Match each characteristic (At bottom of page) with the ratio in the table. Put your characteristic in the "Ratio difference and Rational" column. All characteristics may not be used, only use each characteristic once. Under "Company #" column put the corresponding number from the Airlines column at the bottom of the page.

1 Industry Airlines Challenge Level: Medium 2 Company A B Company Ratio Difference and Rationale 3 ASSETS (Z) 4 Cash & ST Investments 6 10 5 Receivables 4 2 6 Inventory 1 1 7 Current Assets - Other 5 5 4 8 Current Assets - Total 17 16 9 Net Property, Plant, and Equipment 42 75 10 Long-Term Marketable Securities 0 1 11 Goodwill & Intangibles 28 1 12 Assets - Other 13 8 13 Assets - Total 100 100 14 15 LIABILITIES & EQUITY (2) 16 Accounts Payable 5 2 17 Debt in Current Liabilities 3 5 18 Current Liabilities - Other 24 19 19 Current Liabilities - Total 33 26 20 Long-Term Debt 13 16 21 Deferred Taxes 0 14 22 Liabilities - Other 34 6 23 Liabilities - Total 80 63 24 Shareholders' Equity 20 37 25 Total Liabilities & Equity 100 100 26 27 INCOME / EXPENSES (2) 28 Revenue 100 100 29 Cost of Goods Sold (70) (60) 30 Finance Div. Operating Exp. 0 0 31 Interest Expense - Finance Division 0 0 32 Gross Profit 30 40 33 SG&A Expense 14) (4) 34 R & D Expense 0 0 35 Depreciation & Amort. (3) 151 36 Other Operating Expense (5) (12) 37 Earnings before Interest and Tax 16 19 38 Net Interest Expense (1) 121 39 Other 3 0 40 Pretax Income 18 17 41 Income Tax Expense (6) (7) 42 Earnings of Discontinued Ops 0 0 43 Extraord Item & Accounting Charge 0 0 44 Minority Int in Earnings 0 0 45 Net Income 11 11 46 47 MARKET DATA 48 Beta 1.20 1.10 49 Price/Earnings 10.0 10.9 50 Price to Book 3.9 2.4 51 Dividend Payout (%) 7.9 00 52 LIQUIDITY 53 Current Ratio 0.52 0.60 54 Quick Ratio 0.31 0.44 55 ASSET MANAGEMENT 56 Inventory Turnover 37.0 85.4 57 Receivables Turnover 16.5 43.3 58 Fixed Assets Turnover 1.9 1.0 59 DEBT MANAGEMENT 60 Total Debt / Total Assets (7) 79.6 62.9 61 LT Debt / Shareholders' Equity (2) 62.4 43.5 62 Interest Coverage 13.6 10.0 63 DuPont Analysis (ROE Decomposition) 64 Net Profit Margin (7) 11.1 10.6 65 Asset Turnover 0.8 0.8 66 Return on Equity (2) 46.0 23.6 67 A B 68 69 70 Focus on the impact of different business strategies on financial ratios--. That said, note that it may not be possible to relate each characteristic to a particular ratio. 72 73 Airlines Characteristics 74 Company 1 Major airline. Flies both dometically and internationally. 75 Additional services: travel packages and airplane repair 76 Owns refinery to supply own jet fuel as hedge to fuel-price volatility 77 In 2008, merged with one of largest airline carriers in U.S. 78 Company 2 Operates primarily in U.S., some routes in Caribbean and Latin America 79 Leading low-cost carrier in U.S. 80 One source of operating efficiency: Operates only 3 different aircraft in fleet 81 Thus, makes maintenance much simpler than legacy airlines with 20-30 different aircraft models 82 Growth mostly organic-expands by purchasing new aircraft and rights to fly into new airports. 1 Industry Airlines Challenge Level: Medium 2 Company A B Company Ratio Difference and Rationale 3 ASSETS (Z) 4 Cash & ST Investments 6 10 5 Receivables 4 2 6 Inventory 1 1 7 Current Assets - Other 5 5 4 8 Current Assets - Total 17 16 9 Net Property, Plant, and Equipment 42 75 10 Long-Term Marketable Securities 0 1 11 Goodwill & Intangibles 28 1 12 Assets - Other 13 8 13 Assets - Total 100 100 14 15 LIABILITIES & EQUITY (2) 16 Accounts Payable 5 2 17 Debt in Current Liabilities 3 5 18 Current Liabilities - Other 24 19 19 Current Liabilities - Total 33 26 20 Long-Term Debt 13 16 21 Deferred Taxes 0 14 22 Liabilities - Other 34 6 23 Liabilities - Total 80 63 24 Shareholders' Equity 20 37 25 Total Liabilities & Equity 100 100 26 27 INCOME / EXPENSES (2) 28 Revenue 100 100 29 Cost of Goods Sold (70) (60) 30 Finance Div. Operating Exp. 0 0 31 Interest Expense - Finance Division 0 0 32 Gross Profit 30 40 33 SG&A Expense 14) (4) 34 R & D Expense 0 0 35 Depreciation & Amort. (3) 151 36 Other Operating Expense (5) (12) 37 Earnings before Interest and Tax 16 19 38 Net Interest Expense (1) 121 39 Other 3 0 40 Pretax Income 18 17 41 Income Tax Expense (6) (7) 42 Earnings of Discontinued Ops 0 0 43 Extraord Item & Accounting Charge 0 0 44 Minority Int in Earnings 0 0 45 Net Income 11 11 46 47 MARKET DATA 48 Beta 1.20 1.10 49 Price/Earnings 10.0 10.9 50 Price to Book 3.9 2.4 51 Dividend Payout (%) 7.9 00 52 LIQUIDITY 53 Current Ratio 0.52 0.60 54 Quick Ratio 0.31 0.44 55 ASSET MANAGEMENT 56 Inventory Turnover 37.0 85.4 57 Receivables Turnover 16.5 43.3 58 Fixed Assets Turnover 1.9 1.0 59 DEBT MANAGEMENT 60 Total Debt / Total Assets (7) 79.6 62.9 61 LT Debt / Shareholders' Equity (2) 62.4 43.5 62 Interest Coverage 13.6 10.0 63 DuPont Analysis (ROE Decomposition) 64 Net Profit Margin (7) 11.1 10.6 65 Asset Turnover 0.8 0.8 66 Return on Equity (2) 46.0 23.6 67 A B 68 69 70 Focus on the impact of different business strategies on financial ratios--. That said, note that it may not be possible to relate each characteristic to a particular ratio. 72 73 Airlines Characteristics 74 Company 1 Major airline. Flies both dometically and internationally. 75 Additional services: travel packages and airplane repair 76 Owns refinery to supply own jet fuel as hedge to fuel-price volatility 77 In 2008, merged with one of largest airline carriers in U.S. 78 Company 2 Operates primarily in U.S., some routes in Caribbean and Latin America 79 Leading low-cost carrier in U.S. 80 One source of operating efficiency: Operates only 3 different aircraft in fleet 81 Thus, makes maintenance much simpler than legacy airlines with 20-30 different aircraft models 82 Growth mostly organic-expands by purchasing new aircraft and rights to fly into new airports