Microsoft CSP Briefing Pre-Engagement - Questionnaire
ACC 280 Week 5 Team work
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8. Southwest Current Assets & Liabilities Current Ratio = Current Assets Current Liabilities 2009 2008 $3,358 Billion = 1.26:1 $2,653 Billion = 0.95:1 $2,676 Billion $2,806 Billion Working Capital = Current Assets – Current Liabilities 2009 2008 $3,358 - $2,676 = $682mil $2,653 - $2,806 = ($153)mil
9. Southwest Profit Margin (Net Income) Difference from 2007 $467 million Difference from 2008 $79 million $645 million $178 million $99 million 2007 2008 2009
10. Southwest Profit Margin (Cont.) (2009 & 2008) $11,023 Billion $9,861Billion 1.6% = $178 Million 1.00% = $99 Million 2008 2009 MARGIN NET SALES PROFIT = NET INCOME
11. Southwest Liabilities & Assets Turnover SOUTHWEST AIRLINES CONDENSED BALANCE SHEET (PARTIAL) 31-Dec Increase or (Decrease) during 2009 In millions Current Liabilities 2009 2008 Amount Percent Accounts payable 746 668 78 11.7% Accrued liabilities 696 1012 (316) -31.2% Air traffic liability 1044 963 81 8.4% Current maturities of long-term debt 190 163 27 16.6% Total Current Liabilities 2676 2806 (130) -4.6% Long-term Liabilities Long-term debt less current maturities 3325 3498 (173) -4.9% Deferred income taxes 2207 1904 303 15.9% Deferred gains from sale and leaseback of aircraft 102 105 (3) -2.9% Other noncurrent liabilities 493 802 (309) -38.5% Total Long-term liabilities 6127 6309 (182) -2.9% Total Liabilities 8803 9115 (312) -3.4%
Two friends Herb Kelleher and Rollin King got together and decided to start an airline. They believed that if you got your passengers to their destination on time, at the lowest price possible, and they had fun in the process, they would fly your airline. They were right. Starting out with three aircraft and only flying between three cities in Texas, 38 years later they have expanded into one of the largest airlines in the world.
We are the largest airline in the world in terms of volume. We fly more passengers per year than any other airline. B) We maintain the third largest fleet of aircraft among all other airlines and fly approximately 3510 flights per day. C) Lastly, we are one of the worlds most profitable airlines in the industry. We have posted a profit for our 37 th consecutive year as of 2010.
Bullet 1 – Southwest Cash and cash equivalent for 2007 totaled $2,213 billion. Bullet 2 – Cash and cash equivalent for 2008 totaled $1,368 billion. Bullet 3 – Cash and cash equivalent for 2009 totaled $1,114 billion.
Graph shows the cash and cash equivalent for 3 years. The graph shows the decline from 2007 to 2009. Although cash and cash equivalent had decreased the company remained profitable. The percentages on the left show the percentage difference. Cash equivalent decreased from 2007 to 2008 38.2% and from 2007 to 2009 the cash and cash equivalent decrease was 49.7%. Although this percentage difference was high from the pervious year to recent it was necessary because the company made short-term investments as you will see on the next slide.
This is Southwest Partial balance sheet showing 2008 and 2009 two largest current assets and the reason why cash and cash equivalent had decreased in 2009. As you can see the percentage is calculated using the vertical Analysis and as was stated before Southwest cash and cash equivalent decreased in 2009 because the company made short term investments in 2009 therefore short term investments increased from 16.4% in 2008 44.0% in 2009 . The company find it necessary not to have to little cash and cash equivalent to avoid insolvency and they try to avoid having excessive cash because cash that’s not invested does not contribute to the company’s profit .
Southwest uses the Current ratio to evaluate the company’s liquidity and short-term debt-paying ability. In 2008 the current ratio was low stating that for every dollar of current liabilities , Southwest has $0.95 which is low for 2008. However, The 2009 ratio of 1.26:1 means that for every dollar of current liabilities, Southwest has $1.26 of current assets and this was an increase From 2008 and this was due to the fact that the company paid off some of its current liabilities in particular the Accounts Payable. Although working Capital shows for 2008 that based on the current asset to current liabilities Southwest was in the negative however, in 2009 there was an increase of $682 in working capital.
In 2009 the net income was $99 million a $79 million difference from 2008’s net Income In 2008 the net income was $178 million a $467 million difference from 2007’s net income In 2007 the net income was $645 million
Using the horizontal analyses its important to point a few things: the largest current liability being air traffic liability which is tickets sold for future dates. Its also important to point out that the accounts payables increased in 2009 because company secured 17 new aircrafts which increased the companies assets. The total liabilities for company fell 3.4%
Using the Asset turnover ratio shows that In 2008 Southwest generated sales of .71 cents for every dollar the company invested in assets and in 2009 the company generated sales of .73 cents for every dollar the company invested in assets Southwest’s asset turnover is right above the industry average of .71 times.
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