Please help with the following assignment onFinancial Ratios Assignment and Research. See attachment for this assignment.

MBAA 518 - Managerial Finance 1 Financial Ratios Assignment and Research Activity Note: This activity will be submitted as Activity 2.4. However, it is recommended you begin to start work on this activity in Module 1. Most of the content necessary to complete the assignment is provide in Module1. Submission of the assignment will occur in Module 2. This assignment will require you to perform some analysis of financial ratios and some research to further your understanding of financial ratios from other sources. You will select an industry and two firms within the industry as described below and analyze the Return on Equity (ROE) of both firms and the market valuation ratios. To retrieve the data you will need to do the following steps: 1. 2. 3. 4. 5. 6. Go to the Hunt Library website Select the \"Articles\" tab (Databases) Select \"List All Research Databases\" Select \"S\" in the alphabetical tabs Select \"Standard and Poor's Industry Surveys (S&P NetAdvantage)\" There are several different reports that can be found here. For this assignment you will be looking at a number of ratios for a firm and comparing to industry averages. To get information on the industry, you can use the Industry Surveys, click on the dropdown menu, then select the industry you are interested in, and then click the gold colored box with the play button in the box. There are a number of reports here and also a number of different reports. The report will come up in the html format which is (in my opinion) the least useful. The PDF format provides a very good easy to use/read report with a large amount of information about the industry. If you click on Downloadable Company Data an excel spreadsheet will be available for firms in the industry. The excel spreadsheet (Downloadable Company Data) includes a number of tabs each with different information of each of the firms some of which are ratios. Here you can get a quick overview of how a given firm is performing relative to peers; you could quickly calculate some averages for the industry etc. This could be helpful for use as you analyze projects, need an estimate for a similar project etc. For this assignment we are going to focus on one ratio which can actually be calculated using three other ratios. That ratio is the Return on Equity. Return on Equity can be calculated in the following manor: May 2015 MBAA 518 - Managerial Finance 2 = net profit margin x = earnings to owners revenues x revenues assets / common equity assets = earnings to owners revenues ROE asset turnover / equity ratio x revenues assets x assets common equity look at what cancels and you are left with earnings/equity which is ROE ROE is comprised of: Profit Margin (bottom line) Turnover (asset utilization) Equity ratio (financial cushion) A note on equity ratio: (equity/assets) Say a firm had $100 in assets and $37 dollars in equity The equity ratio would be 37/100 or 0.37 What does that mean? How can a firm be financed? How much came from equity (owners)? How much from creditors? In this case for every dollar of assets, owner have funded 0.37 cents and creditors 0.63 cents. The second set of ratios you will need to consider are market value ratios. How does the firm you selected compare to industry averages, main competitor(s) etc. For this assignment, you will need to select an industry using the S&P Net advantage database and download the data. Select two firms one with a relatively high ROE and one with a relatively low ROE in the industry. Analyze each of the firms taking into consideration the components of ROE as identified above. This will require you to do some additional research regarding ROE analysis. The information you will need is not all here or in the textbook. There are times in the workplace where you will be performing or asked to perform tasks that require some learning/teaching