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JetBlue airways financial analysis

Financial and Accounting Analysis.

a)    Liquidity ratio

Looking at the table below one will notice that the liquidity position of the company is deteriorating.The current ratio has declined from 1.05:1 to 0.94 :1.This is far below a recommended ratio of 2:1 for companies to be in a good position.

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The current ratio is an indication of the ability of the firm to pay its short term current obligation with less difficulty. In the year 2005, it means for every dollar of debt there is 0.94 dollars of assets. This cannot cover all the liabilities for the company. And unfortunately this includes stock which cannot be disposed off with ease. Creditors consider current assets as a buffer for current liabilities and hence they prefer high ratios.  The acid test ratio also declined from 1.03:1 to 0.9:1. This is also a decline in the performance of the company in terms of meeting short-term liquidity position. However this uses the most liquid assets of the company. In brief , the quick ratio shows that the liquidity position of the firm has gone down in terms of ability to meet short-term obligations. The cash ratio which is another ratio which can be used to determine the position in paying short term liabilities and in this case it stands at 0.92:1 and 0.72:1 for years 2004 and 2005 respectively. There is also a decline in this ratio. The reason maybe due to the fact that the company invested more  in investment securities.

Ratio
Formula
2004
2005
Liquidity ratios

a)    Current ratio
Current assets

Current liabilities
514

488

=1.05:1
635

676

=0.94:1
b)    Quick ratio
Current assets  – stock

Current liabilities
504

488

=1.03:1
614

676

=0.9:1
c)    Cash ratio
cash + marketable securities

current liabilities
450

488

=0.92
484

676

=0.72

Activity ratios

The ratio calculated here includes inventory turnover ratio, days sales inventory, receivables turnover, days sales in receivables and asset turnover. The company turned the inventory 126 times in 2004 and 109.7 in the year 2005. This is a better performance in the year 2004 but deteriorated in the year 2005 if converted into days it shows that on average 3 days in year 2004 and four days in the year 2005. It means the management declined its efficiency in selling its  stock from 3 to 4 days. The overall conversion period shows a decline therefore the management should maintain a base as it is more than the previous year. Looking at the converting debt to cash we find that the company converted sales into cash 34.2 times in the year 2004 and 26 times in the year 2005. Coverting this into the number of days to collect cash from the number of sales it was 11 days and 14 days for the year 2004 and 2005 respectively. This is again a failure bythe management to improve its efficiency in utilizing its state to generate cash. The higher turnover shows that the management is having some problems in trying to manage her resources.

Activity ratios

2004
2005
a)    Inventory turn over
Sales

Average inventory
1265

10

126 times
1701

(10+21)/2

109.7 times
b)    Day sales in Inventory
365

Inventory turn over
365 = 2.9 days

126
365 = 3.3 days

109.7
c)    Receivable turn over
Sales

Average debtors
1265

   37

34.2 Times
1701

(94+37)/2

26 times
d)    Day sales in Receivable
365

Receivable turn over
365    = 10.7 days

34.2
365    = 14.04 days

26
e)    Assets turn over.
Sales

Average assets
1265

   2797

=0.45 times
1701

(2797+3892)/2

=0..51 times

In utilizing total assets to generate revenue to the company the company turned the asets 0.45 times in the year 2004 and the same time 0.51 in the year 2005. This is far much less than expected because the turnover on assets measures the business abitlity to utilize assets to generate high returns. It measures how the dollar invested in assets is turned. In every dollar invested in the year 2005, there is 0.51dollar of assets. Sales

Solvency ratios

Long term debt and solvency ratios

a)    Debt to capital ratio
Total debt

Total assets
1884 x 100

2797

=67.4%
2779 x 100

3892

=71.4%
b)    Long term debt to equity
Long term debt

Equity
1396 x 100

754

= 185.1%
2103×100

911

=230.8%

Profitability ratios

a)    profit  margin
Net before tax profit

sales
111×100

1265

8.8%
48×100

1701

2.83%
b)

c)    Return on assets
Net profit before tax

Total assets
111 x100

2797

=4%
48  x100

3892

=1.23%
d)    Return on equity
Net profit available to shareholders

Equity
46 x100

754

=6.1%
(20) x100

911

=2.3%
e)    Equity multiplier
Assets   x 100

Equity
2797  x100

754

=370.95%
3892  x100

911

=427.2%