Acct 615 104 Managerial Accounting - Analysis for Investment

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  • IS 615-104Managerial Accounting

    Financial Accounting Project

    Participants

    Tejas Agarwal (#2)

    Nancy Gupta (#8)

    Karan Weller (#36)

    Kanchi Patel (#44)

  • Content

    Introduction Company Profile

    Stock Comparision

    Vertical Analysis Income Statement Comparison

    Balance Sheet Comparison

    Horizontal Analysis Income Statement Comparison

    Balance Sheet Comparison

    Ratio Analysis Liquidity Ratio

    Profitiability Ratio

    Solvency Ratio

    Conclusion

  • Introduction

    American Airlines Group Inc.

    American Airlines was developed from a conglomeration of 82 small airlines

    through acquisitions in 1930.

    The company grew bigger by merging with US Airways in late 2013.

    Serves more than 339 destinations in 50+ countries in the Americas, Europe, and

    Asia/Pacific.

    Delta Airlines, Inc.

    Delta Airlines was found in 1924 and began operating in 1929 as part of the

    aviation boom in the United States in the 1920s.

    Became one of the Worlds largest airlines by traffic after its $2.8 billion acuisition

    of Northwest Airlines in 2008.

    Serves about 320 destinations in more than 60 countries.

  • Stock Comparision

    American Airlines Group Inc. (AAL)

    37.22 0.55(1.50%) After Hours : 37.20 0.02 (0.05%) Prev Close: 36.67

    Open: 36.58

    Bid: 37.11 x 1000 Ask: 37.22 x 4900

    1y Target Est: 46.31

    Beta: 3.85

    Earnings Date: Jul 14 - Jul 18

    (Est.) Day's Range: 36.31 - 37.31

    52wk Range: 15.28 - 39.88

    Volume: 7,800,951

    Avg Vol (3m): 10,036,800

    Market Cap: 26.81B P/E (ttm): N/A

    EPS (ttm): -3.60

    Div & Yield: N/A (N/A)

    Delta Air Lines Inc. (DAL)

    38.24 0.61(1.62%) After Hours : 38.19 0.05 (0.13%) Prev Close: 37.63

    Open: 37.80

    Bid: 37.82 x 100 Ask: 38.30 x 900

    1y Target Est: 45.47

    Beta: 0.98

    Earnings Date: Jul 21 - Jul 25

    (Est.) Day's Range: 37.31 - 38.26

    52wk Range: 16.94 - 38.82

    Volume: 10,518,652

    Avg Vol (3m): 11,903,200

    Market Cap: 32.27B P/E (ttm): 3.05

    EPS (ttm): 12.54

    Div & Yield: 0.24 (0.60%)

  • Vertical Analysis

    Vertical analysis, also called common-size analysis

    It is a technique that expresses each financial statement item as a percentage

    of a base amount

    It helps in comparing the performance and financial position of two

    businesses of different size

  • Vertical Analysis Income Statement Comparison

    Currency in

    Millions of US

    Dollars

    American Airlines Delta Airlines

    Dec-12 Dec-13 Dec-12 Dec-13

    Restated Restated

    Dollars % Dollars %

    Difference

    in % Dollars % Dollars %

    Difference

    in %TOTAL

    REVENUES24855 100 26743 100 36670 100 37773 100

    COST OF GOODS

    SOLD19744 79.44 19805 74.06 -5.38 29323 79.96 29466 78.01 -1.96

    GROSS PROFIT 5111 20.56 6938 25.94 5.38 7347 20.04 8307 21.99 1.96

    OTHER

    OPERATING

    EXPENSES,

    TOTAL

    4577 18.41 4980 18.62 0.21 4747 12.95 4781 12.66 -0.29

    NET INCOME -1876 -7.55 -1834 -6.86 0.69 1009 2.75 10540 27.90 25.15

    Delta Airlines total revenue as per Dec-13 is US$37 billion which in comparison to American Airlines is approximately US$10 billion more.

    Both airlines recorded a percentage decrease in cost of goods sold with respect to income statement but there was a steady increase in gross profit margin

    American Airlines tried to reduce their Net income decline by 0.69% whereas there is a positive growth in Net income of Delta Airlines which increased to 25.15% from 2012 to 2013

