Tuesday, August 28, 2018

Southwest Airlines is involved in providing scheduled air transportation services in the United States as well as near-international markets. The provision of scheduled air transportation services helps in setting the boundaries for business decisions since the company is usually restricted in operating in the programmed locations. The company is organized and managed by function. There are different individuals in the management of the organization based on the functions that they carry out. The management of the organization has adopted a flexible approach in its operations and associations with both workers and customers. The organization of the company by function is critical in influencing accounting and financial information as well as subsequent business decisions since every task is usually associated with the individuals appointed in the positions.

B. Recent Financial Performance

The consolidated income statements for the company for the past three years indicate that the company has been successful. This is because the net income for the company has been increasing for the past three years. In 2015, the company made a net income of $2,181 million while in 2016 the net income increased to $2,244 million. In the year 2017, the company’s net income was $3,488 million, which also indicated an increase from the 2016 value. This being the case, the company can be indicated to be performing strongly for the past three years (check figure (a) in the appendix for a graph showing how the company has progressed in terms of net income for the past three years.

From the consolidated cash flow statements of the company, it is evident that net cash provided by operating activities was high in 2016 and decreased in 2017. The net cash provided by operating activities in 2015 was $3238 million while in 2016 it was $4293 million. This value indicated an increase from the 2015 amount. Alternatively, in 2017, the net cash provided by operating activities decreased to $3929 million. However, in the case of net cash flow from financing activities, the values showed a constant increase for the past three years. In 2015, the value was $1913 million while in 2016 it was $2272 million. Alternatively, the value was $2408 in 2017. On the other hand, net cash flow from financing activities was the highest in 2016, but lowest in 2015. In 2015, the value was $1024 million and increased to $1924 million in 2016 only to decrease to $1706 in 2017 (figure (b), (c) and (d) in the appendix show this relation). The cash provided by operating activities stands out since it provides the highest values in the cash flow statements.

The organization’s underlying financial performance can be indicated to be higher than that of the industry. This is evident from the company’s 2017 annual report. The 2016 and 2017 financial results indicated that the company had higher earnings, which translated to strong performance in the stock market. The company led the industry in the two periods and the entity was placed ninth in the entire S&P 500 for a period of five years that ended in 2017 (Southwest Airlines, 2017). Therefore, the company can be indicated to be thriving in the industry.

C. Current Financial Health

The financial health of the company can be understood from the analysis of financial ratios such as the current ratio and debt/equity ratio. The ratios are computed below as follows;

Current ratio = Current assets/ current liabilities

Current ratio = $4815 million / $6905 million

= 0.69

Debt/Equity ratio = Total liabilities / Total shareholders’ equity

= 14680/10430

= 1.41

From the current ratio, the company can be indicated to have higher current liabilities compared to the current assets. Thus, in the short-term, the assets of the company cannot be used to support the current operations of the entity. This implies that the financial position of the company is not so strong because it has to facilitate its short-term operations through debt. Alternatively, in the case of the debt/equity ratio, it can be indicated that the company utilizes about 14% debt relative to its stock value. Thus, the company does not use a lot of debt to facilitate its operations.

The organization has the right amount of cash as well as other resources that are important for fueling future growth. The company has the right combination of resources since it is performing strongly relative to other firms in the industry. Although Southwest Airlines has competitors such as JetBlue and Frontier, it has profitability that is usually driven by decreasing costs as well as increasing passenger revenue (Goldberg & Weiss, 2018). This being the case, the airline can be considered to have the right resources meant for future growth. In case the organization does not have the right mix of cash and other resources, it would not be in a position to outcompete its competitors. The resources that the company has seem to be sufficient for future operations, but should not be misused in unworthy course.

According to The Value Investor (2018), Southwest Airlines reported its 45^th year of profits in a line. The great achievement is considered to be delivered by financial prudence as well as operational excellence. The company has more than doubled its sales from $10 billion in the year 2007 to approximately $21 billion in 2017 (The Value Investor, 2018). The market price of the company’s stock is $60.82 (The Wall Street Journal, n.d). The company has a price-to-earnings ratio of 10 (The Wall Street Journal, n.d). This implies that the investor perceptions concerning the business’ future are that the firm will have a higher growth in the coming days.

