Accounting Financial Analysis Report - Skywest and Cathay Pacific

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Accounting financial analysis report

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Executive summary
The report has been prepared for the analysis of the financial position and
performance of SkyWest and Cathay pacific. In that both, the companies have been
considered and the information for them is used. The various aspects of the business have
been identified with the help of a balance scorecard and in that financial and other areas are
taken into account. The evaluation of the companies is made and in that ratio analysis is also
used. There is a profitability analysis and it is identified that the performance of Cathay is on
the upper level. The consideration of horizontal and vertical analysis is also made by which
the additional aspects are covered and all of the calculations have been provided in the report
for better understanding.

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Table of Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................4
Analysis of SkyWest airlines.....................................................................................................4
Balance scorecard...................................................................................................................4
Profitability ratios...................................................................................................................5
Liquidity ratios.......................................................................................................................5
Efficiency ratios.....................................................................................................................6
Capital structure ratios...........................................................................................................6
Horizontal analysis.................................................................................................................7
Vertical analysis.....................................................................................................................7
Analysis of Cathay pacific.........................................................................................................8
Balance scorecard...................................................................................................................8
Profitability ratios...................................................................................................................8
Liquidity ratios.......................................................................................................................9
Efficiency ratios.....................................................................................................................9
Capital structure ratios...........................................................................................................9
Horizontal analysis...............................................................................................................10
Vertical analysis...................................................................................................................10
Comparison of SkyWest and Cathay pacific...........................................................................11
Conclusion................................................................................................................................11
References................................................................................................................................12
Appendix..................................................................................................................................14
Appendix 1...........................................................................................................................14
Appendix 2...........................................................................................................................20

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Introduction
The financial analysis is required to be performed in which various aspects are needed
to be evaluated. There will be consideration of non-financial as well as financial aspects for
the proper analyzation of the position and performance. In this report, the information in
relation to the SkyWest airlines and Cathay pacific will be taken into account. The balanced
scorecard will be undertaken for both and in that there will be consideration of all the four
perspectives that will be made. Financial aspects will be tested with the help of ratio analysis
in which the profitability, efficiency, liquidity and capital structure ratios will be taken into
account. On the basis of all of them, there will be proper comparison which will be made
among both the companies. The proper description with the required calculations is provided
in the report below.
Analysis of SkyWest airlines
Balance scorecard
The performance of the company is required to be measured in an appropriate manner
and for that several tools are taken into consideration. The one which can be used for the non-
financial parameters is balance scorecard approach. In this, there is mainly four perspectives
which are focused upon and they cover the following:
Customer perspective: The services are provided to the consumers and it is highly
required that quality is maintained and they shall be provided in such manner by which the
highest level of satisfaction will be ensured (Kaplan, 2012). This is done appropriately in
SkyWest as 1633 people are involved in the consumer services and by that best services are
provided.
Internal business perspective: The processes in the internal management are
performed in a proper manner and it is ascertained as there are various new aircraft that are
added and by that fleet size is improved. With that those aircraft that were not operating
properly have been removed. The business is carried in such a manner by which efficiency
and sustainability are increased.
Learning and growth perspective: The growth of any airline is measured with the
flights that are completed in a successful manner (Grigoroudis et al., 2012). It is identified

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that they are completed appropriately and timely manner. There is the use of advanced
technology and by that improvement is made possible.
Financial perspective: The financial position of the business is taken into account in
this section. It has been identified that there is an increase in the profits which has been
attained from $182 million in 2017 to $280 million in 2018. There is also an increase in
revenue by 3.2% in 2018 in comparison to 2017. This shows that financial performance is
maintained effectively.
Profitability ratios
The ratio analysis is made and in that the profitability of the business is evaluated. For
that, the various profits which are made are compared with the sales so that the margin which
is made by the company can be ascertained (Innocent et al., 2013). In this, there are various
ratios that can be calculated and they are provided below.
Particulars Formula 2017 2018
Operating profit margin Operating profit/sales *100 12.43% 14.72%
Net profit margin Net profit/sales *100 13.74% 8.70%
Return on capital employed Net profit/capital employed *100 9.22% 5.20%
The profitability of the company is increasing in terms of operating profit but there is
a decline which is made in the net profit and the return which is made on capital employed.
This shows that the company is required to make the improvement and for that, the cost
which is incurred on the sold goods will have to be reduced as the same is high in the current
period.
Liquidity ratios
The business is required to make the payment of all the obligations on time and for
that, the liquidity is required to be evaluated so that it can be maintained in an effective
manner (Drake & Fabozzi, 2012). In this, the current assets which are available will be
considered and compared with the liabilities to be met.
Particulars Formula 2017 2018
Current
ratio
Current asset/current liabilities 1.21 1.10
Quick ratio Quick asset/current liabilities 1.07 0.97

