JetBlue Case Study
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