Commercial Analysis and Planning for Southwest Airlines - Report Example

Commercial Analysis and Planning Table of Contents Introduction 3 Financial and Economic Performance 3 Operational Metrics 4 Financial Ratio Analysis7 Conclusion 12 References 14 Bibliography 16 Appendix 17 Operational Metrics (2013) 17 Operational Metrics (2012) 19 Financial Ratio Analysis (Southwest Airlines2013) 22 Financial Ratio Analysis (Southwest Airlines 2012) 25 Financial Ratio Analysis (JetBlue Airways2013) 28 Financial Ratio Analysis (JetBlue Airways2012) 31 Two Year Average calculation (Southwest Airlines) 34 Two-Year Average calculation (JetBlue Airways) 37 Introduction Southwest Airline is a US based budget carrier with headquartered located in Dallas, Texas. The organisation is one of the leading airlines in the global aviation industry in terms of passengers carried by it. The organisation has been able to attract a large number of investors due to its resilient performance and consistent profit over the years. It has a huge fleet of Boeing 737NG, which majorly serves across North America and the Caribbean region. The organisation differentiates itself from other competitors in the industry through its low-cost strategy, along with efficient customer service (Malighetti & et. al., 2009). The organisation has created an enhanced reputation in the US aviation market. In addition, this organisation is committed to offer quality services to its customers to improve its overall performance and to ensure long-term survival of its business (1CAPA Centre for Aviation, 2015; 2CAPA Centre for Aviation, 2015). It also places an increased importance on creating and providing its employees with an ideal work environment, in which they can deliver their dedicated efforts towards the accomplishment of the broad organisational along with their personal goals. The organisation over the last four decades has further been able to foster continuous innovation and creativity with the objective of catering the changing needs and preferences of its customers in most proficient manner (Vidović, & et. al., 2013). Financial and Economic Performance The financial and economic performance analysis of Southwest Airline will be internally analysed using the financial data for the corresponding last two years, i.e. 2013 and 2012. In addition, the financial and economic performance of the organisation will be assessed externally by comparing the financial ratios for the organisation with its key competitor, namely JetBlue Airways. JetBlue Airways is also a US budget carrier and one of the major competitors of Southwest Airlines. The organisation has a huge fleet of Airbus A320, which operates across different destinations of the world, including North America, the Caribbean region, and South America. The organisation has undertaken hybrid strategies to attract large number of customers to compete successfully in the highly dynamic aviation industry (3CAPA Centre for Aviation, 2015; Wu, 2012). Operational Metrics   Years Operating Data: 2013 2012 Operating revenue per ASM (cents)1 13.58 13.34 Passenger revenue yield per RPM (cents)2 16.02 15.64 Load factor3 80.10% 80.30% Cost per available seat mile (CASM)4 12.60 12.85 CASM per item (cents)5:     Salaries, wages, and benefits 3.86 3.69 Fuel and oil 4.42 4.78 Maintenance materials and repairs 0.83 0.88 Aircraft rentals 0.28 0.28 Landing fees and other rentals 0.85 0.81 Depreciation and amortization 0.66 0.66 Acquisition and integration 0.07 0.16 Other operating expenses 1.63 1.61 Source: (Southwest Airlines Co., 2013; Wu, C., 2012) The analysis of the operating data using the above metrics enabled to evaluate the operating performance of Southwest Airlines meticulously. The organisation witnessed a slight growth in its operating revenue per ASMs (Available seat miles), which grew from 13.34 cents in the year 2012 to 13.58 cents in 2013. The improvements in its revenue earning capacity have been possible due to their strategic plan of acquiring AirTran in the year 2011. The acquisition resulted in augmenting the fleet size of the company and thereby