Financial Performance Analysis Report: Southwest & Singapore Airlines

This report provides a comprehensive financial analysis of Southwest Airlines and Singapore Airlines, evaluating their financial performance using various financial ratios. The analysis includes profitability ratios (net profit ratio, gross profit ratio), liquidity ratios (current ratio, quick ratio), and gearing ratios (debt-equity ratio) for the years 2015, 2016, and 2017. The report examines the companies' missions, visions, and objectives, followed by a non-financial overview of each airline, including their history, operational strategies, and key features. A detailed ratio analysis is then conducted, with calculations and interpretations of the financial ratios to assess each company's financial health and market position. The report concludes with a comparison of the two airlines, highlighting their strengths and weaknesses based on the calculated ratios, and provides overall insights into their financial performance and strategic positioning within the airline industry.

Financial Analysis

EXECUTIVE SUMMARY
The below report is based on the financial analysis of two different companies that are
Southwest Airlines and Singapore Airlines. Various financial ratios have been calculated for the
purpose of analysis as it can help to determine that organisation is performing well or not.
Strengths and weaknesses of both the companies have also been analysed with the help of ratios
that are calculated for the purpose of assessing actual position of the company in market.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
ANALYSIS OF COMPANIES.......................................................................................................1
Non financial analysis............................................................................................................1
Financial analysis...................................................................................................................3
COMPARISON OF BOTH THE AIRLINES...............................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
APPENDIX....................................................................................................................................16

INTRODUCTION
Financial analysis can be defined as the process of analysing financial statements of an
organisation in which actual performance, available resources, profits, incomes, expenditures and
revenues are evaluated. Main purpose of financial analysis is to assess that business is in profits
or losses and it is performing well or not (Financial analysis, 2018). In all the companies
financial analysts are hired by directors so that they can properly check final accounts that
includes income statement, balance sheet and cash flow statement. It guides managers to
formulate effective strategies for the business in order to attain predetermined objectives. Main
aim of this report is to understand the importance and uses of financial analysis to analyse actual
performance of a company. In this project report financial analysis has been conducted for two
different organisations that are Southwest and Singapore Airlines. For the purpose of analysis
different ratios like profitability, liquidity, efficiency and gearing ratios have been calculated for
both the organisation. At last comparison performance of both the companies, strengths and
weaknesses are discussed under this assignment.
ANALYSIS OF COMPANIES
Non financial analysis
Overview of Southwest Airlines:
It was established in year 1967 by Mr. Herbert Kelleher and Rollin King. Currently the
organisation is operating business in US successfully. Its headquarter is in Dallas, Texas. The
business in executed with the help of more than 57000 employees. Main goal of the organisation
is to satisfy all its customers by providing them good services on low prices so that all of them
can be retained for a long period. A unique boarding process is used by the company that helps
to entertain customers while they have to wait for sometime while boarding (Vogel, 2014). In
Southwest Airline the interior is also very attractive as in year 2001 it as introduced spirit interior
in flights. Various characteristics of flights attracts large number of customers. The features that
are included in the airline are free Wi-Fi, paid live television streaming on demand of visitors
etc. An evolve interior has also been introduced in some sections of flight in which retro theme
and eco friendly seats are launched by the organisation.
The most attractive thing which is offered to the customers is rapid reward. In this reward
system some points are gifted by the organisation to the visitors all of them are provided
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according to cost of tickets. These points can be redeemed by customers to get a free ticket or a
particular percentage of discount on their flights. Different types of promotional activities are
used by the company while conducting marketing operations. It is mainly known for humour in
all its advertisements (Laudon and Traver, 2013). Current slogan of Southwest Airline is “Low
fares nothing to conceal”. Mission, vision and objective of the company are as follows:
Mission: Southwest Airline's mission is to deliver best quality services to the customers
so that they get satisfied and organisation may attain higher growth.
Vision: Southwest Airline's vision is to become first choice of customers and to bee most
loved, flown and profitable airline.
Objective: Main objective of the company is to capture large market area so that
business can be expanded in more geographic locations in order to increase profits and sales
(Annual report of Southwest Airlines, 2018).
Overview of Singapore Airlines:
It is one of the oldest airlines in world as it was founded in year 1947 and the operation of
the organisation are commenced from year 1972. Peter Seah Lim Huat is the chairman of the
organisation and Goh Choon phong is the chief executive officer of Singapore Airlines.
Currently the organisation is having more than 14700 employees. It is owned by government of
Singapore. Its headquarter is in Changi. For branding the business entity is using Singapore Girl.
The business is operated by the airline in 32 countries with 62 different destinations. The
organisation is having strong presence in Southeast Asian region (Sheikhi, Ranjbar and Oraee,
2012). When financial crisis had taken place in year 1997 the organisation have discounted its
flights in some destinations. The airline is offering five different classes of services to its visitors
that are economy, premium, business, first class and suites. The quality of food which is
delivered to the customers is very good and different range of food is offered to the visitors. As
Singapore Airline's business in executed by government hence the prices for the tickets is low as
compare to other flights but it is very costly for the customers who belongs to other countries
except Singapore. This airline is the part of world's 15 most preferable airlines. Vision, mission
and objectives of the company are as follows:
Vision: The organisation is willing to maximise its profits by delivering good air
transportation services to the customers.
