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In January 2016, United Airlines (UAL) had a market capitalization of $20.73 billion, debt of $11.98 billion, and cash of $5.08 billion. United Airlines had
In January 2016, United Airlines (UAL) had a market capitalization of $20.73 billion, debt of $11.98 billion, and cash of $5.08 billion. United Airlines had revenues of $39.59 billion. Southwest Airlines (LUV) had a market capitalization of $27.65billion, debt of $3.09 billion, cash of $3.04 billion, and revenues of $19.79 billion. a. Compare the market capitalization-to-revenue ratio (also called the price-to-sales ratio) for United Airlines and Southwest Airlines. b. Compare the enterprise value-to-revenue ratio for United Airlines and Southwest Airlines. c. Which of these comparisons is more meaningful? Explain. The market capitalization-to-revenue ratio for United Airlines is (Round to three decimal places.) The market capitalization-to-revenue ratio for Southwest Airlines is (Round to three decimal places.) b. Compare the enterprise value-to-revenue ratio for United Airlines and Southwest Airlines. The enterprise value-to-revenue ratio for United Airlines is (Round to three decimal places.) The enterprise value-to-revenue ratio for Southwest Airlines is (Round to three decimal places.) c. Which of these comparisons is more meaningful? Explain. (Select all the choices that apply.) A. The enterprise value-to-revenue ratio is more useful when the leverage of firms is quite different, as it is here. B. You cannot meaningfully compare the market capitalization-to-revenue ratio when firms have different amounts of leverage, as market capitalization measures only the value of a firm's equity. C. The market capitalization-to-revenue ratio is more useful when the leverage of firms is quite different, as it is here. D. You cannot meaningfully compare the enterprise value-to-revenue ratio when firms have different amounts of leverage, as enterprise value measures only the value of a firm's equity. a
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