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The current ratio is declining from 1.21 to 1.1 which shows that the liquidity is
reducing and it is below the standard which is set at the 2 (Morningstar, 2019). The quick
ratio is also declining from 1.07 to 0.97 but then also it is near the standard and the company
will be able to meet the liabilities.
Efficiency ratios
The various assets and resources are involved in the business and it is required that
they are used in the most effective manner. For the ascertainment of the same, there is the
need to calculate the efficiency ratios.
Particulars Formula 2017 2018
Total asset turnover Revenue/total assets 0.57 0.51
Fixed asset
turnover
Sales/fixed assets 0.75 0.64
The total asset turnover ratio is calculated which shows the efficiency of the total
assets to generate the revenue and with that fixed asset turnover is also calculated. It is
identified that both the ratios are declining and this shows that management is not using the
available assets in an effective and efficient manner and there is the need to make
improvements.
Capital structure ratios
The business requires funds and for that various sources are used which together form
the capital structure (Ally, 2013). It is required that the same shall be maintained properly and
for that capital structure ratio is calculated in which all the required aspects are covered.
Particulars Formula 2017 2018
Debt to equity ratio Long term debt/ Total
equity
1.36 1.43
Interest cover EBIT/Interest expense 3.70 3.94
The debt to equity ratio is increasing which shows that the amount of the debt in
comparison to equity is rising and this is not beneficial for the company. With this, the
interest expenses rise and due to that, the expense of the company is increased. The interest

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cover is calculated and that is rising which is beneficial as the company will be able to meet
the interest obligation on time.
Horizontal analysis
The horizontal analysis is performed in which the change which is taking place with
the duration is ascertained. In this, the comparison between various years is made so that the
increase and decrease can be identified. This has been performed for the company and in that
analysis is performed for both the balance sheet and income statement is made. All the
calculations are provided in appendix 1.
In the analysis, it is identified that there is an increase in the total assets which are
maintained by the company. The highest amount of the increase has been identified in the
amount of cash and receivables which are involved (Bolfek et al., 2012). The investment
which is taking place in the short term is reducing and this shows that the investment has not
been made in the current year. The total non-current assets are increased. The property which
is maintained is rising and there is the purchase which is made in the current year. The
liabilities are also increasing and in that account, payables are also rising. The long term
debts which are involved in the business are also rising for the meeting of the requirement of
funds. There is also the rise in equity as the issue of the shares is made in a proper manner. It
is increasing by 11.97% which is a considerable rise.
The profitability analysis is also made and in that it is determined that the net amount
of the profit is decreasing. The gross profit of the company is increasing by 8.67% and with
that, the cost of goods sold is also increasing. The other indirect expenses which are incurred
are decreasing with time. The finance cost is increasing and also the amount of tax which is
made is increasing and with that, there is a decline in the number of profits.
Vertical analysis
In the vertical analysis, the evaluation within a single year is made by taking the total
asset as the base figure and then the contribution by the other elements in relation to the same
is identified. The calculation is made and the same is represented in Appendix 2. It is
determined that the non-current assets hold 81.77% of the total assets and remaining is in the
current assets (SkyWest, 2018). The fixed asset holds the greatest portion in the non-current
asset and that shows the company is making an investment in the fixed assets of the

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company. The liabilities hold 67.86% in which debt consumers the most liabilities. There is
the proper maintenance that is made and by that the proper structure is managed.
Analysis of Cathay pacific
Balance scorecard
The balance scorecard analysis will also be made for the Cathay pacific and in that
also all the perspectives will be covered. It is identified in the financial terms that there is an
increase in the revenue and profit which is maintained and that shows the positive financial
growth of the company.
There are various new ideas which are used and by that the level of customer
satisfaction is improving. The quality of the services which are provided is made better by the
improvement in productivity (Hansen & Schaltegger, 2016). There is more expenditure
which is made on customer services making it better.
The learning and growth perspectives are considered and in that it is ascertained that
there is an increase in the flights and that the growth is attained as the revenue increases.
Most of the flights are completed and the completion rate is good. This shows that the
company is operating successfully.
The internal business process of the company is strong as all the activities are
maintained in a proper manner (Northcott & Ma'amora Taulapapa, 2012). There is the use of
the best technology and the number of fleets and its size has been increased.
Profitability ratios
The profit is the core aim of the business and for that, it has to be maintained
appropriately. There are various factors that affect the same and they need to be considered.
Particulars Formula 2017 2018
Operating profit margin Operating profit/sales *100 -1.49% 3.24%
Net profit margin Net profit/sales *100 -1.29% 2.11%
Return on capital employed Net profit/capital employed *100 -0.86% 1.65%
The profitability position is improving as there is a rise in the profits and the losses
which have been made in 2017 have been converted to the profits in a given period. It can be