In-Depth Financial Analysis of Delta Air Lines Company

This report provides a comprehensive financial analysis of Delta Air Lines, examining its history, business strategy, and financial performance from 2014 to 2016. It assesses short-term liquidity, long-term solvency, asset efficiency, profitability, and cash flow, highlighting key financial ratios and trend...Read More

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
a. Analysis overview of the company:.......................................................................................2
i. Summary of firm’s history:.....................................................................................................2
ii. Firms main competition and customers:................................................................................2
iii. Providing relevant information on management and management compensation:..............2
b. Depicting summary of the firm’s business strategy:..............................................................3
c. Financial analysis of the company:........................................................................................3
i. Analysis of the short term liquidity and longer term solvency:..............................................3
ii. Analysis of asset efficiency:..................................................................................................4
iii. Analysis of profitability:.......................................................................................................5
iv. Analysis of cash flow:...........................................................................................................6
d. Accounting analysis of the firm’s earnings quality:..............................................................6
e. An evaluation of firm’s stock price per share:.......................................................................7
f. Depicting relevant recommendations and conclusion:...........................................................9
Reference and Bibliography:....................................................................................................10

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a. Analysis overview of the company:
i. Summary of firm’s history:
Delta Air Lines is mainly identified to be one of the major American airlines, whose
overall net income amount to $4.373 billion in 2016. The company has a large history, where
it started the operations of crop dusting during 1925. Moreover, from 1928 the overall Delta
Air Lines mainly started its flight operations in 1928, where the first operations began in
1929 with the flights between Dallas, Texas and Jackson. The company during 1980 started
the pacific and internal flight operations (Ir.delta.com, 2017). However, during 2007 the
company faced bankruptcy but the merger with Northwest Airlines allowed Delta Airlines to
become world’s largest Airline. Lastly, the combining of website and reservation system
mainly retired the Northwest Airlines name and brand from Delta Air Lines.
ii. Firms main competition and customers:
The competitors of Delta Air Lines, are Southwest Airlines Co, American Airlines
Group Inc and United Continental Holdings Inc. The competitors of the organisation can be
identified from the Market Cap that is enjoyed by the companies. The overall competitors of
the company have mainly increased the intense competition in the market, which intensifies
the competition level in the airline industry. The main target customer of Delta Air Lines
ranges from first class facilities to basic economy, where high end customer and as well as
low income earning customers are targeted by the company (Ir.delta.com, 2017).
iii. Providing relevant information on management and management compensation:
The top management of Delta Air Line is Ed Bastian (Chief Executive Officer), Glen
Hauenstein (President), Gil West (S.E.V.P. and Chief Operating Officer), and Paul Jacobson

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(E.V.P. and Chief Financial Officer). These identified top management personnel mainly
conduct the relevant operations for improving profitability of the organization. The
management information mainly helps in identifying the relevant income, which could be
generated from the operations (Ir.delta.com, 2017).
b. Depicting summary of the firm’s business strategy:
From the overall evaluation of company’s performance, the relevant business strategy
of Delta Air Line could be identified. This could eventually allow the company to generate
the required level of profitability and attain sustainable growth. The main business strategy of
Delta Air Lines is to attract more customer for their Airbus, which helps in generating higher
revenue from investment (Ir.delta.com, 2017). In addition, merger is also one of the major
activities and strategy of Delta Air Lines, which has allowed the organisation to increase its
activities and become one of the largest Airlines in United States.
c. Financial analysis of the company:
i. Analysis of the short term liquidity and longer term solvency:
Particulars 2014 2015 2016
Solvency ratio 12.8% 36.4% 38.4%
Debt/Equity ratio 83.7% 79.6% 76.0%
Quick ratio 68.8% 47.7% 43.0%
The above table mainly represents the overall short term and long term solvency
condition of the Delta Air Lines from 2014 to 2016. The overall valuation of solvency ratio
mainly increased from 2014 to 2016, where the risk from investment relevantly increased.

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This problem in solvency condition mainly increased over time, which raised the problems in
company’s financial attribute. The relevant debt/equity ratio decline rapidly indicating
relevant reduction in debt accumulation, which is been conducted by the company. The
relevant evaluation of debt to equity ratio and solvency ratio mainly helps in understanding
the overall long term and short term solvency condition of the company. Abdul-Baki,
Uthman & Sannia (2014) mentioned that with adequate ratio investor are able to detect the
financial condition of the company, where relevant investments could be conducted.
The overall liquidity conduction of the company is also evaluated with the help of
quick ratio, where ability of the company to support short term obligations is greatly reduced.
The overall financial ability of the company mainly declined, where its quick ratio declined
from 0.69 in 2014 to 0.43 in 2016. This mainly indicates that the company’s ability to support
short term obligations has relevantly declined in 2016. Hence, the Delta Air Line is not able
to support the relevant financial obligations and conduct relevant operations. Baños-
Caballero, García-Teruel, & Martínez-Solano (2014) mentioned that the use of liquidity ratio
could eventually allow the investor to detect viability of the current assets. Therefore, the
problems in the overall financial stability of the organisation could be detected from the
valuation of the financial condition.
ii. Analysis of asset efficiency:
Asset Efficiency 2014 2015 2016
Working capital ratio 0.74 0.52 0.49
Inventory turnover 23.99 22.07 20.08
Total asset turnover 75.89% 75.90% 75.94%

