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Hawaiian Holding Inc is the Parent Company of Hawaiian Airlines Inc. The Company was started in the year 1929. “The company is the sixteenth largest domestic airline in the United States”. It has a fleet of 25 Aircraft and it offers flights to Hawaii from different destinations in the US. It also does offer flights to Australia, America, Samoa and Tahiti. (http://investor.hawaiianairlines.com)
The period from April 1 2003 through June 1 2005 saw the company operating at bankruptcy. Actually during this time, Hawaiian Airlines generated its business under the jurisdiction of the Bankruptcy. Therefore as a result of this, the Hawaiian Airline was reconsolidated with its parent company, Hawaiian Holding. This enabled the company to be able to rise from its state of loss making to its current state where it is making profits.
A quick glance at the financial statements reveals that for the last three years the company has actually been operating at a net loss up to the financial year ending 31.12.07 where the company was able to recover from the loss trend to start making profits. (http://investor.hawaiianairlines.com)
Balance Sheet Analysis of Year Ending 31.07.2008
Analysis of the balance sheet helps one to have a general view of the performance of a company. The Balance sheet can be analyzed through different tools of analysis which includes ratios and overview analysis. For Hawaii holding inc. the following ratios can be used to analyze the balance sheet
1) Liquidity ratios which include; current ratios and Quick Ratios
2) Capital structure ratio, including the Debt to Equity ratio
The following parameters are also used to analyze the Balance sheet
1) Net Worth
Net worth = Total Assets – Total Liabilities
For Hawaii Holdings =823399-690,060 = 133,339.
The company has a positive Net Worth; this therefore means that the Company is in a position to meet all its liabilities.
2) Stock Levels
The inventory of Hawaii Holdings is relatively low hence thus indicates that no money is unnecessarily tied up in stock which is good for the company’s liquidity.
3) Level of Debtors
The low level of Accounts receivable for the company is a sure indicator that the efficiency of Hawaiian holdings in its collecting of outstanding debt is quite high. It thus translates that liquidity position of the company is improved.
4) Declaration of Dividends
In the Financial Year ending 31.7.08, Hawaiian Holdings Inc. did not declare any dividend to its shareholder. This clearly shows that the liquidity of the company as at that time was not sound and hence its inability to pay dividends. (http://investor.hawaiianairlines.com)
Balance Sheet Analysis of Financial Year Ending 31.12.08
Further Analysis of the Balance Sheet reveals the following data about the company:
1) Current Ratio = Total Current Assets
Total Current Liabilities
Thus for last 12 months up to 31.12.07
Total current Assets = $267,383
Total Current Liabilities = $319,116
Current Ratio = 267383 = 0.837
The optimal current Ratio of a company is 1.5. Therefore in this case the current ratio is 0.837. It means the company is in danger of not being able to meet its short term obligation. Since its current ratio is way below the optimal current ratio. (Elliott & Elliott 2006)
2. Quick Ratio = (Cash + Marketable Securities)
Cash and Cash equivalent = 132816
Current Liabilities = 319116
Quick Ratio = 132816 = 0.4161
The quick ratio of the above company is very low indeed, the company thus runs the risk of running into bankruptcy since the cash at hand and the cash equivalents are not able to meet the company’s obligations effectively.
From the above 2 analysis of the liquidity of the company it can be established that Hawaiian Holdings is not adequately liquid to be able to meet its short term obligations.
3) Capital Structure Ratio
The capital structure ratio analyses how much of debt is used in the firm, in comparison with the total capitalization of the firm.
Capital structure ratio = Long term Debt
Equity capital + Long term debt
Long term debt = 215,926
Equity Capital = 133,339
Therefore = 215,926 = 0.62
The above company is near the Borrowing limit which is normally 65%. This means the ratio is very high and thus the company is in a danger zone, especially as concerns of acquisition of additional funds. High capital ratio effectively means lenders will be skeptical to lend any more money to the firm. (Elliott & Elliott 2006)
Analysis of income statement
3) Operating Profit Ratio
The operating Profit Ratio/Margin analyses the level of Net Profits generated against the sales or total revenue of the firm.
Operating margin/profit Ratio = Net profits from operations
Net profits = 7051
Sales/Revenue = 982,555
Operating Profit Ratio = 7051 = 0.007176
This ratio determines whether the fixed costs are too high for the production volume. A higher operating profit ratio is better. In this company, the ratio is very small, which is not good for the company because it effectively means the fixed costs are too high thus company needs to take action to remedy this. (Elliott & Elliott 2006)
3) Interest Coverage Ratio
Interest coverage ratio is used to determine the case with which a company is able to pay interest on its outstanding debt.
