Company Analysis

International College of the Cayman Islands

BE 211 Financial Accounting
Angelika Bodden
Wendy Clarke

Timeline of American Airlines Group

1926 American Airlines

operations (90 years)

began

2001 acquired Trans World Airline

assets

1939 began trading on the New York

Stock Exchange

1970 Merged with Trans Caribbean

Airways, gaining Caribbean routes

2013 AMR Corporation & US Airways

Group officially form the American
Airlines Group

2015 American & US Airways begin

operating as one airline with a Singer
Passenger Service System

Listed on NASDAQ

2015 AA Group employed 118,500

1981 Introduced AAdvantage, the first

airline loyalty program

1989 began to expand its Latin

American service

1991 Celebrated
customer

its

billionth

American Airlines Group Inc

American Airlines Group is the holding

company for American Airlines and US
Airways.

The airlines operate an average of nearly

6,700 flights per day to 339 destinations
in 54 countries.

Hubs in: Charlotte, Chicago, Dallas/Fort

Worth, Los Angeles, Miami, New York,
Philadelphia, Phoenix and Washington,
D.C.

Americans AAdvantage & US Airways

Dividend Miles programs (i.e travel,
flight upgrades, vacation packages, car
rentals etc)

Member of the OneWorld Alliance,

American Airlines & its members
& members-elect, serve 981
destinations with 14,244 daily
flights to 151 countries.

AA Group Inc - Financial Statements

Income Statement Gives a snapshot of

the revenues, expenses, net income and
earnings per share

Balance Sheet Provides overview of AA

Group Incs assets, liabilities and
stockholders at a perior/point in time.

Cash Flow Statement Gives information

from both the balance sheet and income
statement. This gives the investor an
overview of the flow of cash and cash
equivalents.

Stockholders Equity Shows that capital

received and held by its investors

Financial Statements Statement of Operations

Financial Statements Income (Loss)

Financial Statements Balance Sheet

Financial Statements Statement of Cash Flows

Financial Statements Stockholders Equity

Ratios
Now that you have seen our financial statements
for 2014 & 2015, to help you further understand
our financial position we are going to look at
some ratios
In accounting, ratios helps to measure a
companys efficiency and profitability. This is
done by reviewing the financial reports (Income
Statement, Statement of Cash Flows, Balance
Sheet and Stockholders Equity).
It is best to review financial reports for at least
two years. For American Airlines Group Inc, we
will give an overview of some ratios for the
years 2014 & 2015.

Liquidity

Leverage Ratios

Evaluating Stock As An Investment

Profitability Ratio

Liquidity Ratios

Working Capital Explanation

Working Capital measures the companys ability to meet short

term obligations with current assets. This is a form of

measuring the liquidity of a companys assets
A positive working capital indicates the company is able to

meet its short term obligations ( more current assets than

current liabilities)
A negative working capital, is just the opposite, indicates that

the company is not able to meet its short term obligations)

Working Capital - Ratio

Working Capital: CA CL

2014: 11,750 13,404 = (-1,654)

2015: 9,985 13,065 = (-3,620)

The negative amount means AA Group Inc. is not able to pay its shortterm obligations with its current assets. For both 2014 & 2015 there are
more current liabilities than current assets.

Cash Ratio - Explained

This ratio measures a companys ability to pay current liabilities from cash
and cash equivalents.

The Cash ratio includes cash and cash equivalents, cash equivalents are assets
that are very liquid and can be converted into cash in three months or less.

A very low cash ratio indicates to investors and creditors that the company
does not have the ability to meet short-term debt. A cash ratio above 1.00
could signify that the company has a large amount of cash on hand
unnecessarily when this cash could be used to to generate higher profits.

Cash Ratio

Cash Ratio: Cash + Cash Equiv. / Total Current Liabilities

2014: 994 / 13,404 = 0.074

2015: 390 / 13,605 = 0.028

Cash has decreased by .048 between the 2014-2015.