FINAL PROJECT MILESTONE TWO - Module Five

Success Factors and Risks

Strategic Priorities

The organization’s financial and strategic priorities affect accounting procedures and business decisions since they determine the course that the business should take. The direction taken by the company may influence the success of the business since the course chosen may support or fail the operations of the company. For instance, the management is efficiency-oriented and this may help in the realization of the company’s competitive advantage. The company uses derivative contracts in managing its risks (Southwest Airlines, 2017).

Capitalization on Non-Financial Factors

The organization can capitalize on non-financial factors through different approaches. For instance, in the case of patents, the company should review changes in government guidelines. Federal as well as local governments have different checks and balances, which may tend to cause disruptions to businesses in case an entity is not prepared (Ahmed, 2018). Such aspects include patent laws. In the case of human resources, it is crucial for the Southwest Airlines to consider market and external conditions, which may affect the operations of human resources.

Significant Internal Risks

A significant internal risk for the company is its low-cost structure. Although the low-cost structure has helped in attaining a competitive advantage, it has made it difficult to enhance the company’s industry cost position. This may influence the ability of the company to control its costs (Southwest Airlines, 2017). Besides, any failure or delay in implementing the company’s information may negatively influence its operations.

FINAL PROJECT MILESTONE THREE - Module Seven

Projections

Projected Consolidated Financial Opportunities

Year	Net Income (in millions)
2015	$2,181
2016	$2244
2017	$3,488

From the consolidated financial statements, the net income for the company is as presented in the table above. Assuming that the future net income is based on the performance for the three years and changes will be constant, then the projected net income for 2018 would be as follows;

Projected net income for 2018 = (2181 + 2244 + 3488)/ 3

= $2638 million. In this case, a three-year moving average is assumed.

Projected net income for 2019 = (2244 + 3488 + 2638)/3

= $2790 million

Projected net income for 2020 = (3488 + 2638 + 2790)/3

= $2972 million

Projections for best and worst case scenario

In the best case scenario, for the coming year, the projected net income may be based on the three-year moving averages so that it realizes the value $2638 million.

Projected net income for 2018 = (2181 + 2244 + 3488)/ 3

= $2638 million.

In the worst-case scenario, the profit may be influenced by a loss of company’s assets worth 24 million. In this case, the projected net income will be less by 24 million

Projected net income for 2018 = (2638 – 24) million

= $2614 million.

Discussion of finding

There are different influences that may have an impact on a business. This being the case, it may be assumed that the profitability of the company will remain constant, but change depending on the situations that may emerge. The assumptions are consistent with the company’s mission and priorities, but they may change any time. Alternatively, the assumptions may not be attainable. Changing the assumptions will lead to a difference in the projected values.

FINAL PROJECT SUBMISSION - Module Nine

Business Opportunities

Likely Investment Opportunities for the Organization

A likely investment opportunity for the organization entails being involved in international transportation. This is because the company has already made considerable strides in providing short-haul flight services. The basic features of the investment constitute the company offering international flights in different countries and establishments in various nations. This will help in increasing the profitability of the company as it would expand its customer base.

Cost and Benefits of the New Investment

There will be different costs and benefits associated with the new investments. The costs will include purchasing long-haul jets, acquiring licenses to operate in different countries, human resources, and technology. The costs may be approximated to around $250 billion. Alternatively, some of the benefits would include increased profitability, enhanced sales, and augmented market share. The approximate costs and benefits will have the impact of changing the projections in the spreadsheets.

Impact on Budgeting Decisions

The potential investment will have an impact of increasing budgeting for the company and may influence related business decisions in case it is implemented. The investment will require a lot of funds, whose returns may not be realized within a period of one year. However, in the long-term, the company may be in a position to recoup its expenditure used in the investment. Therefore, in the long-term, the investment is worth.

Executive Summary

Southwest Airlines is involved in providing scheduled air transportation services in the United States as well as near-international markets. The provision of scheduled air transportation services helps in setting the boundaries for business decisions since the company is usually restricted in operating in the programmed locations. Southwest Airlines reported its 45^th year of profits in a line. The great achievement is considered to be delivered by financial prudence as well as operational excellence. The company is expected to continue making high profits in the future based on its management plan. It is recommended that the company should consider investing in international flights. This is because the company has resources that it can invest in the project. The intended audience for the report is the investors of the company. In refining the report further, the person that will be contacted is a financial analyst. This is because a financial analyst will help in critically analyzing the investment decision.