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Mission: Singapore Airline's mission is to be on the top of the airline industry in up
coming period.
Objectives: Main objective of the organisation is to improve its performance so that it
can increase its profits and number of customers (Annual reports of Singapore Airlines, 2018).
Financial analysis
Ratio analysis: It can be defined as the process of analysing different types of ratios that
are calculated with the help of various information which is collected from financial statements
of the organisation (Cucchiella, D’Adamo and Gastaldi, 2015). Calculation of some selected
ratios for Singapore Airline and Southwest Airlines is as follows:
Profitability ratios: Such type of ratios are calculated to analyse overall profitability of
an organisation. It depicts that company is earning profits or facing losses. It guides stakeholders
to determine business's ability to generate profits against the expenses. It is very important for all
the investors and other stakeholders as they use it to make strategic decision. Following ratios are
calculated to evaluate profitability of both the business entities:
 Net profit ratio: This ratio is calculated to analyse overall net profitability of the
company after deducting all the costs that includes production, administration etc. It
shows the relationship between net profit and organisation's sales. Calculation of this
ratio is as follows:
Formula: Net profit after tax / total revenues * 100
Southwest Airlines:
Particular 2015 2016 2017
Net profit 2181 2244 3488
Total revenues 19820 20425 21171
Net profit ratio 11.00 10.99 16.48
Singapore Airlines:
Particular 2015 2016 2017
Net profit 407 852 442
Total revenues 15566 15229 14869
Net profit ratio 2.61 5.59 2.97
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From the above calculations it has been analysed that net profit ratio of Southwest
airlines is higher than Singapore airlines because of higher profits. The calculations shows that
Southwest Airline's profitability is in increasing trend (Bragg, 2012).
 Gross profit ratio: It is a profitability ratio which is used to analyse relationship between
revenues and gross profit of companies. While management accountant of the
organisation is trying to analyse operational performance then this tool can help
effectively for the same purpose (Doss and et.al., 2013). Calculation of gross profit ratio
is as follows:
Formula: Gross profit / total revenues * 100
Southwest Airlines:
Particular 2015 2016 2017
Gross profit 6397 6274 6203
Total revenues 19820 20425 21171
gross profit ratio 32.28 30.72 29.30
Singapore Airlines:
Particular 2015 2016 2017
Gross profit 1712 2096 2172
Total revenues 15566 15229 14869
gross profit ratio 11.00 13.76 14.61
As analysed form the above computation overall profitability of Singapore Airlines is
very good as it is in increasing form. But if it is compared with Southwest than its profitability is
lower than sourthwest. Overall profitability is low as it is decreasing year to year.
Liquidity ratios: All the liquidity ratios are calculated by the financial analysts of
organisations in order to analyse liquid strength of a company. It guides the managers while they
are allotting funds to different divisions of organisation (Rudolf and Papastergiou, 2013).
Following liquid ratios are calculated for Singapore and Southwest airlines:
 Current ratio: This ratio is calculated by the accountant in order to determine that if the
organisation is able to pay all its short term obligations or not. Ideal current ratio for
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furniture and manufacturing industry is considered to be as 2:1. It is measured with the
help of current assets and liabilities of the organisation (Drake and Fabozzi, 2012).
Computation for this ratio is as follows:
Formula: Current assets / Current liabilities
Southwest Airlines:
Particular 2015 2016 2017
Current assets 4024 4498 4815
Current liabilities 6905 6844 7406
Current ratio 0.58 0.66 0.65
Singapore Airlines:
Particular 2015 2016 2017
Current assets 7465 6776 5700
Current liabilities 6783 6440 6289
Current ratio 1.10 1.05 0.91
From the above table it has been analysed that current ratio of Singapore Airline is good
as compare to Southwest Airline which means its liquidity is higher than Southwest. But overall
liquid strength of Southwest Airlines is very good because it is increasing year to year. Current
ratio of Singapore Airlines in decreasing with the year which means the organisation is not
having effective liquid strength (Morano and Tajani, 2013).
 Quick ratio: It is a liquidity ratio which is calculated to assess relationship between
quick assets and current liabilities. It help the directors to analyse organisation's ability to
meet all the short term obligations with the help of highly liquid assets. Ideal quick ratio
for this industry is considered to be as 1:1. Calculation of the ratio is as follows:
Formula: Quick assets / current liabilities
Southwest Airlines:
Particular 2015 2016 2017
Quick assets 3713 4161 4395
Current liabilities 6905 6844 7406
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Quick ratio 0.54 0.61 0.59
Singapore Airlines:
Particular 2015 2016 2017
Quick assets 7138 6462 5311
Current liabilities 6783 6440 6289
Quick ratio 1.05 1.00 0.84
Quick ratio of Southwest Airlines is fluctuating in all the three years and if it is compared
with Singapore Airlines than its liquidity is low as compare to other organisation. Quick ratio of
Singapore Airlines is continuously decreasing with year which means organisation may have to
face financial crisis in up coming years.