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The overall table mainly depict the relevant asset efficiency of Delta Air Line, which
directly help in detecting management efficiency in controlling business activities. The
overall working capital ratio has mainly declined over the period of 3 years where it reduced
from 0.74 to 0.49. This reduction in working capital ratio mainly reduces the relevant
capability of the company to support its activities. Furthermore, the overall inventory
turnover ratio is also identified from the above table, which is relevantly declining from 2014
to 2016. This relevant decline in inventory level could eventually reduce the overall ability of
the company to clear its inventory in time. The overall asset turnover ratio of the company
could eventually help in generating higher revenue from investment. The asset turnover ratio
has mainly increased from 75.89% to 75.94%, which helps in depicting relevant returns
generated by the company. Therefore, the overall asset efficiency of the organisation has
mainly increased, while the other efficiency measure mainly reduces financial viability of the
company (Delen, Kuzey & Uyar, 2013).
iii. Analysis of profitability:
Profitability 2014 2015 2016
Profit margin 1.63% 11.12% 11.03%
Gross margin 43.10% 58.00% 59.79%
The overall above table mainly represent the profitability ratio of Delta Air Lines,
which could help in depicting its financial viability. The overall profit margin of the
organisation has drastically increased from 2014 to 2015, which depicting the overall revenue
generated by Delta Airlines. However, the overall profit margin of the company mainly
declined from 11.12% in 2015 to 11.03% to 2016. This relevant decline is mainly due to the
rising expenses incurred by the company, which resulted in reduce income generated in 2016

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as compared to 2015. The overall gross profit margin of the company has mainly inclined
adequately from 2014 to 2016, which could help in depicting its revenue generation capacity.
However, from the overall evaluation it could be seen that net profit margin did not increase
adequately, as the gross profit margin, which relatively depicts the increased administrative
expense incurred by the company. In this context, Duchin & Sosyura (2014) mentioned that
investor with the help of profitability ratio is able to detect trend on revenue generation
capacity of the company. This detection of the revenue and expense trend mainly allow the
investors to detect financial viability of the investment.
iv. Analysis of cash flow:
Cash flow analysis 2014 2015 2016
Operating cash flow 0.13 0.45 0.46
The overall operating cash flow ratio is mainly identified from the above table, which
is relatively seen to be rising in nature. This relevant increment in the operating cash flow of
the company is mainly high, as the overall revenue increased exponentially. From the
evaluation it could be identified that operating cash flow increased exponentially from 0.13 in
2014 to 0.45 in 2015. However, the increment in operating cash flow from 2015 to 2016 was
nominal at 0.01. This relevantly indicates that the company’s overall expenses increased in
2016, which relevantly reduce the overall operations cash flow of the organisation (Erdogan,
2014).
d. Accounting analysis of the firm’s earnings quality:
The overall firm’s earnings quality mainly inclined from 2014 to 2016, which
relatively depicts the overall management control for generating higher revenue from

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investment. The company after completion of 2014 mainly ended the expenses incurred from
the operations, which in turn help in generating higher earnings from operation. In addition,
the relevant increment in total revenue earned by the organisation and the overall cost of sales
could be evaluated from the annual report. The overall reduction in cost of revenue could be
conducted, which might help in increasing the overall gross profit of the organisation. This
relevant increment in the overall revenue mainly indicates the profits that is generated by the
organisation by conducting low expenses. The restructuration of merger and acquisition
expense after 2014 mainly declined to nil in 2016. This relevantly helped in improving
profitability of the company, which in turn generate higher revenue from investment. The
relevant decline in cost of capital is mainly conducted by the management for increasing the
profits of the organisation. Grinblatt & Titman (2016) mentioned that the overall valuation of
earnings per share could help ion depicting the relevant growth, which might be attained by
the company in future.
e. An evaluation of firm’s stock price per share:
Figure 1: Depicting the Share price of the company

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(Source: Us.finance.yahoo.com, 2017)
From the overall evaluation of the above figure relevant share price of the stock can
be denitrified, which is relatively seen to be in an uptrend. The long term trend of the
organisation is relatively in uptrend, while the short term trend is relatively in consolidation.
This overall evaluation of the share price mainly indicates that share price valuation of the
company is currently declining. The levels of 51.40 is mainly identified to be the relevant
support level for the share price, which could directly increase over time. Le & Viviani
(2017) mentioned that with the help of share price valuation investors are mainly able to
detect the price range and trend, which could help in making adequate investment decisions.
Figure 2: Predicting future share price of the company
(Source: Us.finance.yahoo.com, 2017)
The trend line is adequately visible where relevant viability of an uptrend could be
identified, which could allow the organisation to generate higher revenue from investment.

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Hence, the use of technical analysis could mainly help in identifying the relevant share price
of the company, which could help in making adequate investment decisions. The above
figure mainly represents the relevant future price predictions that could estimate the relevant
price of current Delta shares. The levels of 48.33 is mainly identified to be the stop loss with
the relevant target of 58.76 in future. This move could mainly help in improving returns that
will be generated from investment. Leary & Roberts (2014) argued that technical analysis
valuation is only viable if the investors are able to accurately estimate the price trend and
generate higher revenue from investment. Therefore, with the help technical analysis relevant
price level of Delta Air Line could be identified.
f. Depicting relevant recommendations and conclusion:
The overall evaluation of the assignment mainly helps in depicting the current
financial performance of Delta Air Lines company. This relevant valuation of the company
could help in depicting the investment option, which might help in generating higher revenue
from investment. The evaluation of all relevant issues mainly help in identifying financial
viability of Delta Airlines, which could help in generating higher returns from investment for
the investors. Technical analysis conducted in the above section also depict the relevant
financial Trend of the organization, which might provide higher returns from investment in
future. The evaluation of earnings per share also depict relevant growth, which could be
obtained by the organization in near future. Hence, it advisable for investors to relatively
invest in Delta Airlines, as it might help in generating higher revenue for them in near future
and create wealth. Therefore, from the overall evaluation financial viability of delta Airlines
could be identified, which might help investors in making adequate investment decisions.

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