Financial analysis of delta air lines

There are several tools used to evaluate the well-being of the company both from the standpoints of its internal state and from that of its competitors. Financial analysis is one of such tools and it is used to reflect the processes of a business. The tools facilitate an analysis of the stability, viability, solvency, liquidity, and profitability of the company (Crowther, 2018). This is achieved by analysing the past performance of the firm, whereby data on previous performance is compared with the present performance. Consequently, a future performance is predicated using statistical methods. S. and later to many areas in the continent. Headquartered in Atlanta, Delta has continued to grow, climbing one step after another. The merger of Chicago and Southern Air Lines (C&S) with Delta in 1953 signalled prosperous years ahead.

Delta further acquired Western Air Lines, Inc. Research shows that mergers and acquisition constitute part of the powerful tools the business could utilize to expand growth, enter new markets and broaden its capabilities (Morrow, Sirmon, Hitt, & Holcomb, 2007) Hitt, Harrison and Ireland (2001) observed that M&A is the best approach to creating value to the stakeholders by expanding the reach and scope of a business. For example, following the merger acquisition of Northwest Airlines, Delta increased its domestic routes to 3,346 in 2018 from 3,235 in 2008 (Josephs, 2018). Consequently, this has been instrumental in increasing its profitability. Similarly, Delta utilises alliances as business strategy. These alliances have been instrumental in helping Delta to extend its service without necessarily flying into the new territory. The accounting analysis of Delta will help determine whether an investment of $25 million will be a right decision to make.

Delta demonstrates a variety of accounting practices aimed at providing procedures and controls of creating and recording business transactions. In its cash and cash equivalents, Delta captures short-term investment, inventories, accounts receivables, deferred income taxes, and prepaid expenses. The current assents portfolio encompasses property and equipment, goodwill, operating lease right-of-use assets, identifiable intangibles, deferred income taxes, and cash restricted for airport construction, and other noncurrent assets. Current liabilities include the debts due within one year appearing in Delta’s balance sheet. The 2016 8-K filing also demonstrates coherence in the reported total operating revenue of the year 9,458 billion. The reported total operating revenue shows an increase between 2016 and 2018. The fact that 8-K Form filing demonstrates coherence in the annual reports, it can be concluded that there is no indication of dubious revenue in the financial statements.

Besides, annual reports provide a guide on how key calculations were done. Financial Analysis Liquidity Ratios Current Ratio The current ratio is determined by; For 2017 C. R = For 2018, Q. R = On average, Q. R = 0. 32 The weighted average of Quick Ratio of 0. 32 indicates that Delta’s sales are growing at a relatively slower rate, hence, keeping the inventory lower. 57 (Obtained from https://www. stock-analysis-on. net/NYSE/Company/Delta-Air-Lines-Inc/Ratios/Long-term-Investment-Activity) On average, FAT = 1. 56 Therefore, Delta demonstrates a relatively good fixed asset turnover ratio, which shows its ability to convert its fixed assets to sales. Investors could be easily influenced by the ability the company has in making use of its fixed assets for business growth. 4% of its sales to profits for stakeholders.

However, the conversion percentage is significantly low, indicating that the company has a lower capacity to convert its sales to profits shared among the common stakeholders. Basic Earning Power (BEP) BEP is provided by, BEP = For 2017, BEP = For 2018, BEP = On average, BEP = 0. 099 The BEP for Delta is 9. 9%, which demonstrates an average ability of the company to remit its revenue to other regulatory requirements such as interest expense and taxes. An average ROE of 27. 5 of Delta is desirable, hence, its ability to attract investors. Market Value Price/Earnings (P/E) = For 2017, P/E = = 2. 32 For 2018, P/E = = 1. 01 Averagely, P/E for Delta is 1. Besides, through prospective analysis it is easier to assess whether the company’s strategic plans will yield expected management’s expectations.

Importantly, creditors can utilize a prospective analysis to determine a firm’s ability to service its debts. The current prospective analysis will determine whether Delta will efficiently attract more investors in future. From Appendix A, it is evident that Delta experienced an increase in its total revenue from $41. 138 billion in 2017 to $44. 00 Operating Income or Loss 5,406,000 5,657,000 (38. 00 Income from Continuing Operations Income from Continuing Operations Total Other Income/Expenses Net -255,000 -157,000 (62. 42) -350,829 Earnings Before Interest and Taxes 5,406,000 5,657,000 (38. 00 Interest Expense -311,000 -396,000 21. 40 Income Before Tax 5,151,000 5,500,000 (6. Besides, the trend of the net income generated by the company portrays a positive trend between 2017 and 2018, which gives a positive projection in the near future. However, Delta should increase cash and marketable securities to influence a positive liquidity index.

References Delta Air Lines Inc. (DAL). Stock Analysis on Net. D. Mergers & acquisitions: A guide to creating value for stakeholders. New York: Oxford University Press. Macrotrends. Delta Air Lines Debt to Equity Ratio 2006-2019 | DAL. Creating value in the face of declining performance: Firm strategies and organizational recovery. Strategic Management Journal, 28(3), 271-283. Appendix A: Financial Statement of Delta. Revenue (US$) 12/31/2018 12/31/2017 12/31/2016 12/31/2015 Total Revenue 44,438,000 41,138,000 39,450,000 40,704,000 Cost of Revenue 33,234,000 29,773,000 27,646,000 28,663,000 Gross Profit 11,204,000 11,365,000 11,804,000 12,041,000 Operating Expenses Research Development - - - - Selling General and Administrative 1,746,000 1,877,000 2,073,000 1,672,000 Non Recurring - - - - Others 1,723,000 1,609,000 1,621,000 2,033,000 Total Operating Expenses 39,032,000 35,481,000 33,226,000 34,203,000 Operating Income or Loss 5,406,000 5,657,000 6,224,000 6,501,000 Income from Continuing Operations Total Other Income/Expenses Net -255,000 -157,000 129,000 656,000 Earnings Before Interest and Taxes 5,406,000 5,657,000 6,224,000 6,501,000 Interest Expense -311,000 -396,000 -388,000 -481,000 Income Before Tax 5,151,000 5,500,000 6,353,000 7,157,000 Income Tax Expense 1,216,000 2,295,000 2,158,000 2,631,000 Minority Interest - - - - Net Income From Continuing Ops 3,935,000 3,205,000 4,195,000 4,526,000 Non-recurring Events Discontinued Operations - - - - Extraordinary Items - - - - Effect Of Accounting Changes - - - - Other Items - - - - Net Income Net Income 3,935,000 3,205,000 4,195,000 4,526,000 Preferred Stock And Other Adjustments - - - - Net Income Applicable To Common Shares 3,935,000 3,205,000 4,195,000 4,526,000.