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Instructions for final Paper on the Airline Industry: American AirlinesBoth the papers and the presentations should start with an industry overview, including1) a description of the overall industry2) major issues in the industry such as competition, disruptive forces, new entrants, new technology, etc.3) comparable analysis – a spreadsheet comparing your companies, including growth rates, margins, various other ratios from class. Also, please explain why these numbers differ between your companies.4) comparison of valuations – how does the market value your companies and how do they compare. use EV/EBITDA, P/E ratio and dividend yield. Why are they valued differently by the markets? Some possible reasons are different growth rates, one company taking market share from others, different margins, etc.Are your companies a buy or a sell?There should also be a separate section for each company with a discussion of their business, how it is divided into different business units, how it is divided geographically and how the company makes money. e.g. what are its main revenue sources and what are its costs and various margins. Please discuss opportunities for the company to improve and risks that it will deteriorate. Include historical financials and trend/common size sheets with reasons for trends. Include important ratios for your company.Also, please discuss credit quality of your company using debt/EBITDA and interest coverage ratios.Detailed explanation of PaperPerform a full analysis of the Financial Statements (Balance Sheet, P & L, Statementof Cash Flows) for three years (2020, 2019, 2018), using the 10Ks (including financialdata, footnotes, and MD&A (Manager’s Discussion & Analysis)) and a variety of other credibleresources to research American Airlines. Resources include but are not limited to: 10Ks filed with theSEC (www.sec.gov), Corporate Websites, Annual Reports and investor presentations (usually foundon the websites under Investor Relations) and earnings conference call transcripts.Note:After completing the analysis, determine which companies in the airline industry performed better during the three-year period, and back-up how the conclusion was reached.1. Company Info–Write a brief description of American Airlines, its industry(airline industry), its products, and its markets.2.Industry AnalysisWhat are the major trends and issues facing your industry? Discuss both challenges andopportunities:-Market concentration– market shares- Highly concentrated or lots of small players-Trends-Pricing, volume, growth- Profit marginsWho’s growing, who’s shrinking?- Disruption / new products?-Barriers to entry- Prepare comparable analysis spreadsheet-Anything else that’s important to knowBusiness AnalysisWhat are the major issues facing the company? Discuss positives and negatives of the American Airlines as it relates to its industry and the current environment. How does the companies’ financial statements reflect these issues?Business model / strategy- Comparison of company to others in industry-Relative strengths and weaknesses-Market share- Cost of production-Trends-Volume, pricing, appropriate metrics-Capital spending needs-Disruptive forces-What are they doing to compete?Major events / issuesAnything else that’s important to know about American Airlines.2. Company News–Search for and report on at least two major events that have affected the company’s performance over the past year.3. Stock Market Activity–Describe the companies’ market activity over the past three years.Resources include, but are not limited to: http://money.msn.com, http://finance.yahoo.com,http://google.com/finance.3. Financial Statement Analysis—Prepare & analyze a) condensed, b) trend, and c) common-sizefinancial statements for American Airlines for a three-year span (current year, and two prior years).Note: Gather the financial information from each company’s 10Ks (www.sec.gov).a) condensed balance sheet, condensed income statement, & condensed statement of cash flows.b) trend analysis balance sheet, trend analysis income statement, & trend analysis cash flows. Createthe trend financial statements using Excel formulas that reference the condensed financial statements.c) common-size balance sheet, common-size income statement, and common-size statement of cashflows.Note: Create the common-size financial statements using excel formulas that reference the condensedfinancial statements.Comment on the trends in the growth of assets, liabilities, and stockholders’ equity and overall financialrisk.Comment on the trends in the growth of revenue, cost of goods sold, expenses, and overall profitability.Comment on the trends in the growth of operating, investing, and financing activities, and the overallcash position.5. Ratio Analysis–Compute financial statement ratios for both companies for a three-year span (current year, and two prior years), AND compare to industry norms (Time Series (Trend) Analysis &Cross-Sectional Analysis).Show all formulas used to calculate the following ratios:Profitability:Gross Profit MarginEBITDA MarginNet Profit MarginReturn on AssetsReturn on EquityDuPont Analysis of ROEEarnings Per Share (EPS)Efficiency:Asset TurnoverAccounts Receivable TurnoverAccounts Receivable in DaysInventory TurnoverInventory DaysLiquidity:Current RatioQuick RatioCash Flow LiquiditySolvency:Debt/EBITDADebt RatioTimes-Interest-Earned(EBITDA-Capex)/Interest ExpenseFree Cash FlowCash Flow AdequacyFuture financing needs: Debt maturities, capital spendingCapital StructureTypes of debt, equityValuation:Trailing and forward Price Earnings (P/E)Dividend Rate per share / Dividend yieldEV/EBITDAFCF YieldCompare the three years of ratio information for each company. What do these ratios say aboutprofitability, efficiency, liquidity, solvency, and investment? Indicate which ratio is stronger/weaker,quicker/slower, more/less liquid, or more/less risk.Note: Industry norms (average) info can be found at money.msn.com, finance.yahoo.com,csimarket.comWhat does your analysis of these ratios say about profitability, efficiency, liquidity, solvency, and investment as compared to their competitors?6. Research Summary- would you advise that others invest in American Airlines one or any of its competitors from an equity and a credit point of view? Prepare a written summary of your analysis and investment recommendation and provide a minimum of five significant points based on research, analysis, & sound reasoning.General Info:Include excel spreadsheets, graphs, charts, and other items to your paper to enhance the overall project.This is a 11- 15page paper —Type double-spaced, using a 12-point Times New Roman font. Cite all sources and include a bibliography. Points will be deducted if reference page is not added.
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