  • Vertical Analysis

    Balance Sheet Comparison

    Currency in

    Millions of US

    Dollars

    American Airlines Delta AirlinesDec-12 Dec-13 Dec-12 Dec-13

    Amou

    nt% Amount %

    Differenc

    e

    Amoun

    t% Amount %

    Differenc

    e

    Assets

    CURRENT

    ASSETS 7072 30.08 14323 33.88 3.80 8272 18.57 9651 18.47 -0.10

    NET PPE 12692 53.99 18182 43.01 -10.98 20460 45.93 21473 41.10 -4.83

    GOODWILL 0 0.00 4086 9.66 9.66 9794 21.98 9794 18.74 -3.24

    OTHER

    INTANGIBLES 869 3.70 2311 5.47 1.77 4679 10.50 4658 8.91 -1.59

    OTHER LONG

    TERM ASSET 2877 12.24 3376 7.99 -4.25 1131 2.54 1575 3.01 0.48

    TOTAL

    ASSETS 23510 100% 42278 100% 44550 100% 52252 100%

    LIABILITIES & EQUITY

    TOTAL

    LIABILITIES 31497 133.97 45009 106.46 -27.51 46681 104.78 40609 77.72 -27.07

    TOTAL

    EQUITY -7987 -33.97 -2731 -6.46 27.51 -2131 -4.78 11643 22.28 27.07

    TOTAL

    LIABILITIES

    AND EQUITY 23510 100% 42278 100% 44550 100% 52252 100%

  • Vertical Analysis

    Balance Sheet Comparison

    Total Asset of American Airlines has approximately doubled whereas Delta Airlines Asset increased to US$ 8billion compared to Dec-12

    American Airlines Group Inc. may have more financial risk than Delta Airlines.

    There are not enough liquid assets to satisfy current obligations considering both the airlines but Operating Profits are more than adequate to service the debt.

  • Horizontal Analysis

    Horizontal Analysis, also known as trend analysis.

    It involves the comparison of a financial ratio or line item over a number of accounting periods.

    It allows the assessment of relative changes in different items over time.

    It indicates the behaviour of revenues, expenses and other line items of financial statements over the course of time.

  • Horizontal Analysis Income Statement Comparison

  • Horizontal Analysis Income Statement Comparison

    Growth in sales revenue for both companies is almost the same

    Due to growth in expenses i.e. other operating expenses, American

    Airlines is less profitable as compared to Delta Airlines

    Hence, Delta Airlines has better sales than American Airlines

  • Horizontal Analysis

    Balance Sheet Comparison

  • Horizontal Analysis

    Balance Sheet Comparison

    As seen, American Airlines reported tremendous growth of 111.9% in current assets from 2011 through 2013.

    On the other hand, Delta Airlines increased its current assets to only 24.8 % in 3 years.

    Hence Delta Airlines couldnt properly utilize its funds raised from equity as done by American Airlines.

  • Ratio AnalysisLiquidity Ratios

    Ratio Analysis American Airline(%)

    Delta Airline (%)

    Current Ratio 1.037 0.681

    Acid Test (quick) Ratio 0.783 0.3824

    Inventory Turnover 8.644 2

    Receivable Turnover 1.361 8.644

    Ratio Analysis as per 2013

    Current RatioAmerican Airline is 1.5 times more liquid than Delta airline

    Acid Test RatioAmerican Airline liquidity is four times as of Delta Airline

    Inventory TurnoverDelta Airline sells out & renews its inventory 283 days earlier than American Airline

  • Ratio Analysis (Cont.)

    Ratio Analysis American Airline (%) Delta Airline (%)

    Profit Margin -0.068 0.279

    Asset Turnover 1.0943 0.780

    Return on Assets -0.0750 0.217

    Earning Per Share ( EPS ) -0.011 1.635Price/ Earning Ratio 1.635 1.6510

    Profitability Ratio

    Ratio Analysis as per 2013

    Profit MarginDelta Airline makes more net income as compared to American Airline

    Asset TurnoverDelta uses 1.85 of its assets more efficiently than American Airline Return on

    Return on AssetsDelta has more return on assets

    EPS Delta Airline has higher EPS 12.41 as compared to American airline 11.12

    PE Ratio Delta has higher ratio leading to higher investment rate

  • Ratio Analysis (Cont.)Solvency Ratio

    Ratio American Airline(%) Delta Airline (%)

    Debt to total asset Ratio 1.0645 0.771

    Times interest Earned -1.546 -3.620

    Ratio Analysis

    Debt to EquityLower the ratio, more equity buffer is available to the creditors. Delta airline is a better option to invest as per this analysis

    Times Interest EarnedAmerican airline manages to control its interest expense .42 times better than

    delta airlines

  • Conclusion Airline Industry Market Share

    American Airline 27.55B

    Delta Airline 31.79B

    Price to Earning Ratio (Expected 5 years)

    American Airline 0.19

    Delta Airline 1.35 ( High PE ratio)

    Shares Outstanding

    American Airline 720.20M

    Delta Airline 844.00M

    Revenue

    American Airline 30.64B

    Delta Airline 38.19B

    Hence, it is more profitable to Invest in Delta Airline as per the Horizontal,

    Vertical and Ratio Analysis as compared to American Airline

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