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    Chapter 5 Exercises

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    Eman Khalil
    This document provides financial data for Delta Air Lines from 2000 to 2004. It shows declining sales, increasing losses, and growing debt over this period. Key risk ratios like the current ratio, operating cash flow to current liabilities ratio, and interest coverage ratio also deteriorated significantly from 2000 to 2004. Altman's Z-score, a measure of bankruptcy risk, fell into the bankruptcy zone in 2004, correctly signaling Delta's bankruptcy filing in 2005. The analysis of these financial metrics over time reveals Delta's deteriorating financial position and increasing likelihood of bankruptcy.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Chapter 5 Exercises

    Uploaded by

    Eman Khalil
    85 views7 pages
    This document provides financial data for Delta Air Lines from 2000 to 2004. It shows declining sales, increasing losses, and growing debt over this period. Key risk ratios like the current ratio, operating cash flow to current liabilities ratio, and interest coverage ratio also deteriorated significantly from 2000 to 2004. Altman's Z-score, a measure of bankruptcy risk, fell into the bankruptcy zone in 2004, correctly signaling Delta's bankruptcy filing in 2005. The analysis of these financial metrics over time reveals Delta's deteriorating financial position and increasing likelihood of bankruptcy.

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    Financial statement analysis

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    This document provides financial data for Delta Air Lines from 2000 to 2004. It shows declining sales, increasing losses, and growing debt over this period. Key risk ratios like the current ratio, operating cash flow to current liabilities ratio, and interest coverage ratio also deteriorated significantly from 2000 to 2004. Altman's Z-score, a measure of bankruptcy risk, fell into the bankruptcy zone in 2004, correctly signaling Delta's bankruptcy filing in 2005. The analysis of these financial metrics over time reveals Delta's deteriorating financial position and increasing likelihood of bankruptcy.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    85 views7 pages

    Chapter 5 Exercises

    Uploaded by

    Eman Khalil
    This document provides financial data for Delta Air Lines from 2000 to 2004. It shows declining sales, increasing losses, and growing debt over this period. Key risk ratios like the current ratio, operating cash flow to current liabilities ratio, and interest coverage ratio also deteriorated significantly from 2000 to 2004. Altman's Z-score, a measure of bankruptcy risk, fell into the bankruptcy zone in 2004, correctly signaling Delta's bankruptcy filing in 2005. The analysis of these financial metrics over time reveals Delta's deteriorating financial position and increasing likelihood of bankruptcy.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 7

    Year 5 Year 4 Year 3 Year 2

    ASSETS
    Cash $350 $56 $43 $188
    Marketable securities 0 465 387 51
    Accounts receivable $26 $7 $10 21
    Inventories $248 $201 $169 130
    Prepayments $28 $24 $20 15
    Total Current Assets $652 $753 $629 $405
    Property, plant, and equipment, net $1,560 $1,342 $1,172 947
    Other assets $8 $1 $1 0
    Total Assets $2,220 $2,096 $1,802 $1,352
    LIABILITIES AND SHAREHOLDERS’ EQUITY
    Accounts payable $84 $58 $79 $32
    Short-term borrowing $54 $33 $0 0
    Other current liabilities $276 $220 $193 132
    Total Current Liabilities $414 $311 $272 $164
    Long-term debt $872 $713 $629 581
    Other noncurrent liabilities $265 $214 $165 12
    Total Liabilities $1,551 $1,238 $1,066 $757
    Common stock $1 $1 $1 $1
    Additional paid-in capital $140 $139 $143 141
    Retained earnings $1,076 $906 $701 520
    Treasury stock ($548) ($188) ($109) ($67)
    Total Shareholders’ Equity $669 $858 $736 $595
    Total Liabilities and Shareholders’ Equity $2,220 $2,096 $1,802 $1,352
    Source: Abercrombie & Fitch Co., Form 10-K for the Fiscal Years Ended 2002–2005.

    Year 5 Year 4 Year 3


    Sales $2,021 $1,708 $1,596
    Cost of goods sold -1,048 -936 -893
    Selling and administrative expenses -562 -386 -343
    Interest expense -63 -54 -48
    Interest income 5 4 4
    Income tax expense -137 -131 -121
    Net Income $216 $205 $195
    Year 5 Year 4 Year 3
    Square feet of retail space (in thousands) 5,590 5,016 4,358
    Number of employees 48,500 30,200 22,000
    Growth rate in sales 18.30% 7.00% 16.90%
    Comparable store sales increase 2.00% -9.00% 5.00%
    Source: Abercrombie & Fitch Co., Form 10-K for the Fiscal Years Ended 2003–2005.