Gearing ratios: All such type of ratios are related to the capital structure of a company in
which contribution of internal and external liabilities are analysed. It help the stakeholders to
analyse that what percentage of funds are acquired from internal and external sources separately.
Following ratios are calculated under this type of ratio:
 Debt equity ratio: It is calculated to analyse that what amount of external debts can be
paid with the help of shareholder's equity. Debts equity ratio is also called risk gearing
ratio and ideal ratio for this is considered to be 2:1 (Duguma, 2013). For organisations the
calculation for this ratio is as follows:
Formula: Total debts / total equities
Southwest Airlines:
Particular 2015 2016 2017
Total debts 13954 14845 14680
Total equities 7358 8441 10430
Debt equity ratio 1.90 1.76 1.41
Singapore Airlines:
Particular 2015 2016 2017
Total debts 11458 11015 11637
Total equities 12464 12755 13083
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Debt equity ratio 0.92 0.86 0.89
Debt equity ratio of Southwest Airline is continuously declining with year which means
the debts are decreasing and equities are increasing. The organisation need to maintain its
internal and external liabilities. Singapore Airline's Debt Equity ratio is fluctuating but in year
2017 organisation's debts are increased which means the organisation is in good situation (Calice
and Ioannidis, 2012).
 Total asset to debt ratio: This ratio is computed to analyse the proportion of total assets
that are financed by external parties. Calculation of this ratio is as follows:
Formula: Total assets / total debts
Southwest Airlines:
Particular 2015 2016 2017
Total assets 21312 23286 25110
Total debts 13954 14845 14680
Total assets to debt ratio 1.53 1.57 1.71
Singapore Airlines:
Particular 2015 2016 2017
Total assets 23921 23770 24720
Total debts 11458 11015 11637
Total assets to debt ratio 2.09 2.16 2.12
From the above calculation it has been observed that Singapore Airline's total assets to
debts ratio is higher than Singapore Airlines which means most of the assets in Singapore
Airlines are financed by external parties as compare to Southwest Airlines.
Efficiency ratios: In such type of ratios overall efficiency of an organisation is evaluated
by the managers and other executives. It can guide to the stakeholders to determine the funds that
organisation is having to perform organisational activities and buy assets. Following ratios are
calculated to assess efficiency of both the organisations:
 Fixed asset turnover ratio: It is the ratio of sales to the value of fixed assets in which it
is analysed that organisation is appropriately using all the fixed assets so that sales can be
maximised. Calculation of this ratio is as follows:
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Formula: Total revenues / Fixed assets
Southwest Airlines:
Particular 2015 2016 2017
Total revenues 19820 20425 21171
Fixed assets 17288 18788 20295
Fixed asset turnover ratio 1.15 1.09 1.04
Singapore Airlines:
Particular 2015 2016 2017
Total revenues 15566 15229 14869
Fixed assets 16456 16993 19020
Fixed asset turnover ratio 0.95 0.90 0.78
As analysed from above calculation fixed assets turnover ratio of Southwest Airline is
higher as compare to Singapore Airlines. Ratio for both the organisation are decreasing with then
years. If both are compared with each other Singapore Airlines is using all its assets
appropriately that may result in higher profitability.
 Total asset turnover ratio: This ratio is calculated to determine relationship between
revenues and total assets of the company . Calculation of total asset turnover ratio is as
follows:
Formula: Total revenues / total assets
Southwest Airlines:
Particular 2015 2016 2017
Total revenues 19820 20425 21171
Total assets 21312 23286 25110
Total asset turnover ratio 0.93 0.88 0.84
Singapore Airlines:
Particular 2015 2016 2017
Total revenues 15566 15229 14869
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Total assets 23921 23770 24720
Total asset turnover ratio 0.65 0.64 0.60
From the above calculation it has been analysed that Total asset turnover ratio of both the
organisations are decreasing. Both of them are using their assets appropriately for the purpose of
increasing sales (Shouman, El Shenawy and Khattab, 2016).
Horizontal analysis of Income statement:
Southwest Airlines:
Particulars Year 2017 Year 2016
Difference(In
Amount)
Difference(I
n %)
Revenue 21171 20425 746 3.65
Less: Cost of revenue 14968 14151 817 5.77
Gross Profit 6203 6274 -71 -1.13
Expenses 2554 2451 103 4.20
Net Profit 3649 3823 -174 -4.55
Singapore Airlines:
Particulars
Year
2017 Year 2016
Difference(In
Amount)
Difference(I
n %)
Revenue 14869 15229 -360 -2.36
Less: Cost of revenue 12697 13133 -436 -3.32
Gross Profit 2172 2096 76 3.63
Operating Expenses 1653 1124 529 47.06
Net Profit 519 972 -453 -46.60
Vertical analysis of balance sheet:
Southwest Airlines:
Particulars 2017 2016
Amount Percent (%) Amount Percent (%)
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