Answered step by step
Verified Expert Solution
Question
1 Approved Answer
In January 2019, United Airlines (UAL) had a market capitalization of $23.26 billion, debt of $13.57 billion, and cash of $3.84 billion. United Airlines had
In January 2019, United Airlines (UAL) had a market capitalization of $23.26 billion, debt of $13.57 billion, and cash of $3.84 billion. United Airlines had revenues of $41.07 billion. Southwest Airlines (LUV) had a market capitalization of $27.34 billion, debt of $3.22 billion, cash of $3.68 billion, and revenues of $22.02 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. a. Compare the market capitalization-to-revenue ratio (also called the price-to-sales ratio) for United Airlines and Southwest Airlines. 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. 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. B. 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. OC. The enterprise value-to-revenue ratio is more useful when the leverage of firms is quite different, as it is here. D. The market capitalization-to-revenue ratio is more useful when the leverage of firms is quite different, as it is here
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started