Post on 17-Jul-2015
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 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$10 billion more.
Both airlines recorded a percentage decrease in cost of goods sold with respect to income statement but there was a steady increase in gross profit margin
American Airlines tried to reduce their Net income decline by 0.69% whereas there is a positive growth in Net income of Delta Airlines which increased to 25.15% from 2012 to 2013
Vertical Analysis
Balance Sheet Comparison
Currency in
Millions of US
Dollars
American Airlines Delta AirlinesDec-12 Dec-13 Dec-12 Dec-13
Amou
nt% Amount %
Differenc
e
Amoun
t% Amount %
Differenc
e
Assets
CURRENT
ASSETS 7072 30.08 14323 33.88 3.80 8272 18.57 9651 18.47 -0.10
NET PPE 12692 53.99 18182 43.01 -10.98 20460 45.93 21473 41.10 -4.83
GOODWILL 0 0.00 4086 9.66 9.66 9794 21.98 9794 18.74 -3.24
OTHER
INTANGIBLES 869 3.70 2311 5.47 1.77 4679 10.50 4658 8.91 -1.59
OTHER LONG
TERM ASSET 2877 12.24 3376 7.99 -4.25 1131 2.54 1575 3.01 0.48
TOTAL
ASSETS 23510 100% 42278 100% 44550 100% 52252 100%
LIABILITIES & EQUITY
TOTAL
LIABILITIES 31497 133.97 45009 106.46 -27.51 46681 104.78 40609 77.72 -27.07
TOTAL
EQUITY -7987 -33.97 -2731 -6.46 27.51 -2131 -4.78 11643 22.28 27.07
TOTAL
LIABILITIES
AND EQUITY 23510 100% 42278 100% 44550 100% 52252 100%
Vertical Analysis
Balance Sheet Comparison
Total Asset of American Airlines has approximately doubled whereas Delta Airlines Asset increased to US$ 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
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
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