expanding its network in a few of the major US markets such as Washington, Reagan and Atlanta, along with adjoining international locations, including Mexico and Caribbean region (Southwest Airlines Co., 2013). In addition, the passenger yield per RPM (Revenue passenger miles) also grew from 15.64 cents in the year 2012 to 16.02 cents in the year 2013. The increase in the yield can be attributed to the organisation’s efforts towards modernization of its fleet and improvement in the fleet efficiency. The passenger yield per RPM is further anticipated to increase with the introduction of more fuel-efficient aircrafts such as Boeing’s new 737 MAX, which is projected to be included in the fleet by the year 2017. Nevertheless, the organisation with regard to the cost per available seat mile (CASM) had witnessed slight fall from 12.85 cents in the year 2012 to 12.60 cents in the 2013. The decline in the CASM in the year 2013 can be related to the restructuring process of the organisation in the course of the integration of a larger aircraft as a part of its modernization process. With respect to load factor, it can be stated that this high load factor is extremely important than ASM as it is a measure related to overall utilization of capacity by an organisation. Subsequently, it is apparent that the organisation witnessed a negligible decline in the percentage of the load factor during the year 2013 than it was in the year 2012. The decline in the load factor can be related to its efforts towards generating new destination (Southwest Airlines Co., 2013). The organisations currently operating in the global aviation industry, including Southwest Airlines can be identified to be struggling with the constant fluctuation in the fuel prices. Despite, the fluctuation in the crude oil prices, the organisation can be observed to reduce its average fuel and oil costs from 4.78 cents in 2012 to 4.42 cents in 2013. The major reason behind this decrease can be equated with the initiative of the organisation to include fuel-efficient aircraft into its fleet. Notably, the company during the year 2013 received 18 Boeing 737-800s, which resulted in reducing operating cost pertaining to fuel and oil. Average operating costs associated with maintenance materials and repairs also decreased marginally. The decline in the maintenance materials and repairs cost can be related to the initiative of the organisation to acquire new aircraft. On the contrary, the average salaries, wages, and benefits climbed slightly from 3.69 in the fiscal year 2012 to 3.86 cents in 2013. This negligible increase has been resulted primarily due to expansion of its destinations, which created a greater requirement for more human resources. Similarly, landing fees and other rental costs also increased from 0.81 cents in 2012 to 0.85 in 2013. The expansion of its networks and generation of new destinations can be equated with this increase in landing fees and other rental costs. In parallel, the organisation witnessed a negligible decline in the average operating costs associated with the acquisition and integration. The organisation during the year 2013 did not undertake any major acquisition and/or integration as a result of which the decline in the acquisition as well as integration costs was witnessed. No changes were witnessed with respect to aircraft rentals, depreciation, and amortization for the period 2013 over the period 2012. The other operating expenses grew marginally in the year 2013 over the corresponding last year, i.e. 2012. The changes in the other operating expenses can be related to the organisation’s inclination towards improving its service quality (Southwest Airlines Co., 2013). Financial Ratio Analysis 1. Profitability Ratios Company Name Southwest Airlines Average JetBlue Airways Average Year 2013 2012 2013-2012 2013 2012 2013-2012 Operating profit margin6 0.07 0.04 0.05 0.08 0.08 0.08 Net Profit Margin7 0.04 0.02 0.03 0.03 0.03 0.03 Return on assets8 0.04 0.02 0.03 0.02 0.02 0.02 Asset turnover ratio9 0.91 0.92 0.92 0.74 0.70 0.72 Return on equity10 0.10 0.06 0.08 2.55 2.64 2.59 Source: (Securities and Exchange Commission, 2013; Southwest Airlines Co., 2013) The profitability ratio analysis is an important measure that provides a rich insight about the capability of an organisation to generate income. Profitability ratios such as operating profit margin facilitates in understanding the operational efficiency of an organisation while net profit margin measures the profit earning capacity after considering the operating expenses (Thukaram, 2007). Accordingly, the two-year average operating profit margin for Southwest Airlines has been reckoned 0.05, which is slightly lower than its competitor, namely JetBlue Airways. The difference in the operating profit margin of these two organisations is particularly due to continuous expansion and increased operating expenses (Southwest Airlines Co., 2013). Nevertheless, the average net profit margin of Southwest Airlines and JetBlue is almost equal. The primary reason behind this can be associated with the massive rise in the provision for income taxes of Southwest Airlines in the year 2013 over 2012 (Southwest Airlines Co., 2013). Return on assets generally measures the net income earned by an organisation on the assets employed by it. More specifically, it measures the efficiency of an organisation with regard to the use of its assets (Saleem & Rehman, 2011). The two-year average return on assets related to Southwest Airlines is well above than JetBlue Airways. According to the two-year average return relevant to the period, 2013 and 2012 for Southwest Airlines have been calculated as 0.03 and same for JetBlue was reckoned 0.02. This implies that Southwest Airlines has been more efficient in utilizing the assets employed by it. Likewise, assets turnover ratio deals with measuring the efficiency of an organisation to generate revenue based on the assets employed by it. The two-year average assets turnover ratio for Southwest Airlines stood 0.92, which is marginally higher than 0.72 of JetBlue Airways. Correspondingly, it can be stated that Southwest Airlines has been making the most efficient use of its assets than that of JetBlue Airways. Return on equity demonstrates the ability of an organisation to generate profit over the amount invested by the shareholders (Saleem & Rehman, 2011). The calculation of return on equity revealed that JetBlue Airways has been able to generate profit well above over the amount invested by its shareholders than Southwest Airlines. Accordingly, it implies that shareholders of JetBlue Airways are rewarded more handsomely than that of Southwest Airlines. 2. Liquidity Ratios Company Name Southwest Airlines Average JetBlue Airways Average Year 2013 2012 2013-2012 2013 2012 2013-2012 Working Capital11 -1,220 -423 -822 -818 -508 -663 Quick Ratio12 0.63 0.71 0.67 0.46 0.61 0.53 Current Ratio13 0.79 0.91 0.85 0.56 0.68 0.62 Source: (Securities and Exchange Commission, 2013; Southwest Airlines Co., 2013) Liquidity ratios measure the ability of an organisation to pay its short-term obligations using assets that can be converted into cash within a short time. Working capital is a difference between the current assets and the current liabilities. It measures the efficiency of an organisation with regard to the management of working capital (Bolek, 2013). Accordingly, the working capital of Southwest Airlines reveals a negative figure for both the years into consideration including 2013 and 2012. At the same time, the difference between the current assets and the current liabilities can be observed to increase in 2013 over the preceding year 2012, which implies that the current assets financed by short-term creditors are increasing. On the contrary, the working capital for JetBlue is although reckoned to reveal negative figure, but the gap between the two years working is ascertained far below than that of Southwest Airlines. Quick ratio measures the ability of an organisation to meet its short-term debt majorly with its liquid assets (Bolek, 2013). The quick ratio for Southwest Airlines related to the period 2013 is computed to be 0.63, which is fairly above that of JetBlue Airways. Accordingly, Southwest Airlines can be identified to have more efficiency in meeting its short-term obligations using its liquid assets. In addition, current ratio is another important liquidity ratio, which measures the ability of an organisation to settle its current liabilities using current assets (Bolek, 2013). The current ratio pertaining to Southwest Airlines is observed to decrease in the year 2013 that in 2012. Yet, when compared with the current ratio of JetBlue, it is higher for Southwest Airlines. 