    Year 5 Year 4 Year 3


    OPERATIONS
    Net income 216 205 195
    Depreciation and amortization 106 90 76
    Addbacks and subtractions, net 13 56 49
    (Increase) Decrease in inventories -34 -27 -34
    Increase (Decrease) in current liabilities 125 19 60
    Cash Flow from Operations 426 343 346
    INVESTING
    Property, plant, and equipment acquired ($185) ($160) ($146)
    Marketable securities sold 4,779 3,771 2,419
    Marketable securities purchased -4,314 -3,849 -2,729
    Other investing transactions — — 5
    Cash Flow from Investing ($280) ($238) ($451)
    FINANCING
    Increase in short-term borrowing $20 $4 $4
    Increase in common stock 49 20 —
    Acquisition of common stock -435 -116 -43
    Dividends -46 — —
    Cash Flow from Financing ($412) ($92) ($39)
    Change in Cash $294 $13 ($144)
    Cash—Beginning of year 56 43 188
    Cash—End of Year $350 $56 $43
    Exhibit 5.16
    Risk Ratios for Abercrombie & Fitch (Problem 5.14)
    Year 5 Year 4 Year 3
    Current ratio
    Quick ratio
    Operating cash flow to current liabilities ratio
    Days accounts receivable outstanding
    Days inventory held
    Days accounts payable outstanding
    Net days of working capital financing needed
    Liabilities to assets ratio
    Liabilities to shareholders’ equity ratio
    Long-term debt to long-term capital ratio
    Long-term debt to shareholders’ equity ratio
    Operating cash flow to total liabilities ratio
    Interest coverage ratio

    EBIT/Interest
    Exhibit 5.18
    Financial Data for Delta Air Lines, Inc. (amounts in millions, except
    per-share amounts)
    (Problem 5.16)
    2004 2002 2002 2001 2000
    Sales $15,002 $14,087 $13,866 $13,879 $15,657

    Net income (loss) before interest and taxes ($3,168) ($432) ($1,337) ($1,365) $1,829

    Interest expense $824 $757 $665 $499 $380


    Net income (loss) ($5,198) ($773) ($1,272) ($1,216) $828
    Current assets $3,606 $4,550 $3,902 $3,567 $3,205
    Total assets $21,801 $25,939 $24,720 $23,605 $21,931
    Current liabilities $5,941 $6,157 $6,455 $6,403 $5,245
    Long-term debt $12,507 $11,040 $9,576 $7,781 $5,797
    Total liabilities $27,320 $26,323 $23,563 $19,581 $16,354
    Retained earnings (deficit) ($4,373) $844 $1,639 $2,930 $4,176
    Shareholders’ equity ($5,519) ($384) $1,157 $4,024 $5,577
    Cash flow provided by operations ($1,123) $142 $225 $236 $2,898
    Common shares outstanding 139.8 123.5 123.4 123.2 123
    Market price per share $7.48 $11.81 $12.10 $29.26 $50.18
    Source: Delta Airlines, Inc., Forms 10-K for the Fiscal Years Ended June 2000–2004.

    Delta Air Lines, Inc., is one of the largest airlines in the United States.It has operated on the verge of bankruptcy for several ye
    Exhibit 5.18 presents selected financial data for Delta Air Lines for each of the five years ending December 31, 2000, to Decem
    Delta Air Lines filed for bankruptcy on September 14, 2005. We recommend that you create an Excel spreadsheet
    to compute the values of the ratios and the Altman’s Z-score in Requirements a and b, respectively.
    REQUIRED
    a.    Compute the value of each the following risk ratios.
    (1)   Current ratio (at the end of 2000–2004)
    (2)   Operating cash flow to current liabilities ratio (for 2001–2004)
    (3)   Liabilities to assets ratio (at the end of 2000–2004)
    (4)   Long-term debt to long-term capital ratio (at the end of 2000–2004)
    (5)   Operating cash flow to total liabilities ratio (for 2001–2004)
    (6)   Interest coverage ratio (for 2000–2004)
    b.   Compute the value of Altman’s Z-score for Delta Air Lines for each year from 2000–2004.
    c.    Using the analyses in Requirements a and b, discuss the most important factors that signaled the likelihood of bankruptcy
    ankruptcy for several years.
    mber 31, 2000, to December 31, 2004.
    preadsheet

    likelihood of bankruptcy of Delta Air Lines in 2005.


    2004 2002
    a. (1)   Current ratio (at the end of 2000–2004)
    (2)   Operating cash flow to current liabilities ratio (for 2001–2004)
    (3)   Liabilities to assets ratio (at the end of 2000–2004)
    (4)   Long-term debt to long-term capital ratio (at the end of 2000–2004)
    (5)   Operating cash flow to total liabilities ratio (for 2001–2004)
    (6)   Interest coverage ratio (for 2000–2004)

    b. Working Capital/Assets: 1.2


    Retained Earnings/Assets: 1.4
    EBIT/Assets: 3.3
    Mkt. Value Equity/Liabilities: 0.6
    Sales/Assets: 1.0
    Z-Score
    Probability of Bankruptcy
    2002 2001 2000

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