(MBA 5220)(Please type the answer) answer question 4
the screens shots have been posted in the other post
analysis" on page 55. 2. See "liquidity analysis" on page 47. 3. Limitations of industry average ratios are discussed on page 57. 4. Use "pro forma sources and uses of funds statement on page 86 and rules about "Sources and Uses of Funds (Funds Flow) Statement on page 13 of word lecture notes. The amount of dividend paid is $38 which is determined as follows: Earnings after tax ($80)=changes in retained earnings (714-672) + dividend paid. Total sources and uses are supposed to be $444 respectively. This sources and uses of funds statement will tell you that the airline violated the matching principle which is the maturity structure of assets and liabilities. 5. Think about both major solutions and minor solutions. Case Study 1 RATIO ANALYSIS WELLINGTON AIRLINES Melissa Myers is the new treasurer of Wellington Airlines She graduated from a major university in Delaware with a M.B.A. in Finance Aftet five years of experience with of the big eight CPA firms in New York, she joined the accounting staff of Midwest Airlines and served in a variety of accounting and finance positions for ten years. She ssumed the position of treasurer at Wellington Airlines on May 3, 1956. One of her first mponsibilities is to analyze the company financial condition shortly after the airline's fiscal year, which ended on June 30, 1986 Echibit 1 Wellington Airlines Balance Sheets as of June 30, 1985-1986 tin millions of dollars) 1985 $12 182 Cash Accounts receivable Maintenance and supplies inventory Total current assets Gross plant and equipment Less: accumulated depreciation Net plant and equipment Total assets Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock Retained earnings $120 1.680 700 990 $1.400 563 1986 $42 140 210 5392 2,072 784 1.288 51.680 576 280 84 28 $175 273 280 $406 280 280 714 $1.680 672 $1,400 Total liabilities and net worth 387 365 PK 2 Case Sno Hilling Angeles ender the air The fa Indust contro phaned out by the end of 1985 had ne for the 1979 Meli Morchange in the aire industry Nince Congrenacted the Air Transportation Regulatory Reform Act (ATRRA) in 1978. The ATRRA, This among other things competition and facilitated the entry other to the Federal Aviation Act of 1958 deregulated the airline industry gently nes into the marketplace before 1978 the Cvil Aeronautics Board (CAB) hade Before and authorized routes for airlines Under the 1978 legislation, the CABWE Wellington Airlines added several cities to its routes shortly after the deregulation of the industry be management felt such a move would facilitate growth. Wellington alla The Wallanes were mostly financed by short-term bank loans to be paid purchased a number of new airplanes to meet its expanded routes and replaced fare and route competition from other trunk carriers. The industry's deregulation in from prodits greated by the expansion. However, the airline encountered substantial 1978 caught Wellington with huge fixed costs and expensive labor agreements New Mogianal carrier free of such cumber one overhead, were able to offer low et profitably but Wellington's ability to do so was strained. Furthermore, the concen downtur depressed passenger traffic thereby causing a glut of airline capacity. Exhibit 2 Wellington Airlines Income Statement for Year Ended June 30, 1986 (in millions of dollars) Operation revenues Passengers $1,830 Freight 95 Other 35 Total revenues $1,960 Operation expenses Flying operations Maintenance Equipment and passenger services Promotion and sales General and administrative Depreciation Total operating expenses Operating income 662 212 523 209 52 84 1.742 Interest expense Earnings before tax Tex Earning after tax $218 58 $160 80 $80 3 Case Study 1: Ratio Analysis 39 A California. Since its establishment in 1917the company hasily weath for one of the largest airlines in the United Sule, she is to and vedical fluctuations characteristic of the live industry, thats with rest of theatre industry. Its sales and profitability for the year y declined The failure of Branit Airlines lected the serious problems facing the entide industry because of business slowdown, deregulations of the industry the trafic Aadresulted in an increasingly trained working capital position for Wington. Profits rolex strike higher fuel costs, and intensified competition. Expanding operations se chibits 1, 2 and 3) for the airline had dropped considerably since its expansion program started early in Ratios Current ratio Quick ratio Average collection period Asset tumover Debt ratio Times interest eamed Profit margin on sales Return on investment Return on net worth Tahibit Industry Average Ratios Industry 3.5 150 Smes 30.0 day 120 tones 15.0 percent 4.10 times 4.00 percent 450 percent 873. peront QUESTIONS 1. Calculate the appropriate ratios of liquidity leverage, activity, and profitability for Wellington 2. What would happen to net working capital if Wellington Airlines used $10 million cash to pay off $10 million long-term debt in 1986? What would hap- pen to net working capital if Wellington Airlines used $10 million cash to buy inventory in 1986 3. List and discuss cautions which must be taken in using industry average ratios 4. Prepare Wellington's funds flow statement and then explain why the company encountered an increasingly strained working capital position 5. Discuss how to solve the airline's most pressing problema Internet Questions 1 Go to http://finance.yahoo.com. Enter ticker symbo, DAL, and you will find various information about Delta Airlines Inc. PART 2: CASE STUDIES 990 2 On the left hand side panel click "Competitors and you will find Delta Ale ines major competitors, including AAL (American Airlines) and UAL (United ance Share and Cash Flow at the bottom of the left-hand side panel to extract For each of the three major airlines in the US, click "Income Statemental Continental Airlines, their financial information. calculate the ratio of liquidity, deverage, activity, and profitability for the Calculate the average of the three major airlines and treat it as the industry 6 Compare each airline's performances against the industry averages and eval averagon The ate those major players in the field ant lin th th 0295 analysis" on page 55. 