Please answer the questions below. Use reputable sources such as finance.yahoo.com, morningstar.com or Wall Street Journal etc. for the financial data you use in your answers. You need to provide the references regarding the financial data you use to support your answers at the end of the finance portion of the term paper.
1. Starting service to a new market, such as Havana, Cuba, is a major capital budgeting project for Southwest Airlines (ticker symbol: LUV). A project of this scale requires coordinated planning across all functions of a business that you are studying in your Integrated Core classes. Choose and discuss three items on the income statement and balance sheet that you think will be impacted by this new undertaking (a total of six items). Explain why you chose those particular items, and how those items are impacted by the marketing, management and operations decisions of the company.
2. Explain how the financial decisions regarding starting service to Cuba are related to management, marketing or operations decisions that the company must make (or has made)?
3. Choose and calculate three ratios for this company for the last two years. Make sure to select ratios that you think would be impacted by starting service to a new destination, and explain your reasoning. Identify two competitors of LUV and contrast the ratios. Explain why you selected those competitors. Describe how the decisions made by management, marketing and operations functions of the company can impact, and hopefully improve, these financial ratios.
This assignment will be dealing with Southwest Airlines. It requires you demonstrate your level of understanding of Integration across the Integrated Core (Marketing, Finance, Management and Operations)
1) Assume you are the Vice President of Southwest Airlines, select 1 Weakness and 1 Threat from the SWOT Analysis statements above and explain how you would recommend taking that selected weakness and turning it into a strength and the selected threat and turning it into an opportunity.
2) Next provide 2 explanations as follows:
a. Explain how the weakness turned into a new strength would impact the disciplines of Marketing, Finance, Management and Operations.
b. Explain how the threat turned into a new opportunity would impact the disciplines of Marketing, Finance, Management and Operations.
Southwest Airlines is known for their organizational culture. It is considered one of the key factors contributing to their success. They are ranked 8th in 2017 as “Most Admired Companies in the World” and ranked 13th “Best Employer in 2016”.
1. Describe Southwest’s organizational culture. How has the culture contributed to their success?
Southwest is also known for its proven business strategy. They believe in a sustainable future where there is balance in their business model between shareholders, employees, customers and other stakeholders. As a result and unique in the airline industry, they have maintained 44 years of consecutive profitability. They ranked 1st in “Lowest Number of Complaints” in 2016.
2. The company developments as seen in the “Flash Forward” beginning in 2010 have been significant. Review those accomplishments. What are some of the key elements of their strategy as seen in these developments? How has the original strategy been altered to achieve those results?
3. Describe how Southwest’s planning process helped establish their organizational objectives, business model, address problems, adapt to changes in the environment and remain successful.
As flying becomes a commodity and as airlines strive to offer the lowest fares possible, Southwest is finding it increasingly hard to distinguish itself from its competition. A proposal has been made to offer a business class on its longer flights. This class would have more comfortable seats, more legroom, and complimentary magazines, movies, meals, drinks, and Wi-Fi. A toilet would be dedicated to this section. These passengers would also get priority boarding and de-boarding of flights. If the experiment is successful Southwest would consider rolling out business class on all its flights.
1. What does the operations function have to do to examine the feasibility of this proposal and get ready for its implementation? Answer using the framework of the 10 key operations decisions.
2. What role do the other functions (specifically, Finance, Marketing, and HR) have to play in examining the feasibility of this idea and successfully implementing it?
These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.FINANCE
Entering The Cuban Market: An Introduction
When an airline company decides to enter a new market, more likely than not, its balance sheet and income statement will report higher figures for select items than before. For instance, if Southwest Airlines decides to serve passengers wanting to fly to Havana, Cuba, this may lead to an increase in the company’s net working capital, specifically in ‘Inventories of parts and supplies, at cost,’ flight equipment, and total stockholders’ equity through either a reduction in treasury stock or increase in both common stock and capital in excess of par value. As for the income statement, Southwest Airlines may report higher operating revenues from passengers and higher operating expenses such as on salaries, wages, and benefits, and fuel and oil.
Since entering a new market for almost any company requires material capital expenditures, the quantitative analysis of this course of action will have to consider its profitability through a proper financial evaluation. A straightforward technique of financial evaluation is the internal rate of return (IRR) method, which estimates the rate that a project may break even. And if the IRR is higher than the hurdle rate, then such a project is profitable (Gallo, A refresher on internal rate of return, 2016). Another popular evaluation technique is the net present value (NPV) method, which may be simply understood as a measure of a project’s profitability through the excess of its income in present value cash flows over the cost of investment (Gallo, 2014).
The financial decision behind any project has obvious implications with respect to other main functions of business such as management, marketing, and operations. These interrelationships or linkages will be examined in succeeding paragraphs.
Towards the end of this section of the report, select profitability and effectiveness ratios for Southwest Airlines and two of its major competitors in the industry will be calculated. These three companies will be analyzed and compared with each other through the chosen ratios.
Entering The Cuban Market: Financial Statement Impacts
On its 2016 balance sheet, Southwest Airlines reported networking capital of ($2,346) million (Southwest Airlines, 2018). Based on conventional wisdom in financial statement analysis, a negative amount of net working capital (which is arrived at by deducting from total current assets the total current liabilities) is not sound for any company. With regards Southwest Airlines, among other things, this means that the company does not have enough current assets to satisfy its currently maturing debt. Consequently, with respect to entering the Cuban market, this negative amount as of Dec. 31, 2016 may continue to rise, since expansion into a new market normally results in increased net working capital. For instance, the company’s inventories of parts and supplies may increase by at least 10% given that a new market will be penetrated.
Another balance sheet item that will be impacted by this planned expansion is the company’s cost of flight equipment. Logically, an increase in the balance of this account may take place since serving a new market may signify financial investment in at least one new aircraft. For instance, according to Statista (2018), the average price of a Boeing 737 – 700 (the cheapest among Boeing’s current aircraft types) is at least $85 million. Unless Southwest Airlines pursues a different course of action or a special price is quoted for the company, adding one more unit to its current fleet would mean an increase of at least $85 million in flight equipment cost on the balance sheet.
Lastly, Southwest Airlines’ total stockholders’ equity may increase in two ways. Either...
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