Airline Industry Essay 14

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Airline Industry Essay 14

By | October 2008
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To start, the airline industry, in the past five years, is quite diverse. The companies representing the airline industry are AMR Corp, British Airways, Continental, Delta, Frontier, Northwest, and Southwest. The industry was analyzed from the year ended 1999 until the year ended 2003. By analyzing these ratios, we can get a decent picture of the stability and worth of the company. This allows us, as investors, to make informed decisions on whether or not to purchase shares in a particular company. One account that must be mentioned when analyzing the airline industry is the occurrence of the crashes on September 11, 2001. After this time, many people were afraid to fly, so naturally, we can expect to see losses. This is a prime example of how outside occurrences can greatly affect an industry.

We will begin with AMR Corporation. This corporation is the operator of the ever popular American Airlines. The current ratio was not very convincing. In December 2001, it reached a high of .87, but shortly following in December 2002, it reached its low at .68. This suggests that this firm is not a liquid firm. The cash ratio was the lowest (.31) in December 1999 and highest (.48) in December 2003. Since the average cash ratio is significantly lower than that of the current ratio, we can see that much of the assets of this firm are in its inventory; this also suggests that its assets can not cover its liabilities. When looking at the turnover ratio, we see that the lowest (.57) was in 2002 and the highest (.75) in 2000. These numbers are fairly equivalent to those of the industry. This also shows that the industry has poor asset turnover. Since the number is never above 1, they never make a full dollar in sales. The leverage ratios are diverse for this particular company – highest in 2003 (637.61), lowest in 1999 (3.55). I can see the reason for the equity multiplier being so high in 2003; it is simply because of the tremendous amount of loss still...

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