep Dive
Space & Airborne Systems (SAS)
- Segment name: Space & Airborne Systems
- Revenue driver formula: Beginning Backlog + (Revenue x Book-to-Bill Ratio) - Revenue
- Historical growth rate: 2% to 5% CAGR
- Key growth levers and headwinds: Ramping of classified space programmes and missile tracking satellites; headwinds include delayed government contract awards or continuing resolutions.
- Pricing dynamics: Heavily regulated by US Government cost accounting standards; mix of cost-plus (lower margin, lower risk) and fixed-price (higher margin, higher risk).
- Revenue recognition notes: Primarily recognised over time using the percentage-of-completion method based on costs incurred.
- Seasonality: The fourth quarter is typically the strongest due to the US Government fiscal year-end (30 September) driving a push for contract awards and deliveries.
Integrated Mission Systems (IMS)
- Segment name: Integrated Mission Systems
- Revenue driver formula: Beginning Backlog + (Revenue x Book-to-Bill Ratio) - Revenue
- Historical growth rate: 4% to 8% CAGR
- Key growth levers and headwinds: Demand for intelligence, surveillance, and reconnaissance (ISR) aircraft and maritime power systems.
- Pricing dynamics: Similar to SAS, heavily dependent on long-term government contracts.
- Revenue recognition notes: Over time using cost-to-cost percentage of completion.
- Seasonality: Modest fourth-quarter weighting.
Communication Systems (CS)
- Segment name: Communication Systems
- Revenue driver formula: Volume of Radio Units x Average Selling Price + Service/Maintenance Revenue
- Historical growth rate: 3% to 5% CAGR
- Key growth levers and headwinds: International demand for software-defined resilient communications and the Next Generation Jammer programme; headwinds include lumpiness in international orders.
- Pricing dynamics: Higher proportion of commercial-off-the-shelf (COTS) products allows for better pricing power and significantly higher margins than other segments.
- Revenue recognition notes: Often recognised at a point in time upon delivery of radio equipment, leading to slightly more volatile revenue recognition.
- Seasonality: Stronger fourth quarter driven by international and domestic procurement cycles.
Aerojet Rocketdyne (AR)
- Segment name: Aerojet Rocketdyne
- Revenue driver formula: Beginning Backlog + (Revenue x Book-to-Bill Ratio) - Revenue
- Historical growth rate: 5% to 7% (pro-forma for pre-acquisition periods)
- Key growth levers and headwinds: High demand for solid rocket motors, hypersonics, and missile defence systems (e.g., GMLRS, PAC-3); headwinds include supply chain constraints for critical chemicals and materials.
- Pricing dynamics: Long-term contracts, often as a merchant supplier to other primes like Lockheed Martin.
- Revenue recognition notes: Over time using percentage of completion.
- Seasonality: Relatively smooth throughout the year.
Cost Structure
Variable Costs / COGS
- Cost of product sales and cost of service sales are reported separately. COGS includes direct materials, direct labour, and manufacturing overhead.
- Gross margin typically ranges from 26% to 29%.
- Key input costs include aerospace-grade metals, electronic components, and specialised chemicals for solid rocket motors.
- COGS scales linearly with revenue, though fixed-price contracts can experience margin compression if supply chain costs inflate unexpectedly (Estimate at Completion or EAC adjustments).
Operating Expenses
- R&D: Company-funded R&D typically runs at 3.5% to 4.5% of revenue. Note that customer-funded R&D is included in COGS and Revenue, not in this operating expense line.
- SG&A: Typically runs at 9% to 11% of revenue. This includes bid and proposal costs, which are critical for winning new defence contracts.
- Depreciation & Amortisation: D&A is roughly 4% to 5% of revenue, heavily skewed by the amortisation of acquisition-related intangibles from the L3/Harris merger and the Aerojet acquisition.
- Stock-Based Compensation: Approximately 0.5% to 1.0% of revenue.
- Restructuring / one-time charges: The company is currently executing the "LHX NeXt" initiative, targeting $1.2 billion in total cost savings by 2025, which incurs near-term severance and facility consolidation costs.
Margin Profile
- Gross margin: 26% to 29%.
- Adjusted Segment Operating Margin: 15.0% to 16.0% (15.8% in 2025).
- Segment margins: CS is the highest (approx 25%), while SAS, IMS, and AR cluster around 12% to 14%.
- Net margin: 6% to 9%, heavily influenced by pension accounting and intangible amortisation.
