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Airlines Financial Analysis

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Deborah Obasogie

The document compares the financial performance of American Airlines and Continental Airlines from 2003 to 2008 using various liquidity, solvency, and profitability ratios. Overall, Continental Airlines performed better in terms of liquidity and solvency ratios, indicating it had a stronger ability to pay short-term debts and a lower reliance on debt financing. However, American Airlines showed stronger profitability, with higher gross profit margins and greater earnings per share growth over time. Neither company performed particularly well in ratios measuring cash flow and debt coverage.

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Financial Performance American Airlines vs. Continental Airlines Deborah Obasogie
Company Profile American Airlines (AMR) Type: Public Founded: 1934 Headquarter: Forth Worth, TX Industry: Transportation Services: Airlines Services Employees: 85,500 (2008) Continental Airlines (CAL) Type: Public Founded: 1934 Headquarter: Houston, TX Industry: Transportation Services: Airlines Services Employees: 42,490 (2008)
Highlights Ratios Liquidity Solvency Profitability 2003 - 2008
Liquidity – Current Ratio Continental appears to have the advantage in terms of paying their short term debt over American. 0.00 0.20 0.40 0.60 0.80 1.00 1.20 2003 2004 2005 2006 2007 2008 Year Rate American Airlines Continental Airlines
Liquidity – Current Cash Debt Coverage Ratio Both are below 40%, however Continental is not as bad as American. We will look at Receivables turnover ratio to access the number of times the company collects receivables during the period. -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 2003 2004 2005 2006 2007 2008 Year Rate American Airlines Continental Airlines
Liquidity – Receivables Turnover Ratio American appears to be more stable in their ability to turn its receivables into cash slightly quickly than Continental. But it’s very close.. Let’s look at Average Collection Period to look at the company’s credit and collection policies. 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 2003 2004 2005 2006 2007 2008 Year Times American Airlines Continental Airlines
Liquidity – Average Collection Period American appears to be more stable in their effectiveness of company’s credit and collection policies. Therefore it has a better likelihood of paying its current obligations. Although Continental but has a downward trend.0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 2003 2004 2005 2006 2007 2008 Year Days American Airlines Continental Airlines
Solvency – Debt To Total Assets Ratio Both American & Continental are relying on too much debt financing & will have increasing debt to pay in the future. Continental, however do not have as much financing through debt as American. Continental is better. 0.00 0.20 0.40 0.60 0.80 1.00 1.20 Rate 2003 2004 2005 2006 2007 2008 Year American Airlines Continental Airlines
Solvency – Cash Debt Coverage Ratio Both American and Continental will have troubles repaying their debts with cash generating from operations, however Continental will do better than American. Both companies are under 20% which is cause for more investigation. We’ll look at times interest earned ratio. -0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 2003 2004 2005 2006 2007 2008 Year Rate American Airlines Continental Airlines
Solvency – Times Interest Earned Ratio American has more ability to meet interest expenses as they come due than Continental. American has more stable and has a upward trend. -80.00 -70.00 -60.00 -50.00 -40.00 -30.00 -20.00 -10.00 0.00 10.00 20.00 2003 2004 2005 2006 2007 2008 Year Times American Airlines Continental Airlines
Profitability – Earnings Per Share We are looking at the income earned on earn share of common stock. American’s income from it’s stock is lower and took a downward trend in 2008. Continental’s income from stock has experience bumps, then climbs and took a downward dive in 2008 as well.-10.00 -8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 2003 2004 2005 2006 2007 2008 Year Dollars American Airlines Continental Airlines
Profitability – Gross Profit Rate American has definitely had more growth and periods of growth that Continental. Continental has steadily decreased in growth until 2008. American experienced growth when there were very high fuels prices and lower ticketing. 0 10 20 30 40 50 60 70 % 2003 2004 2005 2006 2007 2008 Year American Airlines Continental Airlines
Profitability – Profit Margin Ratio Continental was a lot more profitable than American. In spike of American having more growth and periods of growth than Continental. (effects of debt obligations) -0.10 -0.08 -0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 2003 2004 2005 2006 2007 2008 Year Rate American Airlines Continental Airlines
Ratio Scoring WINNER Solvency Profitability Liquidity