3. Long-term Risk Ratios Company Name Southwest Airlines Average JetBlue Airways Average Year 2013 2012 2013-2012 2013 2012 2013-2012 Debt-Equity ratio14 0.30 0.41 0.36 1.21 1.51 1.36 Debt-Asset ratio15 0.41 0.41 0.41 0.35 0.40 0.38 Times Interest Earned16 9.23 4.66 6.94 1.73 0.84 1.29 Source: (Securities and Exchange Commission, 2013; Southwest Airlines Co., 2013) Long-term risk ratios are the measure of an organisation’s long-term solvency. Unlike liquidity ratios, these ratios majorly deal with long-term debts. These ratios are essential for shareholders and investors as it intimate them with the financial risks associated with the operation of a particular organisation. Debt-equity ratio indicates the intensity of financial risks to a particular company (Pachori & Totala, 2012). Accordingly, the average two-year debt equity ratio related to Southwest Airlines is reckoned 0.36, which is considerably lower than that of JetBlue Airlines. Correspondingly, it implies that risk for the shareholders of Southwest Airlines is quite less than that of JetBlue Airlines. Similarly, debt-asset ratio generally indicates the portion of assets that are financed by debt and equity (Pachori & Totala, 2012). JetBlue Airlines in terms of its debt-asset ratio has seen slight changes in 2013 over the preceding year 2012 while the same has remain constant for Southwest Airlines. Thus suggests that Southwest Airlines has been able to maintain proper balance in financing its assets using debt and equity. Time interest earned measures the ability of an organisation to cover or meet interest payment arising from its debt (Pachori & Totala, 2012). In this regard, the average two-year times interest earned pertaining to Southwest Airlines is ascertained higher than JetBlue, which indicates that Southwest Airlines is either unable to draw substantial debt or paying more debt from its portion of total earnings. 4. Stock Market Ratios Company Name Southwest Airlines Average JetBlue Airways Average Year 2013 2012 2013-2012 2013 2012 2013-2012 Earnings per share (EPS)17 1.06 0.56 0.81 0.0006 0.0005 0.0005 Price-Earnings Ratio (P-E) ratio18 13.66 15.50 14.58 10.07 12.82 11.45 Dividend pay-out ratio19 0.08 0.06 0.07 NA NA NA Dividend yield20 0.01 0.004 0.01 NA NA NA Source: (Securities and Exchange Commission, 2013; Southwest Airlines Co., 2013) Stock market ratios are the major indicators of its performance with respect to trading of its share in the stock market. It facilitates shareholders and investors to measure the future growth prospect of a particular company. Earnings per share (EPS) indicate the ability of a company to generate profit per unit share (Baker & Wurgler, 2006). Accordingly, EPS associated with Southwest Airlines climbed dramatically in the year 2013 than in 2012. In this regard, the organisation in the year 2012 was able to generate earnings of 0.56 cents per unit share, which increased to US$ 1.06 in the year 2013. Comparatively, EPS of Southwest Airlines can be observed to be higher than that of JetBlue Airways in both the years, i.e. 2013 and 2012. Correspondingly, Price-earnings (P-E) ratio measures the willingness of investors to pay per US$ earned by a particular company (El- Dalabeeh, 2013). Similar to EPS, the (P-E) ratio of Southwest Airlines is also recognised to be comparatively higher than that of JetBlue Airways, which indicates that investors are more willing to invest in Southwest Airlines than JetBlue Airways. Dividend pay-out ratio deals with the percentage of dividend paid out in cash (Baker & Wurgler, 2006). The dividend pay-out ratio