2. See "liquidity analysis" on page 47. 3. Limitations of industry average ratios are discussed on page 57. 4. Use "pro forma sources and uses of funds statement on page 86 and rules about "Sources and Uses of Funds (Funds Flow) Statement on page 13 of word lecture notes. The amount of dividend paid is $38 which is determined as follows: Earnings after tax ($80)=changes in retained earnings (714-672) + dividend paid. Total sources and uses are supposed to be $444 respectively. This sources and uses of funds statement will tell you that the airline violated the matching principle which is the maturity structure of assets and liabilities. 5. Think about both major solutions and minor solutions. Case Study 1 RATIO ANALYSIS WELLINGTON AIRLINES Melissa Myers is the new treasurer of Wellington Airlines She graduated from a major university in Delaware with a M.B.A. in Finance Aftet five years of experience with of the big eight CPA firms in New York, she joined the accounting staff of Midwest Airlines and served in a variety of accounting and finance positions for ten years. She ssumed the position of treasurer at Wellington Airlines on May 3, 1956. One of her first mponsibilities is to analyze the company financial condition shortly after the airline's fiscal year, which ended on June 30, 1986 Echibit 1 Wellington Airlines Balance Sheets as of June 30, 1985-1986 tin millions of dollars) 1985 $12 182 Cash Accounts receivable Maintenance and supplies inventory Total current assets Gross plant and equipment Less: accumulated depreciation Net plant and equipment Total assets Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock Retained earnings $120 1.680 700 990 $1.400 563 1986 $42 140 210 5392 2,072 784 1.288 51.680 576 280 84 28 $175 273 280 $406 280 280 714 $1.680 672 $1,400 Total liabilities and net worth 387 365 PK 2 Case Sno Hilling Angeles ender the air The fa Indust contro phaned out by the end of 1985 had ne for the 1979 Meli Morchange in the aire industry Nince Congrenacted the Air Transportation Regulatory Reform Act (ATRRA) in 1978. The ATRRA, This among other things competition and facilitated the entry other to the Federal Aviation Act of 1958 deregulated the airline industry gently nes into the marketplace before 1978 the Cvil Aeronautics Board (CAB) hade Before and authorized routes for airlines Under the 1978 legislation, the CABWE Wellington Airlines added several cities to its routes shortly after the deregulation of the industry be management felt such a move would facilitate growth. Wellington alla The Wallanes were mostly financed by short-term bank loans to be paid purchased a number of new airplanes to meet its expanded routes and replaced fare and route competition from other trunk carriers. The industry's deregulation in from prodits greated by the expansion. However, the airline encountered substantial 1978 caught Wellington with huge fixed costs and expensive labor agreements New Mogianal carrier free of such cumber one overhead, were able to offer low et profitably but Wellington's ability to do so was strained. Furthermore, the concen downtur depressed passenger traffic thereby causing a glut of airline capacity. Exhibit 2 Wellington Airlines Income Statement for Year Ended June 30, 1986 (in millions of dollars) Operation revenues Passengers $1,830 Freight 95 Other 35 Total revenues $1,960 Operation expenses Flying operations Maintenance Equipment and passenger services Promotion and sales General and administrative Depreciation Total operating expenses Operating income 662 212 523 209 52 84 1.742 Interest expense Earnings before tax Tex Earning after tax $218 58 $160 80 $80 3 Case Study 1: Ratio Analysis 39 A California. Since its establishment in 1917the company hasily weath for one of the largest airlines in the United Sule, she is to and vedical fluctuations characteristic of the live industry, thats with rest of theatre industry. Its sales and profitability for the year y declined The failure of Branit Airlines lected the serious problems facing the entide industry because of business slowdown, deregulations of the industry the trafic Aadresulted in an increasingly trained working capital position for Wington. Profits rolex strike higher fuel costs, and intensified competition. Expanding operations se chibits 1, 2 and 3) for the airline had dropped considerably since its expansion program started early in Ratios Current ratio Quick ratio Average collection period Asset tumover Debt ratio Times interest eamed Profit margin on sales Return on investment Return on net worth Tahibit Industry Average Ratios Industry 3.5 150 Smes 30.0 day 120 tones 15.0 percent 4.10 times 4.00 percent 450 percent 873. peront QUESTIONS 1. Calculate the appropriate ratios of liquidity leverage, activity, and profitability for Wellington 2. What would happen to net working capital if Wellington Airlines used $10 million cash to pay off $10 million long-term debt in 1986? What would hap- pen to net working capital if Wellington Airlines used $10 million cash to buy inventory in 1986 3. List and discuss cautions which must be taken in using industry average ratios 4. Prepare Wellington's funds flow statement and then explain why the company encountered an increasingly strained working capital position 5. Discuss how to solve the airline's most pressing problema Internet Questions 1 Go to http://finance.yahoo.com. Enter ticker symbo, DAL, and you will find various information about Delta Airlines Inc. PART 2: CASE STUDIES 990 2 On the left hand side panel click "Competitors and you will find Delta Ale ines major competitors, including AAL (American Airlines) and UAL (United ance Share and Cash Flow at the bottom of the left-hand side panel to extract For each of the three major airlines in the US, click "Income Statemental Continental Airlines, their financial information. calculate the ratio of liquidity, deverage, activity, and profitability for the Calculate the average of the three major airlines and treat it as the industry 6 Compare each airline's performances against the industry averages and eval averagon The ate those major players in the field ant lin th th 0295
