FINANCE 2: Airline Financial Statement Vertical Analysis Report

This report presents a vertical analysis of an airline's financial statements for the years 2018 and 2019. The analysis includes the income statement and balance sheet. The income statement analysis reveals a decrease in operating expenses from 92% to 91% of revenue, leading to an increase in net income from 0.2% to 8%. The balance sheet analysis highlights that total assets consistently exceed total liabilities, indicating a strong capacity to meet obligations. Property and equipment contribute significantly to total assets. The airline's shareholders' equity is lower than its total liabilities. The analysis is based on the provided financial data and references relevant accounting principles and sources such as Robinson (2020) and Weygandt, Kimmel, & Kieso (2019). The report provides insights into the airline's financial performance, including revenue, expenses, assets, liabilities, and equity, offering a detailed overview of the financial position and trends over the two-year period.

Common size (vertical) analysis

FINANCE 1
Vertical Analysis of Income Statement
Income Statement
At the end of the year 2018 2019
Revenue 18003 100%
1913
1
100
%
Operating Expenses 0%
Aircraft fuel 3696 21% 3862 20%
Wages, salaries and benefits 2873 16% 3184 17%
Regional airlines expense 2508 14% 2441 13%
Depreciation and amortization 1717 10% 1986 10%
Aircraft maintenance 903 5% 1004 5%
Airport and navigation fees 964 5% 990 5%
Sales and distribution costs 807 4% 874 5%
Ground package costs 602 3% 627 3%
Catering and onboard services 433 2% 445 2%
Communications and information technology 294 2% 397 2%
Other 1437 8% 1671 9%
Total operating expenses 16507 92%
1748
1 91%
Operating income 1496 8% 1650 9%
Non-operating income (expense)
Foreign exchange gain (loss) -578 -3% 499 3%
Interest income 108 1% 164 1%
Interest expense -567 -3% -515 -3%

FINANCE 2
Interest capitalized 35 0% 35 0%
Net financing expense relating to employee benefits -50 0% -39 0%
Gain (loss) on financial instruments recorded at fair
value -1 0% 23 0%
Gain on debt settlements and modifications 9 0% 6 0%
Gain (loss) on disposal of assets -188 -1% 13 0%
Other -36 0% -61 0%
Total non-operating income (expense) -1268 -7% 125 1%
Income before income taxes 228 1% 1775 9%
Income tax expense -191 -1% -299 -2%
Net income 37 0.2% 1476 8%
As per the above vertical analysis of Income statement, it is observed that the airline has
91% of operating expenses from the 100% of revenue in the year 2019 and in the year 2018, the
operating expenses of the airline is 92%. It has been seen that the operating expenses has been
decreases which directly affects the net income of the year. The percentage of net income has
been increases from 0.2% to 8% from 2018 to 2019. It describes that income of the airline has
been increases due to decreasing operating expenses (Robinson, 2020).
Vertical Analysis of Balance Sheet
Balance Sheet

FINANCE 3
At the end of the year 2018 2019
Assets
Current
Cash and cash equivalents 642 3% 2090 8%
Short-term investments 3162 15% 3799 14%
Total cash, cash equivalents and short-term
investments 3804 19% 5889 21%
Restricted cash 148 1% 157 1%
Accounts receivable 811 4% 926 3%
Aircraft fuel inventory 91 0% 102 0%
Spare parts and supplies inventory 115 1% 110 0%
Prepaid expenses and other current assets 425 2% 332 1%
Total current assets 5394 26% 7516 27%
Investments, deposits and other assets 402 2% 936 3%
Property and equipment 11827 58% 12834 46%
Pension assets 1583 8% 2064 7%
Deferred income tax 684 3% 134 0%
Intangible assets 318 2% 1002 4%
Goodwill 311 2% 3273 12%
Total assets 20519 100% 27759 100%
Liabilities
Current
Accounts payable and accrued liabilities 1927 11% 2456 11%
Advance ticket sales 2469 14% 2939 13%

FINANCE 4
Aero plan and other deferred revenue 0% 1162 5%
Current portion of long-term debt and lease liabilities 1186 7% 1218 5%
Total current liabilities 5582 31% 7775 33%
Long-term debt and lease liabilities 8190 46% 8024 34%
Aero plan and other deferred revenue 0% 3136 13%
Pension and other benefit liabilities 2592 15% 2930 13%
Maintenance provisions 1151 6% 1240 5%
Other long-term liabilities 159 1% 181 1%
Deferred income tax 49 0% 73 0%
Total liabilities 17723 100% 23359 100%
SHAREHOLDERS’ EQUITY
Share capital 799 4% 785 3%
Contributed surplus 69 0.3% 83 0.3%
Accumulated other comprehensive income 0.0% 25 0.1%
Retained earnings 1928 9% 3507 13%
Total shareholders' equity 2796 14% 4400 16%
Total liabilities and shareholders’ equity 20519 100% 27759 100%
According to above analysis, it has been found that the airline has high amount of total
assets as compare to the liabilities such as total assets is 20519 and 17723 as liability in the year
2018 and in 2019, the liability amount is 23359 and assets is 27759. It enhances the capacity of
the company to pay the liabilities. Long term debt is the highest debt among the total liabilities
such as 46% in 2018 and 36% in 2019. In the total assets, property and equipment has high
percentage of contribution in increasing the total assets such as it is 56% and 46% in 2018 and

FINANCE 5
2019 respectively. It describes that the airline has 14% and 16% of shareholders equity which is
less as compare to total liabilities which also describes that the airline borrow more money
instead of issuing the shares (Weygandt, Kimmel, & Kieso, 2019).