with respect to Southwest Airlines can be observed to increase in 2013 over the corresponding last year. This implies that shareholders of the organisation are paid-out handsomely for their investments in the organisation. Nevertheless, JetBlue Airways does not foster the pay-out policy of dividend in cash. Dividend yield deals with the return on the shareholders’ investment made on per unit share at the market price in the form of dividend (Baker & Wurgler, 2006). Notably, the shareholders of Southwest Airlines have seen an increase in the dividend yield in the year 2013 over the preceding year 2012. This indicates shareholders of Southwest Airlines are probable of receiving a fair return in the future years. Conclusion To sum up, it can be stated that the financial and economic performance analysis of southwest Airlines yielded a rich understanding about its current financial and operational performance as well as future growth prospects. Alongside, the comparison its performance with JetBlue Airways further provided an in-depth understanding regarding the market trends in which these two competitors operates. Notwithstanding, the analysis revealed that Southwest Airlines has been performing extremely well that its competitors like JetBlue Airways. Evidently, it has been observed from the analysis of profitability ratios that the Southwest Airlines has been able to earn a fair amount of profit despite the challenges associated with the major areas of its operations. In addition, the measurement of liquidity ratios further acquainted that the organisation has maintained proper balance between current liabilities and current assets. Similarly, the calculation of long-term risk ratios facilitated that there exist no major risks for shareholders and investors of the organisation. Finally, the analysis of stock market ratios suggested that the shareholders of the organisation are provided with fair return on their investments and the future growth prospect associated with the organisations is also high as compared to other competitors such as JetBlue Airways. Thus, it can be concluded that individuals or investors who are willing to invest in Southwest Airline will probably be able to avail the advantage of stable performance of the organisation and constantly receive rising return on the invested amount. References Baker, M. & Wurgler, J., 2006. Investor Sentiment and the Cross-Section of Stock Returns. The Journal of Finance, pp. 1645-1679. Bolek, M., 2013. Dynamic and Static Liquidity Measures In Working Capital Strategies. European Scientific Journal, Vol.9, No.4, pp. 1-24. 1CAPA Centre for Aviation, 2015. Southwest Airlines SWOT: Financial Strength Is Mainstay, But Cost And Culture Challenges Loom Large. Aviation Analysis. [Online] Available at: http://centreforaviation.com/analysis/southwest-airlines-swot-financial-strength-is-mainstay-but-cost-and-culture-challenges-loom-large-187714 [Accessed January 19, 2015]. 2CAPA Centre for Aviation, 2015. Southwest Airlines. Profiles. [Online] Available at: http://centreforaviation.com/profiles/airlines/southwest-airlines-wn [Accessed January 19, 2015]. 3CAPA Centre for Aviation, 2015. JetBlue Airways. Profiles. [Online] Available at: http://centreforaviation.com/profiles/airlines/jetblue-airways-b6 [Accessed January 19, 2015]. El- Dalabeeh, A. K., 2013. The Role of Financial Analysis Ratio in Evaluating Performance. Interdisciplinary Journal of Contemporary Research in Business, Vol. 5, No. 2, pp. 13-28. Malighetti, P. & et. al., 2009. Pricing Strategies of Low-Cost Airlines: The Ryanair Case Study. Journal of Air Transport Management, Vol. 15, pp. 195–203. Pachori, S. & Totala, N. K., 2012. Influence of Financial Leverage on Shareholders Return and Market Capitalization: A Study of Automotive Cluster Companies of Pithampur, (M.P.), India. 2nd International Conference on Humanities, Geography and Economics, pp. 23-26. Saleem, Q. & Rehman, R. U., 2011. Impacts of Liquidity Ratios on Profitability. Interdisciplinary Journal of Research in Business, Vol. 1, Iss. 7, pp. 95-98. Securities and Exchange Commission, 2013. JetBlue Airways Corporation. Financial Statements and Supplementary Data. [Online] Available at: http://www.sec.gov/Archives/edgar/data/1158463/000115846314000008/a201310-k.htm [Accessed January 19, 2015]. Southwest Airlines Co., 2013. 