Compared Delta Airlines with Southwest Airlines for the years 2018 and 2019.
Abigail Kilgore
For this vertical analysis, I have compared Delta Airlines with Southwest Airlines for the years 2018 and 2019.
Common-sized financial statements are convenient to compare financial statements because it is all based on percentage, allowing for size to be excluded as a relevant variable. It is easy to use for the same company year over year and companies that are competitors even if they are of different sizes. They are all comparing by identifying a base, such as total assets, and then everything else under assets is compared as an overall percentage.
Total current assets between Delta Airlines and Southwest Airlines both showed an increase in their percentage from 2018 to 2019. However, Southwest had a larger increase as well as a higher percentage to begin with. Of Southwest’s total assets, 23% are current, making them have a stronger liquidity rating than Delta, who is sitting at 13% of total assets. When comparing the two airlines operating expense as a percentage of the operating revenue, they both are between 86-88%. The two airlines had the same values but swapped for each year. Delta showed improvement while Southwest showed a deterioration. The percentage is very high for both, indicating a low gross profit margin. However, if one were to break it down by the extensive overhead costs that airlines have, it is not surprising. On their cash flow statements, Southwest had the most dramatic swing year over year as they spent 117% of the total cash in 2018 and that went down to 36% in 2019. Delta on the other hand, went from 63% to 77%. This swing was discussed during the horizontal analysis as Delta obtained additional notes payable to fund additional financing activities.
This comparison has showed Delta has not made any financial decisions that have drastically altered the composition of their assets, liabilities, stockholders’ equity, operating income, or cash flows. They have made subtle changes year over year that have led to an increase in income. In addition, they have made some changes in their assets, moving some noncurrent assets to current assets, improving their liquidity. When comparing Delta to Southwest, Southwest has a higher percentage of current assets as well as current liabilities where Delta is the opposite. Both airlines have a similar percentage of net income compared to their operating revenue, indicating some stability. Southwest has shown some higher swings year over year, such as in current liabilities. It is hard to determine if their long-term liabilities went from noncurrent in 2018 to current in 2019 and that is why, or if they acquired additional notes payable. Overall, both companies are in a consistent financial position. Without utilizing a variety of the ratios, I cannot say with certainty that they are in a strong position.
Answer preview to compared Delta Airlines with Southwest Airlines for the years 2018 and 2019.
APA
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