References

Ahmed, A. (2018). Non-Financial Factors in Accounting. Retrieved from https://bizfluent.com/info-12042314-nonfinancial-factors-accounting.html.

Goldberg, R. & Weiss, E. (2018). Why Southwest Airlines’ competitive advantage might be saying ‘no’. Washington Post. Retrieved from https://www.washingtonpost.com/news/business/wp/2018/01/11/why-southwest-airlines-competitive-advantage-might-be-saying-no/?noredirect=on&utm_term=.d7ffcdff9e9a.

Southwest Airlines. (2017). Southwest Airlines Co. 2017 Annual Report to Shareholders. Retrieved from http://investors.southwest.com/~/media/Files/S/Southwest-IR/Bookmarked%20Annual%20no%20blanks.pdf.

The Value Investor (2018). Southwest Airlines: Quality Has a Price. Retrieved from https://seekingalpha.com/article/4143340-southwest-airlines-quality-price.

The Wall Street Journal. (n.d). Southwest Airlines Co. Retrieved from https://quotes.wsj.com/LUV/financials.

Appendix A

Figure (a) Net Income of Southwest Airlines for the Past Three Years

Figure (b)

Figure (c)

Figure (d)

Monday, August 20, 2018

Money and the Prices

When developing market growth plans, it is essential to consider prices and money in the open economy. Market growth is sensitive to the two factors that determine its functional outcomes. The market economy is also triggered by other factors such as foreign exchange, monetary policy, and trade deficits. The United States has maintained a stable market economic growth that is indicated by a balanced national budget. The paper will provide the history of changes in GDP, real interest rates, investment, savings, and unemployment and compare to forecast in the next five years.

The History of Changes in Investment, Savings, GDP, Unemployment, and Real Interest Rates while Comparing with Forecast within the Next Five Years

The annual economic growth in the United States has been 1.2% within the last eight years (Trading Economics, n.d.). The slow growth was further affected following the 2008 economic crisis. The recession led to a negative GDP in the year 2008 and 2009 (Trading Economics, n.d.). However, over the last five years, the economic growth has been recovering but at a gradual rate. Within the five years period, the economic growth has risen to 2.2% which is below the government target (Trading Economics, n.d.). The federal government had aimed at helping the economy to rise up to 3% or 3.5% (Trading Economics, n.d.).

Reports from the Trading Economics show that America has been enjoying the largest economy globally. However, when the U.S. is compared to other developed countries, its economic growth has been on a negative trend. The report went ahead showing that in the 1950s to 1960s, the country was enjoying an economic growth of 4% (Trading Economics, n.d.). However, following the onset of the 1970s to 1980s, the rate dropped to 3% (Trading Economics, n.d.). This has been extended to the recent past where within the period of the last 10 years, the average economic growth has been 2% and below (Trading Economics, n.d.).

The America economic status has been quite unstable in the past half decade. For instance, at the start of 2011, the economic growth was at its lowest (Trading Economics, n.d.). The year recorded an economic growth that was below 0%. Conversely, the following year, the rate drastically increased to 4.5%, which extended to around the end of 2015 (Trading Economics, n.d.). As a result, the general condition of the U.S. economy can be considered relatively favorable. This has been further indicated by the Institute for Supply Management Index that for the last five years has remained positive. The second quarter of 2016 indicated that the total gross savings in America were at 3350.3 billion dollars (U.S. Bureau of Economic Analysis, 2016).

Focusing on the issue of employment, unlike in the past two decades, there has been an improvement in the non-profit payrolls (Mankiw, 2007). Further, in the last five years, U.S. has been having low-interest rates. Similar trends have been observed in mortgage lending together with government tax regulation. The approach has led to the American economy being classified as one of the best economies in the world.