2013 Annual Report to Shareholders. Business. [Online] Available at: http://southwest.investorroom.com/ [Accessed January 19, 2015]. Thukaram, R. M. E., 2007. Management Accounting. New Age International. Vidovic, A. & et. al., 2013. Development of Business Models of Low-Cost Airlines. International Journal for Traffic and Transport Engineering, Vol. 3, No. 1, pp. 69 – 81. Wu, C., 2012. Airline Operations and Delay Management: Insights from Airline Economics, Networks and Strategic Schedule Planning. Ashgate Publishing, Ltd. Bibliography BusinessNews Publishing, 2014. Summary: Understanding Financial Statements - Joseph T. Straub: How to Read Income Statements, Balance Sheets, Cash Flow Statements and Calculate Financial Ratios. Primento. Drake, P. P., & Fabozzi, F. J., 2012. Analysis of Financial Statements. John Wiley & Sons. Kleer, B. & et. al., 2008. Market development of airline companies: A system dynamics view on strategic movements. University of Stuttgart, pp. 1-22. Lewellen, J., 2004. Predicting Returns with Financial Ratios. Journal of Financial Economics, Vol. 74, pp. 209-235. Tracy, A., 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. RatioAnalysis.net. Tugas, F. C., 2012. A Comparative Analysis of the Financial Ratios of Listed Firms Belonging to the Education Subsector in the Philippines for the Years 2009-2011. International Journal of Business and Social Science, Vol. 3, No. 21, pp. 173-190. Appendix Operational Metrics (2013) Operating revenue per ASM= operating revenue/available seat miles =17699/130344072 = 0.000136 Passenger revenue yield per RPM= passenger revenue/revenue passenger miles =17699/104348216 = 0.0001696 Load factor = Revenue passenger miles/available seat miles = 104348216/130344072*10 =80.10% Cost per available seat mile (CASM) = operating expenses/available seat miles = 16421/130344072 = 0.0001260 CASM per Salaries, wages, and benefits= Salaries, wages, and benefits/available seat miles =5035/130344072 =0.0000386 CASM per Fuel and oil= Fuel and oil/ available seat miles =5763/130344072 =0.0000442 CASM per Maintenance materials and repairs= Maintenance materials and repairs/available seat miles =1080/130344072 =0.00000829 CASM per Aircraft rentals= Aircraft rentals/available seat miles =361/130344072 =0.0000000028 CASM per Landing fees and other rentals= Landing fees and other rentals/available seat miles =1103/130344072 =0.00000846 CASM per Depreciation and amortization= Depreciation and amortization/available seat miles =867/130344072 =0.00000000065 CASM per Acquisition and integration= Acquisition and integration/available seat miles =86/130344072 =000000007 CASM per Other operating expenses= Other operating expenses=/available seat miles =2126/130344072 =0.0000163 Operational Metrics (2012) Operating revenue per ASM= operating revenue/available seat miles =17088/128137110 =0.000133 Passenger revenue yield per RPM= passenger revenue/revenue passenger miles =17088/102874979 = 0.000166 Load factor = Revenue passenger miles/available seat miles =02874979/128137110*100 = 80.3% Cost per available seat mile (CASM) = operating expenses/available seat miles =16465/128137110 = 0.0001285 CASM per Salaries, wages, and benefits= Salaries, wages, and benefits/available seat miles =4749/128137110 = 0.000037 CASM per Fuel and oil= Fuel and oil/ available seat miles =6120/128137110 = 0.0000478 CASM per Maintenance materials and repairs= Maintenance materials and repairs/available seat miles =1132/128137110 = 0.0000088 CASM per Aircraft rentals= Aircraft rentals/available seat miles = 355/128137110 =0.0000000028 CASM per Landing fees and other rentals= Landing fees and other rentals/available seat miles =844/128137110 = 0.00000814 CASM per Depreciation and amortization= Depreciation and amortization/available seat miles =844/128137110 =0.00000000066 CASM per Acquisition and integration= Acquisition