Balance Sheet Structure
- Total assets are approximately $38 billion.
- Key asset categories include unbilled receivables (contract assets), inventory, PP&E, and a massive goodwill balance.
- Goodwill and intangibles make up over 60% of total assets, reflecting the 2019 merger of equals (L3 and Harris) and the 2023 Aerojet Rocketdyne acquisition.
- Working capital profile:
- Days Sales Outstanding (DSO): 45 to 55 days.
- Days Inventory Outstanding (DIO): 40 to 50 days.
- Days Payable Outstanding (DPO): 35 to 45 days.
- Net working capital is typically positive but tightly managed. The company relies on progress payments from the US Government to fund working capital.
- PP&E: Approximately $3 billion, consisting of manufacturing facilities, testing ranges, and specialised equipment. Useful lives range from 3 to 40 years.
- Operating leases are material but not overwhelming, typically representing around $500 million in right-of-use assets.
Capital Expenditure & Investment
- Capex as a percentage of revenue typically runs between 1.8% and 2.2%.
- Maintenance capex accounts for roughly 60%, with growth capex at 40% directed towards facility expansion for solid rocket motors and classified space programmes.
- Capitalised software is relatively small compared to physical manufacturing and testing infrastructure.
- M&A pattern: The company has historically been a transformational acquirer (L3/Harris merger, Aerojet) but management has recently pivoted to a focus on organic growth, margin expansion, and debt paydown following the Aerojet deal.
- Acquisition multiples: Aerojet was acquired for $4.7 billion, representing approximately 12x forward Adjusted EBITDA inclusive of synergies.
Debt & Capital Structure
- Total debt is approximately $7.5 billion to $8.5 billion.
- The company targets a Gross Debt to Adjusted EBITDA ratio of under 3.0x to maintain its solid investment-grade credit rating.
- Credit rating is typically BBB (S&P) / Baa2 (Moody's).
- Key debt instruments include senior unsecured notes with laddered maturities and a commercial paper programme backed by a revolving credit facility.
- Interest rate profile is predominantly fixed-rate bonds, with a weighted average cost of debt around 4.0% to 4.5%.
- Share repurchase programme: Highly active. The company uses excess free cash flow after dividends to buy back stock, repurchasing over $1 billion annually when leverage targets are met.
- Dividend policy: The company pays a growing quarterly dividend, with a payout ratio typically between 30% and 40% of free cash flow.
Cash Flow Characteristics
- Operating cash flow conversion is strong, typically exceeding 1.0x Net Income due to high non-cash D&A charges.
- Adjusted Free Cash Flow was $2.8 billion in 2025, representing a free cash flow margin of approximately 12% to 13%.
- Major non-cash items include depreciation, amortisation of intangibles, stock-based compensation, and pension adjustments.
- Working capital is a frequent source of volatility in cash flow, heavily dependent on the timing of US Government progress payments and milestone achievements in the fourth quarter.
- Capex intensity is low (around 2%), allowing for high free cash flow conversion.
- The cash tax rate is generally aligned with the GAAP effective tax rate (around 16% to 18%), though R&D capitalisation rules for tax purposes have temporarily impacted cash taxes in recent years.
Sheet Structure
- Assumptions: Hardcoded inputs for macroeconomic drivers, segment book-to-bill ratios, segment margins, tax rates, and capital allocation policies.
- Backlog & Orders: A dedicated schedule rolling forward funded and unfunded backlog by segment (Beginning Backlog + Orders - Revenue = Ending Backlog).
- Income Statement: Consolidated revenue, COGS, SG&A, company-funded R&D, operating income, interest expense, and net income.
- Segment Build: Revenue and Adjusted Segment Operating Income broken out by SAS, IMS, CS, and AR.
- Balance Sheet: Assets (Cash, Receivables, Contract Assets, Inventory, PP&E, Goodwill) and Liabilities (Accounts Payable, Contract Liabilities, Debt, Pension Liabilities, Equity).
- Cash Flow Statement: Operating, Investing, and Financing cash flows, ending with the change in cash.
- Debt Schedule: Tranche-by-tranche debt build, interest expense calculation, and commercial paper tracking.
- Working Capital: Schedule calculating DSO, DIO, DPO, and the resulting cash impact of changes in operating assets and liabilities.
- Depreciation & Amortisation: Waterfall schedule for PP&E and intangible asset amortisation.
- Valuation: Discounted Cash Flow (DCF) using unlevered free cash flow, WACC calculation, and terminal multiple approach.
