Debt Ratio
Debt ratio = Liabilities/ assets
2018
$17.72 billion/$10.04 billion = 1.76
2019
$18.31 billion/$11.53 billion = 1.59
In the two years, the company depicts a downward trend in the debt ratio. The decline depicts that the condition of the company is less risky in 2019 as compared to 2018 (United continental holdings, Inc., 2020) . However, the fact that in both cases the ratio is more than one depicts that a greater portion of the company’s assets is in debts, and this indicates that the company needs to improve its operations to minimize the extent of the liabilities (Vogel, 2016). Markedly, there is a need to have lower debts than assets for the company to be successful in both its short and long-term endeavors.
Gross Profit Margin
Gross profit margin = Gross profit / Revenue
2018
$27.58 billion/$41.31 billion = 66.77%
2019
$29.66 billion/$43.2 billion = 68.57%
There is an upward trend in the gross profit margin ratio in the two years. The fact that it is more than 20% shows that the company has a healthy financial situation as its margin is strong.
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Free Cash Flow
Free cash flow = sales revenue – operating costs and taxes – required investments in operating capital
In 2018 the free cash flow was recorded at 7.5678. The free cash flow increased to 9.1612 in 2019.
Times Interest Earned
Times interest earned = income before interest and tax/interest expense
2018
3.67 Billion/605 Million = 6.1x
2019
4.568 Billion/646 Million = 7.1x
The company reported an increasing trend that depicts that it easily met its company interest obligations better in 2019 than in 2018.
Accounts Receivable Turnover
Accounts receivable turnover = Net receivable sales/ average accounts receivable
In 2018 the turnover was 28.9642, while in 2019, it rose to 31.7148 (United continental holdings, Inc., 2020) . The increase depicts that the company collects its debt at a higher rate and the creditworthy company clients, and as a result, the increasing trend shows that the company is a better ground for the investment [purposes.
Inventory Turnover
Inventory turnover = net sales/average inventory at cost
In 2018 the company had a turnover of 12.6828, while in 2019, the turnover was 13.932. There was a significant increase, and as such, this depicted better inventory management in the company and hence, better performance.
DuPont Analysis for 2018 and 2019 years
Return on Sales
Return on Sales = operating profits/ net sales
2018
($3.46 billion/$27.92 billion) x 100% = 13.76%
2019
($4.30 billion/ $29.84 billion) x 100% = 14.88%
In the two years, the return on sales depicts an upward growth. The trend shows that the company’s operating profits are on the rise (United continental holdings, Inc., 2020) . Given the situation, the company is considered to be of less risk for the investors. If the current trend continues, it foreshadows the development and expansion of the company in both the short and long-term spheres (Vogel, 2016). Besides, there are increased sales, which depict increased cash flow in the company, and as a result, the company was more liquid in 2019 than in 2018.
Asset Turnover
Asset Turnover = Net Income/ Assets
2018
$3.01 billion/ $3.57 billion = 0.8425
2019
$2.13 billion/ $2.59 billion = 0.8222
In 2019, a lower asset turnover was recorded in the company. Thus, this depicts that there was reduced profitability in this year than the current one (United continental holdings, Inc., 2020) . The asset turnover is viewed to be weaker in the year 2019 as compared to that of 2018.
Return on Assets
Return on Assets = Net Income/ average total sales
2018
($2.12 billion /$49.02 billion) x 100% = 4.65%
2019
($3.01 billion /$52.61 billion) x 100% = 5.80%
The return on assets has increased from the one recorded back in 2018. The 2018 one is lower than 5%, and as such, during the period, the company could not comfortably use the available assets to make profits. The Return on assets in 2019 is higher than 5%, which depicts a better potential of gaining earnings through the available assets (United continental holdings, Inc., 2020) . Markedly, the ratio was stronger in 2019
Financial Leverage
Financial Leverage = Total Company debt/shareholder’s equity
In 2018 the company had a Financial Leverage of 3.48, while in 2019, it increased to 3.56. Given the increase, the company relies more on borrowing to finance its operations in both the short and long-term (United continental holdings, Inc., 2020) . Thus, the situation worsened in 2019.
Return on Equity
Return on Equity = Net profit/shareholders average equity
2018
$2.12 billion/ $10.04 billion = 23.26%
2019
$3.01 billion/ $11.53 billion = 27.29%
In both cases, the company is above 15%. There is an improvement of 4.03% in the two years, and this depicts that the company can comfortably utilize the shareholder capital to generate the targeted profits (Vogel, 2016). The 2019 ratio is stronger, and hence the company is considered progressive.
Conclusion
The united airline company needs to enhance its profitability levels in the industry so that it can compete favorably in the market. Besides, give its plan for restructuring, the company should embrace the elements of research and development to ensure that it makes the right choices to promote progress and development. Given the consumer-oriented strategy, the company is bound to enhance its services, growth, and development in both the short and long-term phases. In the end, it will record an increase in the market share in the airline industry.
References
United continental holdings, Inc. (UAL) 10K annual reports & 10Q SEC filings | Last10K. (2020, February 24). Retrieved from https://last10k.com/sec-filings/ual
Vogel, H. L. (2016). Travel industry economics: A guide for financial analysis . Springer.
