Statement Analysis Southwest Airlines
5 page paper, APA, Master’s program, Clear concise American grammar (The other criteria is on the Essay zoo order form)
Please use references that have URLs that can be easily verified on the internet
This is a Business Finance SLP.
The Time Value of Money and Financial Statement Analysis
Conducting Financial Ratio Analysis
Select a publicly traded U.S. company that has paid a dividend for at least the last three years, and conduct a financial ratio analysis. You will be using this company for other assignments in this course; thus, please spend adequate time locating a company. Please consider reviewing http://finance(dot)yahoo(dot)com to locate a company. The company must have data available for you to conduct a financial ratio analysis. It’s important to select a company in an industry that has industry ratio numbers. You cannot select a privately held company.
Calculate all the following ratios for the company for the past three years and compare them to the appropriate industry benchmarks:
Liquidity ratios:
Current
Quick
Asset Management ratios:
Inventory turnover
Total assets turnover
Fixed assets turnover
Days sales outstanding
Debt Management ratios:
EBITDA coverage
Times-interest-earned
Total debt to total assets
Profitability ratios:
Return on common equity
Return on total assets
Basic earning power
Profit margin on sales
Market Value ratios:
Market/book
Price/earnings
Price/cash flow
Create a table that contains the ratios for the various years. Then analyze the information. Look at the trends in the ratios and comment on how they compare to the industry benchmarks. Which ratios are strong? Which ratios need improvement? If you were a stock investor, would you buy the company’s common stock? Why or why not? If you were a bond investor, would you buy the company’s bonds? Why or why not?
SLP Assignment Expectations
You are expected to:
Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
Answer the SLP Assignment question(s) clearly and provide necessary details.
Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.
Type and double-space the paper.
Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions. In finance, in addition to being able to write well, it’s important to present information in a professional manner and to analyze financial information. This is part of the assignment expectations and will be considered for grading purposes.
The Time Value of Money and Financial Statement Analysis: Southwest airlines
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Introduction
The Southwest airlines Co (LUV), operates as a low cost carrier in the U.S. and the surrounding international market. The company mostly operates the 665 Boeing 737 but also operates 12 Boeing 717 aircraft as the end of 2014 (Bloomberg, 2015 a). The destinations include 40 states, Puerto Rico, District of Colombia. The international markets include Jamaica, Mexico, Aruba, The Bahamas, and the Dominican Republic. Since the company has a higher frequency of flights compared to most of its peers, low fares are a significant source of revenue, while its reputable customer service has also been crucial to success. This essay will highlight on the financial analysis of The Southwest airlines Co, based on ratio analysis, and giving an opinion on whether it is worthwhile to invest in the company.
Liquidity ratios
The liquidity ratios assess whether companies are able to meet their short-term obligations as they fall due. The current ratio of the company has worsened from 0.9 to 0.7851 and then 0746 in 2014. Equally, the quick asset ratio has reduced from 0. 8 to 0.7, meaning that there is a need to focus more on improving the company’s working capital. According to Csimarket (2015), the quick ratio for the industry is 0.37 and the low cost sector is 0.4, and hence the company is able to meet short-term obligations better than its competitors.
Asset management ratios
The inventory turnover has declined marginally from 19.9 to 19, as has the fixed asset turnover which has decreased marginally for 1.34 to 1.30. Nonetheless, the total assets turnover has improved marginally. Both fixed asset turnover as well as the inventory turnover was lower compared to the industry average while the total assets turnover performed better (Bloomberg, 2015). Overall, the airline performed within industry average, since the values appear close. Since inventory asset performed poorer than the industry average, there is likelihood that the sales revenue was lower than expected. Nonetheless, there is no concern given that high inventory levels may be unsuitable for the airline.
Debt management ratios:
The debt management ratios are necessary to assess the ability of the company to rely on long-term financial leverage while also avoiding financial distress. Typically, financial leveraged is relied upon to improve returns on stocks, but is also a source of financing that is a fixed cost. Improving the earning capacity of assets financed through debt is crucial to the growth of additional earnings, while interest expense is also deductible. Even though, there have been lease payments the EBITDA coverage has increased for 6 to 12 and 18 in 2014. On the other hand, the debt to equity ratio has decreased marginally from 0.16 to 0.13. The total debt/equity is below the industry average highlighting that the company is doing well compared to its peers, since high leveraging can also be a disadvantage the company is left to shoulder a huge financial burden.
Profitability ratios
From 2012 to 2015 the return on common equity, return on total assets, basic earning power and the profit margin on sales all improv...
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