A cash ratio less than 1.00 is favorable because that means the company
does not have a large amount of cash on hand unnecessarily. In this case
this ratio is not too low or high which signifies the company is able to
meet its short term obligations.

Current Ratio Explanation & Ratio

Measures the companys ability to

pay current liabilities from current
assets.

In general a current ratio of 1.50,

however this varies by industry.

A current ratio that is too high

indicates that the company is too
liquid and is not using its assets
effectively.

Current Ratio: Total CA / Total CL

2014: 11,750 / 13,404 = 0.87

2015: 9,985 / 13,605 = 0.73

Ratio is low, therefore, AA Group

Inc does not have sufficient current
assets to pay current liabilities.

Acid-Test Explanation & Ratio

This ratio tells whether the

entity could pay all its current
liabilities if they became due
immediately

In general, an acid test ratio of

0.90-1.00 is considered safe.

This test is more rigid than the

current ratio but not as stringent
as the cash ratio.

Acid-Test Ratio (Quick Ratio): Cash

& Cash Equiv +Short Term Inv+Net
Current Rec./Total Current Liabilities

2014: 995+6,309+1,771 / 13,404 =

9,074/13,404 = 0.67

2015: 390+5,864+1,425/13,605
7,679/13,605 = 0.56

The companys acid test ratio

improved showed a decline of .

11 between 2014-2015

Leverage Ratios

Debt Ratio - Explanation

This ratio shows the portion of the assets financed with debt.
The higher the debt ratio, the higher the companys financial

risk.
Used to evaluate the companys ability to pay its debts

Debt Ratio

Debt Ratio: Total Liabilities / Total Assets

2014: 41,204 / 43,225 = 0.95

2015: 42,780 / 48,415 = 0.88

The debt ratio is significantly high in both 2014 and 2015,

however, there was a decrease of 0.07 between 2014 and 2015.
These high ratios indicate that that majority of the company is
financed with debt.

Debt to Equity Ratio - Explanation

A ratio that measures the proportion of total liabilities relative

to total equity.
If the debt to equity ratio is greater than 1 then the company is
being financed mostly by debt than equity and likewise if the
debt to equity ratio is less than 1 the company is financed
mostly by equity and not debt.

Debt to Equity Ratio

Debt to Equity Ratio: Total Liabilities / Total Equity

2014: 41,204 / 2,021 = 20.38

2015: 42,780/5,635 = 7.59

These ratio figures mean that AA Group Inc is financing more

assets with debt that with equity.

Times-Interest Earned - Explanation

Also called interest-coverage ratio

Evaluates a businesss ability to pay interest expense.
The higher this ratio the more a company is able to to pay

interest expense and the lower this ratio the more difficult it is
for a company to pay its interest expenses.
The norm for US businesses falls in the range of 2.0 to 3.0

Times-Interest-Earned Ratio

Times-Interest-Earned: Net income+Income Tax Exp + Interest

Exp/ Interest Expense

2014: 2,882 + 330 + 887 / 887 = 4,099 / 887 = 4.62
2015: 7,610 + 2,994 + 880 / 880 = 11,484 /880 = 13.05

Evaluating Stock As An
Investment

Price/Earning Ratio - Explanation

The ratio of the market price of a share of common stock to the

companys earning per share. Measures the value that the stock
market places on $1 of a companys earnings.

Price/Earnings Ratio

Price/Earnings Ratio: Market Price per share of Common Stock

/ Earnings per share:

2014: $54.64 / 0.84 = 65.04
2015 $47.09 / 15.24 = 8.98

Profitability Ratio

Rate of Return on Total Assets

A ratio that measures the success a company has in using its assets to
earn income.

Debt (i.e loans, etc)

Equity (i.e investments into the company by stockholders, etc)

Rate of Return on Total Assets

Rate of Return on Total Assets: Net Income + Interest

Expense / Average Total Assets

2014: 2,882 + 887 / 4,2278 + 4,3225 / 2 = 0.088
2015: 7,610 + 880 / 4,3225 + 48,415 / 2 = 0.18

Risk Factors
American Airlines Group Inc has several risk factors that may affect business, results
of operations & financial condition, or trading price of their common stock or other
securities. However, AA Group Inc (and all businesses) operates in a changing business
environment with new risks and uncertainties constantly emerging from time-to-time.