Key Financial Relationships
- Segment Orders = Segment Revenue x Segment Book-to-Bill Ratio
- Ending Backlog = Beginning Backlog + Segment Orders - Segment Revenue
- SAS Revenue = SAS Orders recognised in period + Burn-down of SAS Beginning Backlog
- Segment Operating Income = Segment Revenue x Segment Adjusted Operating Margin
- Consolidated Adjusted Operating Income = Sum of Segment Operating Incomes - Unallocated Corporate Expenses
- Gross Profit = Total Revenue - Cost of Product Sales - Cost of Service Sales
- EBITDA = Consolidated Operating Income + Depreciation + Amortisation
- Free Cash Flow = Cash from Operations - Capital Expenditures
- Interest Expense = Average Debt Balance x Weighted Average Interest Rate
- Share Repurchases = Maximum(0, Free Cash Flow - Dividends Paid - Debt Principal Repayments) * Management Allocation %
- Ending Share Count = Beginning Share Count - (Share Repurchases / Average Share Price)
- Dividends Paid = Ending Share Count x Annual Dividend Per Share
Cross-Sheet Dependencies
- The Assumptions sheet feeds the Backlog & Orders and Segment Build sheets to generate revenue and operating income.
- The Segment Build aggregates into the top line of the Income Statement.
- Net Income from the Income Statement flows to the top of the Cash Flow Statement and into Retained Earnings on the Balance Sheet.
- The Working Capital sheet uses Revenue and COGS from the Income Statement to calculate balances, which feed the Balance Sheet and the operating section of the Cash Flow Statement.
- The Debt Schedule requires Free Cash Flow from the Cash Flow Statement to determine debt paydown or borrowing needs, which then calculates Interest Expense for the Income Statement. This creates a circular reference that must be managed with a toggle switch.
Sign Convention
- Revenue, Assets, and Equity are represented as positive numbers.
- Expenses (COGS, SG&A, R&D, Interest) are represented as positive numbers in their specific build schedules but subtracted in the Income Statement totals.
- On the Cash Flow Statement, cash inflows are positive and cash outflows (including Capex, Dividends, and Share Repurchases) are negative.
- Contra-asset accounts (like Accumulated Depreciation) are represented as negative numbers on the Balance Sheet.
Things Most Likely to Go Wrong
- The company divested its Commercial Aviation Solutions (CAS) business in 2024. Historical segment data for IMS must be recast to exclude CAS to ensure comparable growth rates.
- The Aerojet Rocketdyne acquisition closed in July 2023. The 2023 AR segment results only represent a partial year. The model must use pro-forma full-year 2023 figures or normalise the base year to forecast 2024 and beyond accurately.
- L3Harris reports "Adjusted Segment Operating Margin" which excludes amortisation of acquisition-related intangibles and restructuring costs. The model must clearly bridge GAAP Operating Margin to Adjusted Segment Operating Margin to avoid overstating true cash profitability.
- Pension accounting is highly material for legacy defence contractors. Non-operating pension income/expense can distort net income. The model should isolate pension impacts below the operating line.
- Estimate at Completion (EAC) adjustments on long-term contracts can cause sudden, unpredictable margin swings in specific quarters. The model should assume normalised margins rather than projecting historical EAC anomalies.
- The "LHX NeXt" initiative targets $1.2 billion in savings by 2025. If the model double-counts these savings by expanding margins while also reducing specific SG&A line items, profitability will be overstated.
- Unallocated corporate expenses must be subtracted from the sum of segment operating incomes to reach consolidated operating income. Forgetting this overstates total company margins by roughly 100 to 150 basis points.
- Foreign currency translation impacts the Communication Systems segment more than others. The model should assume constant currency for long-term forecasting.
Validation Checks
- Consolidated Adjusted Segment Operating Margin should remain between 15.0% and 16.5% based on management guidance. Flag if it exceeds 17.0%.
- Capex as a percentage of revenue must stay between 1.5% and 2.5%.
- Adjusted Free Cash Flow conversion (FCF / Net Income) should consistently exceed 1.0x.
- Gross Debt to Adjusted EBITDA should remain below 3.0x. If it drops below 2.5x, the model should trigger increased share repurchases.
- The Balance Sheet must balance perfectly in every forecasted period (Total Assets = Total Liabilities + Shareholders' Equity).
- The Book-to-Bill ratio should hover around 1.0x to 1.1x in the long term. A ratio consistently below 1.0x implies shrinking revenue and should trigger a warning.
