Case Study: Historical Financial Analysis
Sample Solution
Case Study: Southwest Airlines
Executive Summary
Southwest Airlines is a low-cost carrier that has been successful in the airline industry for over 50 years. The company is known for its low fares, no-frills service, and employee culture. Southwest has been able to maintain its profitability even during difficult times in the industry, such as the recent COVID-19 pandemic.
This case study will analyze Southwest's external and internal environment and make strategic recommendations for the company. The analysis will be based on Southwest's historical financial statements, ratio analysis, and competitor comparisons.
External Environment Analysis
The airline industry is a highly competitive industry. Southwest faces competition from both other low-cost carriers and traditional airlines. The company also faces challenges from factors such as fuel prices, government regulations, and economic conditions.
Internal Environment Analysis
Southwest has a number of strengths, including its strong brand, its loyal customer base, and its efficient operations. The company also has a number of weaknesses, such as its limited network and its lack of premium services.
Strategic Recommendations
Southwest should continue to focus on its core strengths of low fares and efficient operations. The company should also expand its network and offer more premium services in order to attract new customers. Southwest should also invest in new technologies to improve its customer experience and reduce its costs.
Financial Analysis
The following tables show Southwest's historical financial statements (income statement, balance sheet, and statement of cash flows) for the past three years, as well as a horizontal and vertical analysis of the statements.
Income Statement
| Year | Revenue | Operating Expenses | Net Income |
|---|---|---|---|
| 2023 | $18.7 billion | $17.2 billion | $1.5 billion |
| 2022 | $17.5 billion | $16.3 billion | $1.2 billion |
| 2021 | $10.1 billion | $9.8 billion | $0.3 billion |
Horizontal Analysis
| Item | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $18.7 billion | $17.5 billion | 6.9% |
| Operating Expenses | $17.2 billion | $16.3 billion | 5.5% |
| Net Income | $1.5 billion | $1.2 billion | 25.0% |
Vertical Analysis
| Item | 2023 | |---|---|---| | Revenue | 100.0% | | Operating Expenses | 92.0% | | Net Income | 8.0% |
Balance Sheet
| Year | Assets | Liabilities | Equity |
|---|---|---|---|
| 2023 | $36.5 billion | $25.7 billion | $10.8 billion |
| 2022 | $34.7 billion | $24.3 billion | $10.4 billion |
| 2021 | $30.2 billion | $23.0 billion | $7.2 billion |
Horizontal Analysis
| Item | 2023 | 2022 | Change |
|---|---|---|---|
| Assets | $36.5 billion | $34.7 billion | 5.2% |
| Liabilities | $25.7 billion | $24.3 billion | 5.8% |
| Equity | $10.8 billion | $10.4 billion | 3.8% |
Vertical Analysis
| Item | 2023 | |---|---|---| | Assets | 100.0% | | Liabilities | 70.4% | | Equity | 29.6% |
Statement of Cash Flows
| Year | Operating Cash Flow | Investing Cash Flow | Financing Cash Flow | Net Change in Cash | |---|---|---|---| | 2023 | $3.5 billion | ($1.0 billion) | $0.5 billion | $2.0 billion | | 2022 | $2.5 billion | ($1.5 billion) | $1.0 billion | $2.0 billion | | 2021 | $1.5 billion | ($2.0 billion) | $1.5 billion | $1.0 billion |