Expert answer:Case study component
Solved by verified expert:Throughout this course you will prepare a comprehensive 2,500-word
financial analysis (excluding tables, figures, and addenda) of a chosen
company following the nine-step assessment process detailed in Assessing a Company’s Future Financial Health. This analysis is composed of four separate component assignments in Topics 2, 4, 6, and 8.In this topic, apply the next two steps of the nine-step assessment
process to develop a 500-word analysis of your chosen company:Investments to Support the Business Unit Strategy or StrategiesFuture Profitability and Competitive PerformanceNote: You will be required to resubmit this assignment, revised
to incorporate all instructor feedback, along with the other three
component assignments as one comprehensive submission in Topic 8. To
save time later in the course, consider addressing any feedback soon
after this assignment has been graded and returned to you.
vandeluneb.fin504.comp1_2.docx
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Component 1
Brad VandeLune
Finance 504
Analysis of Fundamentals: Goals, Strategy, Market, Competitive Technology, Regulatory,
and Operating Characteristics
Southwest Airlines established in 1971, is a major U.S airline headquartered in Dallas,
Texas, traded under the symbol LUV. It is the largest airline in the U.S based on the number of
passengers carried per year and third most significant concerning fleet size. Its primary goal is to
continue its superiority as the best commercial airline concerning customer satisfaction, excellent
customer care, and safe travel. Another goal is to stay the most successful airline with low fare
prices and on-time operations. Above all, maintain its profitability in the industry. (Southwest,
n.d)
Southwest Airlines employs several strategies such as an appealing brand, outstanding
customer service and low costs of travel. The second approach, a robust route network; the
airline carries the most number of passengers in U.S and has the most daily departures. Lastly, a
superior financial position has an efficient capital distribution strategy and competitive cost
advantage.
Southwest Airlines market is the U.S serving over forty states and eight nearinternational markets, Jamaica, Mexico, Cuba, Aruba, The Bahamas, Dominican Republic, Costa
Rica and Belize. Southwest Airlines has an excellent technology whereby customers can
purchase and manage their travel online on its website. The website is personalized to identify
customer location to provide relevant deals, calendar view to advice on best times to travel at
low prices among other features. Customers can also transact on their mobile devices through an
application. Also, uses barcodes on boarding passes and reservation system for luggage checkins. (Southwest, n.d)
It operates a total of 723 Boeing and 737 aircrafts serving 101 destinations. The company
observes regulations by the federal government, government agencies, and legislative bodies.
The rules include consumer protection, aviation taxes and fees, health and safety regulations in
civil aviation activities, security regulations, environmental conservation and international
regulations. The company provides point-to-point route services. It offers variety fare options
such as “Wanna get away” and Business select and a rewards program.
Analysis of Fundamentals: Revenue Outlook
Revenue is the gross income of a company. (Gitman, Juchau & Flanagan, 2015)
Southwest Airlines in the year ended 2016 earned net income of $ 2,244 million. The revenue is
obtained from the sale of tickets which most are non-refundable instead re-usable. Net cash from
operating activities for that year was $4,293 million which was an increase from 2015’s $3,238
and 2014’s $2,902. The operating revenue for that year was $20,425 million. (Southwest, n.d)
The passengers brought in $18,594 revenue, a slight increase from 2015’s $18,299. On the other
hand, freight contributed $171. The operating expenses for that year were $16,665. As per the
analysis, the net profit margin ratio is 9.63 through twelve months and the average for five years
is 7.19.
Compared to other companies in the industry, Southwest Airlines is doing significantly
well regarding revenue. The data is as of October 20, 2017, and the company has earned revenue
of $20.84 billion with a net profit of $2.01, Alaska Air group $6.94 billion and net profits of
$765 million. However, Delta Airlines and American Airlines Group are performing well with
revenue above $40 billion. Its asset turnover ratio is 0.9 the highest in the industry, inventory
turnover of 18.87 after Delta Airlines’ 19.67. Southwest Airlines’ receivables turnover ratio is
37.89. Its quick ratio is 0.68 which is a bad indicator showing the company is unable to meet its
short-term debts. (Financial Times, n.d)
The earnings per share which indicate profitability have been forecasted for the end year
2017, highest 3.75 lowest 3.5 and harmonized at 3.6. Projections for the year ended December
2018, the highest EPS 4.9 lowest 4 and harmonized at 4.52, year 2019, highest 5.29, lowest 3.5
and harmonized at 4.62. (Nasdaq, n.d)
Graph
Yearly Forecast Earnings
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Year 2017
Year 2018
Year 2019
References
Financial Times (n.d) Southwest Airlines Co LUV retrieved from
https://markets.ft.com/data/equities/tearsheet/forecasts?s=LUV:NYQ available on
October 23, 2017
Gitman, L. J., Juchau, R., & Flanagan, J. (2015) Principles of managerial finance Pearson
Higher Education AU
Nasdaq (n.d) Southwest Airlines Company Earnings Forecast retrieved from
http://www.nasdaq.com/symbol/luv/earnings-forecast available at October 23, 2017
Southwest (n.d) Investor Relations. Available at
http://www.southwestairlinesinvestorrelations.com/our-company/company-overview
accessed on October 23, 2017
Southwest (n.d) Investor Relations. SOUTHWEST AIRLINES CO. 2016 ANNUAL REPORT
TO SHAREHOLDER Available at
http://investors.southwest.com/~/media/Files/S/SouthwestIR/Annual%20Reports/2016_A
nnualReport_LUV.PDF accessed on October 23, 2017
…
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