From the year 2016, the rate of unemployment has been reduced to 4.9% (Trading Economics, n.d.). The reduction in the rate of unemployment has been recording an upward trend since 2016 (Trading Economics, n.d.). The following year recorded a reduction rate of 5.1% (Trading Economics, n.d.). On the other hand, the history of investment has been experiencing an irregular trend. In July 2015, the U.S foreign direct investment was at $43163 million (Trading Economics, n.d.). The value reduced to $33199 million by January 2016 (Trading Economics, n.d.). This trend has continued until the year 2017 where the investment rate appeared to be stabilizing. The level increased from $44328 million in 2017 to $45701 million in January 2018 (Trading Economics, n.d.). It is expected that the positive trend would continue in the next five coming years.

Effect of Government Policies to Economic Growth

The government is responsible for setting rules and regulations that are used in businesses. Therefore, business operations are supposed to abide by the set rules. Any change of the policies will require a similar change in the business operations. The effect has been found to influence business profitability and competitiveness. The laws could either set by local, state or federal government.

The government has the mandate to control the selling of goods and services in the market (National Bureau of Economic Research, 2018). The body provides specific prices for goods. This has a common being found in the crude oil industry where the government provides the prices for petrol and diesel. The approach is to protect the public from exploitation by the entrepreneurs. The approach encourages diversification since entrepreneurs have to think about many ways of making a profit instead of using one method and exploit their customers.

The government also introduces a customs duty on goods and services. This leads to a rise in the prices of commodities. Besides, taxes negatively affect the amount of profit that entrepreneurs make from their investment (National Bureau of Economic Research, 2018). As stated earlier, the government can control the profitability of business people. Introduction of high taxes reduces the profit. Conversely, a reduction of taxes on goods increases the amount of profit made. However, taxes are important in helping the country’s economy to grow.

Further, the government helps entrepreneurs to make more profit by introducing new technologies. The technologies increase the level of production. Sometimes, the government has to incur cost while implementing new technologies and systems in the market. However, this is its mandate. Additionally, the government helps in economic growth by creating room for foreign investors. Settlement of the investors helps to boost the economy through taxes paid. Investors are also a source of employment that also helps in the economic growth (National Bureau of Economic Research, 2018).

The Way Monetary Policy would Affect Long-Run Behavior of Price Levels, Inflation Rates, Costs, and Other Nominal Variables

The government is able to utilize monetary policy to control the economic status. This is connected with the political objectives that are found among the government leaders. In this case, the government is able to use the monetary authority to influence the way money flows in the economy. In most cases, the approach is usually aimed at having a macroeconomic stability. The impacts are low inflation, employment, and economic growth. The monetary policy is usually implemented by the Central Bank (Mankiw, 2007). The bank is mandated to ensure a country has a solid economic performance. At the same time, the living standards upgrades among the citizens. When there is a high supply of money, the inflation rate also rises. This is due to the fact that the credit policy tends to loosen. It leads to the acquisition of credits at cheaper prices. Similarly, as the economy expands, the level of employment increases.

Presence of monetary policy has also been found to affect the flow of goods and services. The flow increases employment rate as well as profitability among the public. This is unlike the fact that firms and households take long before they adjust their behaviors (Lacker, 2016). Similarly, economists hold that the increase in individual income is directly affected by technological change. The technology brings about effects in capital and labor output. In this case, the increase in production does not result from the number of people working or machines (Lacker, 2016). Instead, higher production occurs due to technological advancement which makes the few available workers more productive (Lacker, 2016). Additionally, new techniques and inventions bring about the similar impact to economic growth. Therefore, the government tries to support its citizen to help invent and come up with better ways of producing goods and services.

Contrary, poor monetary policy collectively affects a country and its people. Such a policy leads to the citizen using the available resources which eventually goes to waste. The effects are inflation where money continue losing value the more they are saved. To avoid this, low and stable inflation is advocated.

Trade Deficits or Surpluses Affect the Growth of GDP and Productivity

Flows of trade occur where payments are exchanged. Most people hold that a country should rely on its own resources other than borrowing from neighboring countries. However, none of the countries has all the necessary resources that meet all demands from the citizens. Therefore, relative borrowing is healthy and necessary for the economic growth. As a result, borrowing for the purpose of development or investment is healthy for the economy. For instance, money borrowed for improving education will have a long-run payoff. Education will enable people to earn higher wages and they will be able to pay back the loans. Hence, it means that borrowing for the sake of development leads to economic growth. The approach requires a country to pay back the borrowed fund while in the long-run, the country remains better off than before.

