FINE332_Module1.4_Financial Ratios Template - Copy

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Embry-Riddle Aeronautical University *

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332

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Finance

Date

Apr 3, 2024

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xlsx

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Uploaded by JudgeClover194

All your responses will be in the YELLOW areas only! This problem set uses Southwest for ALL questions. To start, go to its investor relations page a 1. Using the firm's financials: a. Fill the income statement ( in million $ ). Expenses without their own line sh b. Create the common size income statement (as a % of operating revenues for c. Show year-on-year (YoY, in %) growth d. What happened to the profit margins? e. What are the actual tax rates? EPS? 2. Using the operating stats, what is the YoY growth rate for: a. Yield? b. Operating expense per available seat mile (CASM)? c. Revenue passenger miles (RPMs)? d. Fuel price ($/gallon)? e. What factors, other than the pandemic, are affecting margins the most? 3. Using the firm's balance sheets, show: a. Balance sheets as shown (in million $); show only net property & equipme b. Common size balance sheets. c. Are there any outliers in the balance sheets that you think merit mentionin d. For these years, what is the net working capital position? Current ratio? Qu 4. Using the Statement of Cash Flows, which items stand out to you and why?

e latest p/e ratio? (use Yahoo Finance)

in Million $ in % 2020 2021 2022 2020 2021 2022 Total Operating Revenues 9,048 15,790 23,814 100% 100% 100% Operating Expenses: Salaries, wages and benefits 5,844 4,783 9,376 65% 30% 39% Aircraft fuel 1,849 3,310 5,975 20% 21% 25% Maintenance and repair 750 854 852 8% 5% 4% Depreciation and amortization 1,255 1,272 1,351 14% 8% 6% Landing fees and airport rent 1,240 1,456 1,508 14% 9% 6% All other expenses 1,926 2,394 3,735 21% 15% 16% Total Operating Expenses 12,864 14,069 22,797 142% 89% 96% Operating Income (3,816) 1,721 1,017 -42% 11% 4% Total other income/(expense) (440) (396) (289) -5% -3% -1% (Loss)/Income before taxes (4,256) 1,325 728 -37% 13% 5% Income tax/(benefit) expense (1,182) 348 189 -13% 2% 1% Net (Loss) Income (3,074) 977 539 -24% 11% 5% Actual tax rate 28% 26% 26% EPS (5.44) 1.61 0.87

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YoY Growth 2021 2022 75% 51% Answer part d below: -18% 96% 79% 81% 14% 0% 1% 6% 17% 4% 24% 56% 9% 62% -145% -41% -10% -27% -131% -45% -129% -46% -132% -45% The company experienced losses in 2020, but in 2021, it rebounded with positive operating and net income margins. A 75% increase in revenue drove this improvement, as did an 18% reduction in personnel expenses and a positive shift in other income/expense from -440 million in 2020 to 396 million in 2021, contributing to the positive transformation of the company's financial performance.

Selected Financial Data 2021 2022 YoY growth rate Passenger revenue per available seat mile (cents) 10.66 14.42 35.3% Total operating expenses per available seat mile (cents) 10.66 15.36 44.1% Revenue passenger miles (RPMs, in millions) 103,562 123,843 19.6% Average fuel cost per gallon (total system) 1.98 3.10 56.6%

Answer part e below: The company's fuel costs rose by 56.6% year-over-year, negatively impacting profit margins. Although higher revenue per seat mile and more passengers, the increased expenses, especially for the average cost of a gallon of fuel, are the factors most impacting margins.

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in M$ in % 2021 2022 2021 2022 Cash, investments and cash equiv. 15,504 12,292 43% 35% Accounts receivable, net 1,357 1,040 4% 3% Prepaids 638 686 2% 2% Other current assets 537 790 1% 2% Total Current Assets 18,036 14,808 50% 42% Property & Equipment, net 14,842 17,342 41% 49% Other assets 3,442 3,219 9% 9% Total Assets 36,320 35,369 100% 100% Working capital 8,872 4,430 Current ratio 2.0 1.4 Quick ratio 1.8 1.3 Days receivable 31.4 15.9 ROA 3% 2% ROE 9% 5% p/e ratio today 36.6

in M$ in % 2021 2022 2021 2022 Air traffic liability 5,566 6,064 15% 17% Accounts payable 1,282 2,004 4% 6% Accruals 1,624 2,043 4% 6% Other current liabilities 692 267 2% 1% Total Current Liabilities 9,164 10,378 25% 29% LTD and lease obligations 11,589 9,164 32% 26% Other liabilities 5,153 5,140 14% 15% Stockholder's equity 10,414 10,687 29% 30% Total Liabilities and equity 36,320 35,369 100% 100% Answer part c in the box below There was a reduction in cash and short-term investments, an uptick in inventories, and the addition of $376 million in deposits for flight equipment, along with an increase in air traffic liability.

Put your text answer in the yellow box. Southwest Airlines has experienced a significant positive shift in its net income, recovering from million loss in 2020 to profits of $977 million in 2021 and $539 million in 2022. Another change a considerable rise in capital expenditures for investing activities, surging from $505 million in $3,924 million in 2022.

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