Part I: Firm History and Overview
Develop an overview/history of the firm that you have chosen, as well as the industry your firm operates in. You should include information that describes the market structure and competition in the industry, along with the position of your firm within this industry – i.e., is the firm one of the leaders or is it a niche player? Is the firm one of the medium-size firms in the industry? Part I will be worth 30 points.
Part II: End-Point Financial Analysis
Using historical financial statements (income statements and balance sheets) for the firm, analyze the financial performance and changes to the firm over a ten-year time period using an end-point analysis framework. Develop an overview/history of Delta Air Lines, Inc. (DAL), as well as conduct an end-point financial analysis and working capital analysis.
Financial analysis: you should construct and complete an end-point financial measures –i.e., numerical values for income statement and balance sheet at a 10-year interval (i.e., 2006 and 2016), overall growth in assets, revenues, equity, debt, etc. Common-size income statement and balance sheet for the income statements and balance sheets you provide, ratios for your firm for the two time periods (e.g., 2006 and 2016), i.e., what changed and why. That is, describe the changes in these statements and analyze the cause of the changes. Include: a) mix of assets, b) split between current assets and fixed assets, c) mix of debt, d) split between current liabilities and LT liabilities, capital structure (i.e., debt and equity), e) profitability at all levels, f) changes in expenses, etc. Analysis of the ratios by category—include in this an explanation of the cause of the change—e.g., liquidity increased due to the increase in CAs and decrease in CLs. Analysis of the DuPont equation and discussion of the underlying reasons for the changes in ROI (ROA) and ROE for your two end points. Analysis of working capital and discussion of the implication of a positive or negative WC level. Summary and conclusion concerning the major changes in Delta’s financial situation.
Next, you will identify the major changes in the firm’s financial performance over this time period. Include an analysis of: 1) overall changes/growth in the firm’s revenues, assets, and liabilities; 2) common-size statements; 3) ratio analysis; and 4) analysis using the DuPont model.
You will be required to provide the conclusions regarding which way the major ratio categories are trending. An acceptable conclusion might be, for example: “profitability has increased over the last five years as evidenced by increasing net margin and gross margin ratios. This is the result of a decrease in cost of goods sold, higher margins because of increased market share, etc.” You should also research the notes to your company’s 10K to determine the probable causes of these changes (“Leverage increased because the company issued $50M in bonds to pay for a plant expansion.”). Part II will be worth 70 points.
Part III: Working Capital Analysis
Using the same financial statements from your Financial Analysis (Part II), provide an analysis of the firm’s working capital policy and changes to this policy over a ten-year period. Your working capital analysis should include the following: 1) overall level and change in WC over the time period and the factors that caused these changes; 2) calculation of the Cash Conversion Cycle for the beginning and ending period and a discussion of causal factors and implication of these changes; 3) overall assessment of the firm’s working capital policy (i.e., is it conservative, moderate, or aggressive?). Compare your results to the firm’s industry averages. Part III will be worth 40 points.