financial statements Hawaiian Airlines 3 years. Access information contained Hawaiian Airlines balance sheet income statement calculate: • Liquidity ratios o Current ratio o Acid-test, quick, ratio o Receivables turnover o Inventory turnover • Profitability ratios o Asset turnover o Profit margin o Return assets o Return common stockholders' equity • Solvency ratios o Debt total assets o Times interest earned Show calculations ratio
Hawaiian Airlines Financial Analysis
Hawaiian Airlines is a relatively small airline operator at a global level, being the 11th by size in its own country. Still, the notable element about the company is that it is the flag carrier, which virtually means that the company receives governmental support in order to conduct its operations (Bennett, 2006). Hawaiian Airlines is an integrant party of the larger company Hawaiian Holdings, which has placed itself within the market as the company ensuring a quick access to a good time in the Hawaiian Islands.
The industry in which Hawaiian Airlines operates is a highly dynamic and competitive ones, severely impacted by external forces. For instance, terrorist attacks and the economic crisis severely decreased the customer demand for airline services. But in spite of these, Hawaiian Airlines is following an ascendant path in terms of generated revenues. It could as such be stated that the company is financially sound. Yet, in order to draw such a conclusion, it is first necessary to conduct a more thorough analysis.
At this level then, the financial status of Hawaiian Airlines would be assessed through the computation and interpretation of several liquidity ratios, profitability ratios and solvency ratios. Additionally, the project would also conduct a vertical and horizontal analysis of the balance sheet and the income statements of Hawaiian Airlines.
2. Ratio analysis
The analysis of the financial ratios within a firm is a two phase process. On the one hand, emphasis is placed on the computation of various data; on the other hand, it is important to assess the meaning of the results of the computation. The analysis then is a combination of both qualitative and quantitative methods and it is highly relevant in the context of business decision making.
In the context of Hawaiian Airlines, the ratios to be computed and assessed include the following:
Liquidity ratios, namely the current ratio, the quick ratio, receivables turnover and inventory turnover
Profitability ratios, specifically asset turnover, profit margin, return on assets and return on the common stockholders' equity, and last
Solvency ratios, namely the debt to total assets rate and the times interest earned.
2.1. Computation of ratios
a) Liquidity ratios
Current ratio = Current assets / current liabilities
CR 2009 = 441.660 / 384.244 = 1.15
CR 2010 = 446.520 / 400,555 = 1.11
CR 2011 = 499.531 / 488.820 = 1.02
Quick ratio = (Current assets -- inventories) / Current liabilities. Hawaiian Airlines delivers services, rather than products, and it does not have stocks, nor inventories of its offer; in such a setting, the quick ratios equal the current ratios.
Receivable turnover = Net credit sales / Average account receivables. This ratio cannot be computed for Hawaiian Airlines since the company does not offer credit sales, nor does it have receivables to cash in.
Inventory turnover = Sales / Inventory. This ratio is also not applicable for Hawaiian Airlines since the company does not possess inventories.
b) Profitability ratios
Asset turnover = Revenues / Assets
AT 2009 =116,720 / 1,028,886 = 0.11
AT 2010 = 110,255 / 1,117,499 = 0.10
AT 2011 = -2,649 / 1,487,529 = - 0.001
Profit margin = Net income / Revenues. The Hawaiian Airlines financial statements do not differentiate between the net incomes and the revenues, meaning that the computation of this ratio is not applicable.
Return on assets = Net income / Total assets
ROA 2009 =116,720 / 1,028,886 = 0.11
ROA 2010 = 110,255 / 1,117,499 = 0.10
ROA 2011 = -2,649 / 1,487,529 = - 0.001
Return on common stockholders' equity = Net income / Shareholders' equity
ROE 2009 =116,720 / 176,089 = 0.66
ROE 2010 = 110,255 / 277,869 = 0.39
ROE 2011 = -2,649 / 222,876 = -0.012
c) Solvency ratios
Debt to total assets = Total liabilities / Shareholders' equity
DTA 2009 = (384,244 + 278,218) / 176,089 = 3.76
DTA 2010 = (400,555 + 267,191) / 277,869 = 2.40
DTA 2011 = (488,820 + 351,397) / 222,876 = 3.77
2.2. Interpretation of financial ratios
a) Liquidity ratios
The current ratio reveals a steady trend of decrease throughout the past three years. The ratio remains positive through time and it as such reveals that Hawaiian Airlines is able to honor its short-term obligations; the decreasing values nevertheless point out that the company's ability to pay its short terms obligations has decreased from 2009 through 2011. The same trend is observed at the level of the company's ability to pay its short-term debts with its most liquid assets (quick ratio).
The investors will be interested in the liquidity ratios as a means of assessing the company's financial health and stability. Aside from the investors, the liquidity ratios will also be followed by the company's purveyors, who will assess and forecast their payment by the firm.
b) Profitability ratios
The profitability ratios, often of increased interest for investors, reveal a weakening financial health at Hawaiian Airlines. The decrease in the asset turnover and the return on assets indicates a decreasing ability to generate revenues from the usage of the assets; the decreasing value of the return on equity also reveals that the company is growing less able to use its stockholders' money and generate revenues.
c) Solvency ratios
Last, the solvency ratios are also assessed by the investors and the purveyors, but by other business partners. The solvency ratios assess the organizational ability to pay its longer term debts and they also reveal the company's overall financial health. Normally, the value of the solvency rates depends on specific issues and varies from one industry to the other, but financial analysis concluded that a solvency ratio with a value over 20 per cent is indicative of a financially healthy organization.
In the specific case of Hawaiian Airlines, the debt to asset ratio is rather high, indicating a sustainable financial health within the future. This ratio decreased in 2010, but regained its strength in 2011; the computation of the time interest earned is not applicable in the context of the Honolulu based airline company.
3. Vertical and horizontal analysis of financial statements
As it has been mentioned throughout the introduction section of this project, the focus would now fall on the vertical and horizontal assessment of the financial statements of Hawaiian Airlines, namely the balance sheet and the income statement.
In a generic assessment, the vertical analysis refers to the assessment of the various elements in the financial statement comparative to each other. The horizontal analysis refers to the assessment of the same elements in the financial statements but through time, in order to reveal their evolution in time.
In terms of the vertical analysis, the following points are noteworthy:
In the category of the assets, Hawaiian Airlines invested most in its property and equipments, such as flight equipment; the second most costly category of assets is represented by the current assets, such as cash and cash equivalents, spare parts and so on.
In the liabilities category, the largest portion is occupied by the current liabilities, such as accounts payable, air traffic liability or current maturities of long-term debt and capital lease obligations.
In the category of stockholders' equity, the largest portion is occupied by capitals in excess of par value; the lowest category is represented by common stock; the company does not own special preferred stock or treasury stock.
In terms of the cash flow construction, the largest generation of incomes is represented by…