CASE STUDY
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PastorFinancialsCaseStudy2.xlsxProforma BS
| SOUTHWEST AIRLINES CO (LUV) CashFlowFlag BALANCE SHEET | ||||||
| Fiscal year ends in December. USD in millions except per share data. | 2017 Proforma | 2014 | 2015 | 2016 | Delta 2014-2015 | Delta 2015-2016 |
| Assets | ||||||
| Current assets | ||||||
| Cash | ||||||
| Cash and cash equivalents | $ 1,626.43 | 1282 | 1583 | 1680 | 0.2347893916 | 0.0612760581 |
| Short-term investments | $ 1,727.07 | 1706 | 1468 | 1625 | -0.1395076202 | 0.1069482289 |
| Total cash | $ 3,353.50 | 2988 | 3051 | 3305 | 0.0210843373 | 0.083251393 |
| Receivables | $ 494.67 | 365 | 474 | 546 | 0.298630137 | 0.1518987342 |
| Inventories | $ 356.03 | 342 | 311 | 337 | -0.0906432749 | 0.0836012862 |
| Deferred income taxes | $ 180.49 | 477 | -1 | ERROR:#DIV/0! | ||
| Prepaid expenses | $ 261.41 | 232 | 188 | 310 | -0.1896551724 | 0.6489361702 |
| Total current assets | $ 4,646.11 | 4404 | 4024 | 4498 | -0.0862851953 | 0.1177932406 |
| Non-current assets | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Property, plant and equipment | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Gross property, plant and equipment | $ 26,408.29 | 22513 | 24685 | 26464 | 0.0964775907 | 0.0720680575 |
| Accumulated Depreciation | $ (9,584.22) | -8221 | -9084 | -9420 | 0.1049750639 | 0.036988111 |
| Net property, plant and equipment | $ 16,824.07 | 14292 | 15601 | 17044 | 0.0915897005 | 0.0924940709 |
| Equity and other investments | $ 27.45 | 35 | 40 | 0.1428571429 | -1 | |
| Goodwill | $ 1,045.92 | 970 | 970 | 970 | 0 | 0 |
| Intangible assets | $ 449.00 | 363 | 464 | 426 | 0.2782369146 | -0.0818965517 |
| Other long-term assets | $ 247.07 | 136 | 213 | 348 | 0.5661764706 | 0.6338028169 |
| Total non-current assets | $ 18,593.50 | 15796 | 17288 | 18788 | 0.0944542922 | 0.0867653864 |
| Total assets | $ 23,239.61 | 20200 | 21312 | 23286 | 0.055049505 | 0.0926238739 |
| Liabilities and stockholders' equity | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Liabilities | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Current liabilities | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Short-term debt | $ 518.97 | 258 | 637 | 566 | 1.4689922481 | -0.1114599686 |
| Accounts payable | $ 566.00 | 1203 | 178 | 138 | -0.8520365752 | -0.2247191011 |
| Taxes payable | $ 172.46 | 241 | 252 | ERROR:#DIV/0! | 0.0456431535 | |
| Accrued liabilities | $ 2,151.22 | 1565 | 2529 | 1917 | 0.6159744409 | -0.2419928826 |
| Other current liabilities | $ 3,822.12 | 2897 | 3821 | 3971 | 0.3189506386 | 0.0392567391 |
| Total current liabilities | $ 7,230.77 | 5923 | 7406 | 6844 | 0.2503798751 | -0.075884418 |
| Non-current liabilities | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Long-term debt | $ 2,795.89 | 2434 | 2541 | 2821 | 0.0439605588 | 0.1101928375 |
| Capital leases | $ 58.61 | 165 | ERROR:#DIV/0! | -1 | ||
| Deferred taxes liabilities | $ 3,280.56 | 3259 | 2490 | 3374 | -0.2359619515 | 0.3550200803 |
| Deferred revenues | $ 15.27 | 43 | ERROR:#DIV/0! | -1 | ||
| Pensions and other benefits | $ 71.39 | 201 | ERROR:#DIV/0! | -1 | ||
| Other long-term liabilities | $ 1,700.55 | 1809 | 1108 | 1806 | -0.3875069099 | 0.6299638989 |
| Total non-current liabilities | $ 7,922.28 | 7502 | 6548 | 8001 | -0.127166089 | 0.2218998167 |
| Total liabilities | $ 15,153.05 | 13425 | 13954 | 14845 | 0.0394040968 | 0.0638526587 |
| Stockholders' equity | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Common stock | $ 871.24 | 808 | 808 | 808 | 0 | 0 |
| Additional paid-in capital | $ 1,471.62 | 1315 | 1374 | 1410 | 0.0448669202 | 0.0262008734 |
| Retained earnings | $ 10,083.71 | 7416 | 9409 | 11418 | 0.2687432578 | 0.2135189712 |
