analyze four to five airlines
For each of the airlines, you will find the following files on Compass: 2014 10-K (PDF), 2014 income statement, balance sheet, and lease footnote (PDF designated “Statements and Leases”), and a spreadsheet that containstabs for the 2014 balance sheet and the 2014 income statement.
Required:
1. Provide a short description of the airlines. Create Table 1 that summarizes the following items for each airline in 2014: total revenue, net income, total assets, total number of aircraft, number of aircraft under operating leases, percentage of aircraft under operating leases out of the total number of aircraft. Discuss the ranking of the airlines based on each of those characteristics.(5 points)
2.Calculate 2014 financial ratios for each airline using data from the 2014 financial statements. See Appendix A for a list of ratios and their definitions.Summarize the ratios of all the airlines in Table 2, and discuss the rankingof the airlines’ liquidity, profitability, turnover, and capital structure. Do you expect the ranking to change after the capitalization of the operating leases? Explain why or why not. (15 points)
3. Use the information from the lease footnotes to capitalize all operating leases (aircraft and non-aircraft if any) for each airline,using an assumed discount rate of 5% (see Appendix B for the necessary steps). For each airline, calculate the adjustments to 2014 long term assets, current liabilities, and long term liabilities. Present Table 3 that summarizes for each airline the 2014 total assets, current liabilities, long term liabilities, and total liabilities as reported in the financial statements, the adjustments that you calculated for each of those items, and the revised numbers (i.e., the sum of each number as reported plus the adjustment) 20 points
4. Recalculate the financial ratios for each airline using the adjusted numbers. Present Table 4 that summarizes all ratios for all airlines before and after the adjustments.Discusswhichratios (i.e., liquidity, profitability, turnover, capital structure) were affected the most and which were affected the least, and explain why there are different magnitudes of change.(10 points)
5. Using the revised ratios, calculate the percentage change in each airline’s liquidity, profitability, asset turnover, and capital structure, and summarize these percentage changes for all airlines in Table 5. Explain why some airlines were more affected by the adjustments than others. (5 points)
6. Provide a summary that discusses which airline was most aggressive in its treatment of off-balance sheet operating leases and explain how you determined who was most aggressive. (5 points)
7. Sensitivity Analysis: All previous calculations have assumed a 5% discount rate. How would the results of the analysis change if the assumed discount rates were higher or lower? Which ratios would decrease? Which ratios would increase? Which ratios would not be affected? Explain. (10 points)
8. The 5% discount rate that was used in this project was an arbitrary rate. If you had to choose the most appropriate rate to use in discounting the operating leases of each airline, what would that discount rate be? Create Table 6 that shows the most appropriate discount rates for each airline, and explain how you arrived at those rates. (10 points)