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Delta Airlines

In: Business and Management

Submitted By xlknong1204
Words 722
Pages 3
A. Compute the value of each the following risk ratios: 2004 2003 2002 2001 2000
(1) Current Ratio(at the end of 2000-2004) 0.607 0.739 0.604 0.557 0.611
(2) CFO to CL Ratio(for 2001-2004) -0.186 0.023 0.035 0.041 N/A
(3) Liabilities to Assets Ratio(at the end of 2000-2004) 125.32% 101.48% 95.32% 82.95% 74.57%
(4) LT Debt to LT Capital Ratio(at the end of 2000-2004) 178.98% 103.60% 89.22% 65.91% 50.97%
(5) CFO to Total Liabilities Ratio(for 2001-2004) -0.042 0.006 0.010 0.013 N/A
(6) Interest Coverage Ratio(for 2000-2004) -3.84 -0.57 -2.01 -2.74 4.81

B. Altman's Z-Score: 2004 2003 2002 2001 2000
T1 (Net Working Capital/Total Assets) -0.107 -0.062 -0.103 -0.120 -0.093
T2 (Retained Earnings/Total Assets) -0.201 0.033 0.066 0.124 0.190
T3 (EBIT/Total Assets) -0.145 -0.017 -0.054 -0.058 0.083
T4 (Market Value of Equity/Book Value of Total Liabilities) 0.038 0.055 0.063 0.184 0.377
T5 (Sales/Total Assets) 0.688 0.543 0.561 0.588 0.714
Z=1.2*T1+1.4*T2+3.3*T3+0.6*T4+1.0*T5 -0.18 0.49 0.39 0.54 1.37

C. In consideration to part a:
(1) Current ratio. The current ratio of Delta Airlines in the past 5 years is averagely around 0.6, which implies the company's inability to pay its short-term liabilities because the current levels of cash and near-cash assets are not sufficient enough to pay for them.
(2) & (5) Operating cash flow to current liabilities and total liabilities ratio. Delta Airlines’ operating cash flow covers only a negligible percentage of its current or total liabilities, if not negative. This would further imply that the company is having a problem of paying its liabilities, both short-term and long-term as they do not have the ability to generate cash.
(3) Liabilities to Assets Ratio. This ratio shows that a high percentage of the company’s assets are provided by debt, which also means that the firm has a high operating risk. In...

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