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Airlines Financial Analysis

  • 1. Financial Performance American Airlines vs. Continental Airlines Deborah Obasogie
  • 2. Company Profile American Airlines (AMR) Type: Public Founded: 1934 Headquarter: Forth Worth, TX Industry: Transportation Services: Airlines Services Employees: 85,500 (2008) Continental Airlines (CAL) Type: Public Founded: 1934 Headquarter: Houston, TX Industry: Transportation Services: Airlines Services Employees: 42,490 (2008)
  • 4. Liquidity – Current Ratio Continental appears to have the advantage in terms of paying their short term debt over American. 0.00 0.20 0.40 0.60 0.80 1.00 1.20 2003 2004 2005 2006 2007 2008 Year Rate American Airlines Continental Airlines
  • 5. Liquidity – Current Cash Debt Coverage Ratio Both are below 40%, however Continental is not as bad as American. We will look at Receivables turnover ratio to access the number of times the company collects receivables during the period. -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 2003 2004 2005 2006 2007 2008 Year Rate American Airlines Continental Airlines
  • 6. Liquidity – Receivables Turnover Ratio American appears to be more stable in their ability to turn its receivables into cash slightly quickly than Continental. But it’s very close.. Let’s look at Average Collection Period to look at the company’s credit and collection policies. 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 2003 2004 2005 2006 2007 2008 Year Times American Airlines Continental Airlines
  • 7. Liquidity – Average Collection Period American appears to be more stable in their effectiveness of company’s credit and collection policies. Therefore it has a better likelihood of paying its current obligations. Although Continental but has a downward trend.0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 2003 2004 2005 2006 2007 2008 Year Days American Airlines Continental Airlines
  • 8. Solvency – Debt To Total Assets Ratio Both American & Continental are relying on too much debt financing & will have increasing debt to pay in the future. Continental, however do not have as much financing through debt as American. Continental is better. 0.00 0.20 0.40 0.60 0.80 1.00 1.20 Rate 2003 2004 2005 2006 2007 2008 Year American Airlines Continental Airlines
  • 9. Solvency – Cash Debt Coverage Ratio Both American and Continental will have troubles repaying their debts with cash generating from operations, however Continental will do better than American. Both companies are under 20% which is cause for more investigation. We’ll look at times interest earned ratio. -0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 2003 2004 2005 2006 2007 2008 Year Rate American Airlines Continental Airlines
  • 10. Solvency – Times Interest Earned Ratio American has more ability to meet interest expenses as they come due than Continental. American has more stable and has a upward trend. -80.00 -70.00 -60.00 -50.00 -40.00 -30.00 -20.00 -10.00 0.00 10.00 20.00 2003 2004 2005 2006 2007 2008 Year Times American Airlines Continental Airlines
  • 11. Profitability – Earnings Per Share We are looking at the income earned on earn share of common stock. American’s income from it’s stock is lower and took a downward trend in 2008. Continental’s income from stock has experience bumps, then climbs and took a downward dive in 2008 as well.-10.00 -8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 2003 2004 2005 2006 2007 2008 Year Dollars American Airlines Continental Airlines
  • 12. Profitability – Gross Profit Rate American has definitely had more growth and periods of growth that Continental. Continental has steadily decreased in growth until 2008. American experienced growth when there were very high fuels prices and lower ticketing. 0 10 20 30 40 50 60 70 % 2003 2004 2005 2006 2007 2008 Year American Airlines Continental Airlines
  • 13. Profitability – Profit Margin Ratio Continental was a lot more profitable than American. In spike of American having more growth and periods of growth than Continental. (effects of debt obligations) -0.10 -0.08 -0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 2003 2004 2005 2006 2007 2008 Year Rate American Airlines Continental Airlines