- The effective tax rate should remain between 15% and 18%.
- Dividend payout ratio should not exceed 50% of Free Cash Flow to ensure sufficient capital for R&D and debt service.
Key Assumptions (Default Values)
| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| SAS Revenue Growth | 4.0 | % | Aligns with long-term US space and classified budget growth. |
| IMS Revenue Growth | 5.0 | % | Driven by steady demand for ISR and maritime platforms. |
| CS Revenue Growth | 4.0 | % | Supported by international radio demand and Next Gen Jammer. |
| AR Revenue Growth | 6.0 | % | High demand for solid rocket motors and munitions replenishment. |
| SAS Adjusted Margin | 12.5 | % | Stabilised performance on classified space programmes. |
| IMS Adjusted Margin | 12.5 | % | Normalised margin post-CAS divestiture. |
| CS Adjusted Margin | 25.0 | % | Reflects high-margin COTS product mix. |
| AR Adjusted Margin | 13.0 | % | Expected run-rate post-integration synergies. |
| Consolidated Book-to-Bill | 1.05 | x | Assumes backlog continues to grow slightly above revenue replacement. |
| Capex % of Revenue | 2.0 | % | Historical average and management guidance. |
| Effective Tax Rate | 16.5 | % | Blended rate based on recent historical actuals. |
| Target Gross Leverage | 2.8 | x | Management target is <3.0x; 2.8x provides a buffer. |
| Dividend Growth Rate | 5.0 | % | Consistent with historical dividend increases. |
| WACC | 8.5 | % | Standard cost of capital for a prime defence contractor. |
| Terminal Growth Rate | 2.5 | % | Aligns with long-term US GDP and defence budget growth. |
Data Sources & Benchmarks
- Filings: L3Harris Investor Relations website (investors.l3harris.com) and SEC EDGAR for 10-K, 10-Q, and 8-K filings.
- Peers: Lockheed Martin (LMT), Northrop Grumman (NOC), General Dynamics (GD), RTX Corporation (RTX).
- Industry Data: US Department of Defense (DoD) budget request documents (President's Budget or PB), specifically procurement and RDT&E accounts.
- Consensus Estimates: FactSet or Bloomberg for consensus revenue, EPS, and free cash flow estimates to validate model outputs against street expectations.
Sources
- L3Harris Technologies 2025 Fourth Quarter and Full Year Earnings Release (January 29, 2026)
- L3Harris Technologies 2025 Fourth Quarter Earnings Presentation
- L3Harris Technologies 2024 Annual Report on Form 10-K
- L3Harris Aerojet Rocketdyne Acquisition Presentation (December 2022)
- L3Harris Investor Day Presentation (December 2023)
Do more with the L3Harris model
Frequently asked
What does L3Harris Technologies do?+
L3Harris Technologies is an aerospace and defense technology innovator that provides mission-critical solutions across space, air, land, sea, and cyber domains. The company positions itself as the defense industry's "Trusted Disruptor," focusing on agile development and rapid deployment of advanced technologies for the US Department of Defense and international allies.
How does L3Harris generate its revenue?+
L3Harris generates the vast majority of its revenue from the US Government, serving as either a prime contractor or a tier-one subcontractor. Its business model is contract-based, relying on a mix of firm-fixed-price and cost-plus contracts across its four main segments.
What is L3Harris's typical capital expenditure as a percentage of revenue?+
L3Harris's capital expenditure as a percentage of revenue typically runs between 1.8% and 2.2%. Approximately 60% of this capex is for maintenance, while 40% is growth-oriented, directed towards facility expansion for solid rocket motors and classified space programs.
What is the purpose of the L3Harris financial model?+
The L3Harris financial model provides a comprehensive three-statement forecast and discounted cash flow valuation. Its purpose is to help an equity research analyst determine the intrinsic value of L3Harris Technologies and assess its capital deployment capacity for share repurchases and dividends.
Can I download an Excel financial model for L3Harris?+
Yes, a downloadable Excel financial model for L3Harris is available. This general corporate model provides a forecast horizon from FY2026 to FY2030, allowing for detailed financial analysis.
What is the significance of goodwill on L3Harris's balance sheet?+
Goodwill and intangibles make up over 60% of L3Harris's total assets, reflecting the company's history of significant M&A activity. This includes the 2019 merger of equals between L3 and Harris, as well as the 2023 acquisition of Aerojet Rocketdyne.
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