and integration/available seat miles =2039/128137110 = 0.000016 CASM per Other operating expenses= Other operating expenses=/available seat miles =2039/128137110 = 0.0000159 Financial Ratio Analysis (Southwest Airlines2013) 1. Profitability Ratios Operating profit margin= Operating income / Operating revenue =1278/17699 = 0.0722 Net Profit Margin= Net income / Operating revenue =754/17699 = 0.0426 Return on assets= Net income / Total assets =754/19345 = 0.0390 Asset turnover ratio= Operating revenue / Total assets =17699/19345 = 0.9149 Return on equity= Net income / Shareholder’s equity =754/7336 = 0.1028 2. Liquidity Ratios Working Capital= Current Assets –Current Liabilities =4456-5676 = -1,220 Quick Ratio= (Cash and equivalents + Marketable securities + Accounts receivable)/ Current liabilities =(1355+1797+419)/ 5676 =0.629 Current Ratio= Current Assets / Current Liabilities = 4456/5676 = 0.785 3. Long-term Risk Ratios Debt-Equity ratio= Total Liabilities / Shareholder’s Equity =2191/7336 = 0.299 Debt-Asset ratio= Total Liabilities / Total Assets =7867/19345 = 0.407 Times Interest Earned= Earnings before Interest and Tax / Interest Expenses =1209/131 = 9.229 4. Stock Market Ratios Earnings per share (EPS)= (Net Income –Dividend on Common Stock)/ Average Outstanding Common Stock = (754-0)/ 710 = 1.06 Price-Earnings Ratio (P-E) ratio= Market Value per Share / Earnings per Share (EPS) =14.48/1.06 = 13.66 Dividend payout ratio= Yearly Dividend per share / EPS =0.09/1.06 = 0.08 Dividend yield= Dividend Per Share / Price Per Share =0.09/14.48 = 0.01 Financial Ratio Analysis (Southwest Airlines 2012) 1. Profitability Ratios Operating profit margin= Operating income / Operating revenue =623/17088 =0.0365 Net Profit Margin= Net income / Operating revenue =421/17088 =0.0246 Return on assets= Net income / Total assets = 421/18596 =0.0226 Asset turnover ratio= Operating revenue / Total assets =17088/18,596 = 0.9189 Return on equity= Net income / Shareholder’s equity =421/6992 =0.0602 2. Liquidity Ratios Working Capital= Current Assets –Current Liabilities =4227- 4650 = -423 Quick Ratio= (Cash and equivalents + Marketable securities + Accounts receivable)/ Current liabilities =(1,113+1,857+ 332)/ 4650 =0.71 Current Ratio= Current Assets / Current Liabilities =4227/4650 =0.91 3. Long-term Risk Ratios Debt-Equity ratio= Total Liabilities / Shareholder’s Equity =2883/6992 =0.412 Debt-Asset ratio= Total Liabilities / Total Assets =7533/18596 =0.405 Times Interest Earned= Earnings before Interest and Tax / Interest Expenses =685/147 =4.660 4. Stock Market Ratios Earnings per share (EPS)= (Net Income –Dividend on Common Stock)/ Average Outstanding Common Stock = (421-0)/750 = 0.56 Price-Earnings Ratio (P-E) ratio= Market Value per Share / Earnings per Share (EPS) =8.68/0.56 =15.50 Dividend payout ratio= Yearly Dividend per share / EPS =0.034/0.56 =0.06 Dividend yield= Dividend Per Share / Price Per Share =0.034/8.68 =0.004 Financial Ratio Analysis (JetBlue Airways2013) 1. Profitability Ratios Operating profit margin= Operating income / Operating revenue =428/5441 = 0.08 Net Profit Margin= Net income / Operating revenue =168/5441 = 0.03 Return on assets= Net income / Total assets =168/7350 = 0.02 Asset turnover ratio= Operating revenue / Total assets =5441/7350 = 0.74 Return on equity= Net income / Shareholder’s equity =5441/2134 = 2.55 2. Liquidity Ratios Working Capital= Current Assets –Current Liabilities =1056-1874 = -818 Quick Ratio= (Cash and equivalents + Marketable securities + Accounts receivable)/ Current liabilities =(225+ 0+516) = 1874 Current Ratio= Current Assets / Current Liabilities =1056/1874 =0.56 3. Long-term Risk Ratios Debt-Equity ratio= Total Liabilities / Shareholder’s Equity =2585/2134 = 1.211 Debt-Asset ratio= Total Liabilities / Total Assets =2585/7350 = 0.352 Times Interest Earned= Earnings before Interest and Tax / Interest Expenses =279/161 = 1.733 4. Stock Market Ratios Earnings per share (EPS)= (Net Income –Dividend on Common Stock)/ Average Outstanding Common Stock =168/282755 = 0.0006 Price-Earnings Ratio (P-E) ratio= Market Value per