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Paper Topic:

Annual Report Project Delta Airlines

1 .1 Determination of Accounting Ratios

Investor Perspective Profitability Efficiency Liquidity

Stability

1 .1 .1 Trend in the Ratios Determined

The trend in the ratios calculated for 2004 and 2003 can be portrayed in the following table

Ratios 2004 2003 Increase (Decrease

Investor Perspective

Earnings per Share

Price /earnings ratio

- 27 .35 0 .29

- 4 .37 2 .29

- 22 .98

- 2 .00

Profitability Efficiency

Return on capital employed

Operating profit margin

Net profit margin

Return on shareholders ' equity

Return

on -14 .70

-22 .05

-34 .65

69 .20

0 .69 times

-1 .80

-5 .57

-5 .49

183

0 .54 times

-12 .90

-16 .48

-29 .16

-113 .80

0 .15 times

Liquidity

Current Ratio

Quick Ratio

Cash flow from operations to sales

0 .61 :1

0 .57 :1

-7

0 .74 :1

0 .71 :1

-0 .87

-0 .13 :1

-0 .14 :1

-6 .13

Stability

Gearing

Times interest earned

Book value per common share

364 .48

-87 times

- 20 .27

3 ,013 .20

-13 times

- 2 .43

-2 ,648 .72

-74 times

- 17 .84

A declining trend is noted in all ratios with the exception of the return on 1 .2 Significant Unusual Items

The significant unusual that the company faced in 2001 and is still suffering the consequences is the terrorist attack of the 11th September . Such incident affected negatively the sales revenue of the company at its inception . In additional legal claims were put against the company , which can result in material cash outflows if they are loss . Significant legal fees are also arising in this respect , further lowering the profitability of the company

1 .3 Revenue of Delta Airlines

Passengers ' revenue which consists of sale of tickets and cargo revenue are recognized when the transportation is provided . Other net revenue arising from code share agreements with other airlines , in which seats of our aircrafts are sold to other airlines , is accounted for when transportation occurs too

A distinction arises between the date revenue is recognized and cash inflows are received from such sale due to the accruals concept , which we abide with when preparing the income statement . There is thus the risk that the amount arising from that revenue is not received leading to bad debts . Indeed a provision is also frequently made in the accounts for any doubtful debts that might arise . No bad debts deductions were recognized in the income statement of Delta Airlines Such accounting treatment may thus lead to an overstated profit figure

1 .4 Inventory Effect

Inventory comprises items held by the organization with the intention of resale or in the utilization of the services provided . The costs related to inventory basically consist of holding costs . Such costs entail wages of staff responsible of this asset , insurance expenditure and other related overhead costs . In the balance sheet of Delta Airlines stock consists solely of expendable parts required for flight equipment . The moving average cost method is adopted and such system is acceptable by...

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