Operating losses in future may be expected. Due to the condition of the

economy, level & volatility of fuel prices, state of travel demand & intense
competition in the airline industry.

Unfavorable conditions in economies in other regions of the world. This will

affect the demand for air travel and changes in booking prices, of which have had a
strong negative effect on revenues.

Certain labor agreements limit AA Group Incs ability to reduce the number of
(or utilize) aircraft in operation below certain levels. This results in not being
able to optimize the number of aircraft in operation as a response to a decrease in
passenger demand for air travel.

Risk Factors Continued

The price of fuel can have a material effect on our operating results and
liquidity. Due to the very competitive nature of the industry and
unpredictability of the market AA Group Inc can not assure that they will be
able to:

Increase fares

Impose fuel surcharges

Increase revenues sufficiently to offset fuel price increases

Predict the effect or the actions of competitors if the current low fuel pries
remain in place for a significant period of time

Natural disasters, Political disruptions or wars involving oil-producing

countries, changes in governmental policy, strength of the US dollar against
foreign currencies etc

Management Discussion & Analysis

Year in Review - The U.S. Airline Industry

2015, on a whole the Airline industry benefited from having lower fuel prices.

Jet fuel prices closely follow the price of Brent crude oil. Oil prices declined significantly
throughout 2015, and in December, the price of Brent crude oil fell below $40 a barrel for the first
time since 2009. On average, the price of Brent crude oil per barrel was approximately 47% lower
in 2015 as compared to 2014. The average daily spot price for Brent crude oil during 2015 was $52
per barrel as compared to an average daily spot price of $99 per barrel during 2014. On a daily
basis, Brent crude oil prices fluctuated during 2015 between a high of $66 per barrel to a low of
$35 per barrel, and closed the year on December 31, 2015 at $37 per barrel.

With respect to revenue, in its most recent data available through the third quarter of 2015, Airlines
for America, the trade association for U.S. airlines, reported U.S. industry passenger revenues and
yields declined as compared to 2014. Additionally, domestic markets outperformed international
markets (Atlantic, Pacific and Latin America) in both yield and overall revenue performance.

The above is a direct quote from the Management Discussion & Analysis portion of American Airlines Group Incs financial statements. See reference section of this powerpoint.

Recommendations

American Airlines is a staple airlines. It can be looked at as a national

figure of the United States of America, that has been in operations for
90 years.
While the past few years have not been financially favorable, and given
the economic, oil/fuel disruptions and other regulatory issues we do
recommend investors to invest in this national treasure.

References

American Airlines Group Inc. (2016). Management Discussion & Analysis of Financial Condition and Results of
Operation. Retrieved from American Airlines Group Inc.:
http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irolSECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNzY2M
zkzJkRTRVE9MSZTRVE9NTkmU1FERVNDPVNFQ1RJT05fUEFHRSZleHA9JnN1YnNpZD01Nw%3d%3d

American Airlines Going Home Commercial (n.d). Retrieved from YouTube:

www.youtube.com/watch?v=Rts3ezaXQBs
Investopedia. (n.d.). Financial Statements. Retrieved from Investopedia: http://
www.investopedia.com/terms/f/financial-statements.asp

Risk Factors (slides 25 & 26): American Airlines Group Inc. (2016). Investor Relations. SEC Filings. Retrieved
from American Airlines Group Inc.: http://
phx.corporate-ir.net/phoenix.zhtml?c=117098&p=IROL-secToc&TOC=aHR0cDovL2FwaS50ZW5rd2l6Y
XJkLmNvbS9vdXRsaW5lLnhtbD9yZXBvPXRlbmsmaXBhZ2U9MTA3NjYzOTMmc3Vic2lkPTU3&ListAll=1&sXBRL
=1