Share / Earnings per Share (EPS) =5.94/0.59 = 10.07 Dividend payout ratio= Yearly Dividend per share / EPS NA Dividend yield= Dividend Per Share / Price Per Share NA Financial Ratio Analysis (JetBlue Airways2012) 1. Profitability Ratios Operating profit margin= Operating income / Operating revenue =376/4982 = 0.08 Net Profit Margin= Net income / Operating revenue =128/4982 = 0.03 Return on assets= Net income / Total assets =128/7070 = 0.02 Asset turnover ratio= Operating revenue / Total assets =4982/7070 = 0.70 Return on equity= Net income / Shareholder’s equity =4982/1888 = 2.64 2. Liquidity Ratios Working Capital= Current Assets –Current Liabilities =1100-1608 = -508 Quick Ratio= (Cash and equivalents + Marketable securities + Accounts receivable)/ Current liabilities =(182+685)/1608 = 0.61 Current Ratio= Current Assets / Current Liabilities =1100/1608 = 0.68 3. Long-term Risk Ratios Debt-Equity ratio= Total Liabilities / Shareholder’s Equity =2851/1888 = 1.510 Debt-Asset ratio= Total Liabilities / Total Assets = 2851/7070 = 0.403 Times Interest Earned= Earnings before Interest and Tax / Interest Expenses = 176/209 = 0.842 4. Stock Market Ratios Earnings per share (EPS)= (Net Income –Dividend on Common Stock)/ Average Outstanding Common Stock =128/282317 = 0.0005 Price-Earnings Ratio (P-E) ratio= Market Value per Share / Earnings per Share (EPS) =5.77/0.45 = 12.82 Dividend payout ratio= Yearly Dividend per share / EPS NA Dividend yield= Dividend per Share / Price per Share NA Two Year Average calculation (Southwest Airlines) 1. Profitability Ratios (Operating profit margin 2013+ Operating profit margin 2012)/2 =(0.0722 + 0.0365)/2 = 0.05 (Net Profit Margin 2013+ Net Profit Margin 2012)/2 =(0.0426+ 0.0246) /2 = 0.03 (Return on assets 2013 + Return on assets 2012)/2 =(0.0390+ 0.0226) /2 =0.03 (Asset turnover ratio 2013 + Asset turnover ratio 2012)/2 =(0.9149+ 0.9189) /2 = 0.92 (Return on equity 2013 Return on equity 2012)/2 =(0.1028 +0.0602) /2 =0.08 2. Liquidity Ratios (Working Capital 2013+ Working Capital 2012)/2 =([-1,220]+[-423])/2 =-822 (Quick Ratio 2013+ Quick Ratio2012)/2 =(0.629+0.71) /2 =0.67 (Current Ratio 2013 +Current Ratio)/2 =(0.785+ 0.91) /2 =0.85 3. Long-term Risk Ratios (Debt-Equity ratio 2013 + Debt-Equity ratio 2012)/2 =(0.299 + 0.412) /2 =0.355 (Debt-Asset ratio 2013 + Debt-Asset ratio2012)/2 =(0.407 +0.405) /2 =0.406 (Times Interest Earned 2013 + Times Interest Earned 2012)/2 =(9.229+4.660) /2 =6.944 4. Stock Market Ratios (Earnings per share (EPS) 2013 + Earnings per share (EPS) 2012)/2 =(1.06 + 0.56) /2 =0.81 (Price-Earnings Ratio (P-E) ratio 2013 + Price-Earnings Ratio (P-E) ratio 2012)/2 =(13.66 +15.50) /2 =14.58 (Dividend payout ratio 2013 + Dividend payout ratio 2012)/2 =(0.08 +0.06) /2 =0.07 (Dividend yield 2013 + Dividend yield 2012)/2 =(0.01 + 0.004) /2 =0.01 Two-Year Average calculation (JetBlue Airways) 1. Profitability Ratios (Operating profit margin 2013+ Operating profit margin 2012)/2 =(0.08 + 0.08)/2 =0.08 (Net Profit Margin 2013+ Net Profit Margin 2012)/2 =(0.03 + 0.03) /2 =0.03 (Return on assets 2013 + Return on assets 2012)/2 =(0.02 + 0.02) /2 =0.02 (Asset turnover ratio 2013 + Asset turnover ratio 2012)/2 =(0.74 + 0.70) /2 = 0.72 (Return on equity 2013 Return on equity 2012)/2 =(2.55 + 2.64) /2 =2.59 2. Liquidity Ratios (Working Capital 2013+ Working Capital 2012)/2 =([-818] +[-508])/2 =-663 (Quick Ratio 2013+ Quick Ratio2012)/2 =(0.46 + 0.61) /2 =0.53 (Current Ratio 2013 +Current Ratio)/2 =(0.56 + 0.68) /2 =0.62 3. Long-term Risk Ratios (Debt-Equity ratio 2013 + Debt-Equity ratio 2012)/2 =(1.211 + 1.510) /2 =1.361 (Debt-Asset ratio 2013 + Debt-Asset ratio2012)/2 = (0.352 + 0.403) /2 =0.377 (Times Interest Earned 2013 + Times Interest Earned 2012)/2 =(1.733 + 0.842) /2 =1.288 4. Stock Market Ratios (Earnings per share (EPS) 2013 + Earnings per share (EPS) 2012)/2 =(0.0006 + 0.0005) /2 =0.0005 (Price-Earnings Ratio (P-E) ratio 2013 + Price-Earnings Ratio (P-E) ratio 2012)/2 =(10.07 + 12.82) =11.45 (Dividend payout ratio 2013 + Dividend payout ratio 2012)/2 NA (Dividend yield 2013 + Dividend yield 2012)/2 NA Read More