Second semester followed a different route focusing on completing the dissertation. The value of the course is beyond description, but the benefits will surely show in the years to come.
CHAPTER ONE
Continuous improvements and innovations were a big part of the early 1980s for Delta Air Lines. According to Delta Air Lines Website, “The Board believes that sound corporate governance practices provide an important framework to help the Board fulfill its responsibilities.
CHAPTER TWO
Focus on further maturing second supplier diversity reporting, and second objective to increase MWBE by 10% overall.
2013 Goals
2014 Goals
Oil Prices
Fortunately, Delta has created a refinery segment that reduces some of the middleman costs of refining crude oil. Still, crude oil prices change daily and therefore affect the cost of flying their planes.
International Travel
Terrorism and Conflict
Porter's Five
Strengths
Weaknesses
OpportuniXes
Threats
SWOT
CHAPTER THREE
In addition, customers are often more unstable and volatile than entities such as taxes, depreciation on long-term assets and fixed pension plans. Thus, this classification of the service provided as a long-term asset tends to harm the airline's current asset ratio, as long-term assets are excluded from its calculations.
Short-Term and Long-Term Asset Comparison
Large debt-to-equity ratios mean the company is more risky because of the increased borrowings. In 2009, the company faced extremely high risk due to its high debt-to-equity ratio.
Debt-to-Equity: 5 Year Industry Comparison
Current LiabiliXes
Noncurrent LiabiliXes
This is in line with Delta's core value of ensuring high levels of customer and employee satisfaction by offering superior employee retirement plans. Looking at the table below, a comparison of short-term and long-term liabilities over the past five years is shown:.
Liability ComposiXon Over a 5 Year Period
Second, Delta could enter into more transactions or contracts based on short-term loans rather than long-term investments. This could be a positive change if it is due to the fact that Delta can afford and has the resources to pay the amount of the purchases in the short term, rather than having to expand into long-term contracts .
Delta Air Lines Cash Flows 5 Year Comparison
It shows that the company's risk is decreasing and that the company is becoming more solvent. This is a good sign for Delta Air Lines because it suggests that the company has increased its profits and can therefore pay more dividends to its shareholders.
CHAPTER FOUR
- times 22.52
- times 23.26
- times 22.61
- times 19.58 times
- days 16.85
- days 16.24
- days 16.74
- days 17.60 days
As for the average collection period, the value has generally been on a downward trend over the past five years. Most of the credit is from customers, so the values represent that most accounts receivable have a fairly short collection period because the credit is spread among many customers rather than just a few buyers.
Accounts Receivable Turnover
This downward trend is positive because it means that the company is collecting payments from customers faster.
Average CollecXon Period
But bad debt expense data highlights that the company typically forecasts less bad debt expense each year over the past five years, meaning the company expects to receive more of the debtor's payments. The effect of a low bad debt expense would be higher net income because the business would have fewer expenses reported on their income statement.
Bad Debts Expense as a Percent of A/R
- times 36.39
- times 66.37
- times 77.00
- times 66.29 times
- days 13.17
- days 6.90 days 4.67 days 5.04 days
By reporting less bad debt expenses, Impact reduces the amount of expenses reported on the income statement and consequently increases net income. That being said, it makes sense for Delta to have fairly low bad debt expense due to the large amount of accounts receivable that are low amount consumer airline tickets.
Gross Profit Margin
Inventory Turnover
Since Delta does not use LIFO valuation, the company would not be able to implement such a manipulation. The company can delay this process until the market price rises again and thus avoid an imminent loss on their products.
Average Inventory Days Oustanding
- times 1.77
- times 1.74
- times 1.56
- times 1.37 times
The company has two main types of PPE: flight equipment and ground and real estate equipment (owned or under capital lease). By extending the remaining useful life of an asset, the company can increase the denominator of the straight-line depreciation equation.
CHAPTER FIVE
Long-Term Investments (in millions of dollars)
Long-term investments in 2013 and 2012 were primarily investments in shares of GOL and Aeromexico at the auction price, and prior to 2013 and 2012, Delta had investments in other entities. From 2009 to 2011, long-term investments consisted of available-for-sale student loans and trading securities.
Goodwill Over the Past Five Years (in millions of dollars)
From 2009 to 2011, long-term investments consisted of available-for-sale and trading student loan repayments. The three defenses that Delta Air Lines has are the three areas that the company has.
Income Effects of Intercorporate Investments
In terms of unrealized holding gains and losses and related holding gains and losses, values over the past five years are shown above. Delta Air Lines' restructuring expenses over the past five years have been stable with the exception of 2011 when restructuring expenses declined significantly.
Restructuring Expenses Over the Past Five Years
Delta classifies restructuring costs into four categories: facilities, fleet and other, severance and related costs, routes and slots, and merger-related items. The chart below shows the breakdown of Delta Air Lines' restructuring costs in each of the four categories.
Restructuring by Type
To reduce risk when exchanging, Delta attempts to conduct international transactions in the same foreign currency as the transaction. Exchange rates pose by far the greatest risk when conducting international transactions; the depreciation or appreciation of foreign currencies may affect profits/losses from export sales or import purchases.
Japanese Yen per US Dollar
The Canadian dollar has typically risen over the past five years with a slight depreciation, but not very significantly. The strengthening of the Canadian dollar implies that the value of currencies is growing stronger, and therefore the sale of airline passengers will result in asset gains.
Canadian Dollars per US Dollar
By choosing the Alternative Financing Rules, Delta can more easily predict how much financing is needed annually. This is a red flag because the benefits appear overly optimistic and the costs appear to be unrealistically low in relation to the pension plan's expectations.