Hence, regardless of a country suffering from trade deficits or surplus, all that matters is the way the handle the resources borrowed externally. Large trade deficits can be lethal when used inappropriately. This occurs when the borrowed funds were not allocated to the activities that they were first targeted. This lost to the country suffering from the inability to pay back the funds (Kuepper, 2018). Similarly, borrowed funds can be allocated in nonproductive economic assets. This result in such countries paying large interest payments while there is no parallel economic growth.

Trade surpluses, on the other hand, can be considered as beneficial or limiting. Such an incidence was observed in Japan (Kuepper, 2018). However, the surplus trade was not beneficial to their GDP. Such a country suffers from a high rate of domestic savings more than they can invest domestically (Kuepper, 2018). As a result, they are forced to invest the extra funds outside the country. Similarly, the surplus trade means that the consumption rate of both the imports and exports is relatively low (Laya, 2018). This results in a slowly growing economy and low GDP.

Importance of the Market for Loanable Funds and the Market for Foreign-Currency Exchange

The market provides an important avenue for the loanable funds. The funds are directed toward developing programs that eventually increases the productivity. Market helps in the coordination of loanable funds, investment, and economy’s savings. Real exchange rate directly affects the supply and demand of both the domestic and foreign goods. This in return affects the relative price of the two types of goods. An increase in the exchange rate in the United States results in domestic goods shooting at a price. This discourages local consumers as well as foreigners. However, a low exchange rate will facilitate the flow of foreign currencies, which in return attract more foreigners and investors. Domestic goods will be cheap compared to the foreign ones enhancing internal trade.

Recommendation for the Strategic Plan

As per the above findings, there are several issues to be addressed in the U.S. economic status. First, the low-wage economic strategy should be replaced with an updated high-wage strategy. This will be achieved by increasing the employment rate. Low employment rate leads to a reduction in wages. The country should focus on a situation where every American who is able and willing to work to have an opportunity for employment. This is without the fear of inflation pulling down the objective. This will work together with other sectors such as infrastructure and education. The government should direct funds to these areas which in return will improve the level of employment.

Further, the government should continue increasing more opportunities for foreign investors. Investment should also be enhanced for the Americans. This in return will raise the rate of employment in the country. To boost the country economy, modest taxes should be added in all foreign and domestic goods. Capital gains, wages, and salaries should be taxed which in return will boost the country’s economy.

The United States also should focus on enhancing its productivity. The government should evaluate business activities that weaken the economy. Monetary policies should be adjusted in such a way that they benefit the Americans. This will correlate with President Trump’s philosophy of putting American first. The approach will concentrate the wealth of the country at the reach of the citizens.

In conclusion, the flow of money affects the stability of a country economy. This has led to the formation of monetary policies that regulate the flow of currency. A large supply of money into the market will lead to a failing economy. Therefore, the government has the mandate of controlling the amount of currency in a country. Similarly, the government directly or indirectly affects the economy. The government sets policies and rules that investors and business people should abide. Introduction of high taxes on goods results in the price of goods and services increasing. Additionally, the provision of opportunities for investors to grow directly affect the economy where there are more employment opportunities. This in return affects the GDP of a country positively. It is the responsibility of the government to set strategies that enhance the economic growth of a country.

References

Kuepper, J. (2018). Trade Deficits, Surpluses and Their Impact on Investors. Retrieved from

https://www.thebalance.com/trade-deficits-surpluses-and-impacts-on-investors-1978872

Laya, A. (2018). Here’s Why It’s Time to Ditch our Obsession with Trade Deficits. Retrieved

from https://www.weforum.org/agenda/2018/05/trade-surplus-deficit-growth-jobs-arancha-gonzalez/

Lacker, J. (2016). Can Monetary Policy Affect Economic Growth? Retrieved from

https://www.richmondfed.org/press_room/speeches/jeffrey_m_lacker/2016/lacker_speech_20160224

Mankiw, N. G. (2007). Principles of Economics. Mason, Ohio: Thomson/South-Western.

National Bureau of Economic Research, (2018). Firms in Developing Countries: Can Trade

Policy Serve as Competition Policy?

Trading Economics, (n.d.). United States GDP Annual Growth Rate. Retrieved from

https://tradingeconomics.com/united-states/gdp-growth-annual