Download - Acct 615 104 Managerial Accounting - Analysis for Investment

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


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 World’s 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


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


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.


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


Horizontal Analysis


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 couldn’t 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

Download - Acct 615 104 Managerial Accounting - Analysis for Investment

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