| Treasury stock | $ (3,576.12) | -2026 | -3182 | -4872 | 0.5705824284 | 0.5311125079 |
| Accumulated other comprehensive income | $ (763.90) | -738 | -1051 | -323 | 0.4241192412 | -0.6926736441 |
| Total stockholders' equity | $ 8,086.56 | 6775 | 7358 | 8441 | 0.0860516605 | 0.1471867355 |
| Total liabilities and stockholders' equity | $ 23,239.61 | 20200 | 21312 | 23286 | 0.055049505 | 0.0926238739 |
Proforma IS
| SOUTHWEST AIRLINES CO (LUV) CashFlowFlag INCOME STATEMENT | ||||||
| Fiscal year ends in December. USD in millions except per share data. | Proforma 2017 | 2014 | 2015 | 2016 | Delta 2014-2015 | Delta 2015-2016 |
| Revenue | $ 21,120.00 | 18605 | 19820 | 20425 | 0.0653050255 | 0.0305247225 |
| Cost of revenue | $ 7,158.53 | 7677 | 6025 | 6132 | -0.2151882246 | 0.0177593361 |
| Gross profit | $ 13,961.47 | 10928 | 13795 | 14293 | 0.2623535871 | 0.0361000362 |
| Operating expenses | ERROR:#DIV/0! | ERROR:#DIV/0! | ||||
| Sales, General and administrative | $ 6,666.51 | 5434 | 6383 | 6798 | 0.1746411483 | 0.0650164499 |
| Depreciation and amortization | $ 1,136.31 | 938 | 1015 | 1221 | 0.0820895522 | 0.202955665 |
| Other operating expenses | $ 2,558.75 | 2331 | 2281 | 2514 | -0.0214500215 | 0.1021481806 |
| Total operating expenses | $ 10,361.57 | 8703 | 9679 | 10533 | 0.1121452373 | 0.0882322554 |
| Operating income | $ 3,599.89 | 2225 | 4116 | 3760 | 0.8498876404 | -0.0864917396 |
| Interest Expense | $ 98.31 | 107 | 90 | 75 | -0.1588785047 | -0.1666666667 |
| Other income (expense) | $ (356.13) | -302 | -547 | -138 | 0.8112582781 | -0.747714808 |
| Income before income taxes | $ 3,145.46 | 1816 | 3479 | 3547 | 0.9157488987 | 0.0195458465 |
| Provision for income taxes | $ 1,167.46 | 680 | 1298 | 1303 | 0.9088235294 | 0.0038520801 |
| Net income from continuing ops | $ 1,977.99 | 1136 | 2181 | 2244 | 0.9198943662 | 0.0288858322 |
| Net income | $ 1,977.99 | 1136 | 2181 | 2244 | 0.9198943662 | 0.0288858322 |
| Net income available to common shareholders | $ 1,977.99 | 1136 | 2181 | 2244 | 0.9198943662 | 0.0288858322 |
| Earnings per share | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Basic | $ 3.03 | 1.65 | 3.3 | 3.58 | 1 | 0.0848484848 |
| Diluted | $ 3.01 | 1.64 | 3.27 | 3.55 | 0.993902439 | 0.0856269113 |
| Weighted average shares outstanding | $ - 0 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Basic | $ 710.85 | 687 | 661 | 627 | -0.037845706 | -0.0514372163 |
| Diluted | $ 719.17 | 696 | 669 | 633 | -0.0387931034 | -0.0538116592 |
| EBITDA | $ 4,380.07 | 2861 | 4584 | 4843 | 0.6022369801 | 0.0565008726 |
| NPV | $ 80,125.47 | $ 83,305.13 | ||||
| Discount Rate | 7.00% | |||||
| The strategy used in this paper was to increase revenues through boosting sales. While this appeared to be a good outcome, the general outlook was that there were increased overhead expenses, which resulted in poor NPV for the projected years. For example, the model in the cash flow statement shows that the projected NPV value stands at $4,723.94 whereas the NPV from the previous year showed that the NPV stood at $8,268.44. In other words, this says that the projected year, although bearing profits, will see a larger number of incurred costs. The result will be reduced profits for the airline despite higher sales. Due to the nature of this enterprise, it is therefore not possible to implement this strategy. Increasing sales for the airline embodies unique circumstances, which do not improve the outcomes of the company. | ||||||
Proforma CF
| SOUTHWEST AIRLINES CO (LUV) Statement of CASH FLOW | ||||||
| Fiscal year ends in December. USD in millions except per share data. | Proforma 2017 | 2014 | 2015 | 2016 | Delta 2014-2015 | Delta 2015-2016 |
| Cash Flows From Operating Activities | ERROR:#DIV/0! | ERROR:#DIV/0! | ||||
