CASE STUDY
Proforma 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
