Analyze Delta Airlines and their financial position.
Analyze Delta Airlines and their financial position.
Analyze Delta Airlines and their financial position.
For this week’s discussion, continue to analyze Delta Airlines and their financial position.
Average Accounts Receivable = Beginning Accounts Receivable + Ending Accounts Receivable / 2 2854 + 2314 / 2 = 2584
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable 47007/ 2584 18.2 times
Days Sales In Receivables = Days in Period / Accounts Receivable Turnover Ratio
360 / 18.2 = 19.7 days
Having a strong understanding of a company’s accounts receivable position and bad debt expenses is important as it is important to managers, investors, and creditors. The accounts receivable turnover ratio determines how many times a company’s accounts receivable is collected during a specific period. When a company has a high ratio, they are collecting on their credit sales more frequently. If one wanted to see exactly how frequently a company is collecting their credit sales, there is an additional equation for days sales in receivables that includes the accounts receivable turnover ratio. Delta’s accounts receivable turns over 18.2 times, which is fairly close to the example in the book for Apple. The average number of days it takes for Delta to collect its receivables is 19.7 days. This is not surprising as the vast majority of airline sales are completed using credit cards from major vendors that can help speed up the collection of receivables.
Average Life = Property, Plant, and Equipment/Depreciation Expense 31310 / 2581 = 12.1Average Age = Accumulated Depreciation/Depreciation Expense 17027/2581 = 6.6 Average age and life can be used to determine future investment needs depending on the remaining life of their current long-term assets. This allows for determination of aging assets that are close to the end of their life. The Average Life for Delta’s property, plant and equipment is 12.1 years. Throughout their financial statement, they discuss the early retirement of a fleet of planes that is prior to their salvage time. This will impact the ratio making is lower than it should be due to early removal of the assets. The average age is only 6.6 years, which indicates the assets are still early on in their life and they are about halfway through their lifetime. This would be good for Delta to look at as in the years to come they will be closer to end of life for many assets so funds will be needed to purchase new assets and reset the clock.
Asset Turnover Ratio = Net Sales/Average Total Assets 4767/64532 = .074
The asset turnover ratio is used to determine productivity of assets specific to producing sales or service revenue. If a company has a high ratio, the company is generating more sales with their current assets. If a company has a low ratio, they are not generating significant sales in comparison to their total assets. One observation I found with Delta was the drastic difference between total sales and net income. If one uses the total sales for this ratio, the result is .73. However, using net come the result is .074. It goes to show the importance of utilizing the correct data when creating these ratios. However, in Delta’s case, both numbers are low and indicate low sales and low utilization of assets. The airline industry requires substantial upfront purchases to cover airplane purchases, maintenances, and jet fuel, that long-term investing is important in ensuring longevity for the company. The week’s prior discussion indicated Delta was losing money with their gross profit ratio so seeing a low asset turnover ratio does not surprise me. In addition, when an airline sells off an asset at the salvage stage, there will not be a lot of money received as it can’t always be reused rather some parts can be repurposed or recycled. Many times planes will be stored in the desert awaiting a buyer or used for spare parts until it is sold (Hayward, 2020). The other assets Delta utilizes are specific to service offerings and make up less of their asset ratio.
ReferenceHayward, J. (2020, December 9). What Happens To A Plane When It Is Retired? Simple Flying. https://simpleflying.com/what-happens-to-a-plane-when-it-is-retired/%C2%A0.
Answer preview to analyze Delta Airlines and their financial position.
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