Amazon’s and Southwest Airlines’ Financial Management Essay (Critical Writing)

Exclusively available on Available only on IvyPanda® Written by Human No AI

Amazon.com, Inc. is a company that specializes in providing online retail purchasing services. North America, International, and Amazon Web Services are the company’s three main segments (AWS). Retail sales of consumer items and subscriptions through North American-focused websites such as www.amazon.com and www.amazon.ca are included in the North America division. Retail sales of consumer items and subscriptions are available through international-focused websites in the International sector. Amazon Web Services sells computing, storage, databases, other AWS services to start-ups, corporations, government organizations, and academic institutions all over the world.

Amazon dominates the markets it serves, particularly in e-commerce and cloud services. It has a number of competitive advantages and has emerged as the obvious e-commerce leader as a result of its size and scale, which allows it to offer consumers an unrivaled range of low-cost items. The company’s remarkable growth in the retail sector continues to be fueled by the secular shift toward e-commerce (Kelty, 2018). When compared to its main competitors the most recent analysis indicates mixed performance, as, eBay Inc. climbed 0.23 percent to $74.67, Alphabet Inc. Cl A lost 1.77 percent to $2,728.98, and Walmart Inc. fell 0.11 percent to $139.38, respectively. Amazon’s trading volume (1.8 million) was 1.0 million lower than the 50-day average volume of 2.8 million (Kelty, 2018). Nevertheless, historically the firm has demonstrated high numbers and financial profitability.

Southwest Airlines is a competitor in the airline business that promotes itself as a low-cost carrier that values its customers. These two characteristics form the foundation of their company. It’s what separates them from big rivals like Delta/Northwest, Continental/United, JetBlue, and Allegiant. Deregulation has allowed for increased travel as a result of government regulation. As a result, there are more customers joining the business than ever before. As more people enter the market, more competitors emerge to meet their needs. Southwest Airlines has maintained its market dominance by continuing to offer affordable rates while maintaining a caring attitude toward customers.

Southwest Airlines Co. (NYSE:LUV) had 3.18 million shares moved in the most recent trading session, with a beta of 1.22. The company’s most recent share price was $53.92, down -$0.12 or -0.22 percent from the previous closing, bringing the company’s market worth to $31.97 billion. LUV is presently trading at a discount to its 52-week high of $64.75, representing a discount of almost -20.09 percent. The 52-week low for the stock was $37.48, implying that the current value has increased by 30.49 percent since then. Southwest Airlines Co.’s average daily trading volume is 7.43 million shares on a 10-day basis, with a 3-month average of 7.34 million shares.

Based on a mean score of 2.00, the shares of Southwest Airlines Co. earned a consensus recommendation rating of Buy. If we look at the data even more closely, we can see that 0 out of 22 analysts rank the stock as a Sell, while 3 others rate it as Overweight. LUV was classified as a Hold by 2 analysts, a Buy by 17 analysts, and Underweight by 0 analysts. Southwest Airlines Co. is anticipated to have a loss of -$0.07 per share in the current quarter.

In the financial market, Amazon is known for exponential cash flow growth on a year-by-year basis. The key statistic grew from 0.2 percent in 2014 to 2.1 percent in 2015, putting the corporation in more respectable territory in its aggressive retail sector. While investors are clearly satisfied with the year as a whole, considering the stock’s substantial gain in the previous 12 months, the fourth-quarter numbers were worse than expected, prompting a sell-off. Analysts anticipated Amazon to announce $35.7 billion in sales and $1.56 in earnings per share for the quarter; however, the firm reported $35.7 billion in revenue and $1 in earnings per share. Analysts anticipated Amazon to announce $35.7 billion in sales and $1.56 in earnings per share for the quarter; however, the firm reported $35.7 billion in revenue and $1 in earnings per share (“Yahoo is now a part of Verizon Media”, 2021). Long-term investors were rewarded handsomely for the company’s great success in 2015, even after Friday’s sell-off, due to the consumers.

Starting with standard free cash flow measurements, one may look at Amazon’s investor presentation for the second quarter of 2016. Cash flow from operations less capital expenditures on property and equipment, including internal-use software and website development expenses, is how Amazon defines free cash flow. Surprisingly, Amazon’s management clearly states that the company’s long-term goal is to increase free cash flow. Using leases rather than acquiring assets to optimize free cash flow might be a reasonable and prudent approach from this standpoint. Amazon’s financial goal, as seen by their annual report for 2015, is on long-term, sustainable increase in free cash flows per share. Increasing operational revenue and efficiently managing working capital and cash capital expenditures, including our decision to buy or lease property and equipment, are the primary drivers of free cash flows.

The company’s free cash flow for the year ending in the second quarter of 2016 was $7.3 billion, up 68 percent year over year. Calculating free cash flow and then subtracting “principal repayments of capital lease obligations” and “principal repayments of finance lease obligations,” which are both included in cash flow from financing activities in the cash-flow statement, yields free cash flow less lease principal repayments. This statistic calculates free cash flow after accounting for Amazon’s lease payments in cash. During the year ended June 30, free cash flow less lease principal repayments was $3.9 billion, up 65 percent from the same time the previous year.

