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Group Public Company Analysis Project: Air Canada Group # 14 Names of Students and Student #: Markus Helyar V00832338 Note: Information found in the 2019 Air Canada Annual Report 2019 & 2018: Current Assets and Current Liabilities Pg. 109 Total Assets Pg. 109 Net Working Capital Pg. 65 Net Income and Sales (operating revenues) Pg. 110 Total Equity Pg. 111 Long-term Debt Pg.136 Ratio #1: Current Ratio Most recent full fiscal year (2019) Prior fiscal year (2018) Ratio Formula: Current Assets/Current Liabilities Current Assets/Current Liabilities Note: Figures in Canadian dollars in millions 7,516/7,775= 6,301/5,676= 0.966688102 1.110112755 Why this ratio might be of interest to investors or creditors: The interest of the current ratio to investors and creditors lays in the understanding of a company’s ability to pay its short-term debts. A current ratio over 1 means the company has more current assets (assets like cash and inventory/equipment that can be converted into cash within a year) than current liabilities making it able to stay solvent. A ratio under 1 means the company would not have the resources to pay debt if they were payable all at once. However, short-term obligations may vary and a company may have the ability to cover their short-term liabilities based on different liabilities being due at different times. This is also true for current assets as cash flow and accounts payable may vary per quarter and a company has limited influence on customers. Therefore, the current ratio is a point in time for the investors and creditors. A higher current ratio is more attractive to investors and creditors as the company would have sufficient fund to take on more risk and pay any increase if they arise. Could also be considered working capital for that period. Explanation of what the ratio means and what it is attempting to measure: The Current Ratio is a liquidity ratio which measures a company’s ability to pay short term debt obligation or liabilities that are payable within the year or shorter. You calculate the ratio by taking their current assets and dividing it by their current liabilities. The current assets are cash or items (like inventory or equipment) that can be turned into cash within the year or shorter. The higher the current ratio the greater the ability of the company to pay its short term debts on time and possibly expand considering cash can be used as working capital. On the basis of ratio #1, discuss whether the company is performing better or worse in the most recent fiscal year as compared to the prior fiscal year: Ratio #2: Profit Margin Most recent full fiscal year (2019) Prior fiscal year (2018) Ratio Formula: Net Income/Sales Net Income/Sales Note: Figures in Canadian dollars in millions 1,467/19,131= 37/18,003= 0.07715226 0.002055213 Why this ratio might be of interest to investors or creditors: The profit margin is used by investors and creditors as an indication of the health of a company financially, the capability of current management, and potential growth opportunity. The higher the profit margin the better a company is doing financially, however, over each industry there is varying profit margins and a comparison between competitors is a better assessment for determining industry success. Explanation of what the ratio means and what it is attempting to measure: The profit margin measures the profitability or amount of money a company generates in profit from its sales/operation activity. It takes the net income, which consists of all the associated expenses, including costs towards raw material, labor, operations, rentals, interest payments, taxes, etc. minus the company’s sales/operating revenues and determines how much money the company made or lost. The higher the ratio the more efficient and successful the company. On the basis of ratio #2, discuss whether the company is performing better or worse in the most recent fiscal year as compared to the prior fiscal year: Ratio #3: Long-term Debt Ratio Most recent full fiscal year (2019) Prior fiscal year (2018) Ratio Formula: Long-term debt/Long-term debt + total equity Long-term debt/Long-term debt + total equity Note: Figures in Canadian dollars in millions 8,024/12,424= 8,873/12,150= 0.645846748 0.730288065 Why this ratio might be of interest to investors or creditors: Explanation of what the ratio means and what it is attempting to measure: On the basis of ratio #3, discuss whether the company is performing better or worse in the most recent fiscal year as compared to the prior fiscal year: Ratio #4: Net Working Capital Ratio Most recent full fiscal year (2019) Prior fiscal year (2018) Ratio Formula: Net working capital/Total assets Net working capital/Total assets Note: Figures in Canadian dollars in millions (259)/27,759= 625/21,883= -0.009330307 0.028560983 Why this ratio might be of interest to investors or creditors: The net working capital ratio is of interest to investors and creditors as it shows the company's ability to pay its short term liabilities, as well as the company holds more of its assets in a more liquid state, which allows for investments and growth. The optimal ratio is 1.2-2 which shows an efficient operation. If it is any higher it means current assets are being used inefficiently. Explanation of what the ratio means and what it is attempting to measure: The net working capital ratio is a liquidity ratio that is best used over a time comparison with the attempt to measure a company's short term funds to total assets. A higher ratio is more desirable as it means a company is shifting more of its long term assets, like fixed assets, and keeping their investments more liquid. The net working capital is current assets/current liabilities and this ratio being high means that cash flow is high for investment. On the basis of ratio #4, discuss whether the company is performing better or worse in the most recent fiscal year as compared to the prior fiscal year: Overall Recommendation Recommend whether the assigned public company is achieving operating success and is in a strong financial position, and, ultimately, whether you would invest in it/lend money to it. Your recommendation must be supported by referencing each of the financial ratios you calculated (suggested response length, 250 words):