Interest coverage ratio = Earnings/Net Income + Interest
Net income = 7051
Interest expense = 24201
Therefore Ratio = 7051 + 24201 = 13.01
The ratio of 13.01 is way up above the minimum requirement. This means that the company is able to meet its interest expenses. This in turn indicates the company indeed is generating sufficient revenues to satisfy interest expenses.
5) Earnings potential
How cash flows tie to Income Statement and balance Sheet:
Cash flow statements are prepared based on the profit and loss account and Balance. This is because both of these financial statements are prepared on an accrual basis, but a cash flow statement the transactions are considered only on cash basis. What this effectively means is that the Balance Sheet and Income Statement may show the profitability of the company but not reflect the true cash position of the firm.
The result of this is because the net profit depicted in the profit and loss account is inclusive of items that do not affect the position of cash. Hence to be able to get the real profits in terms of cash available some adjustments have to be made.
In addition to cash sales, any increase or decrease in the assets or liabilities of the firm will affect the cash flow from operations. (Elliott & Elliott 2006)
Therefore from the above it can be said that cash flow is the money going into and out of a company. The cash flow therefore implies the cash arising from operations of a company for the financial year in Question.
Earnings potential ratios
Earnings potential ratios basically show the potential of the company generating earnings for the shareholders. (Elliott & Elliott 2006)
Different ratios can be used to analyze the earnings potential.
Earnings per share EPS
EPS = total earnings
No. of outstanding shares
Total earnings = 7051
No. of earnings shares = 118,000
Therefore EPS = 7051 = 0.0597 = 5.9%
The company’s EPS is quite a good earning; the company has potential to even do better.
Return on equity
Returns on equity show the yield of the equity which has been impact in the business. It tries to analyze the net income of a company against the equity
R.O.E = NET PROFIT
August share holder equity
Net profit = 7051
Average shareholder equity = 133339+83637+48067=88348
R.O.E = 7051 =0.079 =7.9
Return on assets
Measures the return yield of company against the assets employed in the company.
Return on Assets (ROA) Net income
Net income =7051
Average Asset = 823399+819953+666520=769924
7051 = 0.009 = 0.9%
The ROA of Hawaiian holdings is quite good
Operating efficiency ratio
Operating efficiency ratio are the financial statement ratios that measures how efficiency a business uses and controls its assets (www.biz.com)Different ratios are used to analyze the efficiency of a business. These includes; accounts receivable, turnover ratio = 18.4, bad debts ration, cash turnover ration among many others.
Cash turnover ration
This ration indicates the number of times cash turn over in a year
C.T.R = cost of sales – revenue
= 758863 – 982555 = -1.6
Cash turnover ratio of Hawaiian holdings is -1.6
An overall Analysis of the firm
An overall analysis of the firm Hawaiian Holdings Inc. indicates some of the following highlights:
1) Its liquidity is in a somewhat questionable area, since, the company’s liquidity ratio is 0.8 which is below the optimal level. Hence company is at risk of being unable to meet its short term obligation.
2) The other fact coming out is that the company as it currently stands is highly geared in what is making use of a lot of debt capital as compared to equity. This makes the company face the danger of not being able to acquire additional funds for the future expansion projects.
3) The Net Worth of the Company in general is a positive net worth, meaning that the company total assets are fully able to meet the total liabilities of the business. In this case therefore this is a positive sign from the company.
4) From an analysis of the cash flow statements the company has not paid out dividends to its shareholders in the last 3 years. This indicates the company’s lack of liquidity. This is a further indicator that the company’s liquidity is in question.
5) A look at the Net income of the Business indicates that the company has moved from a loss making concern to a profit making one. This indicates that the company has potential of growing.
From the above analysis, I would not be very fast in investing in the company. However from the trend, the company seems to be on the verge of recovery. Since the company has started making profit, this is an indicator that in future it will also start paying dividend. In my opinion, therefore, Hawaii Holdings Inc. is a company worth investing in but only on the long term for short term investment it is not advisable since it might take sometime for the company to catch up and stabilize itself in the market, considering that it has come from a loss making point.
Elliott & Elliott, (2006): Financial Accounting and Reporting (10th Edition): FT/Prentice Hall
Annual reports: retrieved on 8th July 2008 from: http://investor.hawaiianairlines.com/phoenix.zhtml?c=82818&p=irol-reportsAnnual
Liquidity Ratios Calculation Formulas and Explanations: retrieved on 8th July 2008 from: http://www.bizwiz.ca/liquidity_ratios.html
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