Similarly, Southwest Airline’s cash flow has increased within the established period between 2015 and 2016. Southwest’s adjusted earnings reached a new high of $2.4 billion, or $3.52 per share, in 2015. In the meantime, the company’s operating margin (excluding exceptional items) increased to 20.1 percent (“Southwest Airlines Co. (NYSE: LUV): A Disaster In The Making Or A Gold Mine?”, 2021). In 2016, the firm expects to achieve even better earnings and margins. Earnings growth is, without a doubt, a major driver of free cash flow expansion. Southwest Airlines has stronger profits growth potential than many of its airline sector peers, despite its already excellent profitability.

To begin with, Southwest Airlines sells almost all of its tickets in the United States. As a result, it will continue to profit from the robust domestic travel market and will not be affected by currency rate changes in foreign operations. Second, Southwest has been losing a lot of money on fuel hedging lately. The business plans to pay $1.95 to $2.00 per gallon for jet fuel for the entire year of 2016 (“Southwest Airlines Co. (NYSE: LUV): A Disaster In The Making Or A Gold Mine?”, 2021). That’s a lot more than the going rate. After 2016, these hedging losses will be considerably reduced.

As a consequence, even if oil prices climb to $60 per barrel in the next year or two, Southwest’s average fuel price will remain relatively unchanged from what it expects to pay in 2016. Meanwhile, the company’s fleet renewal initiatives will focus on increasing fuel economy. Most other airlines, on the other hand, would spend more for fuel if oil prices rose to $60 per barrel compared to 2016. Third, Southwest Airlines is replacing its decades-old domestic reservation system with a new, cutting-edge system with expanded capabilities. Southwest anticipated a $500 million increase in yearly operating profits from the new system by 2020.

20172018
Liquidity RatiosAmazon:
1. Current Ratio = 1.04
2. Quick Ratio = 0.70
Southwest Airlines:
1. Current Ratio = 0.70
2. Quick Ratio = 0.58
Amazon:
1. Current Ratio = 1.10
2. Quick Ratio = 0.80
Southwest Airlines:
1. Current Ratio = 0.63
2. Quick Ratio = 0.61
Profitability RatiosAmazon:
1. Gross Profit Margin = 37.07%
2. Operating Profit Margin = 2.31%
Southwest Airlines:
1. Gross Profit Margin = 35.36%
2. Operating Profit Margin = 16.2%
Amazon:
1. Gross Profit Margin = 40.25%
2. Operating Profit Margin = 5.33%
Southwest Airlines:
1. Gross Profit Margin = 33.05%
2. Operating Profit Margin = 14.6%
Asset Management RatiosAmazon:
1. Asset Turnover = 1.35
2. Inventory Turnover = 6.9
Southwest Airlines:
1. Asset Turnover = 0.84
2. Inventory Turnover = 32.5
Amazon:
1. Asset Turnover = 1.43
2. Inventory Turnover = 8.1
Southwest Airlines:
1. Asset Turnover = 0.83
2. Inventory Turnover = 31.9

References

Kelty, A. (2018). The Rise of Amazon. Retrieved 14.10.2021 from Scholarly Commons – Discovery Day – Daytona Beach: The Rise of Amazon (erau.edu).

Southwest Airlines Co.(2021).

. (2021).

More related papers Related Essay Examples
Cite This paper
You're welcome to use this sample in your assignment. Be sure to cite it correctly

Reference

IvyPanda. (2023, February 3). Amazon's and Southwest Airlines' Financial Management. https://ivypanda.com/essays/amazons-and-southwest-airlines-financial-management/

Work Cited

"Amazon's and Southwest Airlines' Financial Management." IvyPanda, 3 Feb. 2023, ivypanda.com/essays/amazons-and-southwest-airlines-financial-management/.

References

IvyPanda. (2023) 'Amazon's and Southwest Airlines' Financial Management'. 3 February.

References

IvyPanda. 2023. "Amazon's and Southwest Airlines' Financial Management." February 3, 2023. https://ivypanda.com/essays/amazons-and-southwest-airlines-financial-management/.

1. IvyPanda. "Amazon's and Southwest Airlines' Financial Management." February 3, 2023. https://ivypanda.com/essays/amazons-and-southwest-airlines-financial-management/.


Bibliography


IvyPanda. "Amazon's and Southwest Airlines' Financial Management." February 3, 2023. https://ivypanda.com/essays/amazons-and-southwest-airlines-financial-management/.

If, for any reason, you believe that this content should not be published on our website, please request its removal.
Updated:
This academic paper example has been carefully picked, checked and refined by our editorial team.
No AI was involved: only quilified experts contributed.
You are free to use it for the following purposes:
  • To find inspiration for your paper and overcome writer’s block
  • As a source of information (ensure proper referencing)
  • As a template for you assignment
1 / 1