Thai Study Abroad

FINANCIAL RATIOS

QUICK RATIOS

Current ratio

This measures the firm’s ability to meet its short term financial obligations. It is calculated as

Current Ratio

  =  

Current Assets

 

Current Liabilities

 

283,059

=1.049673

269,664

 

 

 

 

 

 

From the case,

 

 

Quick Ratio

  =  

Current Assets – Inventory

 

Current Liabilities

 

 

 

4,840

= 0.017948

269,664

From the case,

 

 

Cash Ratio

  =  

Cash  +  Marketable Securities

 

Current Liabilities

 

 

From the case, 

246,752

=0.915035

269,664

 

This clearly means the firm cannot meet its short term financial obligations

 

ASSET TURNOVER RATIOS

These ratios indicate of how efficiently the firm utilizes its assets. Receivables turnover is an indication of how quickly the firm collects its accounts receivables. It is usually reported in terms of the number of days that credit sales remain in accounts receivable before they are collected. The result is known as the collection period. It is calculated as

Receivables Turnover =

Annual Credit Sales

Accounts Receivable

 

The information on Annual Credit Sales is not provided hence this ratio cannot be determined

Inventory turnover

It is the cost of goods sold in a time period divided by the average inventory level during that period

Inventory Turnover =

Cost of Goods Sold

Average Inventory

 

The information on Cost of goods sold is not provided hence this ratio cannot be determined

 

FINANCIAL LEVERAGE RATIOS

These ratios are concerned with the long-term solvency of the firm. The ratios measure the extent to which the firm is using long term debt.

Debt Ratio =

Total Debt

Total Assets

Debt Ratio =

324,752

=0.235511

 

1,378,923

 

         

Debt-to-Equity Ratio =

Total Debt

Total Equity

 

Debt-to-Equity Ratio =

324,752

=0.783152

414,673

 

 

 

From the ratios, JetBlue is using long term debt as a source of financing

 

 

PROFITABILITY RATIOS

Return on Assets (ROA)

This ratio measures how effectively the firm’s assets are being used to generate profits

 

 

 

 

Net Income

 

Return on Assets (ROA) =

———————————-

 

 

Average Total Assets

 

 

 

 

From the case study,

Return on Assets (ROA) =

54,908

=0.556295

98,703

 

 

 

This means that for every dollar of assets, JetBlue uses 0.55 to generate profits

Return on Equity (ROE)

This ratio measures the profits earned for each dollar invested in the firm’s stock

 

 

 

Net Income

 

Return on Equity (ROE) =

——————————————–

 

 

Average Stockholders’ Equity

 

 

 

 

Return on Equity (ROE) =

54,908

0.132413

414,673

 

 

 This implies that JetBlue earns 0.132 as profits from each dollar of stock

 

Return on Common Equity (ROCE)

This ratio measures the profits earned for each dollar invested in the firm’s stock from common equity

 

 

 

Net Income

 

Return on Common Equity (ROCE) =

——————————————–

 

 

Average Common Stockholders’ Equity

 

 

 

 

 

From the case study,

Return on Common Equity (ROCE) =

54,908

=0.00011

500,000,000

   

 

Profit Margin

This ratio is a measure of the gross profit earned on sales. It is calculated as

 

 

 

Net Income

 

Profit Margin =

—————–

 

 

Sales

 

 

 

There is no information on the sales

Earnings Per Share (EPS)

This ratio measures the average earning per share invested in JetBlue

 

 

 

Net Income

 

Earnings Per Share (EPS) =

———————————————

 

 

Number of Common Shares Outstanding

 

   

 

 

From the case study

Earnings Per Share (EPS) =

54,908

=0.008388

6,545,950

 

The earnings per share is relatively low and investors will get low returns on investment

 

THE MISING MATRICES

Competitive profile matrix

CPM allows the firm to compare the competitor critical success factor with your organization. The CPM for JetBlue can be summarized as below

 

JETBLUE

DELTA AIRLINES

SOUTH WEST

Critical success factor

Weight

Rating

Weighted score

Weight

Rating

Weighted score

Weight

Rating

Weighted score

Well known for quality & reliable service

0.15

4

0.6

0.15

3

0.45

0.15

3

0.45

Efficiency in operations

0.20

4

0.8

0.20

2

0.4

0.20

4

0.8

Balances cost with quality service

0.15

4

0.6

0.15

2

0.3

0.15

3

0.45

Good reputation and image

0.15

3

0.45

0.15

2

0.3

0.15

3

0.45

Strong Leadership team

0.10

3

0.3

0.10

3

0.3

0.10

2

0.2

Highly motivated and loyal staff

0.15

3

0.45

0.15

2

0.3

0.15

3

0.45

Financial ratios

0.10

2

0.2

0.10

1

0.1

0.10

1

0.1

TOTAL

1.00

 

3.40

1.00

 

2.15

1.00

 

2.90

 

A 1-4 rating to each critical success factor indicates how effectively the firm’s current strategies respond to the factor.
(1 = response is poor, 4 = response is extremely good)

The weight range from 0.0 to 1.0 lower number shows no or minimum importance and high weight show more importance of factor to the company.