| Net income | $ 1,299.67 | 1136 | 2181 | 2244 | 0.9198943662 | 0.0288858322 |
| Depreciation & amortization | $ 795.05 | 938 | 1015 | 1221 | 0.0820895522 | 0.202955665 |
| Amortization of debt discount/premium and issuance costs | ERROR:#DIV/0! | ERROR:#DIV/0! | ||||
| Investment/asset impairment charges | 21 | ERROR:#DIV/0! | ERROR:#DIV/0! | |||
| Deferred income taxes | $ 257.25 | 501 | -109 | 455 | -1.2175648703 | -5.1743119266 |
| Accounts receivable | ERROR:#DIV/0! | ERROR:#DIV/0! | ||||
| Other working capital | $ 265.98 | 48 | 1070 | 182 | 21.2916666667 | -0.8299065421 |
| Other non-cash items | $ (43.33) | 279 | -919 | 170 | -4.29390681 | -1.1849836779 |
| Net cash provided by operating activities | $ 2,578.68 | 2902 | 3238 | 4293 | 0.1157822192 | 0.3258184064 |
| Cash Flows From Investing Activities | ERROR:#DIV/0! | ERROR:#DIV/0! | ||||
| Investments in property, plant, and equipment | $ (71.81) | -80 | -102 | -109 | 0.275 | 0.068627451 |
| Purchases of investments | $ (2,030.09) | -3080 | -1986 | -2388 | -0.3551948052 | 0.2024169184 |
| Sales/Maturities of investments | $ 2,093.08 | 3185 | 2223 | 2263 | -0.3020408163 | 0.0179937022 |
| Other investing activities | $ (1,468.39) | -1752 | -2048 | -2038 | 0.1689497717 | -0.0048828125 |
| Net cash used for investing activities | $ (1,477.22) | -1727 | -1913 | -2272 | 0.107701216 | 0.187663356 |
| Cash Flows From Financing Activities | ERROR:#DIV/0! | ERROR:#DIV/0! | ||||
| Debt issued | $ 313.15 | 300 | 500 | 515 | 0.6666666667 | 0.03 |
| Debt repayment | $ (372.09) | -561 | -213 | -600 | -0.6203208556 | 1.8169014085 |
| Common stock issued | $ 9.14 | 46 | ERROR:#DIV/0! | -1 | ||
| Repurchases of treasury stock | $ (936.44) | -955 | -1180 | -1750 | 0.2356020942 | 0.4830508475 |
| Cash dividends paid | $ (131.62) | -139 | -180 | -222 | 0.2949640288 | 0.2333333333 |
| Other financing activities | $ 67.08 | 107 | 3 | 133 | -0.9719626168 | 43.3333333333 |
| Net cash provided by (used for) financing activities | $ (1,050.78) | -1248 | -1024 | -1924 | -0.1794871795 | 0.87890625 |
| Net change in cash | $ 50.68 | -73 | 301 | 97 | -5.1232876712 | -0.6777408638 |
| Cash at beginning of period | $ 1,077.00 | 1355 | 1282 | 1583 | -0.0538745387 | 0.2347893916 |
| Cash at end of period | $ 1,127.68 | 1282 | 1583 | 1680 | 0.2347893916 | 0.0612760581 |
| Free Cash Flow | ERROR:#DIV/0! | ERROR:#DIV/0! | ||||
| Operating cash flow | $ 2,578.68 | 2902 | 3238 | 4293 | 0.1157822192 | 0.3258184064 |
| Capital expenditure | $ (1,537.29) | -1828 | -2143 | -2147 | 0.1723194748 | 0.0018665422 |
| Free cash flow | $ 1,041.39 | 1074 | 1095 | 2146 | 0.0195530726 | 0.9598173516 |
| Supplemental schedule of cash flow data | ERROR:#DIV/0! | ERROR:#DIV/0! | ||||
| Cash paid for income taxes | $ 519.28 | 155 | 1440 | 902 | 8.2903225806 | -0.3736111111 |
| Cash paid for interest | $ 88.98 | 128 | 105 | 100 | -0.1796875 | -0.0476190476 |
| NPV | $ 4,723.94 | $8,268.44 | ||||
| Discount Rate | 7.00% | |||||
| The strategy used in this paper was to increase revenues through boosting sales. While this appeared to be a good outcome, the general outlook was that there were increased overhead expenses, which resulted in poor NPV for the projected years. For example, the model in the cash flow statement shows that the projected NPV value stands at $4,723.94 whereas the NPV from the previous year showed that the NPV stood at $8,268.44. In other words, this says that the projected year, although bearing profits, will see a larger number of incurred costs. The result will be reduced profits for the airline despite higher sales. Due to the nature of this enterprise, it is therefore not possible to implement this strategy. Increasing sales for the airline embodies unique circumstances, which do not improve the outcomes of the company. | ||||||
