Southwest and United Essay Example | Topics and Well Written Essays - 3000 words

s come to the forehwesterly and United - Essay ExampleThis report provides an insightful study and a comparative analysis of the two companies Southwest airlines and United airlines. As both the companies belong to the same industry, this report has been devised with a consideration to compare their pecuniary work with the help of the annual reports for the year 2005. The item that the United airlines filed for bankruptcy in the year 2002 is greatly evident in the current financial position of the company. This report taxs the factors as to the differences in the financial performance of the two companies.The financial analysis in this report provides the detailed comparison of both the companies financial position and performance based on the data obtained from the companies financial statements with respect to profitability, liquidity, solvency and investment. It first of all presents a ratio analysis and then identifies major factors that have precipitated the different resu lts for the two countries.Ratio analysis is the pre-eminent technique to evaluate a companys performance and figure out major problems (Meigs & Meigs). Riahi-Belkaoui propounds that financial ratios serve the analysts in making the information in financial statements interpretable for the various users of financial statements. In the same vein, this paper will assess and analyse the financial position and performance of the two companies Southwest airlines and United airlines with the help of a bulky array of financial ratios using financial data available from the two companies annual reports. earnability Analysis Profitability analysis is the first step in evaluating any companys financial position. Most of the financial statement users happen to be interested in knowing the potency of a company in footing of enhancing its ability to earn profit for the stakeholders. Riahi-Belkaoui says, the profitability ratios portray ability of the firm to efficiently use the capital committe d by stockholders and lenders to generate revenues in free of expenses (11). The analysis to assess the profitability of Southwest and United airlines has been done with the help of following ratios.RatiosSouthwestUnitedOperating Profit Margin10.81%(1.26%)Net Profit Margin11.52%(121.87%)Return on Capital Employed12.28%(1.13%)Return on Assets3.85%(109.48%)Mcmenamin says that the Operating Profit Margin Percentage evaluates the percentage of profit earned by a company on sales subsequently the production and distribution activities. It reveals how well the company manages its expenses so as to attain maximum profit out of its total sales for its shareholders. Southwests operating profit ratio of 10.81% reflects that the company loses about 90% of its operating revenues in meeting its various operating expenses. United airlines on the other hand, fails to manage its operating expenses that leads the company towards operating loss of 1.26%. Despite the fact that the companys operating revenue for the year 2005 is much greater than that of the Southwest, it fails to retain it as profit for its shareholders. The Net Profit margin shows what percentage of profit a company earns on its sales. It reveals the profit retained by a company after accounting