CHAPTER SIX
The federal statutory tax rate has remained fairly stable over the past five years at 35 percent, which is typical for large corporations. The statutory state tax rate has also remained relatively constant over the past five years at amounts near three percent.
EffecXve Tax Rate
Looking at the effective tax rate, we can see that the tax effect has been quite volatile. Net Operating Profit Before Tax (NOPBT), Net Operating Profit After Tax (NOPAT) and Net Operating Assets (NOA) over the past five years are shown in the chart above.
Financial Analysis: NOPBT, NOPAT, NOA
Net worth growth in 2013 was not driven by one specific asset, but was instead spread across marginal growth across many asset areas. In terms of declining operating debt, this decline occurred in long-term operating debt accounts, offsetting minimal growth in short-term operating debt.
RNOA Over the Past Five Years
The increase in NOA that year was due to the massive increase in current assets along with the decrease in current liabilities. The increase in RNOA was mainly caused by the growth in operating income which was helped by the increase in sales and tax benefits, with operating expenses remaining fairly unchanged over the past five years.
ROE Over the Past Five Years
ROE BREAKDOWN: RNOA + Non-OperaXng over the last five years over the last five years. NOPM has grown steadily over the past five years for the most part, with a larger growth occurring in 2013.
DisaggregaXon of NOPM
A growth in NOPM implies that the operating profit per sales dollar increases, which is a positive change for Delta Air Lines. Looking at Delta Air Lines' financial statements, it is clear that the change is that NOPM is most likely due to the increase in gross profit along with the decrease in operating costs.
DisaggregaXon of NOAT
This was offset by the slight increase in NOWC over the past five years, allowing Delta to remain at a constant NOAT. FLEV and Spread are further broken down below to see their change over the past five years.
RNOA
The operating returns consist solely of RNOA, which was thoroughly broken down in an earlier section.
FLEV SPREAD
FLEV fell sharply in 2011 mainly due to a small shortfall in average common stockholders' equity, which made the denominator of FLEV negative and very small compared to the numerator.
FLEV Over the Past Five Years
This implies that the company has had higher operating returns and lower non-operating expenses over the past five years.
SPREAD Over the Past Five Years
CHAPTER SEVEN
GDP (in billions)
Average Wage Index
Delta Air Lines Wage Expense
Unemployment Rate
This was better than many other companies during the period that did not offer their employees benefits to leave voluntarily. Layoffs helped Impact keep expenses stable during the recession even though revenues were not as high, and were therefore able to keep the gross margin fairly stable throughout the period.
Consumer Price Index
As expected, the CPI continued to rise from 2000 to 2013, with a small drop during the 2009 recession. This drop in the CPI is actually good because wages also fell during the period, meaning employees were paid less because the costs of lived was also lower.
Annual Return on Stock
This made it difficult for firms to increase shareholder investment during the period and therefore share prices began to fall. Fortunately, since 2011, the stock market has recovered tremendously and has been steadily rising every year.
US House Price Index
The increased stock market value in recent years has contributed to the growth and development of Delta and investor confidence has begun to be restored. People could no longer afford their mortgages and had to foreclose on their homes, causing the average price of American homes to drop.
Index of New Entrepreneurs
The number of start-ups rose during the recession due to the large number of layoffs in the United States that forced working citizens to find other means of employment. The airline industry on the other hand has reduced the number of competing forces (companies) during the period.
Red Flag Revenue Indicators
The negative gross margin in 2009 was most likely due to lower revenues due to the recession and the increased operating expenses from the acquisition of Northwest Airlines. In 2010, the index made a huge jump to 1.59, indicating that the company's gross margins had weakened and management wanted to improve numbers.
EPS Actual v. Analysts' Consensus
Analyst estimates for earnings per share were close to actual earnings per share in 2013 and 2012, with earnings per share only exceeding the target by 0.06 percent and 0.05 percent, respectively. In 2011, the analyst consensus was far off actual earnings per share, with Delta Air Lines rising 7.92 percent around target.
Percent Exceeded Analysts' ExpectaXons
Managers may have felt pressure to meet these targets because earnings per share exceeded targets in 2011. Possible entities that Delta Air Lines could have manipulated to achieve its target earnings per share are classified.
CHAPTER EIGHT
In order to find weighted average cost of capital (WCA), the cost of equity and cost of debt must first be calculated. Once both the cost of equity and debt have been calculated, the GGKK can be found.
Sales Growth Past Five Years
The ROPI model is most likely the best model for Delta Air Lines, mainly due to the enormous amount of plant, property and equipment assets the company owns. Using the ROPI model, potential shareholders should invest in Delta Air Lines due to the undervaluation of its current share price.
CHAPTER NINE
Property, Plant and Equipment
The accountant should also examine the fair market value of the assets based on current average sales prices. Using audit trails, the auditor must ensure that the costs of the PPE, depreciation and other investment aspects are calculated based on the reported adjusted basis of the asset.
Inventory
Inventory should be valued using current market data on the fair market value of the items being held back. The dollar value sold must equal the value of the number of units shipped; it will detect if fraud occurs, such as illegal commissions on sales.
Corporate Income Taxes
Japan's tax rate is only five percent lower than that of the United States, while Canada's is about 15 percent lower. Although the United States has the highest statutory tax rate, Delta does not have to move its operations to another country.
CHAPTER TEN
The best way to reduce idle time is to use the flight length ERP system. This will reduce the overall operating costs and therefore allow the company to invest the money in other entities.
Works Cited
Company Profile, Information, Business Description, History, Basic Information about Delta Air Lines, Inc." ReferenceforBusiness.com. 34; Apple Pay: An In-Depth Look at What's Behind the Secure Payment System." Engadget.com.
