Financial Report: Comparing SkyWest Airlines and Cathay Pacific

This report presents a comprehensive financial analysis of SkyWest Airlines and Cathay Pacific, focusing on their performance using financial and non-financial measures. Employing a balance scorecard approach, the analysis covers customer, internal business, learning and growth, and financial perspectives. The report delves into profitability, liquidity, efficiency, and capital structure ratios, comparing the two airlines' performance. Horizontal and vertical analyses are conducted to assess trends and structural aspects. The financial data from 2017 and 2018 is examined, revealing insights into revenue, profit margins, and operational efficiency. The report highlights key findings, comparing the two airlines' resilience in the face of industry challenges and providing a detailed evaluation of their financial health and strategic positioning. The report includes detailed calculations and appendices to support the analysis and conclusions.

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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 201
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2018
Current
ratio
Current asset/current liabilities 1.21 1.10

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Quick ratio Quick asset/current liabilities 1.07 0.97
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 201
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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

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interest expenses rise and due to that, the expense of the company is increased. The interest
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

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asset and that shows the company is making an investment in the fixed assets of the
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%

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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
noted that there are profits which are made in the current period and for that higher amount of
sales is made.
Liquidity ratios
The obligations arise in the business and they are to be maintained appropriately in
the manner that all the payments are made on time (Uyar & Kilic, 2012). For this, the current
and quick ratios are calculated.
Particulars Formula 201
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2018
Current
ratio
Current asset/current liabilities 0.80 0.61
Quick ratio Quick asset/current liabilities 0.76 0.57
The current ratio and quick ratio both are decreasing and this is because of the
decrease in the amount of the current asset and increase in the liability. This has caused an
adverse impact on the liquidity position of the business and improvement will be required to
be made.
Efficiency ratios
The efficiency of the management in using the asset is tested with the help of these
ratios and they will be providing the revenue which is made with the help of those assets.
Particulars Formula 2017 2018
Total asset turnover Revenue/total
assets
0.52 0.58
Fixed asset turnover Sales/fixed assets 0.87 0.95
The total asset turnover and fixed asset turnover is calculated and they both are
increasing in the current year. This shows that management is efficient and is able to generate
revenue with the help of assets. It is able to use them properly in all situations.

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Capital structure ratios
The management of the capital structure shall be strong as that is an important aspect.
For this the debt and equity will have to be balanced in such a manner that no extra burden is
made on the company and operations can also be performed effectively (Khaliq et al., 2014).
Particulars Formula 2017 2018
Debt to equity ratio Long term debt/ Total
equity
1.13 0.94
Interest cover EBIT/Interest expense -0.65 1.46
There is a decrease in the debt to equity ratio and that represents a decline in the
amount of the debt which is maintained by the company. This is beneficial as the cost which
is associated with the debt will be reduced and thereby increasing the profits. The interest
cover is also rising which shows that the interest of the company will be covered by the
income in a proper manner.
Horizontal analysis
The horizontal analysis is performed and in that the comparison between the two
years is made. In this, the increases from the past year are ascertained and it is identified that
there is a decline in the current assets that are maintained by the company and the derivative
investment is increasing greatly. There is an increase in the inventory which is made and that
is at the rate of 20.66%. The total liabilities have declined a little but the accounts payable are
increasing. The equity balance has increased and this shows that the share of the company has
been issued to raise the funds.
The gross profit of the company has increased widely and there is a rise in the revenue
also which is made by the company. The increase in the cost of goods sold is lower than that
of the revenue and due to that the gross profit is rising (Crespo et al., 2014). There is an
increase in the profits and that is due to a decline in the expenses which are made. This shows
that there is an increase in the position and performance of the company.
Vertical analysis
In the analysis, it is derived that property and plant hold the highest value of the total
assets. There is an increase in the total assets and they will be used for the benefit of the

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company. The vertical analysis identifies the percentage of the assets and liabilities in
comparison to the total assets. The same has been made and in that, there is 67.47% which is
the aspect of total liabilities in the company (Cathay pacific, 2018). The long term debts are
36.9% which is a reasonable amount and the company will be able to bear the expenses in
relation to the same. It can be said that there is a proper balance that is maintained among all
the assets and liabilities.
Comparison of SkyWest and Cathay pacific
The calculations have been made and in that the various aspects of both the airlines
have been undertaken. It is identified that in overall terms the performance and position of
Cathay pacific are better than the SkyWest as there is an increase in the profitability in
Cathay which is not there for the SkyWest. In addition to this, the liquidity is also maintained
by Cathay and will be able to meet with the liabilities effectively. The management of the
company is strong and will be using the assets and liabilities in the most effective manner.
They will be using the same in such a manner that the maximum amount of gains will be
attained. The amount of the debt is more in SkyWest which is not a positive aspect as that
will increase the interest expense. The amount of debt is lower in Cathay and that makes the
position stronger in that company. There is an appropriate level of the capital structure that is
maintained and this is identified in the horizontal and vertical analysis. The increase in assets
is identified in Cathay and that will be beneficial to attain the growth.
By taking all of the aspects into consideration the position of Cathay is better and will
be operating in a proper manner.
Conclusion
The financial analysis has been performed and in that there is the use of various tools
and techniques which are made. The balanced scorecard is undertaken and in that, all the four
aspects of both the companies have been taken into account. There is the identification of the
proper performance of both of them to make them successful. There is the ratio analysis that
is performed and in that, all of the calculations have been made to cover all the areas of
business. The profitability, efficiency, liquidity and capital structure of the company are
analyzed. There is the use of horizontal and vertical analysis also in which the comparison
with the past period is made and with all that the company who is performing well is
identified.

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