Financial Statement Valuation of Continental and Southwest
AC 3115: Financial Statement Analysis and Valuation
Executive Summary
The objective of this report is to compare and contrast two companies in the airline industry with respect to strategic, accounting and financial analysis. We will develop a detailed forecasting model on which we will base our valuation of the companies. Other issues which arise will also be discussed in detail. Ultimately we will decide on whether to put a buy or sell recommendation on the shares of Southwest Airlines and Continental Airlines.
From the above we conclude that we would put a BUY recommendation on BOTH Southwest Airlines and Continental Airlines. These recommendations are based on the forecasted share prices below.
LUV: Forecast - $19.61 Current Market Price - $12.48
CAL: Forecast - $30.39 Current Market Price - $29.48
In conclusion, we feel Southwest Airlines will continue to grow steadily into steady state. Continental Airlines still has significant room for expansion given the long haul sector that they operate in.
We believe that Continental Airlines will reach stable growth in 2017, while Southwest Airlines are predicted to reach stable growth in 2014.
Table of Contents
Page Number
1. Strategic Analysis 4
2. Accounting Analysis 17
3. Financial Analysis 26
4. Prospective / Forecasting Analysis 37
5. Valuation 48
6. Other Issues 52
7. References 58
Strategic Analysis
In order to understand the underlying economics of the airline industry and our two chosen companies, a strategic analysis was undertaken. The aim of this analysis is to highlight the firms cost structure, brands, risks and assets, including the firms’ external environment and how they perform within that environment. The following strategic analysis incorporates the PwC Corporate Reporting Framework and Generic Strategies analysis.
PWC Corporate
Executive Summary
The objective of this report is to compare and contrast two companies in the airline industry with respect to strategic, accounting and financial analysis. We will develop a detailed forecasting model on which we will base our valuation of the companies. Other issues which arise will also be discussed in detail. Ultimately we will decide on whether to put a buy or sell recommendation on the shares of Southwest Airlines and Continental Airlines.
From the above we conclude that we would put a BUY recommendation on BOTH Southwest Airlines and Continental Airlines. These recommendations are based on the forecasted share prices below.
LUV: Forecast - $19.61 Current Market Price - $12.48
CAL: Forecast - $30.39 Current Market Price - $29.48
In conclusion, we feel Southwest Airlines will continue to grow steadily into steady state. Continental Airlines still has significant room for expansion given the long haul sector that they operate in.
We believe that Continental Airlines will reach stable growth in 2017, while Southwest Airlines are predicted to reach stable growth in 2014.
Table of Contents
Page Number
1. Strategic Analysis 4
2. Accounting Analysis 17
3. Financial Analysis 26
4. Prospective / Forecasting Analysis 37
5. Valuation 48
6. Other Issues 52
7. References 58
Strategic Analysis
In order to understand the underlying economics of the airline industry and our two chosen companies, a strategic analysis was undertaken. The aim of this analysis is to highlight the firms cost structure, brands, risks and assets, including the firms’ external environment and how they perform within that environment. The following strategic analysis incorporates the PwC Corporate Reporting Framework and Generic Strategies analysis.
PWC Corporate