yourself. This assignment will require you to do that. May 2015 MBAA 518 - Managerial Finance 3 Hints: You may want to look at each of the components of ROE and compare those. You may want to look up (another book, online, etc) DuPont Identity or DuPont Analysis. Realize the components you need to analyze may or may not be in the spreadsheet you download form net advantage. If not find what you need but make sure you document where you find any data used. (Yahoo finance is a good site and there are others.) Some thoughts to keep in mind: Margins reflect the firm's production function. If margins are low what could be done to improve them? Total asset turnover deals with the marketing function. If turnovers are low what might a firm wish to consider to improve its performance? Equity ratio is the finance province. Issues to consider are if you are being too conservative (not employing enough cheap debt)? For your deliverable: Include the downloaded industry spreadsheet for the industry you selected. Identify the firms you selected within the spreadsheet by changing the color of the font for that firm on each tab to red. Prepare a table that calculates the ROE for each firm using the three components. Make sure each column is labeled. (You should have columns that are labeled ROE, Net Profit Margin, Asset Turnover, Equity Ratio) Create a similar table for the market value measures. Write a brief paper; about two pages maximum (2 plus/minus a half page). Paper should address the reasons why one firm has a high ROE, why one firm has a low ROE and what could be done to improve the lower performing firm based on ROE (if it is really performing at a lower level). Perform similar contrast and comparisons for the market value ratios. Be sure to address issues such as marketing, asset utilization, financing and if your chosen firm appears to be under or overvalued. May 2015 Column1 Analysis of Delta Airlines Financial Statement Data ($ millions) Return on Revenues (%) (Net Income Revenue) Return on Assets (%) (Net Income Total Assets) Return on Equity (%) (Net Income Equity) Earnings per Share (Net Income Shares Outstanding) Current Ratio (Current Assets Current Liabilites) Debt/Capital Ratio (%) Debt as a (%) of Net Working Capital Operating Revenues (Sales) Net Income Assets Equity Column2 Column3 2014 2013 Column4 2012 Column5 2011 Column6 2010 1.6 1.2 6.4 0.79 0.7 49.3 27 2.8 2.4 1.9 21.8 2.3 2 1.4 221.6 NA NA 103.9 12.41 1.2 1.02 0.71 0.7 0.6 0.6 0.6 45.7 100.8 94.9 82.4 NM NM NM NM NM 40,362.00 37,773.00 36,670.00 35,115.00 31,755.00 659 54,916.67 10,296.88 10,540.00 48,348.62 4,756.32 1,009.00 43,869.57 #VALUE! 854 42,700.00 #VALUE! 593 42,357.14 570.74 Three-Step DuPont Model: Net Profit Margin (Net Income Sales) Asset Turnover (Sales Total Assets) Equity Multiplier (Total Assets Total Equity) Return on Equity (Computed) Earnings Per Share (EPS) ($) Tangible Book Value per Share ($) Average Market Share Price ($) Price / Earnings Ratio Market to Book Ratio Column7 Column8 Analysis of Southwest Airlines Financial Statement Data ($ millions) Return on Revenues (%) (Net Income Revenue) Return on Assets (%) (Net Income Total Assets) Return on Equity (%) (Net Income Equity) Earnings per Share (Net Income Shares Outstanding) Current Ratio (Current Assets Current Liabilites) Debt/Capital Ratio (%) Debt as a (%) of Net Working Capital Operating Revenues (Sales) Net Income Assets Equity Column9 Column10 Column11 Column12 Column13 2014 2013 2012 2011 2010 6.1 5.7 16.1 1.65 0.7 19.5 4.3 4 10.5 1.06 0.8 17.6 2.5 2.3 6.1 0.56 0.9 22.6 1.1 1.1 2.7 0.23 1 24.8 3,237.40 3,297.70 3,534.40 3,654.90 3.8 3.1 7.8 0.62 1.3 24.8 295.2 2,747.90 1,136.00 19,929.82 7,055.90 754 18,850.00 7,180.95 421 18,304.35 6,901.64 178 16,181.82 6,592.59 459 14,806.45 5,884.62 NM NM NM NM Three-Step DuPont Model: 1.63% 27.90% 2.75% 2.43% 1.87% 0.734968134 0.781263188 0.835887017 0.82236534 0.749696459 5.333333333 10.16513761 #VALUE! #VALUE! 74.21428571 6.40% 221.60% #VALUE! #VALUE! 