It is clear that JetBlue has a strong position.

 

The Quantitative Strategic Planning Matrix (QSPM)

QSPM attempts to objectively select the best strategy using input from other management techniques.

The QSPM matrix for JetBlue is as follows

 

Product differentiation & Value added services

Expansion to other markets

Internal strengths

Weight

Attractiveness

Total attractiveness score

Weight

Attractiveness

Total attractiveness score

Well known for quality & reliable service

16%

4

0.64

13%

3

0.39

Efficiency in operations

12%

4

0.48

11%

4

0.44

Balances cost with quality service

10%

4

0.4

9%

3

0.27

Good reputation and image

10%

3

0.3

11%

3

0.33

Strong Leadership team

8%

3

0.24

8%

2

0.16

Highly motivated and loyal staff

8%

4

0.32

9%

3

0.27

Financial ratios

9%

3

0.27

11%

3

0.33

 

 

 

0

 

 

 

Internal Weaknesses

 

 

0

 

 

 

Highly crowded market

15%

1

0.15

13%

1

0.13

Limited access to international markets

8%

2

0.16

9%

2

0.18

Single Fleet

4%

1

0.04

6%

1

0.06

TOTAL WEIGHTED SCORE

100%

 

3

100%

 

2.56

             

Opportunities

Weight

Rating

Average Score

Weight

Rating

Average Score

Increased demand and popularity

16%

4

0.64

15%

3

0.45

Automation of operations

14%

4

0.56

16%

4

0.64

Growth of low cost  airline sector

18%

4

0.72

14%

2

0.28

Expansion to other world markets

16%

3

0.48

16%

3

0.48

 

 

 

0

 

 

 

Threats

 

 

0

 

 

 

Effects of terrorism and war

4%

4

0.16

4%

3

0.12

Emerging competition

11%

3

0.33

12%

2

0.24

Declining Margins

9%

3

0.27

12%

3

0.36

Economic down turn

12%

1

0.12

11%

1

0.11

TOTAL WEIGHTED SCORE

100%

 

3.28

100%

 

2.68

             

(Attractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3 = probably acceptable; 4 = most acceptable; 0 = not relevant)

 

From the above statistics, JetBlue will find it easy to adopt the product differentiation and value added strategy, it has a better rating of 3.28

                                            

SPACE MATRIX

The Strategic Position and Action Evaluation matrix (SPACE matrix) focuses on strategy formulation especially as related to the competitive position of an organization. The matrix is divided into four quadrants namely Aggressive, Conservative, Defensive and Competitive (Porter 1998). From the case study, JetBlue is in the aggressive quadrant where it is seeking to utilize its internal strengths to penetrate into the potential markets.

 

SPACE MATRIX

Internal Strategic position

External strategic position

competitive

Industry

1  Quality of service

2  Market crowding

1  Reputation& Image

3  Barriers to entry

2  Flight turnaround

1  Emerging competition

2  Value added services

3  Diminishing profitability

5 worst 1 best

5 best   1 worst

 

 

Financial

Environmental

5  Cash flow

3  Economic crisis

3  Profitability

2  Technological advancement

4  Earnings Per share

4  Taxation

4  Return on equity

4  Changing customer preferences

5 best   1 worst

5 worst 1 best

 

SWOT MATRIX

STRENGTHS

WEAKNESSES

Well known for quality and reliable service

Highly crowded market

Efficiency in operations

Limited access to international markets

Balances costs with quality services

Single fleet operation

Good reputation and image

 

Highly motivated and loyal staff members

 

OPPORTUNITIES

THREATS

Increased demand and popularity

Effects of terrorism and war

Automation of operations

Emerging competition

Growth of low cost airline sector

Declining Margins

Expansion to other world markets

Economic down turn

 

It is clear that JetBlue is a strong competitor to other companies

 

 

THE BCG MATRIX

The Boston Consulting group matrix portrays a firm in terms of relative market share position and industry growth rate as follows (Porter 1998)

Question Marks-Low market share but compete in high growth markets

Stars-high relative market share and compete in high growth rate industries

Cash Cows-high relative market position, but compete in a low-growth industry

Dogs-market share position and compete in a slowed or no-growth industry

From the case study, JetBlue airlines is basically in the stars quadrant.

 

ENDS… AGGREY NZOMO n.kavalu@gmail.com

 

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