or this assignment, each of you should choose two companies. When you choose two companies, you should make sure that two companies are from the same industry. One company is considered your company and the other is considered competitor. Once you make a decision about two companies, you should let me know what your choices are via email before you proceed.
Companies chosen are: Southwest Airlines and United Airlines. My company is Southwest Airlines… My competitor is Unites Airways.
The following are the questions you should answer. You can find 2015 & 2016 Balance Sheet and Income Statement at finance.yahoo.com.
1. (Common-size Balance Sheet & Common-size Income Statement Analysis)
1) With 2015 & 2016 balance sheet & Income statement for each company, create common -size balance sheets and common-size income statements.
2) Using 2016 common-size balance sheet and income statement, compare your company with the benchmark and describe how your company is similar to or different from the benchmark.
3) Using 2015 & 2016 common-size balance sheet and income statement of each company, do the time trend analysis and describe how each company changes over time.
2. (Financial Ratio Analysis) Using 2015 & 2016 Balance sheet & Income statement for each company, compute the following financial ratios for each company:
1) Current ratio
2) Quick ratio
3) Debt-to-equity ratio
4) Times interest earned ratio (Interest coverage ratio)
5) Inventory Turnover
6) Receivable turnover
7) Total asset turnover
8) Profit margin
9) Return on Asset (ROA)
10) Return on Equity (ROE)
11) Price-earnings ratio
12) Market-to-book ratio
3. (Financial Ratio Analysis) Select the benchmark for peer group analysis. You’ll use two kinds of benchmarks in this assignment. One is your competitor’s ratios and the other is industry averages (you can find industry averages from finance.yahoo.com or www.reuters.com or investing.money.msn.com). Make sure that you cite the source of industry averages.
1) Using the 2016 ratios from Question 2, compare your company’s ratios to both competitor’s and industry averages. Then describe how good or bad ratios of your company are considered.
2) Using 2015 & 2016 ratios for your company, compare your company’s 2015 ratios with 2016 ratios and describe the similarities and differences.
4. (DuPont Identity)
1) Using the DuPont Identity equation, compare your company’s 2016 ROE with competitor’s 2016 ROE. Find out what makes difference in ROEs between your company and competitor.
2) Using the DuPont Identity equation, compare your company’s 2015 ROE with 2016 ROE. Find out what makes difference in ROE between two periods if there is any difference.