103.90% 0.79 (6.77) 38.71 49 (7.24) 331.90% 0.6638 99.3362 12.41 (3.30) 28.345 1.5 (0.45) 1.2 (19.50) 20.7 8.5 (0.44) 1.02 (18.86) 10.04 9.5 (0.50) 0.71 (16.35) 12.27 17.5 (1.07) Net Profit Margin (Net Income Sales) Asset Turnover (Sales Total Assets) Equity Multiplier (Total Assets Total Equity) Return on Equity (Computed) Earnings Per Share (EPS) ($) Tangible Book Value per Share ($) Average Market Share Price ($) Price / Earnings Ratio Market to Book Ratio 35.09% 22.86% 11.91% 4.87% 16.70% 0.162439965 0.1749442971 0.1930907363 0.2258646067 0.1855880174 2.824561404 2.625 2.652173913 2.4545454545 2.5161290323 16.10% 10.50% 6.10% 2.70% 7.80% 1.65 8.06 30.985 18.5 2.30 1.06 8.85 14.68 14 1.58 0.56 8.06 9.185 16.5 2.05 0.23 7.45 10.37 45 6.04 0.62 8.34 12.37 20 2.40 Column14 Column15 Column16 Column17 Column18 Column19 Column20 Column21 Column22 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AIRLINES VS. SOUTHWEST Delta Airlines vs. Southwest Carlos Disla Embry-Riddle Aeronautical University 1 DELTA AIRLINES VS. SOUTHWEST Delta Airlines vs. Southwest For my financial ratio assignment we be looking at a number of ratios for a firm and comparing it to the industry averages. I researched the Airline Industry covering a five-year period, 2010-2014. I used Delta Airlines and Southwest for this analysis. To meet all the deliverable beginning with similar contrast and comparison table for the markets value ratios obtained through the S&P Capital IQ for Airlines dated July 2015. Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders' equity. The DuPont equation provides a broader picture of the return the company is earning on its equity. It tells where a company's strength lies and where there is a room for improvement. I depict the three-factor analysis in the table. Delta Airlines and Southwest are in the same market but not the same size. The analysis takes their net profit margin, asset turnover and financial leverage (equity multiplier). Some industries tend to have higher returns on equity than others. As a result, comparisons of returns on equity are generally most meaningful among companies within the same industry, and the definition of a "high" or "low" ratio should be made within this context. The return on equity for Delta Airlines working backwards as: 6.40% last year, 221.60% in 2013, no value for 2012 & 2011, and 103.30% in 2010 for an average of 0.6638 (Note: Financial Statement Data is in $ millions). What does this mean? Owners have funded 0.6638 and creditors 99.3362 The return on equity for Southwest Airlines working backwards as: 6.10% last year, 10.50% in 2013, 6.10% in 2012, 2.70% in 2011, and 7.80% in 2010 for an average of 99.9136 2 DELTA AIRLINES VS. SOUTHWEST 3 The return on equity underlying strengths and weaknesses are quite opposite. Delta is better than Southwest in using its assets to generate revenues but it is unable to capitalize this advantage into higher return on equity due to its lower financial leverage. Delta can improve by using its total assets more effectively in generating sales and Southwest can improve by raising some debt. Analysis of Delta DELTA AIRLINES VS. SOUTHWEST Analysis of Southwest 4 DELTA AIRLINES VS. SOUTHWEST 5 References Corridore, J. (2015). Industry Surveys, Airlines. Retrieved from S&P Capital IQ, McGraw Hill Financial: http://www.netadvantage.standardandpoors.com.ezproxy.libproxy.db.erau.edu/NASApp/NetAdv antage/loadIndustrySurvey.do?task=loadIndustriesPage Ross, S. A., Westfield, R.W, Jaffe, J. (2014). Corporate Finance (10th Edition), New York, McGraw-Hill Education Thorp, W.A. (2012). Deconstructing ROE: DuPont Analysis. Retrieved from Computerized Investing: http://www.aaii.com/computerizedinvesting/article/deconstructing-roe-dupontanalysis Anonymous, (nd). Return on Equity (ROE): Financial Dictionary. Retrieved from Investigating Answers: http://www.investinganswers.com/financial-dictionary/financial-statementanalysis/return-equity-roe-916